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:
|X| Preliminary Proxy Statement |_| Confidential, for Use of the Com-
mission Only (as permitted by
Rule 14a-6(e)(2))
|_| 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:
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(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
--------------------------------------------------------------------------------
|_| Check box if any part of the fee 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
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
6416 VARIEL AVENUE
WOODLAND HILLS, CA 91367
-------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD _____ __, 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 _____
__, 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 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 1,200,000 shares to
1,800,000 shares.
3. To approve issuance of sufficient shares of the Company's Common
Stock, par value $.01 per share, (the "Common Stock"), to permit the exchange of
2,000 shares of Series A Exchangeable Preferred Stock and up to 40,000 Warrants
into shares of the Company's Common Stock.
4. To approve issuance of sufficient shares of Common Stock to permit
the exchange of 2,250 shares of Series B Exchangeable Preferred Stock and up to
675,000 Warrants into shares of the Company's Common Stock.
5. 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 ____ __, 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
_________, 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>
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
6416 VARIEL AVENUE
WOODLAND HILLS, CA 913671-818-932-2300
--------------
PROXY STATEMENT
--------------
ANNUAL MEETING OF STOCKHOLDERSTO BE HELD ____ __, 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 held at the Company's
corporate headquarter located at, 6416 Variel Avenue, Woodland Hills,
California, on ____ __, 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 ____ __, 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 June 27,
2000, 7,183,721 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 June 27, 2000, the Company had
approximately 204 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 ____ __, 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>
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
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 June 27, 2000.
<TABLE>
EXECUTIVE OFFICERS AND DIRECTORS
<CAPTION>
YEAR
FIRST
ELECTED
AGE AT OR
JUNE 27, APPOINTED
NAME 2000 DIRECTOR PRINCIPAL OCCUPATION
---- ---- -------- --------------------
DIRECTORS
<S> <C> <C> <C>
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
JUNE 27, APPOINTED
NAME 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.
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>
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
Page 4
<PAGE>
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.
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 $100,000 during such year,
and to other significant employees.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------- -------------------------- ------------
OTHER SECURITIES ALL
ANNUAL RESTRICTED UNDERLYING LTIP OTHER
SALARY BONUS COMPENSATION STOCK OPTIONS/SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (2) AWARD(S) (#) ($) ($)
--------------------------- ----------------- ----------------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert H. Gurevitch(1)......... 1999 $300,789 -- -- -- 50,000 -- --
Chairman of the Board of Directors, 1998 286,000 -- -- -- 40,000 -- --
Executive Officer, President and 1997 250,885 -- -- -- 50,000 -- --
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
Page 5
<PAGE>
<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 $100,000
annually for each of the three years in consideration for this non-competition
agreement.
OPTIONS GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding grants of
stock options made during the fiscal year ended December 31, 1999 to the
executive officers named in the Summary Compensation Table ("Named Executive
Officers"). The Company did not grant any stock appreciation rights in 1999.
<TABLE>
OPTION GRANTS IN 1999
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES IN EXERCISE OR MARKET PRICE
OPTIONS FISCAL YEAR ENDED BASE ON DATE EXPIRATION
NAME GRANTED DECEMBER 31, 1999 PRICE ($/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.
Page 6
<PAGE>
<TABLE>
AGGREGATED FISCAL YEAR END OPTION EXERCISES
AND FISCAL YEAR END OPTION VALUES
<CAPTION>
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 37,240 -- 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.
During the fiscal year ended December 31, 1999, the Company purchased
fewer than 2,500 units under its distribution agreement with Boston Marketing.
Boston Marketing has refused to accept a subsequently placed order. On April 7,
2000 Boston Marketing filed suit in Los Angeles Superior Court alleging breach
of contract and seeking unspecified damages. The Company is investigating the
allegations and has not yet responded to the suit. The Company intends to defend
the action vigorously and believes that it has meritorious defenses to 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.
Page 7
<PAGE>
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 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 June 27, 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 June 27, 2000 of $1.00 per share, the market value of
the shares of Common Stock underlying the option grants was $ 1,159,110. At June
27, 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
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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 CLAY 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 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, thc 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.
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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 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.
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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.
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.
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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.
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.
