<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Filed by the Registrant [x]
Filed by a Party Other than the Registrant[ ]
Check the Appropriate Box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
- --------------------------------------------------------------------------------
PRO-DEX, INC.
- --------------------------------------------------------------------------------
Payment of Filing Fee (Check Appropriate Box)
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2), or
Item 22(a)(2) of Schedule 14A.
[ ] $500 for each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11;
4) Proposed maximum aggregate value of transaction;
5) Total Fee Paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date filed:
<PAGE>
PRO-DEX, INC.
1401 Walnut Street, Suite 500
Boulder, Colorado 80302
___________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 27, 1996
____________________________
Notice is hereby given that the Annual Meeting of shareholders of Pro-Dex,
Inc. will be held on Tuesday, February 27, 1996, at 10:00 a.m., local time, in
the Executive Board Room at the Boulderado Hotel, 2115 Thirteenth Street,
Boulder, Colorado 80302, for the following purposes:
1. To consider and act upon a proposal to convert options to acquire
shares in the Company's Micro Systems Acquisition Company into options
to acquire shares of the Company's Common Stock under the Company's
1994 Stock Option Plan, pursuant to the Merger Agreement whereby Micro
Motors, Inc. was merged with and into the Company's subsidiary.
2. To consider and act upon a proposal to increase shares of Common Stock
authorized for grant of options under the 1994 Stock Option Plan, by
adding 1 million shares of Common Stock to such Plan, thereupon
totaling 1.5 million shares authorized for future grants and exercise
of previously granted options under the 1994 Stock Option Plan.
3. To consider and act upon a proposal to increase shares of Common Stock
authorized for grant of options under the Directors' Stock Option
Plan, by adding 300,000 shares of Common Stock to such Plan, thereupon
totaling 500,000 shares authorized for future grants and exercise of
previously granted options under the Directors' Stock Option Plan.
4. To elect four (4) directors.
5. To ratify the selection of McGladrey & Pullen, L.L.P. as the
independent certifying accountants of the Company's financial
statements for the year ending June 30, 1996.
6. To transact such other business as may properly come before the
Meeting and any adjournment or postponement thereof.
A Proxy Statement explaining the matters to be acted upon at the meeting is
enclosed.
<PAGE>
Shareholders of record at the close of business on December 31, 1995 (the
"Record Date") are entitled to notice of and to vote at the Meeting or any
postponement or adjournment thereof. The stock transfer books of Pro-Dex will
remain open.
All shareholders are cordially invited to attend the Meeting. Whether or
not you expect to attend the meeting in person, you are urged to sign, date and
return your proxy promptly in the enclosed envelope, which requires no postage
if mailed in the United States. The giving of a proxy will not prevent you from
revoking the proxy and voting your shares in person if you attend the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Kent E. Searl, Chairman
Boulder, Colorado
January ___, 1996
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<PAGE>
PRO-DEX, INC.
1401 Walnut Street, Suite 500
Boulder, Colorado 80302
(303) 443-8165
__________________________
Proxy Statement
__________________________
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of Pro-Dex, Inc. ("Pro-Dex" or the
"Company") for use at an Annual Meeting of shareholders of Pro-Dex to be held on
Tuesday, February 27, 1996, at 10:00 a.m., local time, in the Executive Board
Room at the Boulderado Hotel, 2115 Thirteenth Street, Boulder, Colorado 80302,
and any adjournment thereof. The shareholders of Pro-Dex are being asked to
vote:
(1) Upon a proposal to convert options to acquire shares in the Micro
Systems Acquisition Corporation subsidiary of the Company into options to
acquire shares in the Company under the Company's 1994 Stock Option Plan,
pursuant to the Merger Agreement whereby Micro Motors, Inc. was merged with and
into the Company's subsidiary (such conversion, the "Conversion of Micro
Options");
(2) Upon a proposal to increase the number of shares authorized for grant
of options pursuant to the 1994 Stock Option Plan of the Company;
(3) Upon a proposal to increase the numbers of shares authorized for grant
of options pursuant to the Directors' Stock Option Plan;
(4) To elect four (4) directors of the Company;
(5) To ratify appointment of McGladrey & Pullen, L.L.P. as the Company's
independent certifying accountants for the fiscal year ending June 30, 1996.
(6) To transact such other business as may properly come before the Meeting
and any adjournment or postponement thereof.
Pro-Dex Common Stock is currently traded over-the-counter and included on
the NASDAQ Small-Cap (SM) Market under the symbol, "PDEX."
THIS PROXY STATEMENT IS BEING FURNISHED TO PRO-DEX SHAREHOLDERS FOR
PURPOSES OF VOTING IN PERSON OR BY PROXY ON THE ABOVE LISTED PROPOSALS AT THE
ANNUAL MEETING AND SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
The date of this Proxy Statement is January ___, 1996.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS
AND INFORMATION BY REFERENCE
The following documents or portions thereof filed by Pro-Dex (File No.
0-14942) with the Securities and Exchange Commission ("Commission") are
incorporated herein by reference and are made a part hereof:
(a) Amended and Restated Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1995;
(b) Quarterly Reports on Form 10-QSB for the quarters ended September 30,
1995 and December 31, 1995; and
(c) Current Report on Form 8-K dated July 26, 1995 (as supplemented by the
Financial Supplement thereto filed with Form 10-KSB for the fiscal
year ended June 30, 1995, filed on October 10, 1995).
All documents filed by Pro-Dex pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act") subsequent to the
date of this Proxy Statement are to be a part hereof from the respective dates
of filing such documents with the Commission. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy Statement to the
extent that a statement contained herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as
modified or superseded, to constitute a part of this Proxy Statement.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE)
ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF
PRO-DEX COMMON STOCK, TO WHOM THIS PROXY STATEMENT IS DELIVERED ON THEIR WRITTEN
OR ORAL REQUEST TO PRO-DEX, INC., 1401 WALNUT STREET, BOULDER, COLORADO 80302
(TELEPHONE NUMBER: (303) 443-6136), ATTENTION: GEORGE J. ISAAC, CHIEF FINANCIAL
OFFICER. IN ORDER TO ENSURE DELIVERY OF THE DOCUMENTS PRIOR TO THE MEETING,
REQUESTS MUST BE RECEIVED BY FEBRUARY 14, 1996.
---------------------------------
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<PAGE>
AVAILABLE INFORMATION
Pro-Dex is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports and other information with the
Commission. Such reports and other information filed with the Commission by
Pro-Dex are available for inspection and copying at the Public Reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, NW,
Washington, D.C. 20549. Copies of such materials can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, NW, Washington,
D.C. 20549 at prescribed rates. Pro-Dex Common Stock is quoted on the NASDAQ
Small-Cap (SM) Market and certain of its reports, proxy materials and other
information may be available for inspection at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, NW, Washington, D.C.
20006.
SOLICITATION AND REVOCABILITY OF PROXIES
The accompanying proxy is solicited by the Board of Directors of Pro-Dex to
be voted at the Meeting, to be held on the date, at the time and place and for
the purposes set forth in the accompanying Notice of Annual Meeting. When
proxies are received in properly completed and executed form, the shares
represented thereby will be voted at the Meeting in accordance with the
instructions specified therein. In the absence of instructions to the
contrary, such shares will be voted in favor of the proposals set forth therein.
Any shareholder executing a proxy has the power to revoke that proxy at any time
before it is voted by delivering written notice to the Secretary of Pro-Dex, by
executing another proxy dated as of a later date or by voting in person at the
Meeting.
Pro-Dex' Annual Report on Form 10-KSB for the fiscal year ended June 30,
1995, its Quarterly Report on Form 10-QSB for the six months ended December 31,
1995, and its Current Report on Form 8-K dated July 26, 1995, and the Financial
Supplement thereto filed with the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1995, being delivered to the shareholders of Pro-Dex
with this Proxy Statement are hereby incorporated by reference. In addition,
the Quarterly Report on Form 10-QSB for the three months ended September 30,
1995, which is not delivered herewith is incorporated by reference into this
Proxy Statement.
For purposes of voting at the Meeting, abstentions will be counted in
determining a quorum to transact business at the Meeting, but not for purposes
of determining the vote required for shareholder approval.
Only shareholders of record at the close of business on December 31, 1995
(the "Record Date") will be entitled to notice of and to vote at the Meeting.
On the Record Date, there were 8,631,300 shares of Pro-Dex Common Stock
outstanding, and there were 78,129 shares of Pro-Dex Preferred Stock
outstanding.
All shares of Pro-Dex Common Stock are entitled to one vote per share.
The affirmative vote of the holders of a majority of the outstanding shares of
Pro-Dex Common Stock is required
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<PAGE>
to approve and adopt each of the proposals to be voted upon at the annual
meeting. The affirmative vote of the holders of a majority of the Company's
Preferred Stock is not required to approve any proposals before the Meeting.
The Articles of Incorporation do not provide for cumulative voting in the
election of directors. Unless otherwise indicated, any proxy given by any
shareholder will be voted to elect the directors nominated by the Board of
Directors.
The costs of solicitation of Pro-Dex shareholders will be paid by Pro-Dex.
Such costs will include the reimbursement of banks, brokerage firms, nominees,
fiduciaries and other custodians for expenses of forwarding solicitation
materials to beneficial owners of shares. In addition to the solicitation of
proxies by use of mail, the directors, officers and employees of Pro-Dex,
without additional compensation, except for reimbursement of out-of-pocket
expenses, may solicit proxies personally or by telephone, telegraph or facsimile
transmission.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
No.
----
<S> <C>
INCORPORATION OF CERTAIN DOCUMENTS AND INFORMATION
BY REFERENCE............................................................. 2
AVAILABLE INFORMATION......................................................... 3
SOLICITATION AND REVOCABILITY OF PROXIES...................................... 3
SUMMARY....................................................................... 7
PROPOSAL ONE - Conversion of Micro Options............................... 7
PROPOSAL TWO - Increase in Shares Authorized for Grant of Options Under
the 1994 Stock Option Plan........................................... 7
PROPOSAL THREE - Increase in Shares Authorized for Grant of Options
Under the Directors' Stock Option Plan............................... 8
PROPOSAL FOUR - Election of Directors.................................... 8
PROPOSAL FIVE - Ratification of Appointment of Accountants............... 9
Interrelationship of Proposals........................................... 9
Market for Common Stock.................................................. 9
Record Date; Shares Entitled to Vote; Vote Required...................... 10
PROPOSAL ONE - CONVERSION OF MICRO OPTIONS.................................... 10
Holders of Micro Options................................................. 11
Vote Required............................................................ 12
PROPOSAL TWO - INCREASE IN SHARES AUTHORIZED FOR GRANT OF
OPTIONS UNDER THE 1994 STOCK OPTION PLAN................................. 13
Options Granted Under 1994 Stock Option Plan............................. 14
Vote Required............................................................ 15
PROPOSAL THREE - INCREASE IN SHARES AVAILABLE FOR GRANT OF
OPTIONS UNDER THE DIRECTORS' STOCK OPTION PLAN........................... 15
Grants of Options under the Directors' Stock Option Plan................. 16
Vote Required............................................................ 17
PROPOSAL FOUR - ELECTION OF DIRECTORS......................................... 17
Staggered Terms of Directors............................................. 18
Vote Required............................................................ 20
PROPOSAL FIVE - RATIFICATION OF APPOINTMENT OF ACCOUNTANTS.................... 20
INTERRELATIONSHIP OF PROPOSALS................................................ 21
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
RECENT TRANSACTIONS.............................................................. 21
OMS Acquisition............................................................. 22
Micro Merger................................................................ 22
OTHER MANAGEMENT INFORMATION..................................................... 23
Business Experience of Key Management of Subsidiaries....................... 23
Executive Compensation...................................................... 24
Summary Compensation Table.................................................. 25
Compensation to Directors................................................... 29
Options Granted During the Last Fiscal Year................................. 29
Exercise of Options and Value of Options Held by Executives and Directors... 30
1988 Stock Option Plan...................................................... 30
1994 Stock Option Plan...................................................... 31
Directors' Stock Option Plan................................................ 31
Micro Motors Employee Incentive Stock Option Plan........................... 32
Compliance With Section 16(a) of the Securities Exchange Act................ 32
CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES...................... 32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................................. 34
Beneficial Shareholdings of Directors, Officers and owners of More than
5% of Common Stock...................................................... 35
Beneficial Shareholdings of Directors, Officers and owners of More than
5% of Preferred Stock................................................... 36
OTHER MATTERS.................................................................... 37
</TABLE>
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<PAGE>
SUMMARY
The following summary is intended only to highlight certain information in
this Proxy Statement. This summary is not intended to be a complete statement
of all material matters regarding the Proposals to be voted upon and is
qualified in its entirety by reference to the more detailed information
contained elsewhere in this Proxy Statement and in the accompanying exhibits.
