<PAGE>
Schedule 14C Information
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934
Check the Appropriate Box:
[_] Preliminary Information Statement
[_] Confidential for Use of the Commission
[_] Only (as permitted by Rule 14c-5(d)(2)
[X] Definitive Information Statement
PRO-DEX, INC.
----------------------------------------------------------
(Name of Registrant as Specified in Charter)
------------------------------------------
Commission File No: 0-14942
------------------------------
Payment of Filing Fee (Check the appropriate box):
[X] $0 per Exchange Act Rules 0-11(c)(1)(ii) or 14c-5(g), as amended.
[_] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________.
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________.
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined:
______________________________________________________________.
(4) Proposed maximum aggregate value of transaction _________________________.
(5) Total fee paid: $0
____________.
[_] 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 NOVEMBER 13, 1996
____________________________
Notice is hereby given that the Annual Meeting of shareholders of Pro-Dex,
Inc. will be held on Wednesday, November 13, 1996, at 9:30 a.m., local time, at
the Pacific Club, 4110 McArthur Boulevard, Newport Beach, California 92660, for
the following purposes:
1. To elect three (3) directors.
2. To consider and act upon a proposal to amend the Directors' Stock
Option Plan, to expressly authorize grant of options to non-employee
directors on commencement of service on the Board of Directors on
inauguration of the plan to grant options on the commencement of
services as a director, as well as to expressly authorize such further
grants of options not more often than annually as the Board of Directors
shall determine by vote of the disinterested directors.
3. 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, 1997.
4. To transact such other business as may properly come before the
Meeting and any adjournment or postponement thereof.
An Information Statement explaining the matters to be acted upon at
the meeting is enclosed.
Shareholders of record at the close of business on October 15, 1996
(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.
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
BY ORDER OF THE BOARD OF DIRECTORS
Kent E. Searl, Chairman
Boulder, Colorado
November 2, 1996
-2-
<PAGE>
PRO-DEX, INC.
1401 WALNUT STREET, SUITE 500
BOULDER, COLORADO 80302
(303) 443-8165
__________________________
INFORMATION STATEMENT
__________________________
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
This Information Statement is being furnished by the Board of
Directors of Pro-Dex, Inc. ("Pro-Dex" or the "Company") in connection with an
Annual Meeting of shareholders of Pro-Dex to be held on Wednesday, November 13,
1996, at 9:30 a.m., local time, at the Pacific Club, 4110 McArthur Boulevard,
Newport Beach, California 92660, and any adjournment thereof. The shareholders
of Pro-Dex are being asked to vote:
1. To elect three (3) directors.
2. Upon a Proposal to amend the Directors' Stock Option Plan, to
expressly authorize grant of options to non-employee directors on
commencement of service on the Board of Directors or inauguration
of the plan to grant options on the commencement of service as a
director, as well as to expressly authorize such further grants of
options not more often than annually as the Board of Directors
shall determine, by vote of the disinterested directors.
3. Upon ratification of 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, 1997.
4. Upon transaction of 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."
Security holders may correspond with the Company at the above address,
or reach the Company's corporate offices by telephone at (303) 443-6136.
This information statement is being delivered to security holders on
November 2, 1996. No proxy is hereby requested. The Company's Board of
Directors holds sufficient proxies to effect approval of all questions before
the meeting and all questions before the meeting are of a routine nature
involving no controversy. The record date for voting of securities at the
annual meeting is October 15, 1996.
This information statement has been prepared and is being delivered to
security holders pursuant to direction of the Board of Directors of the Company,
in accordance with Regulation 14C under the Securities Exchange Act of 1934.
The costs of this information statement, to be borne by the Company, are
estimated at approximately $10,000.
The date of this Information Statement is November 2, 1996.
<PAGE>
SUMMARY OF INFORMATION STATEMENT
This information statement is being delivered to shareholders of Pro-
Dex, Inc., a Colorado corporation (the "Company") in lieu of a proxy statement
because the Board of Directors of the Company holds sufficient proxies to assure
the approval of all propositions before the meeting and because all such matters
are of a routine nature. No proxy is hereby solicited.