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The Company will generally not be entitled to any federal income tax
deduction with respect to ISOs granted or exercised under the 1997 Plan.
However, if the optionee makes a "disqualifying disposition," then the Company
generally will be entitled to a deduction in the year of such disqualifying
disposition in an amount equal to the income includable by the optionee with
respect to the transaction.
NONQUALIFIED STOCK OPTIONS. An optionee who is granted an option or
similar right to acquire Common Stock under the 1997 Plan that does not qualify
for ISO treatment (a "nonqualified stock option") will not realize any income
upon the grant of such option, but generally will realize ordinary income when
the nonqualified stock option is exercised. The amount of income to be
recognized by the optionee is equal to the difference between the amount paid
for the stock and the fair market value of the stock received. The ordinary
income received will constitute compensation for which tax withholding may be
required.
If, however, a profitable sale of the stock subject to a nonqualified
stock option under the 1997 Plan could subject the optionee to suit under
Section 16(b) of the Securities Exchange Act of 1934, then such optionee will
generally recognize ordinary income on the date when such optionee is no longer
subject to such liability (or, if earlier, six months from the transfer of the
stock to the optionee) in an amount equal to the fair market value of the shares
on such date less the exercise price. However, the optionee may elect within
thirty days of the date of exercise to recognize ordinary income as of the date
of exercise.
Shares received pursuant to the exercise of a nonqualified stock option
granted under the 1997 Plan will have a tax basis equal to their fair market
value on the exercise date or other relevant date on which ordinary income is
recognized, and the holding period for the shares received generally will begin
on the date of exercise or other relevant date. Upon the subsequent sale of such
shares, the optionee will generally recognize long-term or short-term capital
gain or loss, depending upon whether the shares have been held for more than one
year (and provided that the shares constitute capital assets in the hands of the
selling stockholder), in an amount equal to the difference between the selling
price and the stockholder's tax basis in the shares sold.
If an optionee exercises a nonqualified stock option, in whole or in
part, with previously acquired stock of the Company, the optionee will recognize
ordinary income in the amount by which the fair market value of the stock
received by the optionee exceeds the exercise price. The optionee will not
recognize gain or loss upon delivering such previously acquired stock to the
Company. Shares of stock received by an optionee, equal in number to the
previously acquired shares of stock exchanged therefor, will have the same tax
basis and holding period as such previously acquired stock. Shares of stock
received by an optionee in excess of the number of such previously acquired
shares of stock will have a tax basis equal to the fair market value of such
additional shares of stock as of the date ordinary income is received, and the
holding period for such additional shares of stock will commence as of the date
of exercise or such other relevant date.
With respect to the grant and exercise of nonqualified stock options
under the 1997 Plan, the Company generally will be entitled to a federal income
tax deduction in its tax year within which the optionee recognizes income (that
is, the taxable year of the Company in which or with which the optionee's
taxable year of income recognition ends) equal to the amount of income
recognized by the optionee.
RESTRICTED STOCK. Awards to eligible persons under the 1997 Plan may
include bonuses or other grants of shares that are subject to restrictions or
vesting schedules. The recipient generally will not be taxed until the
restrictions on such shares expire or are removed, at which time he or she will
recognize ordinary income, and the Company will be entitled to a deduction, in
an amount equal to the excess of the fair 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
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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.
PROPOSAL THREE
PROPOSAL TO APPROVE ISSUANCE OF A SUFFICIENT NUMBER OF
SHARES OF COMMON STOCK TO PERMIT EXCHANGE OF THE
COMPANY'S SERIES A EXCHANGEABLE PREFERRED STOCK
AND WARRANTS INTO COMMON STOCK OF THE COMPANY
SUMMARY OF SERIES A PURCHASE AGREEMENT
Effective October 25, 1999, the Company entered into an agreement (the
"Series A Purchase Agreement") with foreign-based institutional investors (the
"Series A Investors") pursuant to which the Company sold to the Series A
Investors an aggregate of 2,000 shares of Series A Exchangeable Preferred Stock
(the "Series A Shares"), 2,500 shares of Common Stock (the "Common Shares") and
warrants to purchase up to 40,000 shares of Common Stock (the "Series A
Warrants") for an aggregate purchase price of $2 million. The proceeds were used
to finance increased inventory and for general working capital. The following
discussion, in part, summarizes the principal features of the Series A Purchase
Agreement, a copy of 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. In addition, the Series A Purchase Agreement was filed
as an exhibit to the Company's Current Report on Form 8-K, filed with the United
States Securities and Exchange Commission (the "Commission") on December 8, 1999
which may be accessed by visiting the Commission's world wide web site at
http://www.sec.gov/.