Shareholders are urged to read this Proxy Statement and the exhibits in their
entirety.
PROPOSAL ONE - CONVERSION OF MICRO OPTIONS.
On July 26, 1995, the Company, its Micro Systems Acquisition Corporation
subsidiary ("Micro Acquisition"), and Micro Motors, Inc. ("Micro Motors")
entered into a Merger Agreement. Prior to the merger, certain employees of
Micro Motors had been granted options to acquire in the aggregate 26,272 shares
in Micro Motors, pursuant to the Micro Motors Stock Option Plan (the "Micro
Options"). When Micro Motors was merged with and into Micro Acquisition, the
Micro Options to acquire shares of Micro Motors became options to acquire shares
of Micro Acquisition. The Merger Agreement provides that Micro Options shall
become incentive stock options to acquire shares in the Company under the 1995
Stock Option Plan at the same ratio as if such options had been exercised prior
to the Merger, as soon as practicable consistent with the requirements of notice
to and approval by the Company's shareholders.
The Conversion of Micro Options submitted to shareholder vote at the
Meeting, if approved, will result in additional options outstanding to acquire
591,120 shares of the Company's Common Stock. If shareholders do not approve
Proposal One - Conversion of Micro Options, the Micro Options will remain
options to acquire shares of Micro Acquisition. Such unconverted Micro Options
would be exercisable to acquire minority interests in the Micro Acquisition
subsidiary, for which there is no market and no market is expected to develop.
The Company's Board of Directors believes that the conversion of Micro Options
is in the best interest of the Company, both because it simplifies management
of the Company for there to be no other shareholders in the Company's Micro
Acquisition subsidiary and because such conversion would give valued executives
in the Company's newly acquired Micro Acquisition subsidiary a financial stake
in future appreciation of the Company's Common Stock. The holder of the largest
number of Micro Options is Charles E. Strait, President of Micro Motors when the
Micro Options were granted, and currently President of Pro-Dex and a member of
its Board of Directors. Mr. Strait abstained from the vote of directors to
recommend shareholder approval of the Conversion of Micro Options. The Board of
Directors recommends that shareholders approve Proposal One - the Conversion of
Micro Options, to simplify management of the Company and give the holders of
Micro Options a financial stake in the Company as a whole.
PROPOSAL TWO - INCREASE IN SHARES AUTHORIZED FOR GRANT OF OPTIONS UNDER THE 1994
STOCK OPTION PLAN.
The Company's shareholders at the 1994 Annual Meeting approved the
Company's 1994 Stock Option Plan, which authorizes the Board of Directors to
grant employees of the Company incentive stock options to acquire up to 500,000
shares of the Company's Common Stock,
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<PAGE>
exercisable at the market price of the Company's shares in effect on the date of
grant. The 1994 Stock Option Plan was adopted to permit the Company to reward
performance of its employees and to permit employees of the Company to
participate in increases in the value of the Company's Common Stock.
To date, the Company has granted 450,000 options under the 1994 Stock
Option Plan. Conversion of Micro Options discussed with respect to Proposal One
elsewhere in this Proxy Statement would involve grant of options to acquire
591,120 shares under the 1994 Stock Option Plan, and cannot be consummated
without shareholder approval of an increase in the number of shares authorized
for issuance under the 1994 Stock Option Plan. In addition, the Board of
Directors believes that it is in the Company's interest to increase the number
of shares authorized for issuance under the 1994 Stock Option Plan by 1,000,000,
for an aggregate of 1,500,000. In this connection, shareholders should
understand that the Company is substantially larger than it was at the time the
1994 Stock Option Plan was adopted. As of September 30, 1995, the Company had
total assets of $24,495,826, compared to total assets of $5,562,104 as of June
30, 1994. The Board of Directors recommends that shareholders approve Proposal
Two to enable the Company to consummate conversion of Micro Options and to
permit the Company to reward executive performance.
PROPOSAL THREE - INCREASE IN SHARES AUTHORIZED FOR GRANT OF OPTIONS UNDER THE
DIRECTORS' STOCK OPTION PLAN.
The Company's Board of Directors also recommends shareholder approval of an
increase in the number of shares authorized for issuance under the Directors'
Stock Option Plan. Currently, the Company is authorized to issue options to
purchase up to 200,000 shares of the Company's Common Stock under the Directors'
Stock Option Plan. To date, options have been granted under the Directors'
Stock Option Plan to acquire 55,856 shares. The Board of Directors has
determined in discussions with a number of persons who are outside directors of
public companies that outside directors expect to be granted stock options in
connection with their service on boards of directors. Based upon recent
analysis of probable grants of options, assuming that there are three (3) non-
employee directors serving, the Company's Board of Directors anticipates that an
increase in the number of shares authorized for issuance in this Plan will be
necessary for the fiscal year beginning July 1, 1997.
PROPOSAL FOUR - ELECTION OF DIRECTORS.
The Board of Directors has nominated four persons for election to serve as
directors of Pro-Dex, to hold office until their successors shall be elected and
qualified. Each nominee is a current director, four of such persons having been
elected by the Board of Directors to fill new positions on the Board of
Directors as of July 26, 1995. Kent Searl, who has been a director of the
Company or its predecessor since 1978, is nominated for re-election. Ronald G.
Coss and Charles E. Strait, each previously an executive officer and director of
Micro Motors, Inc., accepted their election by the Board of Directors and began
serving as directors of Pro-Dex, Inc. on July 26, 1995. George J. Isaac, long a
financial consultant for the Company, was elected and began service as a
director of the Company on July 26, 1995. The Articles of Incorporation do
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<PAGE>
not provide for cumulative voting in the election of directors. The four
directors elected at this Meeting and Richard N. Reinhardt whose term is not
expired are divided into three classes, serving staggered terms, as required by
the Articles of Incorporation. SEE "ELECTION OF DIRECTORS."
PROPOSAL FIVE - RATIFICATION OF APPOINTMENT OF ACCOUNTANTS.
The Board of Directors recommends that the shareholders ratify appointment
of McGladrey & Pullen, L.L.P. as independent certifying accountants for the
Company's accounts for the year ending June 30, 1996. The Company had no
differences with the Company's former accountant, Henry Vanderzee, C.P.A.,
regarding any method of accounting. McGladrey & Pullen certified the financial
statements for Micro Motors, Inc. and Oregon Micro Systems, Inc. (both acquired
by the Company on July 26, 1995), for the fiscal years of such companies ending
March 31, 1995. McGladrey & Pullen has offices in each region in which the
Company's five subsidiaries are located.
INTERRELATIONSHIP OF PROPOSALS.
Without shareholder approval of Proposal Two - Increase in Shares
Authorized for Grant of Options Under the 1994 Stock Option Plan, Proposal One -
Conversion of Micro Options cannot be consummated. Thus to consummate the
conversion of Micro Options, the Company's shareholders must approve both such
conversion and the increase in shares available for grant of options under the
1994 Stock Option Plan.
The Company's Board of Directors believes that there are valid and
sufficient reasons other than conversion of Micro Options to approve the
increase in shares authorized for issuance pursuant to the 1994 Stock Option
Plan. SEE "PROPOSAL ONE - CONVERSION OF MICRO OPTIONS," AND "PROPOSAL TWO -
INCREASE IN SHARES AUTHORIZED FOR GRANT OF OPTIONS UNDER 1994 STOCK OPTION
PLAN."
MARKET FOR COMMON STOCK.
- ------------------------
Pro-Dex Common Stock is currently traded in the over-the-counter market and
listed on the NASDAQ Small-Cap (SM) market. As of December 29, 1995, the
last bid and offer price on such market for the Company's Common Stock were
$____ and $_____, respectively. This represents an increase of $____ or ____%
over the price of such shares at December __, 1994. There is currently no
market for the Company's Preferred Stock.
The Board of Directors believes that the Company has achieved significant
synergies from the acquisitions of its two new subsidiaries during the current
fiscal year. For example, while net earnings per share might ordinarily be
expected to decline with an increase in the numbers of shares outstanding or
increase in corporate indebtedness (both of which occurred in these
acquisitions), Pro-Dex earnings per share increased in the six months ended
---------
December 31, 1995 over the same period in the prior year. During the quarter
ended September 30, 1995, net earnings increased to $0.04 per share, as compared
to $0.02 per share for the same period in the
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<PAGE>
prior year. During the six months ended December 31, 1995, net earnings
increased to $_____ per share, as compared to $_____ for the same period in the
prior year. The Company's management attributes this improvement in the
Company's performance in large part to the acquisitions of its two new
subsidiaries on July 26, 1995.
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED.
- ----------------------------------------------------
Only holders of record of Pro-Dex Common Stock on the Record Date will be
entitled to notice of and to vote at the Meeting or any adjournment or
postponement thereof. The affirmative vote of the holders of a majority of the
shares of Common Stock is required to approve the conversion of Micro Options,
the election of directors, and other proposals before the Meeting. At the close
of business on the Record Date, there were 8,631,300 shares of Pro-Dex Common
Stock outstanding, of which approximately 30.14% (2,601,335) are owned by
officers, directors and their respective affiliates, all of whom have indicated
their intention to vote in favor of all proposals recommended by the Board of
Directors. On the Record Date, there were 78,129 shares of Pro-Dex Preferred
Stock outstanding, of which 100% are owned by officers, directors and their
affiliates. The affirmative vote of the holders of a majority of the shares of
Preferred Stock is not required to approve any proposal before the Meeting.
PROPOSAL ONE - CONVERSION OF MICRO OPTIONS
On July 26, 1995, the Company, its Micro Systems Acquisition Corporation
subsidiary ("Micro Acquisition"), and Micro Motors, Inc. ("Micro Motors")
entered into a Merger Agreement. Prior to the Merger, certain employees of
Micro Motors had been granted options to acquire in the aggregate 26,272 shares
in Micro Motors, pursuant to the Micro Motors Stock Option Plan (the "Micro
Options"). When Micro Motors was merged with and into the Micro Acquisition,
Micro Options became options to acquire shares of Micro Acquisition. The Merger
Agreement provides that Micro Options shall become incentive stock options to
acquire shares in the Company at the same ratio as if such options had been
exercised prior to the Merger, as soon as practicable consistent with the
requirements of notice to and approval by the Company's shareholders. SEE ALSO
"RECENT TRANSACTIONS."
The conversion of Micro Options submitted to shareholder vote at the
Meeting, upon approval of the shareholders together with shareholder approval of
Proposal Two - Increase in Shares Authorized for Grant of Options Under the 1994
Stock Option Plan, will result in additional options outstanding to acquire
591,120 shares of the Company's Common Stock. All such converted Micro Options
would be immediately exercisable and remain exercisable until the tenth
anniversary of their prior grant by Micro Motors. SEE "INTERRELATIONSHIP OF
PROPOSALS." The conversion ratios for converting the Micro Options into options
to acquire shares in Pro-Dex are specified in the Merger Agreement as being
convertible to Pro-Dex options at 1:22.5, which is the same ratio as would have
applied had the Micro Options been exercised by the option holders to purchase
Micro Motors shares prior to the closing.
The following table indicates the identities of the holders of the Micro
Options, the numbers of Micro Options currently held by each option-holder and
the numbers of Pro-Dex
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<PAGE>
options into which such Micro Options would be convertible upon shareholder
approval of Proposal One:
HOLDERS OF MICRO OPTIONS
<TABLE>
<CAPTION>
Pro-Dex shares
Micro shares Subject to Exercise Price
Subject to Options Per share
Option Holder Micro Options on Conversion of Pro-Dex Potential Value(1)
- ------------------------ ------------- ------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Charles E. Strait (2) 13,136 295,560 $2.50 $ 571,130
Carl Chestelson(3) 4,378 98,505 $2.50 $ 190,348
Gary Garleb(4) 4,378 98,505 $2.50 $ 190,348
Reed Payne(5) 2,190 49,275 $2.50 $ 95,217
William Stark(6) 2,190 49,275 $2.50 $ 95,217
Total All Micro
Option Holders 26,272 591,120 $2.50 $1,142,260
</TABLE>
- --------
(1) Potential value is based on the assumption that the price of the Common
Stock will appreciate at an annual compounded rate of 5% from the record
date until the April 1, 2004 expiration date for all such options.