The three matters which will be determined at the Annual Meeting,
known to the Board of Directors at the time of this information statement, are
(1) election of directors (2) amendment of the Directors' Stock Option Plan, and
(3) ratification of selection of accountants. In addition, the shareholders at
such Annual Meeting may consider and vote upon such other matters as may
properly come before the meeting.
The directors unanimously nominated by the Board of Directors include
three individuals who currently serve as directors, as follows: Mr. Richard N.
Reinhardt, Mr. Robert A. Hovee and Mr. John B. Zaepfel. The Board of Directors
unanimously recommends election of each such individual to serve as a director
of the Company until their successors are elected and qualified. The holders of
approximately 5,034,700 shares, representing approximately 56% of the 9,050,783
currently outstanding shares of the Company's common stock have indicated their
intention to vote in favor of election of such directors as nominated by the
Board of Directors. Accordingly, election of such directors is virtually
assured. "See Proposal One - Election of Directors" and "Management
Information."
The Board of Directors also unanimously recommends shareholder
approval of the proposal to amend the Directors' Stock Option Plan, to expressly
authorize grants of stock options to outside directors on the latter of (1)
approval of resolutions by the Board of Directors to grant such options, or (2)
commencement of service by such directors, as well as to expressly authorize
such further grants of options not more often than annually as the Board of
Directors shall determine, by vote of the disintested directors. Shareholder
approval of such amendment to the Directors' Stock Option Plan would ratify the
prior grant of options to acquire 20,000 options each to Messrs. Reinhardt,
Hovee and Zaepfel. The holders of approximately 5,034,700 shares, representing
approximately 56% of the 9,050,783 currently outstanding shares of the Company's
common stock have indicated their intention to vote in favor of ratification of
the amendment of the Directors' Stock Option Plan to expressly authorize the
grant of options on commencement of service by outside directors or the initial
grant of options under the plan to grant options on commencement of service as
to any prior serving director, as well as to expressly authorize such further
grants of options not more often than annually as the Board of Directors shall
determine, by vote of the disintested directors. Accordingly, shareholder
approval of the proposal to amend the Directors' Stock Option Plan is virtually
assured. "See Proposal Two - Approval of Amendment to Directors' Stock Option
Plan."
The Board of Directors also unanimously recommends ratification of
selection of McGladrey & Pullen, L.L.C. as the Company's independent certified
public accountants and auditors for the year ending June 30, 1997. Such firm
currently serves as the Company's accountants, and certified the financial
statements of the Company as of the year ended June 30, 1996, set forth in the
Company's annual report filed with the Securities and Exchange Commission on
Form 10-KSB, a copy of which is delivered herewith. The holders of approximately
5,034,700 shares, representing approximately 56% of the 9,050,783 currently
outstanding shares of the Company's common stock have indicated their intention
to vote in favor of ratification of selection of McGladrey & Pullen, L.L.C. as
the Company's independent public accountants
-2-
<PAGE>
and auditors for the year ending June 10, 1997. Accordingly, ratification of
selection of auditor is virtually assured. "See Proposal Three - Ratification of
Selection of Accountants."
Shareholders are instructed to review (1) the Company's Annual Report
on Form 10-KSB, dated as of June 30, 1996; and (2) the Company's Current Report
on Form 8-K, dated August 26, 1996, for additional information regarding the
Company's assets and businesses.
NO PROXY IS BEING SOLICITED HEREWITH AND YOU ARE REQUESTED
NOT TO SEND YOUR PROXY IN RESPONSE TO THIS INFORMATION STATEMENT.
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: Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1996, enclosed herewith.
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 Information 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
Information 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 Information Statement.