At a meeting held on November 1, 1999, the Board of Directors
considered a range of alternative sources of financing prior to approving the
terms of the Series A Purchase Agreement and the offering of the Series A
Shares, the Common Shares and the Series A Warrants. The Board evaluated the
Company's need for funds in order to finance inventory for the digital x-ray
product (MPDx) and development of the new curing lamp, cordless camera and home
whitening kit. At the November 1, 1999 meeting, the Board also considered the
benefits and risks of raising funds based, in part, on future market prices
relative to other alternatives, and concluded that the terms set forth in the
Series A Exchangeable Preferred Stock offering was in the best interests of the
Company and represented the best alternative available to the Company to meet
its funding needs.
The offering of the Series A Shares, the Common Shares and the Series A
Warrants was consummated on November 23, 1999. The Series A Shares are nonvoting
and receive an annual dividend of $40.00, which dividends accrue daily and are
payable quarterly on March 31, June 30, September 30 and December 31 of each
year. The Series A Shares enjoy a liquidation preference of $1,000 per share
plus accrued and unpaid dividends.
Each Series A Share has a stated value of $1,000 per share and is
exchangeable into common stock (a) prior to March 15, 2000, at $4.00 per share
and (b) on or after March 15, 2000, at the lesser of $4.00 per share or the
average of the closing bid prices of the common stock during any three (3) of
the prior thirty (30) consecutive trading days selected by the holder of the
Series A Shares then being exchanged. If the exchange price at the time of
exchange is less than
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$6.00 per share, the Company has the option to pay the holder of the Series A
Shares then being exchanged an amount of cash equal to (i) the average of the
closing bid and asked prices on the date of the exchange, multiplied by (ii) the
number of shares of common stock that would otherwise be issuable upon exchange
of the Series A Shares then being exchanged. If (A) on or after November 16,
2002, or (B) at any time after March 15, 2000 the average of the closing bid
prices for the Company's common stock for twenty (20) consecutive trading days
is at least $8.00 per share and the average trading volume for thirty (30)
consecutive trading days is at least 50,000 shares, there remain issued and
outstanding any Series A Shares and a registration statement permitting the
resale by the holder of the Series A Shares the common stock into which such
Series A Shares may be exchanged is then effective, the Company shall be
entitled to require all holders of Series A Shares then outstanding to exchange
their Series A Shares for shares of common stock. The Company also has the right
to redeem the Series A Shares under certain circumstances.
The Series A Investors also received the Series A Warrants which
entitle them to purchase an aggregate of 40,000 shares of Common Stock (the
"Series A Warrant Shares") at an initial exercise price of $2.75 per share,
exercisable at any time on or after March 15, 2000 for a period of five (5)
years.
The Company agreed to present its stockholders with a proposal to
approve issuance of a sufficient number of shares of Common Stock (the "Series A
Exchange Shares") to permit fully the exchange of the Series A Shares and the
exercise of the Series A Warrants into Common Stock. 6,397,498 shares of Common
Stock were issued and outstanding as of December 1, 1999. The Company's Common
Stock is traded on the Nasdaq SmallCap Market. Pursuant to the rules and
regulations of the Nasdaq Stock Market, stockholder approval is required for the
issuance of a number of shares equal to or more than 20% of the outstanding
Common Stock at a price which is less than the greater of the book value or
market value. The amount of Series A Exchange Shares, although not presently
determinable, may represent a number of shares that exceed 20% of the issued and
outstanding shares of Common Stock. In order to ensure continued compliance with
the applicable rules of Nasdaq, the Series A Purchase Agreement governing the
terms of the exchange of the Series A Shares expressly provides that if the
Company does not obtain stockholder approval, the Company shall redeem each
holder's outstanding shares of Series A Shares at a price equal to 125% of the
stated value, plus all accrued but unpaid dividends thereon through the date of
redemption.