(2) Mr. Strait is currently President of Pro-Dex and a member of its Board of
Directors. At the time the Micro Options were granted to him, he was
President of Micro Motors, Inc. and a member of its Board of Directors.
(3) Mr. Chestelson is currently Chief Operating Officer of the Company's Micro
Acquisition subsidiary. At the time the Micro Options were granted to him,
he was Vice President and Chief Financial Officer of Micro Motors. Mr.
Chestelson is also a Trustee of the Micro ESOP.
(4) Mr. Garleb is currently Vice President and General Manager of the Company's
Oregon Micro Systems, Inc.("OMS") subsidiary, and is a Trustee of the Micro
ESOP. At the time the Micro Options were granted, he was the executive
responsible for Manufacturing for Micro Motors, Inc.
(5) Mr. Payne is the executive responsible for Production in the Company's
Micro Acquisition subsidiary, and held the same position in Micro Motors,
Inc. at the time that the Micro Options were granted.
(6) Mr. Stark is the executive responsible for Manufacturing in the Company's
Micro Acquisition subsidiary, and was the executive responsible for Quality
Assurance for Micro Motors, Inc. at the time that the Micro Options were
granted.
______________
As indicated by the foregoing, the President of Pro-Dex, Mr. Charles E.
Strait, would hold options to acquire 295,560 shares of the Common Stock of Pro-
Dex, upon shareholder approval of the conversion of Micro Options. Mr. Strait's
options to acquire Pro-Dex Common Stock would then be exercisable to acquire
such shares, at an average price of $2.50 per share, at any time prior to the
expiration of the options. The expiration date of Mr. Strait's Micro Options is
March 31, 2004. As of December 29, 1995, the last bid price for Pro-Dex Common
Stock in NASDAQ Small Cap (SM) quotations was $___ per share. Thus, upon
conversion of the Micro Options, Mr. Strait's options to acquire Pro-Dex shares
would have an aggregate potential value of $571,130, assuming that the price of
the shares will appreciate at an annual compounded rate of 5% until the
expiration date. The aggregate potential value of all converted Micro Options
-11-
<PAGE>
would be $1,142,260, assuming that the price of the shares will appreciate at an
annual compounded rate of 5% until the expiration date.
As the foregoing chart shows, in addition to Mr. Strait, Micro Options are
held by four other senior executives in the Company's subsidiaries. Messrs.
Chestleson, Garleb, Payne and Stark hold the positions of Chief Operating
Officer of Micro Acquisition, Vice President and General Manager of OMS,
Production Manager of Micro Acquisition, and Manufacturing Manager of Micro
Acquisition respectively. The Board of Directors believes it important that
these senior executives in its subsidiaries have a financial interest in the
Company as a whole, rather than a distinct interest in the welfare of one of the
Company's five subsidiaries.
If shareholders do not approve the conversion of Micro Options, the Micro
Options will remain options to acquire shares in the Company's Micro Acquisition
subsidiary. Such unconverted Micro Options would be exercisable to acquire what
would be in the aggregate a minority interest in the Micro Acquisition
subsidiary. There is no market for Micro Acquisition shares and no market is
expected to develop. Failure to convert the Micro Options would, in the view of
the Board of Directors, be unfortunate, in that certain of the Company's
executives and employees would have a distinct personal interest in the relative
fortunes of one of the Company's subsidiaries, as compared to the welfare of the
Company as a whole. The problems inherent in any failure to approve conversion
of the Micro Options are highlighted by the fact that the President of Pro-Dex
is the holder of the largest number of Micro Options, and that four other senior
managers in two of the Company's subsidiaries are holders of Micro Options.
Further, any dividends from the Micro Acquisition subsidiary to its parent, Pro-
Dex, must perforce involve payment of dividends to any minority Micro
Acquisition shareholders, perhaps at a time when Pro-Dex is not paying dividends
to the Company's shareholders at the parent level. In addition, the board of
directors of the Micro Acquisition subsidiary must consider the separate
interests of any minority shareholders in its management decisions, for example
in determining whether to pay dividends or retain revenues for additional
investment in producing assets in the Micro Acquisition subsidiary. The
Company's Board of Directors believes such complication of the Company's conduct
of the affairs of its subsidiary would not be beneficial to the Company as a
whole or its shareholders.
The Company's Board of Directors believes that the conversion of Micro
Options specified by the Merger Agreement is in the best interest of the
Company, for the following reasons (1) conversion of the Micro Options
simplifies management of the Company by insuring that the board of Micro
Acquisition need not consider the Micro Options or minority shareholders'
interests in determination of actions to be taken by Micro Acquisition, (2) such
conversion is required to consummate the Merger Agreement, and (3) such
conversion would give valued executives in the Company's newly acquired Micro
Acquisition subsidiary a financial stake in future appreciation of the Company's
Common Stock.
VOTE REQUIRED.
The affirmative vote of a majority of the outstanding shares of Pro-Dex
Common Stock is required to authorize the conversion of Micro Options, by way of
an amendment to the 1994
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<PAGE>
Stock Option Plan. To effect such conversion, the affirmative vote of a majority
of the outstanding shares of Pro-Dex Common Stock is also required on Proposal
Two - Increase in Shares Authorized for Grant of Options Under the 1994 Stock
Option Plan. SEE "INTERRELATIONSHIP OF PROPOSALS." At the close of business on
the Record Date, there were 8,631,300 shares of Pro-Dex Common Stock
outstanding, of which approximately 30.14% (2,601,335) are owned by officers,
directors, 5% shareholders and their respective affiliates, all of whom have
indicated their intention to vote in favor of the Conversion of Micro Options.
THE MEMBERS OF THE BOARD OF DIRECTORS VOTING UPON THE CONVERSION OF MICRO
OPTIONS RECOMMEND A VOTE FOR THE PROPOSED CONVERSION OF MICRO OPTIONS (PROPOSAL
ONE). (MR. STRAIT ABSTAINED FROM THE VOTE OF THE BOARD ON THIS ISSUE BECAUSE HE
IS A HOLDER OF MICRO OPTIONS.) PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL
BE VOTED FOR PROPOSAL ONE UNLESS A VOTE AGAINST PROPOSAL ONE, OR AN ABSTENTION
ON SUCH PROPOSAL IS SPECIFICALLY INDICATED.
PROPOSAL TWO - INCREASE IN SHARES AUTHORIZED FOR GRANT OF
OPTIONS UNDER THE 1994 STOCK OPTION PLAN
Shareholders of the Company at the 1994 Annual Meeting overwhelmingly
approved the Company's 1994 Stock Option Plan, authorizing the Board of
Directors to grant employees of the Company incentive stock options to acquire
up to 500,000 shares of the Company's Common Stock. As of the Record Date, the
Company had granted 450,000 options, exercisable at the last bid price for
shares of the Company's Common Stock on the date of grant. The 1994 Stock
Option Plan was adopted to permit the Company to reward performance of its
employees and to permit employees of the Company to participate in increases in
the value of the Company's Common Stock.
In the year ended June 30, 1995, 150,000 options were granted under the
1994 Stock Option Plan. To date, in the year ending June 30, 1996, 300,000
options were granted under the 1994 Stock Option Plan. The Board of Directors
has recommended that shareholders approve an increase to the number of shares of
common stock authorized for issuance under the 1994 Stock Option Plan, to permit
grant of options to acquire an additional 1,000,000 shares, for an aggregate
number of shares reserved for issuance under the Plan of 1,500,000.
The following chart sets forth options granted by the Company under the
1994 Stock Option Plan to date:
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<PAGE>
OPTIONS GRANTED UNDER 1994 STOCK OPTION PLAN
<TABLE>
<CAPTION>
Options Exercise Potential
Granted Price Expiration Value (1)
Name Year (#) $/SH) Date ($)
- -------------------- ---- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Kent E. Searl(2) 1995 50,000 2.50 4-7-05 107,715
1996 100,000 2.75 11-21-05 202,065
M. Larry Kyle(3) 1995 50,000 2.50 4-7-05 107,715
George J. Isaac(4) 1995 50,000 2.50 4-7-05 107,715
1996 200,000 2.75 11-21-05 404,130
</TABLE>
- --------
(1) Potential value is based on the assumption that the price of the stock will
appreciate from the record date at an annual compounded rate of 5% until
the applicable expiration dates.
(2) Mr. Searl was granted options to acquire 50,000 shares at a time when he
was both President of the Company and Chairman of its Board of Directors.
For the year ended June 30, 1995, Mr. Searl received no compensation other
than the options granted pursuant to the 1994 Stock Option Plan, but was
reimbursed for travel and other expenses incurred in the course of conduct
of Company's business. During the current fiscal year, while serving as
the Company's Chairman, Mr. Searl has been granted options to acquire
100,000 shares.
(3) Dr. Kyle was granted such options at a time when he was both President of
the Company's Pro-Dex Management, Inc. wholly owned subsidiary and a member
of the Company's Board of Directors. During the year ended June 30, 1995,
Dr. Kyle's salary was $114,672. Dr. Kyle remains President of Pro-Dex
Management, but ended his service on the Board of Directors on July 26,
1995.
(4) Mr. Isaac was granted options to acquire 50,000 shares in connection with
his acceptance of the Company's offer of long-term employment as its Chief
Financial Officer. During the current fiscal year, while serving as the
Company's Vice President, Chief Financial Officer, Secretary-Treasurer and
a member of its Board of Directors, Mr. Isaac has been granted options to
acquire 200,000 shares of the Company's Common Stock.
Conversion of Micro Options discussed elsewhere in this Proxy Statement
would effectively grant options to acquire 591,120 shares under the 1994 Stock
Option Plan, and cannot be consummated without shareholder approval of an
increase in the number of shares reserved for issuance on the exercise of
options under the 1994 Stock Option Plan. The Board of Directors believes that
an increase in the number of shares authorized for grant of options under the
1994 Stock Option Plan is advisable, in part for the reason that such increase
is required to consummate the Conversion of Micro Options required by the Merger
Agreement. SEE "PROPOSAL ONE - CONVERSION OF MICRO OPTIONS."
Shareholders may also wish to consider that the Company is substantially
larger than it was at the time the 1994 Stock Option Plan was adopted. As of
September 30, 1995, the Company had total assets of $24,495,826, compared to
total assets of $5,562,104 as of June 30, 1994. The Board of Directors believes
that without an increase in the number of shares authorized for grant
-14-
<PAGE>
of options under the Company's 1994 Stock Option Plan, the Company will be
unable to offer inducements to its executive employees to enhance the Company's
performance which are comparable to incentives offered such persons by other
potential employers.
Executive Compensation. The Company's executive officers and directors
----------------------
received an aggregate of $219,672 in compensation during the fiscal year ended
June 30, 1995, as more fully described in the Company's Form 10-KSB for the
fiscal year ended June 30, 1995. Effective as of July 26, 1995, the Company
entered into long term employment agreements with a number of its executive
officers and extended employment agreements with certain other officers. The
Company is obligated to pay salaries in an aggregate amount of $1,080,000 for
all its officers and directors for the year ending June 30, 1996, assuming all
such officers are retained for the entire year. SEE ALSO "OTHER MANAGEMENT
INFORMATION - Executive Compensation."
VOTE REQUIRED.
The affirmative vote of a majority of the outstanding shares of Pro-Dex
Common Stock is required to authorize the amendment to the 1994 Stock Option
Plan, to authorize grant of options to acquire a total of 1.5 million shares
under the Plan. At the close of business on the Record Date, there were
8,631,300 shares of Pro-Dex Common Stock outstanding, of which approximately
30.14% (2,601,335) are owned by officers, directors, 5% shareholders and their
respective affiliates, all of whom have indicated their intention to vote in
favor of Proposal Two- the Increase in Shares Authorized for Grant of Options
Under the 1995 Stock Option Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSED
INCREASE IN SHARES AUTHORIZED FOR GRANT OF OPTIONS UNDER THE 1994 STOCK OPTION
PLAN (PROPOSAL TWO). PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED
FOR PROPOSAL TWO UNLESS A VOTE AGAINST PROPOSAL TWO, OR AN ABSTENTION ON SUCH
PROPOSAL IS SPECIFICALLY INDICATED.
PROPOSAL THREE - INCREASE IN SHARES AVAILABLE FOR GRANT OF
OPTIONS UNDER THE DIRECTORS' STOCK OPTION PLAN
The Company's Board of Directors recommends shareholder approval of an
increase in the shares availabe for grant of options under the Directors' Stock
Option Plan. Currently, there are 200,000 shares of the Company's Common Stock
authorized for issuance upon exercise of options granted to non-employee
directors under the Directors' Stock Option Plan, of which options to acquire
55,856 shares had been granted as of the Record Date. All options under the
Director's Stock Option Plan are exercisable at the last bid price on the date
of grant.