VOTING SECURITIES
There are currently outstanding 9,050,783 shares of common stock of
the Company, all of which are entitled to be voted at the meeting. Each share
is entitled to one vote. The record date for this information statement and for
determination of voting securities at the meeting is October 15, 1996. There
are no cumulative voting rights in respect of election of directors or any other
matter before the meeting. Of the 9,050,783 shares of outstanding common stock
of the Company, members of the Board of Directors hold proxies to vote
approximately 5,034,700 shares, representing approximately 56% of outstanding
shares of common stock, which suffice for election of directors, amendment of
the Directors' Stock Option Plan, ratification of selection of accountants and
all other matters which may come before the meeting. ACCORDINGLY, NO PROXY IS
HEREBY SOLICITED, AS A COST SAVING MEASURE.
MARKET PRICE AND DIVIDENDS
As of the record date, October 15, 1996, the last sale price for the
Company's common stock was $3.44 per share, as reported by NASDAQ, Inc.(TM) The
Company's preferred stock is not publicly traded. No dividends have ever been
paid by the Company and the Company has no current plans to pay dividends.
-3-
<PAGE>
PROPOSAL ONE - ELECTION OF DIRECTORS
The Board of Directors has unanimously nominated three 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 of the
Company, with Mr. Richard N. Reinhardt having been elected to serve as a
director by the shareholders at the Company's Annual Meeting on May 25, 1994,
Mr. Robert A. Hovee having been elected to serve as a director by the Board of
Directors on February 29, 1996 and Mr. John B. Zaepfel having been elected to
serve as a director by the Board of Directors on August 28, 1996.
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:
STAGGERED TERMS OF DIRECTORS
<TABLE>
<CAPTION>
Term
Name of Director Age Employee Committees Nominee Expires# Class
- ---------------- --- -------- ---------- ------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Kent E. Searl 54 Yes Compensation* - 6/30/99 III
Ronald G. Coss 60 Yes Audit* - 6/30/99 III
Charles E. Strait 48 Yes Audit* - 6/30/98 I
Compensation*
George J. Isaac 51 Yes Audit* - 6/30/98 I
Compensation*
Richard N. Reinhardt 64 No Audit Yes 6/30/2000 II
Compensation
Robert A. Hovee+ 54 No Audit Yes 6/30/2000 II
Compensation
John B. Zaepfel++ 60 No Audit Yes 6/30/2000 II
Compensation
- ---------------------------
</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.
+ Director commenced serving February 29, 1996, by election of Board.
++ Director commenced serving August 28, 1996, 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:
-4-
<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. Mr.
Reinhardt was elected by the shareholders of the Company, to serve as a Class
II director until June 30, 1997 or the election and qualification of his
successor.
ROBERT A. HOVEE began serving on the Company's Board of Directors on
---------------
February 27, 1996. He serves as a member of both the Audit Committee and the
Compensation Committee. Currently, Mr. Hovee serves as President of the Orange
County Biomedical Industry Council and the Orange County Biocommerce
Association, both California non-profit associations. Formerly Mr. Hovee was
Chief Executive Officer and President of Life Support Products, Inc., a maker of
emergency medical products of which he was a co-founder, prior to its
acquisition by Allied Healthcare Products, Inc. He has also served as a
director and chairman of Infrasonic, Inc., an infant respirator manufacturer.
Mr. Hovee, who is active in many charities, serves as a co-chair of a University
of California-Irvine Center for the Health Sciences fund-raising project. Mr.
Hovee received a B.A. in Business Administration and a B.A. in Business
Administration-International Business from the University of Washington,
Seattle, Washington as well as a Bachelor of Foreign Trade and a Master of
Foreign Trade from the American Graduate School of International Management
(Thunderbird) in Glendale, Arizona. Mr. Hovee was elected by the Board of
Directors, to serve as a Class II Director until the first to occur of the next
shareholders' meeting, June 30, 1997 or the election and qualification of his
successor.