The Company is therefore seeking the approval of its stockholders for
the issuance of a sufficient number of shares of Series A Exchange Shares to
permit fully the exchange of the Series A Shares and the exercise of the Series
A Warrants into Common Stock, to satisfy shareholder approval requirements under
the rules and regulations of the Nasdaq Stock Market in the event, upon such
exchange, the amount of Series A Exchange Shares issued would represent more
than 20% of the issued and outstanding shares of Common Stock. The number of
shares for which this approval is sought cannot be estimated at this time
because computation of the number of shares is subject to a price-based
adjustment mechanism, which causes the number of shares issuable to be dependent
on future events, principally consisting of the future trading price of the
Common Stock in the marketplace and the conversion decisions made by the holders
of the Series A Shares and the Series A Warrants.
The Company has filed a registration statement with the Commission to
register the resale by the Series A Investors of the Common Shares, the Series A
Exchange Shares and the Series A Warrant Shares.
The exchange price of the Series A Shares is variable and may dilute
the price of the Common Stock. The closing sale price of our Common Stock on
June 27, 2000 was $1.00 per share. Under the rules and regulations of the Nasdaq
Stock Market and the Boston Stock Exchange, to maintain listing on the Nasdaq
Small Cap Market and the Boston Stock Exchange we must maintain a trading price
per share of more than $1.00. If the trading price per share of our common stock
falls below $1.00, we may be delisted from the Nasdaq Small Cap Market and the
Boston Stock Exchange.
If the trading price of the Common Stock declines, the number of shares
of Common Stock into which the Series A Shares may exchange will increase. The
following table illustrates this effect:
Page 15
<PAGE>
<TABLE>
<CAPTION>
----------------- ------------------------- --------------------------- ------------------------ ----------------
Percentage of
Number of Shares of Number of Shares of Number of Shares of Outstanding
Average Trading Common Stock into which Common Stock into which Common Stock Shares of
Price of Common 2,000 shares of Series 2,250 shares of Series B underlying Warrants in Common Stock
Stock A Preferred Stock May Preferred Stock May be Series A and Series B after
----- be Exchanged Exchanged Transactions Combined Exchange
------------ --------- --------------------- --------
----------------- ------------------------- --------------------------- ------------------------ ----------------
<S> <C> <C> <C> <C>
$ 2.00 1,000,000 1,125,000 715,000 32.9%
----------------- ------------------------- --------------------------- ------------------------ ----------------
1.75 1,142,857 1,285,714 715,000 35.2%
----------------- ------------------------- --------------------------- ------------------------ ----------------
1.50 1,333,333 1,500,000 715,000 38.0%
----------------- ------------------------- --------------------------- ------------------------ ----------------
1.25 1,600,000 1,800,000 715,000 41.6%
----------------- ------------------------- --------------------------- ------------------------ ----------------
1.00 2,000,000 2,250,000 715,000 46.2%
----------------- ------------------------- --------------------------- ------------------------ ----------------
0.75 2,666,667 3,000,000 715,000 50.0%
----------------- ------------------------- --------------------------- ------------------------ ----------------
0.50 4,000,000 4,500,000 715,000 59.0%
----------------- ------------------------- --------------------------- ------------------------ ----------------
</TABLE>
If the issuance of a sufficient number of shares to permit the exchange
of the Series A Shares is not approved, the Company will be obligated to redeem
each holder's outstanding Series A Shares at a price equal to 125% of the stated
value, plus all accrued but unpaid dividends thereon through the date of
redemption. The Company may not have such liquid funds. The resulting impact on
the Company's ability to raise funds for continued product development
activities and operations would likely have a material adverse impact on the
Company's results of operations.
BOARD RECOMMENDATION AND REQUIRED VOTE
The Board unanimously approved the proposal to issue a sufficient
number of shares of Common Stock to permit fully the exchange of the Series A
Shares and exercise of the Series A Warrants into Common Stock of the Company.