The following table sets forth the identities of the directors granted
options under the Directors' Stock Option Plan since it was adopted in 1994:
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<PAGE>
GRANTS OF OPTIONS UNDER THE
DIRECTORS' STOCK OPTION PLAN
AS OF JUNE 30, 1995
<TABLE>
<CAPTION>
Options Exercise Potential
Granted Price Expiration Value (1)
Name of Director Year (#) ($/SH) Date ($)
- ---------------------- ---- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Richard N. Reinhardt 1995 50,000 2.50 4-07-05 107,715
1995 1,754 2.85 7-01-05 3,165
1994 2,051 2.43 5-25-04 4,308
Kent E. Searl 1994 2,051 2.43 5-25-05 4,308
</TABLE>
- --------
(1) Potential value is based on the assumption that the price of the stock will
appreciate from the record date at an annual compounded rate of 5% from the
date of grant until the applicable expiration dates.
On September 21, 1995, the Board of Directors met as a committee of the
whole with two individuals who serve as outside directors of a number of other
public companies. These individuals had been previously nominated to serve on
the Board of Directors but had not consented to serve as directors. Such
individuals stated that were they to consent to serve as outside directors of
the Company they would expect to receive (1) directors and officers' liability
insurance coverage, (2) approximately $20,000 in annual compensation each, based
upon attendance at six meetings each of the Board and three meetings each of
newly established Audit Committee and Compensation Committee of the Board, and
(3) grant of approximately 20,000 qualified options to each with exercise prices
at the market price of the Company's shares on the date of grant. The Board of
Directors, in further research of the compensation of outside directors by
public companies which it believes comparable to the Company, has determined
that outside directors typically expect to be granted options to acquire shares
of the Common Stock of the Company for each year of service on the Company's
Board of Directors. The Board of Directors believes that the Company and its
public shareholders would derive significant benefit from obtaining the services
of experienced outside directors.
Currently, the Company has one (1) non-employee director, Messrs. Richard
N. Reinhardt. When the Company has completed its review of possible directors'
and officers' liability insurance policies, it expects to nominate and elect two
additional outside directors with substantial business experience. However,
the absence of such a policy at this time prevents the Board of Directors from
nominating such persons for election at this Board meeting. Assuming that there
will be three outside directors, were the Company to grant 20,000 options to
each outside director annually, it would be expected to grant options to acquire
an aggregate of 60,000 shares of the Company's Common Stock each year. Based
upon such possible schedule for grants of options to non-employee directors, the
Company would have insufficient shares available for grants of options under the
Plan for the fiscal year commencing July 1, 1997.
-16-
<PAGE>
VOTE REQUIRED.
The affirmative vote of a majority of the outstanding shares of Pro-Dex
Common Stock is required to authorize the amendment to the Directors' Stock
Option Plan, to authorize grant of options to acquire a total of 500,000 shares
under the Plan. At the close of business on the Record Date, there were
8,631,300 shares of Pro-Dex Common Stock outstanding, of which approximately
30.14% (2,601,335) are owned by officers, directors, 5% shareholders and their
respective affiliates, all of whom have indicated their intention to vote in
favor of Proposal Three - the Increase in Shares Authorized for Grant of Options
Under the Directors' Stock Option Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSED
INCREASE IN THE SHARES AUTHORIZED FOR ISSUANCE UNDER THE DIRECTORS' STOCK OPTION
PLAN (PROPOSAL THREE). PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE
VOTED FOR PROPOSAL THREE UNLESS A VOTE AGAINST PROPOSAL THREE, OR AN ABSTENTION
ON SUCH PROPOSAL IS SPECIFICALLY INDICATED.
PROPOSAL FOUR - ELECTION OF DIRECTORS
The Board of Directors has nominated four persons for election to serve as
directors of Pro-Dex, to hold office until their successors shall be elected and
qualified. Each nominee is a current director, all but two of Pro-Dex'
currently serving directors having been elected by the Board of Directors to
fill new or vacant positions on the Board of Directors as of July 26, 1995.
Ronald G. Coss and Charles E. Strait, each previously an executive officer and
director of Micro Motors, Inc., accepted their election by the Board of
Directors and began serving as Directors of Pro-Dex, Inc. on July 26, 1995.
George J. Isaac, a financial consultant for the Company or its predecessor since
1978, was elected and began service as a director of the Company on July 26,
1995, to fill the position on the Board of Directors vacated by Dr. M. Larry
Kyle, after he served beyond the end of his original elected term to preserve
continuity on the Board of Directors through closing of the acquisition of
Oregon Micro Systems, Inc. and the merger of Micro Motors with and into Micro
Acquisition.
Beginning in 1994, in accordance with a plan of reorganization adopted by
the shareholders, the directors of the Company began serving staggered terms to
assure continuity on the Board of Directors. Terms of two currently serving
directors, Mr. Kent E. Searl and Mr. Richard N. Reinhardt, are due to expire
June 30, 1996 and June 30, 1997, respectively. In addition to setting forth
certain information regarding directors of the Company as of the record date,
the following chart indicates the term of service of each director, assuming
that all the nominees of the Board of Directors are elected by the shareholders:
-17-
<PAGE>
STAGGERED TERMS OF DIRECTORS
<TABLE>
<CAPTION>
Term
Expires
Name of Director Age Employee Committees Nominated #/Class
- ---------------------- --- -------- ---------------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Kent E. Searl 54 Yes Compensation*++ - 6/30/99 - III
Ronald G. Coss+ Yes Audit*++ Yes 6/30/99 - III
Richard N. Reinhardt 63 No Audit++/Compensation++ - 6/30/97 - II
Charles E. Strait+ Yes Audit*++/Compensation*++ Yes 6/30/98 - I
George J. Isaac+ Yes Audit*++/Compensation*++ Yes 6/30/98 - I
</TABLE>
- ------------
# Directors are elected to serve until the later of such date or the election
and qualification of their successors.
* Director serves on such committee(s) as an ex-officio non-voting member.
++ Such committee shall commence activity at such time as there shall be at
least two (2) non-employee directors
+ Director commenced serving July 26, 1995, by election of Board.
---------------
The following individuals currently serve as directors of the Company and
the Company's Board of Directors expects that such individuals will continue to
so serve upon their election as directors by the shareholders at this Meeting:
KENT E. SEARL is a co-founder of the Company and has served as its
-------------
President and Chief Executive Officer and as a director of the Company or its
predecessor since its inception in 1978. Mr. Searl serves as an ex officio non-
voting member of the Compensation Committee of the Board of Directors. Since
August 1969, he has also served as Chairman of the Board of Directors of
Professional Sales Associates, Inc of Colorado ("PSA"), a national
manufacturers' representative of dental equipment of which he is a co-founder.
PSA began marketing products of Micro Acquisition subsidiary in 1995 and had
marketed dental equipment products of Micro Motors prior to the merger. Mr.
Searl currently also serves as an officer and director of two other businesses.
Mr. Searl's employment agreement with the Company permits such outside activity
to the extent that they do not interfere with performance of his duties as the
Company's Chairman. Mr. Searl is nominated by the Board of Directors for
election by the shareholders as a Class III Director, to serve until June 30,
1999, or the election and qualification of his successor.
RONALD G. COSS founded Micro Motors, Inc. in 1971 and has served as its
--------------
Chairman since inception. Mr. Coss has served as the Vice Chairman of the
Company's Board of Directors since July 26, 1995. Mr. Coss also serves as an ex
officio non-voting member of the Audit Committee of the Board of Directors. Mr.
Coss has been the primary engineer in development of Micro's products since its
inception and invented the technologies which are the subject of the letters
patent now owned by Micro Acquisition. Mr. Coss is currently one of the
Trustees of the Micro ESOP. Mr. Coss is nominated by the Board of Directors for
election by the shareholders as a Class III Director, to serve until June 30,
1999, or the election and qualification of his successor.
-18-
<PAGE>
RICHARD N. REINHARDT has served as a Director of the Company and its
--------------------
predecessor since 1990. He is a member of the Audit Committee and the
Compensation Committee of the Board of Directors. Mr. Reinhardt has served as
President and director of Professional Sales Associates, Inc. ("PSA") since he
co-founded that firm in 1969. PSA is a national manufacturers' representative
organization that represents manufacturers in the dental equipment market.
Products marketed by PSA currently include certain products of the Company's
newly acquired Micro Acquisition subsidiary. Mr. Reinhardt was elected by the
shareholders to serve as a Class II director until June 30, 1997, or the
election and qualification of his successor and is not currently up for
election.
CHARLES E. STRAIT has served as the President of Micro Motors, Inc. since
-----------------
1993, and became a member of the Company's Board of Directors on July 26, 1995.
He has extensive financial consulting experience and served as managing partner
of The Westhaven Group, a management consulting firm specializing in strategic
planning, acquisition analysis and management team building in Westminster,
California. Mr. Strait received his B.S. in Business Administration from Loyola
University of Los Angeles with a dual major in General Management and Finance.
Mr. Strait is nominated by the Board of Directors for election by the
shareholders as a Class I Director, to serve until June 30, 1998, or the
election and qualification of his successor.
GEORGE J. ISAAC has served as a consultant to the Company and its
---------------
predecessor since 1978, and became a member of the Company's Board of Directors
on July 26, 1995. He serves as an ex officio member of both the Audit
Committee and the Compensation Committees of the Board of Directors. Mr. Isaac
has been a certified public accountant with Joseph B. Cohan and Associates,
Worcester, Massachusetts since 1969, became a partner in 1977 and has served as
its president since 1991. He is a member of the Board of Directors of
Professional Sales Associates, Inc. and the Commerce Bank and Trust of
Worcester, MA, and recently completed a term as a member of the Board of
Directors of the Medical Center of Central Massachusetts. Mr. Isaac's
accounting firm has specialized in handling medical and dental related accounts.
Mr. Isaac received a B.S. in Business Administration from Clark University in
Worcester, Massachusetts. Mr. Isaac is nominated by the Board of Directors for
election by the shareholders as a Class I Director, to serve until June 30,
1999, or the election and qualification of his successor.
The Board of Directors met on eight occasions in the year ending June 30,
1995, all of which meetings were attended by all three then serving directors.
Since June 30, 1995, the Board of Directors has met four times, each such
meeting being attended by all then serving directors. The Board of Directors
established Audit and Compensation Committees at its September 1995 meeting.
Neither the Audit nor Compensation Committees has held its first meeting, as
there was only one outside director serving as of the date of the December 1995
Board of Directors' meeting. The Board of Directors has directed that each such
committee shall commence activity at such time as there shall be at least two
non-employee directors of the Company.
As noted in the above biographies, certain of the directors have other
relationships with the Company, as further discussed below. SEE ALSO "CERTAIN
RELATIONSHIPS AND
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<PAGE>
TRANSACTIONS WITH RELATED PARTIES." The Company's Board of Directors is not
aware of any voting agreements relating to the election of directors of the
Company.
VOTE REQUIRED.
The affirmative vote of a majority of the outstanding shares of Pro-Dex
Common Stock is required to elect directors. There is no cumulative vote for
directors of the Company. At the close of business on the Record Date, there
were 8,631,300 shares of Pro-Dex Common Stock outstanding, of which
approximately 30.14% (2,601,335) are owned by officers, directors, 5%
shareholders and their respective affiliates, all of whom have indicated their
intention to vote for each of the directors nominated by the Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ALL NOMINEES.
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR ALL SUCH NOMINEES
UNLESS A VOTE AGAINST ANY NOMINEE, OR AN ABSTENTION ON SUCH NOMINEE IS
SPECIFICALLY INDICATED.
PROPOSAL FIVE - RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
The Board of Directors recommends that the shareholders ratify appointment
of McGladrey & Pullen, L.L.P. as independent certifying accountants for the
Company's accounts for the year ending June 30, 1996. For the year ended June
30, 1995, the Company's financial statements were certified by Henry Vanderzee,
C.P.A. The former accountant's report on the financial statements for the past
two years contained no adverse opinion or disclaimer of opinion, and was not
qualified or modified as to uncertainty, audit scope, or accounting principals.