JOHN B. ZAEPFEL has served as director of the Company since August 28,
---------------
1996. He also serves as a member of the Company's Compensation and Audit
Committees. Previously, Mr. Zaepfel served on the advisory committee advising
the Board of Directors of Micro Motors, Inc., prior to its merger into the
Company's Micro subsidiary in July of 1995. Mr. Zaepfel spent fifteen years as
the Chief Executive Officer of CPG International, Inc., which he founded in 1985
in a leveraged buy-out of a division of a wholly owned subsidiary of Times
Mirror, Inc. Prior to its private sale in 1989, CPG International, Inc. was a
$90 million operating company, manufacturing and marketing art, engineering and
media supplies. Prior to forming CPG International, Inc., Mr Zaepfel was
President and CEO of Chartpak and Picket Industries, wholly owned subsidiaries
of Times Mirror, Inc. Mr. Zaepfel previously served as a director of Ideal
School Supplies, Inc., when it was a publicly traded company, and was director
of six privately held companies. Currently, Mr. Zaepfel is Chairman of the
Board of Acordia of Southern California, a wholly owned subsidiary of Anthem,
Inc., listed on the New York Stock Exchange, Inc. Mr. Zaepfel previously served
as a director of Varitronics, Inc., previously quoted on NASDAQ, Inc. and
currently serves as a director of Remedy Temp, Inc., a public company quoted on
NASDAQ, Inc. Mr. Zaepfel is a graduate of the University of Washington and
holds a Master in Business Administration from the University of Southern
California. Mr. Zaepfel was elected by the Board of Directors, to serve as a
Class II Director until the first to occur of the next shareholders' meeting,
June 30, 1997 or the election and qualification of his successor.
-5-
<PAGE>
The following individuals currently serve as directors of the Company
having been elected by the shareholders of the Company at the Company's last
annual meeting February 29, 1996, and are not up for election at this time:
KENT E. SEARL is a co-founder of the Company and served as President until
-------------
July 1995. He has served as a director of the Company or its predecessor since
its inception in 1978. In addition to serving as Chairman of the Board, Mr.
Searl is 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. ("PSA"), a national
dental equipment manufacturers' representative, which he co-founded. 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 was elected by the shareholders of the Company to serve as a Class III
Director until June 30, 1999 or the election and qualification of his successor.
RONALD G. COSS has served as Vice Chairman and as a Director of the Company
--------------
since July 26, 1995. Mr. Coss founded Micro Motors 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, and is currently serving as
President of Micro, pending selection of a successor. 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. Mr. Coss is currently one of the
Trustees of the Micro Motors Employee Stock Ownership Plan, a shareholder of the
Company. Mr. Coss was elected by the shareholders of the Company, to serve as a
Class III Director until June 30, 1999 or the election and qualification of his
successor.
CHARLES E. STRAIT has served as the President and as a Director of the
-----------------
Company since July 26, 1995. Previously, Mr. Strait served as President of
Micro Motors, Inc. from 1991 to 1995 and began serving on that company's Board
of Directors in 1991, 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 was elected by the shareholders of
the Company, to serve as a Class I Director until June 30, 1998 or the election
and qualification of his successor.
GEORGE J. ISAAC has served as Chief Financial Officer, Secretary and as a
---------------
Director of the Company since July 26, 1995. Previously, Mr. Isaac 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, and is Vice President, Secretary and Chief Financial Officer of
the Company. Mr. Isaac has been a certified public accountant with Joseph B.
Cohan and Associates, Worcester, Massachusetts since 1969, became a partner in
1977 and served as its president from 1991 to 1996. He is a member of the Board
of Directors of Professional Sales
-6-
<PAGE>
Associates, Inc., is a former director of 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 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 was elected by the shareholders of the Company, to
serve as a Class I Director until June 30, 1998 or the election and
qualification of his successor.