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 issuance. With respect to the vote on the issuance,
abstentions will be counted toward the tabulation of votes cast and will have
the same effect as negative votes. However, broker non-votes will not be counted
as votes cast for or against the stock issuance. If the Shareholders approve the
proposal, there will be no further vote on the matter at the time of exchange.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF
THE ISSUANCE OF A SUFFICIENT NUMBER OF SHARES OF COMMON STOCK TO PERMIT FULLY
THE EXCHANGE OF THE COMPANY'S SERIES A EXCHANGEABLE PREFERRED STOCK AND THE
EXERCISE OF WARRANTS ISSUED IN CONNECTION THEREWITH INTO COMMON STOCK OF THE
COMPANY
PROPOSAL FOUR
PROPOSAL TO APPROVE ISSUANCE OF A SUFFICIENT NUMBER OF
SHARES OF COMMON STOCK TO PERMIT EXCHANGE OF THE
COMPANY'S SERIES B EXCHANGEABLE PREFERRED STOCK
AND WARRANTS INTO COMMON STOCK OF THE COMPANY
SUMMARY OF SERIES B PURCHASE AGREEMENT
On February 24, 2000, the Company entered into an agreement (the
"Series B Purchase Agreement") with foreign-based institutional investors (the
"Series B Investors") pursuant to which the Company sold an aggregate of 2,250
shares of Series B Exchangeable Preferred Stock (the "Series B Shares") and
warrants to purchase up to an aggregate of 675,000 shares of Common Stock (the
"Series B Warrants") for an aggregate purchase price of $2.25 million. The
proceeds were used to finance increased inventory and for general working
capital. The following discussion, in part, summarizes the principal features of
the Series B Purchase Agreement, a copy of 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. In addition, the Series B Purchase
Agreement was filed as an exhibit to the Company's Report on Form 10-KSB for the
fiscal year ended December 31, 1999, filed with the Commission on March 30, 2000
which may be accessed by visiting the Commission's world wide web site at
http://www.sec.gov/.
Page 16
<PAGE>
At a meeting held on January 20, 2000, the Board of Directors
considered a range of alternative sources of financing prior to approving the
term of the Series B Purchase Agreement and the offering of the Series B Shares
and the Series B Warrants. The Board evaluated the Company's need for funds in
order to finance the development and purchase of inventory for the Apollo e
curing lamp and the cordless camera. At the January 20, 2000 meeting, the Board
also considered the benefits and risks of raising funds based, in part, on
future market prices relative to other alternatives, and concluded that the
terms set forth in the Series B Exchangeable Preferred Stock offering were in
the best interests of the Company and represented the best alternative available
to the Company to meet its funding needs.
The offering of the Series B Shares and the Series B Warrants was
consummated on March 3, 2000. The Series B Shares are nonvoting and receive an
annual dividend of $30.00, which dividends accrue daily and are payable
quarterly on March 31, June 30, September 30 and December 31 of each year. The
Series B Shares enjoy a liquidation preference of $1,000 per share plus accrued
and unpaid dividends.
Each Series B Share has a stated value of $1,000 per share and is
exchangeable into common stock at a price per share equal to the lesser of $2.85
or one hundred percent (100%) of the Market Price on the date of exchange. The
Market Price is the average of the closing bid prices of any three (3) of the
prior thirty (30) consecutive trading days selected by the holder of the Series
B Shares then being exchanged. If the exchange price at the time of exchange is
less than $6.00 per share, the Company has the option to pay the holder of the
Series B Shares then being exchanged an amount of cash equal to (i) the average
of the closing bid and asked prices on the date of the exchange, multiplied by
(ii) the number of shares of common stock that would otherwise be issuable upon
exchange of the Series B Shares then being exchanged. If (A) on or after
February 23, 2003, or (B) the average of the closing bid prices for the
Company's common stock for five (5) consecutive trading days is at least $10.00
per share and the average trading volume for thirty (30) consecutive trading
days is at least 50,000 shares, there remain issued and outstanding any Series A
Shares and a registration statement permitting the resale by the holder of the
Series B Shares the common stock into which such Series B Shares may be
exchanged is then effective, the Company shall be entitled to require all
holders of Series B Shares then outstanding to exchange their Series B Shares
for shares of common stock. The Company also has the right to redeem the Series
B Shares under certain circumstances.