During the Company's two most recent years and the subsequent interim period
preceding resignation of the former accountant, there were no disagreements with
the former accountant on any matter of accounting principles or practices,
financial statement disclosure, or audit scope or procedure. In the Company's
Form 10-KSB, the Company restated its financial statements for the prior year,
to increase the reserve for doubtful accounts of its Pro-Dex Management, Inc.
subsidiary. The Company's Form 10-KSB is incorporated herein by reference and
delivered to the shareholders herewith. Mr. Vanderzee does not expect to be
present at the Meeting.
The decision to change accountants was approved by the Board of Directors.
McGladrey & Pullen certified the financial statements for Micro Motors, Inc. and
Oregon Micro Systems, Inc. (both acquired by the Company on July 26, 1995), for
the fiscal years of such companies ended March 31, 1995. McGladrey & Pullen has
offices in each region in which the Company's five operating subsidiaries are
located. McGladrey & Pullen expects to be present at the Meeting. McGladrey &
Pullen will have an opportunity to make a statement if they so desire, and are
expected to be available to respond to appropriate questions.
-20-
<PAGE>
INTERRELATIONSHIP OF PROPOSALS
Without shareholder approval of Proposal Two - Increase in Shares
Authorized for Grant of Options Under the 1994 Stock Option Plan, Proposal One -
Conversion of Micro Options cannot be consummated. Thus, to consummate the
conversion of Micro Options, the Company's shareholders must approve both the
conversion of the Micro Options and also approve the Increase shares authorized
for grant of options under the 1994 Stock Option Plan.
Although the conversion of Micro Options requires approval of the increase
in the number of shares authorized for grant of options under the 1994 Stock
Option Plan, the Company's Board of Directors believes that there are other
valid and sufficient reasons to approve the increase in the number of shares
authorized for issuance under the 1994 Stock Option Plan. SEE "PROPOSAL ONE -
CONVERSION OF MICRO OPTIONS" AND "PROPOSAL TWO - INCREASE IN SHARES AUTHORIZED
FOR GRANT OF OPTIONS UNDER 1994 STOCK OPTION PLAN."
RECENT TRANSACTIONS
During the current fiscal year, the Company acquired two subsidiaries. The
closing for both acquisitions occurred on July 26, 1995. Acquisition of one of
the subsidiaries, Oregon Micro Systems, Inc., was funded partly from liquid
assets in the acquired company and partly by a substantial increase in the
Company's indebtedness. SEE "RECENT TRANSACTIONS - OMS Acquisition." The other
newly acquired subsidiary, Micro Systems Acquisition Corporation, was organized
in March 1995. Micro Motors, Inc. was merged with and into Micro Acquisition in
July 1995. SEE "RECENT TRANSACTIONS - Micro Merger." The Company issued
3,350,000 shares of Common Stock as consideration for all the issued and
outstanding Micro Motors stock. Acquisition of these two subsidiaries was
inter-related in that the letter of intent to acquire Oregon Micro Systems, Inc.
was originally between Oregon Micro Systems, Inc. and Micro Motors, Inc., and
later assigned to Pro-Dex in connection with the letter of intent between the
Company and Micro Motors. SEE ALSO "CERTAIN RELATIONSHIPS AND TRANSACTIONS
WITH RELATED PARTIES."
The Board of Directors believes that the Company has achieved significant
synergies from the acquisitions of its two new subsidiaries during the current
fiscal year. For example, while net earnings per share might ordinarily be
expected to decline with an increase in the numbers of shares outstanding or
increase in corporate indebtedness (both of which occurred in these
acquisitions), Pro-Dex earnings per share increased in the six months ended
---------
December 31, 1995 over the same period in the prior year. During the quarter
ended September 30, 1995, net earnings increased to $0.04 per share, as compared
to $0.02 per share for the same period in the prior year. During the six months
ended December 31, 1995, net earnings increased to $_____ per share, as compared
to $_____ for the same period in the prior year. The Company's management
attributes this improvement in the Company's performance in large part to the
acquisitions of its two new subsidiaries on July 26, 1995.
-21-
<PAGE>
OMS ACQUISITION.
On July 26, 1995, the Company acquired all the issued and outstanding stock
of Oregon Micro Systems, Inc., an Oregon corporation ("OMS"), and related assets
including letters patent relating to a multi-axis circuit board, pursuant to an
Acquisition Agreement among L. Wayne Hunter, OMS and the Company (the
"Acquisition Agreement"). Pursuant to the Acquisition Agreement, the Company
paid $5,962,116 to Mr. Hunter on the Closing Date, and made a further payment
based upon a portion of profitability of OMS from March 31, 1995 through July
26, 1995. Of the consideration paid to Mr. Hunter, $2.5 million was allocated
to the patents and other related assets, with the remainder of the purchase
price allocated to OMS stock.
At the time of the acquisition, the Company used approximately $2.2 million
in cash of OMS to pay a portion of the purchase price. The Company used certain
of its own funds in the acquisition. In addition, the Company borrowed $0.5
million on an unsecured basis from an unrelated third party for use in the
acquisition. The remainder of the purchase price was borrowed from FINOVA
Capital Corporation, pursuant to a fixed asset secured promissory note. In
addition to the purchase price paid pursuant to the Acquisition Agreement, the
Company and Mr. Hunter entered into a Consulting Agreement and a Non-Competition
Agreement, pursuant to which, in the aggregate, Pro-Dex is to pay Mr. Hunter an
additional $1 million over five (5) years. More extensive descriptions of (1)
the financing arrangements and (2) the Consulting and Non-Competition Agreements
relating to the OMS acquisition are set forth in the Company's Current Report on
its Form 8-K dated July 26, 1995 delivered with this Proxy.
MICRO MERGER.
On July 26, 1995, Micro Motors, Inc. ("Micro Motors") was merged with and
into Micro Systems Acquisition Corporation ("Micro Acquisition") pursuant to a
Merger Agreement among Micro, Micro Acquisition, the five Micro shareholders
(the "Micro Shareholders") and the Company. On July 26, 1995, in connection
with the statutory merger of Micro Motors with and into Micro Acquisition, the
Micro Motors shareholders were issued 3,350,000 shares of Pro-Dex Common Stock,
representing 38.7 percent of the then issued and outstanding shares of the
Company's Common Stock. The Company issued shares pursuant to the Merger
Agreement in reliance upon an exemption under Section 4(2) of the Securities Act
of 1933, as amended (the "Act") and Rule 506 of Regulation D promulgated
thereunder. Accordingly, all shares issued by the Company in connection with
the Merger Agreement are restricted securities in the hands of the Micro
shareholders. Such restricted securities cannot be sold unless subject to a
Registration Statement filed under the Securities Act of 1933, as amended (the
"Act") or a valid exemption from the requirements of registration under the Act,
whether pursuant to Rule 144 or otherwise, demonstrated by the transferor to the
Company's satisfaction.
Limited Registration Rights. One of the five shareholders which acquired
---------------------------
the Company's shares in connection with the Registration Statement was an
Employee Stock Ownership Plan with 35 participants (the "Micro ESOP"). The
Micro ESOP received 1,099,805 shares of the Company's Common Stock pursuant to
the Merger Agreement. Plan trustees certified to the Company that all
information regarding the transaction and Pro-Dex were communicated to the
-22-
<PAGE>
35 employee-participants in the Micro ESOP, prior to such participants' approval
of the transaction pursuant to ERISA requirements. Upon demand of the trustee(s)
of the Micro ESOP, the Company is required to register the shares issued to the
Micro ESOP, not less than twelve (12) nor more than twenty-four (24) months
after July 26, 1995. In addition to such demand registration rights, the Micro
ESOP has the right, for five (5) years subsequent to the closing, to require
Pro-Dex to register the shares issued to the Micro ESOP in connection with any
underwritten offering of securities by the Company. All costs in connection with
any registration or underwriting involving the shares acquired by the Micro ESOP
are to be borne ratably among the selling parties in proportion to the shares
registered pursuant to any such registration statement. The demand and
concurrent registration rights accorded the Micro ESOP pursuant to the Merger
Agreement would become rights of the Micro ESOP participants in the event the
plan were liquidated or shares held by the plan to be otherwise distributed to
participants, in compliance with the Employees Retirement Income Security Act of
1975 ("ERISA").
Outstanding Micro Incentive Stock Options. Micro Motors had previously
-----------------------------------------
issued stock options pursuant to its 1994 Incentive Stock Option Plan to several
of its executive officers, including its president (the "Micro Options"). All
Micro Options issued prior to the merger became options to acquire shares in
Micro Acquisition upon the effective date of the merger. In addition, pursuant
to the Merger Agreement, the Company agreed to request approval of the Company's
shareholders for conversion of the Micro Options together with an increase in
the shares authorized for grant of options under the 1995 Stock Option Plan.
SEE "PROPOSAL ONE - CONVERSION OF MICRO OPTIONS" AND "PROPOSAL TWO - INCREASE IN
SHARES AUTHORIZED FOR GRANT OF OPTIONS UNDER 1995 STOCK OPTION PLAN."
Employment Agreements and Related Matters. In connection with the closing
-----------------------------------------
of the merger of Micro Motors with and into Micro Acquisition, the Company
entered into employment agreements with Messrs. Ronald G. Coss and Charles E.
Strait, the former Chairman and President respectively of Micro Motors, who now
serve as Vice Chairman and President of the Company. SEE "OTHER MANAGEMENT
INFORMATION - Executive Compensation." In addition to compensation to Mr. Coss
under his employment agreement, the Company is obligated to pay Mr. Coss $1
million over five years, commencing on July 26, 2001 under a Non-Competition
Agreement in connection with the merger of Micro Motors with and into the
Company's Micro Acquisition subsidiary. Upon the merger, the Company also
assumed two notes payable by Micro Motors to Mr. Coss in the aggregate amount of
$938,450, relating to termination of Mr. Coss' long term employment agreement
with Micro Motors and prior unpaid earned compensation. SEE "CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS."
OTHER MANAGEMENT INFORMATION
BUSINESS EXPERIENCE OF KEY MANAGEMENT OF SUBSIDIARIES.
- ------------------------------------------------------
Set forth below is information concerning certain key management personnel
of the Company's five operating subsidiaries, Pro-Dex Management, Biotrol,
Challenge Products, Micro
-23-
<PAGE>
Acquisition and Oregon Micro Systems. SEE ALSO "ELECTION OF DIRECTORS"
(biographical information regarding directors).
DR. M. LARRY KYLE has served as Vice President and Chief Executive Officer
-----------------
of Pro-Dex Management, Inc. ("PDM") since its inception as a dental clinic
management business in 1978. He is a licensed dentist in the State of
California and is responsible for PDM's relationships with its independent
contractor dentists and for supervision of administration of PDM's dental
centers. Dr. Kyle served as a director of the Company and its predecessor from
1990 through 1995.
CHARLES J. BULL founded Challenge Products, Inc. in 1978 and has served as
---------------
its President, and Chief Executive Officer since its inception as a dental
products business. Mr. Bull has developed more than 40 chemical products used
in the industry, as well as a process for high speed filling of a patented
prophy ring which is licensed for manufacture and sale to Challenge on an
exclusive basis.
BETTE GRIFF has served as Secretary, Treasurer and General Manager of
-----------
Biotrol since August 1991. From February 1988 to August 1991, she was office
manager for Professional Sales Associates, Inc. She received a BA in Business
and Marketing from the University of Colorado.
GARY GARLEB has served as Vice President and General Manager of Oregon
-----------
Micro Systems, Inc. since it was acquired by the Company in July of 1995. Prior
to that time, he served as Vice President for Operations and Manufacturing of
Micro Motors from 1974 to 1995. Mr. Garleb is currently a Trustee of the Micro
ESOP.
RICK COSS has served as Director of Corporate Development for Pro-Dex, Inc.
---------
since October, 1995. Mr. Coss had served as a Vice President of Micro Motors,
Inc. prior to the July 26, 1995 acquisition of Micro Motors by Micro
Acquisition. His current responsibilities include development of training
programs, coordination of information systems and special projects. Mr. Coss
holds a B.A. from the University of California. Mr. Coss' father is Ronald G.
Coss, the Company's Vice Chairman.
CARL CHESTELSON has served as Chief Financial Officer of Micro Acquisition
---------------
or its Micro Motors predecessor since 1982. Mr. Chestelson holds a B.A. degree
in Business Administration from California State University-Northridge. Mr.
Chestelson is currently one of the Trustees of the Micro ESOP.
ELLEN GLASCOCK has served as General Manager for Challenge Products since
--------------
1992 and has been with that Company since 1987.
EXECUTIVE COMPENSATION
- -----------------------
The Company's executive officers and directors received an aggregate of
$219,672 during the fiscal year ended June 30, 1995, as more fully described in
the Company's Form 10-KSB for the fiscal year ended June 30, 1995.