The Board of Directors met on six occasions in the year ending June 30,
1996, all of which meetings were attended by all then serving directors. Since
June 30, 1996, the Board of Directors has met twice, each such meeting being
attended by all then serving directors. The Board of Directors established
Audit and Compensation Committees at its September 1995 meeting. The Board of
Directors directed that each such committee commence activity at such time as
there shall be at least two non-employee directors of the Company. Non-employee
directors serving on the Board of Directors are voting members of the Audit and
Compensation Committees, with employee directors serving as non-voting, ex
officio members of each such committee. Beginning in February 1996, when there
were two non-employee directors serving on each such committee, such committees
commenced meeting on alternate Board of Directors meeting dates, with two
meetings of the Audit Committee and one meeting of the Compensation Committee
during the year ended June 30, 1996. Since June 30, 1996, the Compensation
Committee has met on one additional occasion.
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 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.
The vote of the holders of a majority of outstanding shares of common stock
is required to elect the nominated directors to serve on the Board of Directors.
The holders of approximately 5,034,700 shares, comprising approximately 56% of
the currently issued and outstanding stock of the Company have indicated their
intent to vote for the election of the directors nominated by the Board of
Directors. Accordingly, the election of such directors at the Annual Meeting is
assured.
PROPOSAL TWO - AMENDMENT OF DIRECTORS' STOCK OPTION PLAN
The Board of Directors unanimously recommends the adoption of an amendment
to the Directors' Stock Option Plan to expressly provide for grant of options,
at the discretion of the Board of Directors, to outside directors upon the
latter to occur of the vote of the Board of Directors granting such options or
the commencement of service by any director, as well as to expressly authorize
such further grants of options not more often than annually as the Board of
Directors shall determine, by vote of the disinterested directors.
On May 24, 1994, the Company's shareholders adopted its Directors' Stock
Option Plan (the "Plan"), pursuant to which the Company's Option Committee was
authorized to issue options to purchase up to 200,000 shares of the Company's
common stock to non-employee directors of the Company. At the February 26, 1996
Annual Meeting, the Company's shareholders authorized an increase in the number
of shares authorized for grant of options under the Directors' Stock Option Plan
to 500,000 shares. The Plan was adopted to advance the interests of the Company
and its shareholders by attracting qualified non-employee directors, whose
participation and
-7-
<PAGE>
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 the options is ten years. During the year ended June
30, 1996, the Board of Directors granted options in the amount of 1,200 shares
each to Messrs. Reinhardt and Hovee, with an exercise price of $4.19 per share.
The automatic grant of options provided under the previously adopted resolution
and Plan will be terminated on shareholder approval of Proposal Two to amend the
Directors' Stock Option Plan.
In August 1996, the Board of Directors determined, based upon an extended
informal review of the practices of other companies with respect to outside
directors, that it was in the interest of the Company to grant options to
acquire 20,000 shares each to newly elected outside directors. Accordingly, the
Company indicated its intent to grant options under the Directors' Stock Option
Plan to acquire 20,000 shares each to Robert A. Hovee, who commenced service on
February 29, 1996 and John B. Zaepfel, who commenced service on August 28, 1996,
with an exercise price of $3.31 and $3.93, respectively, the last price reported
on NASDAQ for the date prior to the latter of the commencement of board service
or grant of options by the Board of Directors. While the Board of Directors
believes that the Directors' Stock Option Plan currently permits the grant of
options on commencement of an experienced outside director's service on the
Board of Directors, it has determined to seek shareholder approval of an
amendment to the Plan to expressly provide for such a grant of options, as well
as to expressly provide for such further grants of options not more often than
annually as the Board of Directors shall determine, by vote of the disinterested
directors. All grants of options under the Directors' Stock Options Plan would
remain subject to the limit of 500,000 shares authorized for the aggregate of
all options granted under the Plan, as established by shareholder vote on
February 29, 1996.