The Series B Investors also received the Series B Warrants which
entitle them to purchase an aggregate of (i) up to 225,000 shares of Common
Stock (the "B-1 Warrant Shares") at $2.51 per share, exercisable at any time on
or after August 24, 2000 for a period of five (5) years and (ii) up to 450,000
shares of Common Stock (the "B-2 Warrant Shares") at $3.50 per share,
exercisable at any time on or after February 29, 2000 and on or prior to the
close of business on November 30, 2000.
The Company agreed to present its stockholders with a proposal to
approve issuance of a sufficient number of shares of Common Stock (the "Series B
Exchange Shares") to permit fully the exchange of the Series B Shares and the
exercise of the Series B Warrants into Common Stock. 6,497,564 shares of Common
Stock were issued and outstanding as of March 24, 2000. The Company's Common
Stock is traded on the Nasdaq SmallCap Market. Pursuant to the rules and
regulations of the Nasdaq Stock Market, stockholder approval is required for the
issuance of a number of shares equal to or more than 20% of the outstanding
Common Stock at a price which is less than the greater of the book value or
market value. The amount of Series B Exchange Shares, although not presently
determinable, may represent a number of shares that exceed 20% of the issued and
outstanding shares of Common Stock. In order to ensure continued compliance with
the applicable rules of Nasdaq, the Series B Purchase Agreement governing the
terms of the exchange of the Series B Shares expressly provides that if the
Company does not obtain stockholder approval, the Company shall redeem each
holder's outstanding shares of Series B Shares in cash.
The Company is therefore seeking shareholder approval of the issuance
of a sufficient number of Series B Exchange Shares to permit fully the exchange
of the Series B Shares and the exercise of the Series B Warrants into Common
Stock to satisfy shareholder approval requirements under the rules and
regulations of the Nasdaq Stock Market in the event that, upon such exchange,
the amount of Series B Exchange Shares issued would represent more than 20% of
the issued and outstanding shares of Common Stock. The number of shares for
which this approval is sought cannot be estimated at this time because
computation of the number of shares is subject to a price-based adjustment
mechanism, which causes the number of shares issuable to be dependent on future
events, principally consisting of the future trading price of the Common Stock
in the marketplace and the conversion decisions made by the holders of the
Series B Shares and the Series B Warrants.
Page 17
<PAGE>
The Company has filed a registration statement with the Commission to
register the resale by the Series B Investors of the Series B Exchange Shares,
the B-1 Warrant Shares and the B-2 Warrant Shares.
The exchange price of the Series B Shares is variable and may dilute
the price of the Common Stock. The closing sale price of our Common Stock on
June 27, 2000 was $1.00 per share. Under the rules and regulations of the Nasdaq
Stock Market and the Boston Stock Exchange, to maintain listing on the Nasdaq
Small Cap Market and the Boston Stock Exchange we must maintain a trading price
per share of more than $1.00. If the trading price per share of our common stock
falls below $1.00, we may be delisted from the Nasdaq Small Cap Market and the
Boston Stock Exchange.
If the trading price of the Common Stock declines, the number of shares
of Common Stock into which the Series B Shares may exchange will increase. The
following table illustrates this effect:
<TABLE>
----------------- ------------------------- --------------------------- ------------------------ ----------------
<CAPTION>
Percentage of
Number of Shares of Number of Shares of Number of Shares of Outstanding
Average Trading Common Stock into which Common Stock into which Common Stock Shares of
Price of Common 2,000 shares of Series 2,250 shares of Series B underlying Warrants in Common Stock
Stock a Preferred Stock May Preferred Stock May be Series a and Series B After
----- be Exchanged Exchanged Transactions Combined Exchange
------------ --------- --------------------- --------
----------------- ------------------------- --------------------------- ------------------------ ----------------
<S> <C> <C> <C> <C>
$ 2.00 1,000,000 1,125,000 715,000 32.9%
----------------- ------------------------- --------------------------- ------------------------ ----------------
1.75 1,142,857 1,285,714 715,000 35.2%
----------------- ------------------------- --------------------------- ------------------------ ----------------
1.50 1,333,333 1,500,000 715,000 38.0%
----------------- ------------------------- --------------------------- ------------------------ ----------------
1.25 1,600,000 1,800,000 715,000 41.6%
----------------- ------------------------- --------------------------- ------------------------ ----------------
1.00 2,000,000 2,250,000 715,000 46.2%
----------------- ------------------------- --------------------------- ------------------------ ----------------
0.75 2,666,667 3,000,000 715,000 50.0%
----------------- ------------------------- --------------------------- ------------------------ ----------------
0.50 4,000,000 4,500,000 715,000 59.0%
----------------- ------------------------- --------------------------- ------------------------ ----------------
</TABLE>
If the issuance of a sufficient number of shares to permit the exchange
of the Series B Shares is not approved, the Company will be obligated to redeem
each holder's outstanding Series B Shares at a price equal to 100% of the stated
value, plus all accrued but unpaid dividends thereon through the date of
redemption. The Company may not have such liquid funds. The resulting impact on
the Company's ability to raise funds for continued product development
activities and operations would likely have a material adverse impact on the
Company's results of operations.