-24-
<PAGE>
The following table summarizes executive compensation during the last three
years, as well as setting forth the commitments of the Company for compensation
payable in the year ending June 30, 1996, assuming that all executives continue
their service to the Company through the end of the current fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Award
----------------------- -----------------------------------
Name and Other Annual Options/SAR
Principal Position Year Salary Compensation (Shares)
- ------------------ ---- ------ ------------ ------------
<S> <C> <C> <C> <C>
Kent E. Searl, Chairman 1996 $150,000 $ - 100,000(3)
of Board of Directors(2) 1995 $ 0.00 $ - 50,000
1994 $ 0.00 $ - 52,051
1993 $ 0.00 $ - None
Ronald G. Coss, Vice 1996 $360,000 $ - None(3)
Chairman of Board of 1995 N/A N/A N/A
Directors(4) 1994 N/A N/A N/A
1993 N/A N/A N/A
Charles E. Strait, 1996 $175,000 $ - None(3)(5)
President, Director(5) 1995 N/A $ - N/A
1994 N/A $ - N/A
1993 N/A $ - N/A
George J. Isaac, Vice 1996 $170,000 $ - 200,000(3)
President, Chief 1995 N/A $ - 50,000
Financial Officer, 1994 N/A $ - N/A
Secretary-Treasurer, Director(6) 1993 N/A $ - N/A
M. Larry Kyle, D.D.S., 1996 $115,000 $ - None(3)
President of Pro-Dex 1995 $114,672 $ - 50,000
Management, Inc. 1994 $106,120 $ - 50,000
Subsidiary 1993 $100,000 $ - None
Charles L. Bull, President 1996 $110,000 $ - None(3)
of Challenge Products, Inc. 1995 $105,000 $ - None
Subsidiary 1994 $100,000 $ - None
1993 $100,000 $ - None
</TABLE>
- --------
(1) The aggregate amount of perquisites or other personal benefits received by
any officer or director for which no other annual compensation is indicated
did not exceed the lesser of $50,000 or 10% of such officer or director's
annual salary.
(2) Mr. Searl received no compensation from the Company during the fiscal years
ended June 30, 1995 and 1994. Mr. Searl was granted options under the 1994
Stock Option Plan in 1995 and under the Directors' Stock Option Plan in
1994.
-25-
<PAGE>
(3) To date, options in the amount of 100,000 and 200,000 shares have been
granted to Messrs. Searl and Isaac, respectively during the Company's
current fiscal year ending June 30, 1996, under the 1994 Stock Option Plan.
No other options have been granted to date during the Company's 1996 fiscal
year. Additonal options may be granted prior to the end of such year.
(4) Mr. Coss received no compensation from the Company prior to the year ending
June 30, 1996, as he was not then an employee of the Company and did not
serve on its Board of Directors. The Company is also obligated to pay Mr.
Coss $1 million over five years, commencing on July 26, 2001, under a Non-
Competition Agreement in connection with the merger of Micro Motors with
and into the Company's Micro Acquisition subsidiary. In addition, the
Company assumed two notes of Micro Motors payable to Mr. Coss in the
aggregate amount of $938,450, relating to termination of Mr. Coss' long
term employment agreement with Micro Motors and prior unpaid earned
compensations.
(5) Mr. Strait received no compensation from the Company prior to the current
fiscal year ending June 30, 1996, as he was not then employed by the
Company and did not serve on its Board of Directors. Mr. Strait, as
President of Micro Motors, was compensated at a salary of $151,123 for the
fiscal year ended March 31, 1995 and $140,961 for the fiscal year ended
March 31, 1994. The options set forth in this chart do not include the
Micro Options granted in April of 1994, which will be converted to Pro-Dex
options, in the event Proposal Two is approved by the shareholders. SEE
"PROPOSAL ONE - CONVERSION OF MICRO OPTIONS."
(6) Mr. Isaac received no compensation from the Company prior to the current
fiscal year ending June 30, 1996, as he was not then employed by the
Company and did not serve on its Board of Directors. During the fiscal
year ended June 30, 1995, Mr. Isaac was granted options to acquire 50,000
shares under the 1994 Stock Option Plan, in connection with his acceptance
of employment by the Company.
_______________
Effective as of July 26, 1995, the Company entered into long term
employment agreements with a number of its executive officers and extended
existing employment agreements with certain other officers. The Company is
obligated to pay salaries in an aggregate amount of $1,080,000 for all its
officers and directors for the year ending June 30, 1996, assuming all such
officers are retained for the entire year.
Approximately 49.5% of executive compensation payable during the year
ending June 30, 1996 is payable to two officers of the Company who were officers
of Micro Motors prior to its merger with and into Micro Acquisition. In
connection with the closing of the merger of Micro Motors with and into Micro
Acquisition, the Company agreed to pay compensation for the year ending June 30,
1996 of $360,000 and $175,000, respectively, to Messrs. Ronald G. Coss and
Charles E. Strait, the former Chairman and President respectively of Micro
Motors, who now serve as Vice Chairman and President of the Company. Mr. Coss
was compensated by Micro Motors at a salary of $560,000 for the fiscal year
ending March 31, 1995 and $456,000 for the fiscal year ending March 31, 1994.
Compensation to Mr. Coss under the employment agreement is to be adjusted for
inflation each July 1 of the five year term of his employment agreement, with
the first such adjustment occuring on July 1, 1996. Mr. Coss' employment
agreement is renewable until terminated.
In addition to compensation to Mr. Coss under his employment agreement, the
Company is obligated to pay Mr. Coss $1 million over five years, commencing on
July 26, 2001 under a
-26-
<PAGE>
Non-Competition Agreement in connection with the merger of Micro Motors with and
into the Company's Micro Acquisition subsidiary. Upon the merger, the Company
also assumed two notes payable by Micro Motors to Mr. Coss in the aggregate
amount of $938,450, relating to termination of Mr. Coss' long term employment
agreement with Micro Motors and prior unpaid earned compensation. SEE "CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS."
In addition to the direct compensation Mr. Coss is to receive under his
employment agreement with Pro-Dex, he is to have reimbursement of reasonable
travel and entertainment expenses, a luxury vehicle and auto expenses for
business use, country club dues and reasonable country club expenses, annual
physical with a prior recuperative period and paid accommodations, and six weeks
annual leave. In the event Mr. Coss does not use all or part of his six weeks
annual leave, his employment agreement permits him to elect to be paid cash in
lieu of leave not taken. Mr. Coss is required to reasonably forecast the amount
of any cash in lieu of leave, for purposes of the Company's financial forecasts,
including the executive compensation sections of the Company's communications
with its shareholders and filings with the Securities and Exchange Commission.
Mr. Coss has not notified the Company that he expects to elect to be paid cash
in lieu of leave not taken during the year ending June 30, 1996, and has
indicated that as of the Record Date he is unable to forecast his leave for the
year ending June 30, 1997.
On July 26, 1995, the Company entered into a long-term employment agreement
with Kent E. Searl, its Chairman. Until such date, Mr. Searl had received no
compensation for his services to the Company, other than grant of options
exercisable at the last bid price as of the date of grant. During the year
ended June 30, 1995, Mr. Searl was granted options to acquire 50,000 shares of
the Company's Common Stock, under the 1994 Stock Option Plan. On November 21,
1994, Mr. Searl was granted options to acquire 100,000 shares, under the 1994
Stock Option Plan, exercisable at the last bid price on the date of grant. Mr.
Searl is officed in the Company's headquarters offices in Boulder, Colorado, and
travels frequently to all the Company's subsidiaries. Under his employment
agreement with the Company, Mr. Searl is to be paid $150,000 annually through
June 30, 1996, $160,000 annually July 1, 1996 through June 30, 1997, and
$170,000 annually for the remainder of the three year term of his employment
agreement with the Company. The employment agreement accords Mr. Searl three
weeks annual leave, but provides for no alternative of cash in lieu of leave
untaken. In addition, Mr. Searl's employment agreement provides that he may
receive use of a car at Company expense, although to date Mr. Searl has received
limited reimbursement for use of a vehicle not provided by the Company. Mr.
Searl is also entitled to such other benefits as the Company's Board of
Directors determines to offer the Company's executive employees, and
reimbursement of reasonable expenses.
On July 26, 1995, Mr. Charles E. Strait entered into a long term employment
agreement with the Company. Currently, Mr. Strait serves as the Company's
President and is officed in the facilities occupied by the Company's Micro
Acquisition subsidiary, but travels frequently to all of the Company's
subsidiaries and its Boulder, Colorado headquarters. The employment agreement
provides that Mr. Strait's salary as the Company's President and Chief Operating
Officer will be $175,000 annually through June 30, 1996, $185,000 July 1, 1996
through June 30, 1997, and $195,000 for the remainder of the three year term of
the employment agreement.
-27-
<PAGE>
Mr. Strait was compensated by Micro Motors at a salary of $151,123 for the
fiscal year ending March 31, 1995 and $140,961 for the fiscal year ending March
31, 1994. The action of the Company in conversion of Micro Options recommended
to the shareholders by the Board of Directors will directly benefit Mr. Strait.
SEE "PROPOSAL ONE - CONVERSION OF MICRO OPTIONS." Mr. Strait's employment
agreement provides for three weeks annual leave, but does not permit Mr. Strait
to elect to receive cash in lieu of leave untaken. Mr. Strait's employment
agreement provides that he may receive use of a vehicle at Company expense and
the Company has leased a vehicle primarily for his use in business. Mr. Strait
is also to receive reimbursement of reasonable expenses in connection with his
employment and such other benefits as the Company's Board of Directors
determines to make available to the Company's executive employees.
On July 26, 1995, George J. Isaac began serving as the Company's Vice
President and Chief Financial Officer, and on September 21, he was elected the
Company's Secretary-Treasurer by the Board of Directors. Mr. Isaac was granted
options to acquire 50,000 shares of the Company's Common Stock, exercisable at
the last bid price as of the date of grant, upon his acceptance of employment,
during the fiscal year ended June 30, 1995, but received no other compensation
as an employee during such year. Mr. Isaac was granted options to acquire
200,000 shares execisable at the last bid price as of the date of grant, on
November 21, 1995. The employment agreement with Mr. Isaac provides that he is
to receive a salary of $170,000 through June 30, 1996, $180,000 July 1, 1996
through June 30, 1997, and $190,000 for the remainder of the three year term of
the employment agreement. Mr. Isaac's employment agreement allows three weeks
annual leave, but any leave not taken is to be forfeited without compensation.
The employment agreement with Mr. Isaac provides that he may receive use of a
Company vehicle for business purposes, but to date Mr. Isaac has not utilized
this benefit. In addition, Mr. Isaac is entitled to reimbursement of reasonable
expenses at the discretion of the Board of Directors and such other benefits as
the Board of Directors determines to make available to its executive employees.
Pro-Dex employs Dr. Kyle as Chief Operating Officer of its Pro-Dex
Management, Inc. subsidiary, with responsibility for the dental clinics, under
an informal extension of an employment agreement with him which expired by its
terms on June 30, 1992. The employment agreement with Dr. Kyle provided for
annual cash compensation to Dr. Kyle of $100,000, together with a bonus of 10%
of Pro-Dex Management, Inc.'s pre-tax earnings in excess of $300,000 during each
fiscal year covered by the agreement. During the year ended June 30, 1995, Dr.
Kyle was paid $114,672 under such agreement, including both the salary and
bonus. In addition, Dr. Kyle was granted options to acquire 50,000 shares of
the Company's Common Stock, exercisable at the last bid price as of the date of
grant.
On August 1, 1993, the Company entered into an employment agreement with
Mr. Charles L. Bull, President and Chief Operating Officer of Challenge
Products. Pursuant to that agreement, Mr. Bull is to be paid $100,000 annually
through December 31, 1998, with month to month renewal thereafter unless
terminated on 60 days prior written notice. Challenge Products is also required
to maintain a $300,000 split-dollar life insurance policy on Mr. Bull, payable
in accordance with his direction. The employment agreement provides that Mr.
Bull cannot
-28-
<PAGE>
compete, directly or indirectly, with Challenge for three years following
termination of employment.
COMPENSATION TO DIRECTORS.