The following table sets forth the identities of the directors granted
options under the Directors' Stock Option Plan since it was adopted in 1994,
assuming shareholder approval of Proposal Two - To Amend the Directors' Stock
Option Plan:
GRANTS OF OPTIONS UNDER THE DIRECTORS' STOCK OPTION PLAN
AS OF OCTOBER 15, 1996
<TABLE>
<CAPTION>
OPTIONS EXERCISE EXPIRATION POTENTIAL
NAME OF DIRECTOR YEAR GRANTED (#) PRICE ($/SH) DATE VALUE /(1)/ (S)
- --------------------------- ---- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Richard N. Reinhardt 1997 20,000 3.31 8-01-06 $ 45,000
1996 1,200 4.19 7-01-06 1,608
1995 50,000 2.50 4-07-05 138,500
1995 1,754 2.85 7-01-05 4,245
1994 2,051 2.43 5-25-04 5,230
Robert A. Hovee 1997 20,000 3.31 8-01-06 45,000
1996 1,200 4.19 7-01-06 1,608
John B. Zaepfel 1997 20,000 3.93 8-26-06 32,600
Kent E. Searl/(2)/ 1994 2,051 2.43 5-25-04 5,230
</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.
-8-
<PAGE>
(2) Such options were granted at a time when Mr. Searl was not an employee of
the Company.
In addition to the grant of options under the Directors' Stock Option Plan,
Directors receive compensation for their service on the Board of Directors. SEE
"MANAGEMENT COMPENSATION - DIRECTORS' COMPENSATION."
The vote of the holders of a majority of outstanding shares of common stock
is required to adopt the proposal to amend the Directors' Stock Option Plan to
expressly authorize grant of options on commencement of service on the Company's
Board of Directors, as well as to expressly authorize grant of options not more
often than annually as the Board of Directors shall determine by vote of the
disinterested directors. The holders of approximately 5,034,700 shares,
comprising approximately 56% of the currently issued and outstanding stock of
the Company have indicated their intent to vote for the proposal to amend the
Directors' Stock Option Plan. Accordingly, adoption of the proposal to amend the
Directors' Stock Option Plan at the Annual Meeting is assured.
PROPOSAL THREE - 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, 1997. McGladrey & Pullen,
L.L.P. served as the Company's independent certifying accountants for the year
ended 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 year ended June 30, 1995, and the
report of McGladrey & Pullen for the year ended June 30, 1996 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 there were no disagreements with the former accountant on any
matter of accounting principles or practices, financial statement disclosure, or
audit scope or procedure. The Company's Form 10-KSB and the financial statements
set forth therein is incorporated herein by reference and delivered to the
shareholders herewith. 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.
The vote of the holders of a majority of outstanding shares of common stock
is required to ratify selection of McGladrey & Pullen, L.L.P. as the Company's
independent certifying accountants for the year ending June 30, 1997. The
holders of approximately 5,034,700 shares, comprising approximately 56% of the
currently issued and outstanding stock of the Company have indicated their
intent to vote to ratify selection of McGladrey & Pullen, L.L.P. Accordingly,
ratification of selection of McGladrey & Pullen, L.L.P. at the Annual Meeting is
assured.
RECENT EVENTS
On July 26, 1996, the Company entered into a credit agreement with Harris
Bank and Trust, N.A., ("Harris Bank") pursuant to which the Company borrowed $6
million for five years, with an interest rate of prime. In addition, the Company
obtained a line of credit permitting it to borrow $4 million at the prime rate
of interest. The Company has the option, at any time, to convert its domestic
rate loans with Harris Bank to an adjusted LIBOR Eurocredit rate of Adjusted
-9-
<PAGE>
LIBOR plus 1 1/2 to 2 percent, on a sliding scale relating to cash flow ratios
determined under provisions of the credit agreement. The term loan requires
annual prepayments equal to the greater of 50% of excess cash flow, as defined,
or $800,000, beginning in October 1997. The credit facility also requires
compliance with certain financial covenants. The obligations to Harris Bank are
secured by security interests in the personal property assets of the Company's
subsidiaries and the Company's intellectual property assets, subject to pre-
existing security interests of Hunter in the OMS patents and the rights of Pnu-
Light Tools, in the event of an unwinding of the Pnu-Light acquisition. The
proceeds of the term loan were used in part to prepay prior indebtedness to
FINOVA Financial Corporation ("FINOVA"). Upon prepayment of the Company's prior
debt to FINOVA, the Company incurred a prepayment penalty of $293,200, or far
less than the benefit to the Company from the difference in applicable interest
rates. As of September 20, 1996, the Company's outstanding balance on the five
year loan was $6 million and on the line of credit loan was $1 million, and the
applicable interest rate for both loans was 8.25%.