BOARD RECOMMENDATION AND REQUIRED VOTE
The Board unanimously approved the proposal to issue a sufficient
number of shares of Common Stock to permit fully the exchange of the Series B
Shares and exercise of the Series B Warrants into Common Stock of the Company.
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 issuance. With respect to the vote on the issuance,
abstentions will be counted toward the tabulation of votes cast and will have
the same effect as negative votes. However, broker non-votes will not be counted
as votes cast for or against the stock issuance. If the Shareholders approve the
proposal, there will be no further vote on the matter at the time of exchange.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF
THE ISSUANCE OF A SUFFICIENT NUMBER OF SHARES OF COMMON STOCK TO PERMIT FULLY
THE EXCHANGE OF THE COMPANY'S SERIES B EXCHANGEABLE PREFERRED STOCK AND THE
EXERCISE OF WARRANTS ISSUED IN CONNECTION THEREWITH INTO COMMON STOCK OF THE
COMPANY
Page 18
<PAGE>
OTHER INFORMATION
PRINCIPAL STOCKHOLDERS
The following table sets forth as of June 27, 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
TITLE OF CLASS NAME BENEFICIALLY OWNED(1) PERCENTAGE(1)
-------------- ---- --------------------- -------------
<S> <C> <C> <C>
Common Stock Robert H. Gurevitch(2).............................. 673,998 9.3%
Common Stock Marvin H. Kleinberg(3).............................. 16,457 *
Common Stock Dewey Perrigo(4).................................... 139,564 1.9%
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 Robert Groner ...................................... ---
Common Stock J. Steven Emerson(8)................................ 414,034 5.6%
1056 Ilona Avenue, Los Angeles, CA 90064
Common Stock AMRO International, S.A.(9) ........................ 1,827,818 21.0%
Grossmuensterplatz 6, Zurich, CH 8022 Switzerland
Common Stock The Endeavor Capital Fund, S.A.(10) ................ 494,872 6.4%
14/14 Divrei Chaim Street, Jerusalem, 94479
Israel
Common Stock Esquire Trade & Finance, Inc. (11).................. 779,620 10.0%
P.O. Box 2154, Baar, CH 6342 Switzerland
Common Stock Austinvest Anstalt Balzers(12)...................... 784,121 10.1%
Landstrasse 938, 9494 Furstenturns, Balzers,
Liechtenstein
Common Stock All Officers and Directors as a Group (7 Persons)(13) 899,169 13.5%
Series A AMRO International, S.A. ........................... 350 29.0%
Exchangeable
Preferred Stock
Series A The Endeavor Capital Fund, S.A. .................... 500 41.4%
Exchangeable
Preferred Stock
Series A Esquire Trade & Finance, Inc. ...................... 184 15.3%
Exchangeable
Preferred Stock
Series A Austinvest Anstalt Balzers.......................... 173 14.3%
Exchangeable
Preferred Stock
Page 19
<PAGE>
Series B AMRO International, S.A. ........................... 1,000 44.8%
Exchangeable
Preferred Stock
Series B Esquire Trade & Finance, Inc. ...................... 350 15.7%
Exchangeable
Preferred Stock
Series B The Keshet Fund, L.P................................ 140 6.7%
Exchangeable
Preferred Stock
----------
<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 June 27,
2000.