- --------------------------
Beginning July 1, 1990, the Company established a fee of $1,000 per year
for each director. The Directors have heretofore waived their fees. In
consideration for their continuing services as directors over the years and
during the process of acquisition of Micro Motors, Inc. and Oregon Micro
Systems, Inc. the Company granted options to purchase 50,000 shares of its
Common Stock each to all three then serving members of the Board of Directors,
on April 7, 1995. The exercise price for all options granted on April 7, 1995
is $2.50 per share, the last bid price of the Company's shares on such date. In
addition, the Company granted options to acquire 1,754 shares to Richard
Reinhardt, in accordance with the schedule for grant of such options previously
adopted by the Board with respect to non-employee directors. The exercise price
for such option is $2.85 per share, the last bid price on June 30, 1995, the
date of grant. All of the options are exercisable in whole or in part and
expire ten years after the date of the grant.
The Board of Directors, in recent research of the compensation of outside
directors by public companies which it believes comparable to the Company, has
determined that experienced outside directors expect to receive directors' fees
and stock options in connection with such service. The Board of Directors
believes that the Company and its public shareholders would obtain significant
benefit from obtaining the services of experienced outside directors and has
adopted a proposal to pay directors' fees to non-employee directors in the
amount of $20,000 to each non-employee director annually for six regular
meetings and three meetings each of the Board's Audit and Compensation
Committees. In addition, the Board has agreed to consider granting options for
20,000 shares exercisable at the market price on the date of grant to each such
non-employee director. Accordingly, the Board of Directors has recommended an
increase in the number of shares reserved for exercise of options under the
Directors' Stock Option Plan. SEE "PROPOSAL THREE - INCREASE IN SHARES
AUTHORIZED FOR GRANT OF OPTIONS UNDER DIRECTORS' STOCK OPTION PLAN."
OPTIONS GRANTED DURING THE LAST FISCAL YEAR.
- --------------------------------------------
No options were exercised by any officer or director for the year ended
June 30, 1995, and 201,754 immediately exercisable options were granted during
such year. To date, the Company has granted 300,000 options to employee
directors under the 1994 Stock Option Plan during the current fiscal year ending
June 30, 1996. No other options have been granted during the current fiscal
year, and to the best knowledge of the Company, no options have been exercised
by any officer or director during the year ending June 30, 1996. Tables setting
forth the options granted to executive officers and directors during the fiscal
year ended June 30, 1995 are set forth in the discussions of Proposal Two -
Increase in Shares Authorized for Grant of Options Under the 1994 Stock Option
Plan and Proposal Three - Increase in Shares Authorized for Grant of Options
Under the Directors' Stock Option Plan.
-29-
<PAGE>
The following table provides information on the exercise of stock options
during the year ended June 30, 1995 by executives and directors and the value of
the unexercised options at June 30, 1995:
EXERCISE OF OPTIONS AND VALUE OF OPTIONS
HELD BY EXECUTIVES AND DIRECTORS
at June 30, 1995
<TABLE>
<CAPTION>
Value of
Unexercised Unexercised
Exercise Value Options at Options at
Name (#) Realized FY-End (#) FY-End (1)
- ---------------------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Kent E. Searl - - 102,151/0 21,668/0
M. Larry Kyle - - 130,000/0 84,688/0
Richard N. Reinhardt - - 103,905/0 20,780/0
George J. Isaac - - 50,000/0 17,500/0
</TABLE>
- -------------------
(1) The indicated value has been determined based upon the difference between
the exercise price and the fair market value of the securities underlying
the options on June 30, 1995. This chart includes none of the Micro
Options of any current director of the Company, which may be converted to
options to acquire shares in the Company in the event Proposal One -
Conversion of Micro Options and Proposal Two - Increase in Shares
Authorized for Grant of Options Under the 1995 Stock Option Plan are
approved by the shareholders. This chart also includes none of the options
granted to current directors of the Company during the current fiscal year.
SEE "OTHER MANAGEMENT INFORMATION - Summary Compensation Table," "PROPOSAL
TWO - INCREASE IN SHARES AUTHORIZED FOR GRANT OF OPTIONS UNDER 1994 STOCK
OPTION PLAN - Options Granted Under 1994 Stock Option Plan" AND "PROPOSAL
THREE - INCREASE IN SHARES AUTHORIZED FOR GRANT OF OPTIONS UNDER DIRECTORS'
STOCK OPTION PLAN - Grant of Options Under the Directors' Stock Option Plan
as of June 30, 1995."
_______________
1988 STOCK OPTION PLAN.
- -----------------------
In 1988, the Company adopted its 1988 Stock Option Plan (the "Plan")
pursuant to which the Company's Board of Directors is authorized to issue
options to purchase up to 150,000 shares of the Company's Common Stock to
employees, directors and consultants of the Company. The Plan was adopted to
provide an incentive to potential optionees of the Company to further the growth
of the Company. The exercise price of options must be at least equal to the
fair market value of the Common Stock on the date of grant. The maximum term of
the options granted under the Plan is ten years. No options to purchase shares
of Common Stock were granted to optionees during the fiscal year ended June 30,
1995. At present, options to purchase an aggregate of 30,000 shares of the
Company's Common Stock are outstanding under this Plan, and all such options
permit purchase of the Company's shares at $0.25 per share by Dr. Kyle.
-30-
<PAGE>
1994 STOCK OPTION PLAN.
- -----------------------
On May 25, 1994, the Company's shareholders adopted its 1994 Stock Option
Plan (the "Plan"), pursuant to which the Company's Option Committee is
authorized to issue options to purchase up to 500,000 shares of the Company's
Common Stock to employees of the Company. The Plan was adopted to advance the
interests of the Company and its shareholders by affording employees an
opportunity for investment in the Company. The Option Committee has the sole
discretion to select which employees of the Company will be granted options, the
number of shares subject to option, the timing of such option grants, when the
options may be exercised, and the exercise price. The exercise price of options
must be at least equal to the fair market value of the Common Stock on the date
of grant. The maximum term of options granted under the Plan is ten years.
Options to purchase 150,000 shares were granted to employees during the fiscal
year ended June 30, 1995, with an exercise price of $2.50 per share. To the
Record Date options to purchase 300,000 shares had been granted to employees,
with an exercise price of $2.75 per share, during the current fiscal year ending
June 30, 1996.
The Board of Directors has recommended that shareholders authorize an
increase of 1 million to 1.5 shares authorized for grant of options under the
1994 Stock Option Plan. The Board of Directors has also recommended that
shareholders approve Proposal One - Conversion of Micro Options, which together
shareholder approval of Proposal Two, would result in outstanding options to
acquire an additional 591,120 shares under the 1994 Stock Option Plan. SEE
"PROPOSAL ONE -CONVERSION OF MICRO OPTIONS" AND "PROPOSAL TWO - INCREASE IN
SHARES AUTHORIZED FOR GRANT OF OPTIONS UNDER 1994 STOCK OPTION PLAN."
DIRECTORS' STOCK OPTION PLAN.
- -----------------------------
On May 25, 1994, the Company's shareholders adopted its Directors' Stock
Option Plan (the "Plan") pursuant to which the Company is authorized to issue
options to purchase up to 200,000 shares of the Company's Common Stock to non-
employee Directors of the Company. The Plan was adopted to advance the
interests of the Company and its shareholders by attracting qualified non-
employee Directors, whose participation and guidance contribute to the
successful operation of the Company. The Board of Directors has previously
adopted a resolution which provides that options to purchase $5,000 share value
of Common Stock shall be granted to non-employee Directors, effective July 1 of
each year. The exercise price of options must be at least equal to the fair
market value of the Common Stock on the date of grant. The maximum term of each
option is ten years. During the year ended June 30, 1995, options to purchase
1,754 shares were granted with an exercise price of $2.85 per share, and options
to purchase 50,000 shares were granted with an exercise price of $2.50 per
share. To the Record Date, no options have been granted under the Directors'
Stock Option Plan during the current fiscal year ending June 30, 1996. The
Board of Directors has recommended approval of an Increase in the Directors'
Stock Option Plan to make available additional options for highly experienced
outside directors whose service it believes is in the interest of the Company.
SEE "PROPOSAL THREE -
-31-
<PAGE>
INCREASE IN SHARES AUTHORIZED FOR GRANT OF OPTIONS UNDER DIRECTORS' STOCK OPTION
PLAN."
MICRO MOTORS EMPLOYEE INCENTIVE STOCK OPTION PLAN.
- --------------------------------------------------
On July 26, 1995, Micro Motors, Inc. ("Micro") was merged with and into
Micro Systems Acquisition Corporation, a wholly owned subsidiary of the Company,
pursuant to a Merger Agreement between the Company and Micro, among others (the
"Merger Agreement"). At the time of the merger, Micro had in place the Micro
Motors Employee Incentive Stock Option Plan (the "Micro Plan"), and options to
acquire an aggregate of 26,272 shares had been previously issued pursuant to
such Micro Plan. The Merger Agreement provides that Micro Plan options
outstanding on July 26, 1995 shall become incentive stock options to acquire
shares in the Company, pursuant to a 1:22.5 conversion ratio, as soon as
practicable and consistent with satisfaction of all requirements of notice to
and approval by the Company's shareholders. The conversion ratio for the Micro
Plan options is the same ratio as if the options had been exercised prior to the
closing. Pursuant to the Merger Agreement, the Board of Directors recommends
shareholder approval of conversion of the Micro Options into options to acquire
591,120 shares of the Common Stock of the Company and approval of an increase in
the shares authorized for grant of options under the 1994 Stock Option Plan.
SEE "PROPOSAL ONE - CONVERSION OF MICRO OPTIONS" AND "PROPOSAL TWO - INCREASE IN
SHARES AUTHORIZED FOR GRANT OF OPTIONS UNDER 1994 STOCK OPTION PLAN."
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT.
- -------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the officers,
directors and persons who own more than 10% of Pro-Dex Common Stock to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Such officers, directors and shareholders are required to furnish
Pro-Dex with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by Pro-Dex,
or representations from certain reporting persons that no forms were required
for those persons, Pro-Dex believes that one director failed to timely file
forms were required for officers, directors and 10% shareholders. Mr. Ronald G.
Coss filed his required Schedule 13-D and Form 3 in connection with his
acquisition of shares in the Company pursuant to the Merger Agreement later than
the specified dates for such filings. Until acquiring his interest in the
Company, Mr. Coss had not previously been subject to or familiar with such
reporting requirements. Other than the aforementioned tardy filings by Mr. Coss
for the year ending June 30, 1996, Pro-Dex believes that at June 30, 1995 and
the record date, all filing requirements applicable to its officers, directors
and 10% beneficial owners were satisfied.
CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES.
Effective as of September 1, 1993, the Company acquired all of the
outstanding common stock of Challenge Products, Inc. in exchange for 390,000
shares of Common Stock. As part of the transaction, the president and former
principal shareholder of Challenge Products, Charles L.
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<PAGE>
Bull, agreed to cancel Challenge Products indebtedness to him of $74,638.
Effective August 1, 1993, Challenge Products entered into the employment
agreement with Mr. Bull which is described above, pursuant to which he will
receive $100,000 in compensation for the year ending June 30, 1996. SEE "OTHER
MANAGEMENT INFORMATION - Executive Compensation."
Mr. Bull and Challenge Products have also entered into a royalty agreement
and license agreement, both effective July 1, 1993 and extending to December 31,
1998. Under the royalty agreement, provided Challenge achieves net sales (as
defined) of at least $1,200,000 and pre-tax profit of 10% during any calendar
year, Mr. Bull will receive royalties on all products developed by him of 5% of
net sales (all sales less sales of prophy rings, trade discounts, returns, free
goods and shipping costs) exceeding $1,200,000. Royalty amounts are estimated
and paid in advance. Under the license agreement, Mr. Bull has granted
Challenge Products an exclusive license to manufacture, distribute and market a
patented prophy ring in return for a royalty equal to 2-1/2% of net sales
(pieces sold and shipped less free goods and returns) in excess of 5,000,000
pieces, paid quarterly. If Mr. Bull does not receive combined payments under
the royalty agreement and the license agreement aggregating at least $981,000 by
the termination date, both agreements will automatically renew and remain
effective until he has received the minimum $981,000.
On July 26, 1995, in connection with the merger of Micro Motors, Inc. with
and into Micro Systems Acquisition Corporation, a wholly owned subsidiary of the
Company, the Company issued 3,350,000 shares of the Company's Common Stock in
exchange for all the issued and outstanding stock of Micro Motors, Inc., all as
more fully described in the Company's Form 8-K dated July 26, 1995 which is
incorporated herein. In addition, the Company agreed to seek shareholder
approval for conversion of outstanding options of Micro Motors Incentive Stock
Option Plan into options to acquire 591,120 shares of the Company's Common
Stock. SEE "OTHER MANAGEMENT INFORMATION - Micro Motors Employee Incentive Stock
Option Plan."