The Company's Board of Directors recently began considering various
alternatives regarding the future of its Pro-Dex Management, Inc. ("PDM")
subsidiary. PDM is in the dental clinic management business in northern
California. Among alternatives considered were restructuring of the business,
continued operations under present parameters, expansion of operations, and sale
of the business. Most of the PDM site leases with Sears are up for renewal or
termination prior to June 30, 1997. After consideration of the Company's future
and PDM's compatibility with other subsidiaries, the Board of Directors decided
to exit this line of business. Accordingly, the Company's financial statements
for the year ended June 30, 1996 presented the PDM subsidiary as a "discontinued
operation." Recently, the Board of Directors received a written proposal from a
possible purchaser regarding acquisition of the PDM business, which the Board of
Directors was unable to accept without significant modifications. Negotiations
remain open, but the Company's Board of Directors is unable to predict whether
such negotiations will result in any agreement to dispose the PDM business. Due
to the sensitive nature of ongoing negotiations for which no letter of intent
has been adopted, the Company is unable to disclose the possible price or other
material terms for the proposed transaction. While the Company hopes that it
will be able to liquidate its holdings in PDM at no loss to the Company, there
can be no guarantee of such a result from the disposition process. Any proposal
acceptable to the Company must provide for an appropriate transition of
personnel and independent contractor professionals. The Board of Directors
stresses that the ongoing negotiations are very preliminary and may result in no
agreement.
OTHER MANAGEMENT INFORMATION
COMPLIANCE WITH SECTION 16
- --------------------------
Based solely upon its review of Forms 3, 4, and 5 and written
representations of officers and directors, the Company is not aware of any
failure of any officer, director or owner of 10% or more of the outstanding
securities of the Company to make timely filings in accordance with the
requirements of Section 16.
-10-
<PAGE>
EXECUTIVE COMPENSATION
- -----------------------
The following table summarizes executive compensation paid by the Company
during the last three fiscal years to the Company's Chairman and the four other
most highly compensated executives.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------- -------------------------------------------------
AWARDS PAYOUTS
---------------------------- -------------------
OTHER
ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND COMPEN- STOCK UNDERLYING LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS SATION /(1)/ AWARDS OPTIONS/SAR PAYOUTS SATION /(7)/
- ------------------ ---- ------ ----- ------------ ---------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
KENT E. SEARL 1996 $150,000 - - - 100,000 /(3)/ - -
Chairman and Chief 1995 $ 0.00 - - - 50,000 - -
Executive Officer /(2)/ 1994 $ 0.00 - - - 52,051 - -
RONALD G. COSS 1996 $360,000 - - - None - -
Vice Chairman /(4)/ 1995 N/A - - - N/A - -
1994 N/A - - - N/A - -
CHARLES E. STRAIT 1996 $175,000 - - - None /(5)/ - -
President, 1995 N/A - - - N/A - -
Director/(5)/ 1994 N/A - - - N/A - -
GEORGE J. ISAAC 1996 $170,000 - - - 200,000(3) - -
Vice President, 1995 N/A - - - 50,000 - -
Chief Financial 1994 NA - - - - -
Officer, Secretary-
Treasurer,
Director /(6)/
DR. M. LARRY KYLE 1996 $114,000 - - - None - -
President of PDM 1995 $114,672 - - - 50,000 - -
Subsidiary 1994 $106,120 - - - 50,000 - -
</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.