(3) Includes 12,457 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of June 27,
2000.
(4) Includes 48,133 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of June 27,
2000.
(5) Includes 23,760 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of June 27,
2000.
(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 June 27, 2000.
(7) Includes 13,890 shares of Common Stock underlying options which were
exercisable on or which will become exercisable within 60 days of June 27,
2000.
(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 June 1, 2000.
(9) Consists of 350 shares of Series A Exchangeable Preferred Stock, 1,000
shares of Series B Exchangeable Preferred Stock, Warrants to purchase
214,000 shares of Common Stock and 304,664 shares of Common Stock. On June
27, 2000, the shares of Series A Exchangeable Preferred Stock held by AMRO
International, S.A. were exchangeable into 339,410 shares of Common Stock,
and the shares of Series B Exchangeable Preferred Stock held by AMRO
International, S.A. were exchangeable into 964,744 shares of Common Stock.
(10)Consists of 500 shares of Series A Exchangeable Preferred Stock and Warrants
to purchase 10,000 shares of Common Stock. On June 27, 2000, the shares of
Series A Exchangeable Preferred Stock held by The Endeavor Capital Fund,
S.A. were exchangeable into 484,872 shares of Common Stock.
(11)Consists of 184 shares of Series A Exchangeable Preferred Stock, 350 shares
of Series B Exchangeable Preferred Stock, Warrants to purchase 78,000 shares
of Common Stock and 183,614 shares of Common Stock. On June 27, 2000, the
shares of Series A Exchangeable Preferred Stock held by Esquire Trade &
Finance Inc. were exchangeable into 178,596 shares of Common Stock, and the
shares of Series B Exchangeable Preferred Stock held by Esquire Trade &
Finance Inc. were exchangeable into 339,410 shares of Common Stock.
Page 20
<PAGE>
(12)Consists of 173 shares of Series A Exchangeable Preferred Stock, 350 shares
of Series B Exchangeable Preferred Stock, Warrants to purchase 78,000 shares
of Common Stock and 198,945 shares of Common Stock. On June 27, 2000, the
shares of Series A Exchangeable Preferred Stock held by Austinvest Anstalt
Balzers were exchangeable into 167,766 shares of Common Stock, and the
shares of Series B Exchangeable Preferred Stock held by Austinvest Anstalt
Balzers were exchangeable into 339,410 shares of Common Stock.
(13)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 June 27, 2000.
(14)Consists of 300 shares of Series B Exchangeable Preferred Stock and Warrants
to purchase 60,000 shares of Common Stock. On June 27, 2000, the shares of
Series B Exchangeable Preferred Stock held by Leval Trading were
exchangeable into 290,923 shares of Common Stock.
</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.
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
May 22, 2000
Page 21
<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 July 12, 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' four nominees as directors.
Robert H. Gurevitch Marvin H. Kleinberg Jack D. Preston John A. Khademi
[_] 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
Proposal 3. To approve issuance of sufficient shares of the Company's Common
Stock, par value $.01 per share, (the "Common Stock"), to permit the exchange of
2,000 shares of Series A Exchangeable Preferred Stock and up to 40,000 Warrants
into shares of the Company's Common Stock.
[_] FOR [_] AGAINST [_] ABSTAIN
Proposal 4. To approve issuance of sufficient shares of the Company's Common
Stock, par value $.01 per share, (the "Common Stock"), to permit the exchange of
2,250 shares of Series B Exchangeable Preferred Stock and up to 675,000 Warrants
into shares of the Company's Common Stock.
[_] 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.
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
Page 22
<PAGE>
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 May __, 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 23
<PAGE>
[Letterhead of Dental/Medical Diagnostic Systems, Inc.]
___________, 2000
Dear Stockholder:
The Company's Annual Meeting of Stockholders will be held on _____day, _____ __,
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, the approval of
the issuance of sufficient shares of Common Stock to permit the exchange of
Exchangeable Preferred Stock and Warrants into shares of Common Stock, 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
6416 Variel Avenue o Woodland Hills, CA 91367
o tel. 800.399.0999 o fax. 805.374.1966