Pursuant to the Merger Agreement, Ronald G. Coss entered into a Non-
Competition Agreement pursuant to which he is to be paid $1 million over five
years, with payment commencing in the sixth year after closing. In addition,
Mr. Coss executed an employment agreement with the Company, pursuant to which he
is to be paid $360,000 as Vice Chairman of the Company annually under his
employment agreement adjustable upward for inflation, representing a reduction
from the more than $560,000 which he had been paid as the Chairman of Micro,
despite his greater responsibilities with the Company. In addition to
compensation payable under the employment agreement between the Company and Mr.
Coss, he is entitled to certain executive employee benefits and perquisites. SEE
"RECENT TRANSACTIONS - Micro Motors."
Prior to the merger transaction, Mr. Coss also entered into an agreement to
terminate his long term employment contract with Micro Motors, for an additional
$677,400, payable over five years, at 11% interest per annum. At the closing
contemplated by the Merger Agreement, Pro-Dex assumed Micro Motor's obligation
under the termination agreement, as well as Micro's obligation under a note for
$261,050 in prior unpaid earned compensation. In connection with the closing of
the transactions under the Merger Agreement, the Company also entered into a
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<PAGE>
flexible Line of Credit Loan Agreement, whereby Mr. Coss may borrow as much as
$500,000 from the Company, at 7% interest, with repayment of the loan to occur
as an offset of obligations owed by the Company to Mr. Coss in respect of the
Non-Competition Agreement and employment agreement.
In connection with the acquisition of OMS, the Company borrowed $500,000
from an unrelated third party pursuant to a Loan Agreement and Promissory Note.
Fifty percent (50%) of the outstanding balance of obligations to the lender, at
any time, is jointly guaranteed by Professional Sales Associates, Inc. ("PSA")
and Kent E. Searl (the Company's Chairman). In connection with the loan, the
lender was granted a ten year warrant to acquire 26,000 shares of the Company's
Common Stock exercisable at the market price of the Company's shares at $2.50
per share exercise price. Warrants to acquire 13,000 shares of the Company's
Common Stock were issued to PSA exercisable at $2.50 per share. Kent E. Searl
and Richard N. Reinhardt, Chairman and a director of the Company, respectively,
are officers and directors of PSA. No warrants were issued to Mr. Searl.
The Company currently markets certain of the dental equipment manufactured
by Micro Acquisition through PSA, a firm for which Messrs. Searl and Reinhardt
are officers and directors. The arrangements with PSA continue a relationship
between PSA and Micro Motors established on an negotiated arms' length basis
prior to the merger of Micro Motors into Micro Acquisition. In electing to
continue such relationship with PSA, the disinterested members of the Board of
Directors determined the relationship is in the best interest of the Company.
While the Company believes that the terms of the relationship between PSA and
Micro Acquisition are no less favorable to the Company than comparable relations
with third parties, more favorable terms may have been obtainable on a
negotiated basis with another third party sales organization.
Micro Acquisition leases its offices and manufacturing facility in Santa
Ana, California from Ronald G. Coss, currently a director of the Company, at a
monthly rental of $27,383. The Company's management believes that the monthly
rental is comparable to rents charged for comparable properties in the market
area. Nevertheless, the terms of the lease, including price, may not be as
favorable to the Company as lease terms which might have been negotiated with a
third party in an arm's length transaction.
On October 10, 1995, the Company granted warrants to acquire 100,000 shares
to Mr. Carl Militello, pursuant to a Warrant Agreement between Mr. Militello
and the Company. Such warrants are exercisable at the last bid price as of the
date of grant of $2.13. Such warrants were issued as consideration to Mr.
Militello for services to the Company, including investor relations and
financial consulting services. Mr. Militello is not a related party.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Set forth in the following table is information as of the Record Date with
respect to the beneficial shareholdings of all directors, individually, and all
officers and directors as a group, and beneficial owners of 5% or more of the
Common Stock of the Company.
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<PAGE>
BENEFICIAL SHAREHOLDINGS OF DIRECTORS, OFFICERS AND
OWNERS OF MORE THAN 5% OF COMMON STOCK
<TABLE>
<CAPTION>
Percent
Name and Address No. of shares of Class(1)
- --------------------------------- ------------------ -----------
<S> <C> <C>
Kent E. Searl
1401 Walnut St., Suite 500
Boulder, CO 80302 993,930 (2)(4)(5) 10.8%
Ronald G. Coss
1401 Walnut St., Suite 500
Boulder, CO 80302 2,493,528 (6) 28.9%
Richard N. Reinhardt
1401 Walnut St., Suite 500
Boulder, CO 80302 486,084 (2)(4)(5) 5.5%
George J. Isaac 251,000(4)(7) 2.9%
1401 Walnut St., Suite 500
Boulder, CO 80302
All officers and directors as a 3,903,313
group (4 persons) (2)(3)(4)(5)(6)(7) 44.5%
Micro Motors Employee
Stock Ownership Plan
151 E. Columbine 1,099,805(6) 12.7%
Santa Ana, California
</TABLE>
- ---------------------
(1) Calculated pursuant to Rule 13d-3 under Exchange Act.
(2) Includes 250,000 shares of Common Stock, 58,229 shares of Preferred Stock
convertible share-for-share into Common Stock at any time, and Warrants to
acquire 13,000 shares of Common Stock owned of record by Professional Sales
Associates, Inc. ("PSA"). Messrs. Searl and Reinhardt are officers and
directors of PSA and may be deemed to beneficially own PSA's shares. Mr.
Searl, individually, owns of record 400,750 shares of Common Stock and
19,900 shares of Preferred Stock. Mr. Reinhardt, individually, owns of
record 56,950 shares. In addition, Mr. Reinhardt's spouse, individually,
owns 4,000 shares which are attributed to him in this chart.
(4) Includes options held by Messrs. Searl, Reinhardt and Isaac to purchase
50,000 shares (each) shares of the Company's Common Stock at $2.50 per
share. Also includes options held by Messrs. Searl and Isaac to purchase
100,000 and 200,000, respectively, of the Company's Common Stock at $2.13
per share. These shares have been added to outstanding shares in
calculating each director's individual percentage of beneficial ownership.
(5) Includes options held by Messrs. Searl and Reinhardt to purchase 2,051
shares (each) of the Company's Common Stock at $2.43 per share and Mr.
Reinhardt to purchase 1,754 shares of the Company's Common Stock at $2.85
per share. These shares have been added to outstanding shares in
calculating each director's individual percentage of beneficial ownership.
(6) Includes 604,893 shares of the Company's Common Stock held by the Micro
Motors ESOP which are held by such ESOP for the benefit of Mr. Coss. Such
shares held by the ESOP for the benefit of Mr. Coss are included in the
total opposite Mr. Coss' name and also included in the total opposite the
name of the Plan. Mr. Coss is one of three Trustees of such Plan, and does
not have sole voting or dispositive power over shares held by the Plan.
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<PAGE>
(7) The officers and directors as a group currently have in the aggregate,
together with their affiliates, voting power with respect to 2,601,335
currently issued and outstanding shares of Common Stock, not including in
such number the convertible preferred stock or options treated as shares of
Common Stock attributed to them for the purpose of this chart. Shares held
by the Micro Motors ESOP have not been included in computing the voting
power number in this footnote or in stating the vote controlled by officers
and directors elsewhere in this proxy statement, but shares held by the
Micro Motors ESOP for the benefit of Mr. Coss are included the amount of
his beneficial ownership and the total held by all officers and directors
as a group reported in the chart.
_______________
Set forth in the following table is information as of June 30, 1995 with
respect to the beneficial shareholdings of all directors, individually, and all
officers and directors as a group, and beneficial owners of more than five
percent of the Company's Series A Preferred Stock.
BENEFICIAL SHAREHOLDINGS OF DIRECTORS, OFFICERS AND
OWNERS OF MORE THAN 5% OF PREFERRED STOCK
<TABLE>
<CAPTION>
Percent
Name and Address No. of shares of Class
- ------------------------------------- ---------------- ---------
<S> <C> <C>
Kent E. Searl 78,129 (1)
1401 Walnut Street, Suite 500
Boulder, CO 80302 100.0%
Richard N. Reinhardt
1401 Walnut Street, Suite 500
Boulder, CO 80302 58,229 (1) 74.5%
All officers and directors as a
group (3 persons) 78,129 (1) 100.0%
Professional Sales Associates, Inc.
1401 Walnut Street, Suite 500
Boulder, CO 80302 58,229 74.5%
</TABLE>
- --------
(1) Includes 58,229 shares owned of record by Professional Sales Associates,
Inc. ("PSA"). Messrs. Searl and Reinhardt are officers and directors of
PSA and may be deemed to beneficially own PSA's shares. Mr. Searl,
individually, owns of record 19,900 shares (24.2% of the outstanding shares
of Preferred Stock). Mr. Reinhardt owns no shares of Preferred Stock
individually.
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<PAGE>
OTHER MATTERS
The Board of Directors of Pro-Dex does not know of any other matters to be
brought before the Meeting. However, if any other matters should properly come
before the Meeting, it is the intention of the persons named in the accompanying
proxy to vote such proxy on such matters in accordance with their best judgment.
Proposals of shareholders (which must comply with the requirements of Rule
14a-8 under the Exchange Act) intended to be presented at the 1996 Annual
Meeting of shareholders must be received not later than January 19, 1996.
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<PAGE>
PRO-DEX, INC.
1401 Walnut Street, Suite 500
Boulder, Colorado 80302
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Kent E. Searl and George J. Isaac or either of
them, with full power of substitution and appointment, and hereby authorizes
said Proxies to represent them and to vote, as designated below, all the shares
of the Common Stock and Preferred Stock of Pro-Dex, Inc. held of record by the
undersigned on December 31, 1995, at the Annual Meeting of Shareholders to be
held on February 28, 1995 at 10:00 a.m., local time, at the offices of Biotrol
International, Inc., Colorado Technical Center, 650 South Taylor Avenue, Suite
20, Louisville, Colorado, or any adjournment thereof, for the following
purposes:
1. To consider and act upon a proposal to convert options to acquire shares in
the Company's Micro Systems Acquisition Corporation into options to acquire
shares of the Company's Common Stock under the Company's 1994 Stock Option
Plan, pursuant to the Merger Agreement whereby Micro Motors, Inc. was
merged with and into the Company's subsidiary.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To consider and act upon a proposal to increase the authorized shares of
Common Stock allocable to the 1994 Stock Option Plan, by adding authority
to grant options to acquire 1 million shares of Common Stock to such Plan,
thereupon totaling 1.5 million shares allocable to future grants and
exercise of previously granted options under the 1994 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To consider and act upon a proposal to increase the authorized shares of
Common Stock allocable to the Directors' Stock Option Plan, by adding
authority to grant options to acquire 300,000 shares of Common Stock to
such Plan, thereupon totaling 500,000 shares allocable to future grants and
exercise of previously granted options under the Directors' Stock Option
Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To elect four (4) directors.
[ ] GRANT (except as otherwise noted below) Authority to vote for the
election of the four nominees listed below
[ ] WITHHOLD
(INSTRUCTION: TO WITHHOLD FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH
THE NOMINEE'S NAME BELOW.)
Kent E. Searl _______ Votes George J. Isaac ______ Votes
Ronald G. Coss _______ Votes Charles Strait ______ Votes
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<PAGE>
5. To ratify the selection of McGladrey & Pullen L.L.P. as the independent
certifying accountants of the Company's financial statements for the year
ending June 30, 1996.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. To transact such other business as may properly come before the Meeting or
any adjournment or postponement thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE THIS PROXY WILL BE VOTED
FOR ELECTION OF THE NAMED NOMINEES AS DIRECTORS, CONVERSION OF MICRO OPTIONS,
INCREASE IN SHARES AUTHORIZED FOR ISSUANCE UNDER 1994 STOCK OPTION PLAN,
INCREASE IN SHARES AUTHORIZED FOR ISSUANCE UNDER DIRECTORS' STOCK OPTION PLAN,
AND RATIFICATION OF THE SELECTION OF MCGLADREY & PULLEN, L.L.P.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE ANNUAL MEETING OF
SHAREHOLDERS AND THE PROXY STATEMENT FURNISHED THEREWITH.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, give full title. If a corporation, sign in full corporate
name by authorized officer. If a partnership, sign in partnership name by
authorized person.
Dated:
---------------------------------
---------------------------------------
Signature
---------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
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