(3) Options in the amount of 100,000 and 200,000 shares were granted to
Messrs. Searl and Isaac, respectively during the Company's fiscal year
ended June 30, 1996, under the 1994 Stock Option Plan.
(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
-11-
<PAGE>
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 compensation.
(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 July of 1994, which were converted to options to
acquire 295,560 shares of the Company's common stock, under the 1994 Stock
Option Plan, pursuant to the vote of Shareholders at the Company's annual
meeting on February 27, 1996.
(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. See also note 3 to this chart.
(7) Employer contributions to the Pro-Dex, Inc. 401(k) Plan.
EMPLOYMENT AGREEMENTS
- ---------------------
Effective 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 paid salaries in
an aggregate amount of $1,080,000 for all its officers and directors for the
year ending June 30, 1996.
On July 26, 1995, the Company entered into a long term employment agreement
with Mr. Ronald G. Coss, who serves as Vice Chairman and President of the
Company. Mr. Coss is currently paid $363,000 annually, and such compensation is
adjustable upward for inflation each July 1. In addition to direct compensation
under his employment agreement with the Company, Mr. Coss is reimbursed for
travel and entertainment expenses, receives a vehicle and auto expenses, country
club dues and expenses, annual physical with related accommodations, and six
weeks annual leave. Mr. Coss' employment agreement permits him to elect to be
paid cash in lieu of leave not taken. Mr. Coss' five year 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 Non-Competition Agreement in connection with the merger of
Micro Motors with and into the Company's Micro 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."
- ---
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.
-12-
<PAGE>
Mr. Searl is officed in the Company's headquarters offices in Boulder, Colorado,
and travels frequently to all the Company's subsidiaries. Currently, Mr. Searl
is paid $160,000 for the year ended June 30, 1997, with an increase to $170,000
per annum for the remainder of the three year term of his employment agreement.
The employment agreement accords Mr. Searl three weeks annual leave. In addition
to direct compensation, 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
subsidiary, but travels frequently to all of the Company's subsidiaries and its
Boulder, Colorado headquarters. Mr. Strait's current salary is $185,000 for the
year ending June 30, 1997 and is to increase to $195,000 per annum for the
remainder of the three year term of the employment agreement. Mr. Strait's
employment agreement permits him three weeks annual leave, with forfeiture of
leave not taken. 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. The employment
agreement with Mr. Isaac provides that he is to receive a salary of $180,000 for
the year ending June 30, 1997, and $190,000 per annum for the remainder of the
three year term of the employment agreement. Mr. Isaac's employment agreement
allows three weeks annual leave, with forfeiture of leave not taken. The
employment agreement with Mr. Isaac provides that he may receive use of a
Company vehicle for business purposes. 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.
The Company employs Dr. Kyle as Chief Operating Officer of its PDM
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 PDM's pre-
tax earnings in excess of $300,000 during each fiscal year covered by the
agreement. During the year ended June 30, 1996, Dr. Kyle was paid $114,000.
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
-13-
<PAGE>
accordance with his direction. The employment agreement provides that Mr. Bull
cannot compete, directly or indirectly, with Challenge for three years following
termination of employment.
COMPENSATION TO DIRECTORS
- --------------------------
Through the year ended June 30, 1995, directors waived all directors fees
then payable, but were granted options to acquire the Company's common stock,
exercisable at the last sale price on the date prior to the date of grant.
During the year ended June 30, 1996, the Board of Directors determined that
experienced outside directors expect to receive directors' fees and stock
options in connection with such service. On September 21, 1995, the Board of
Directors 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. During the year ended June 30, 1996, $40,000 was paid as non-
employee director compensation. Employee directors receive only their usual
salaries and expenses in attendance at Board and Committee meetings for service
on the Board of Directors. In addition, in August 1996, the Board adopted a
proposal to grant 20,000 shares exercisable at the market price on the later of
the date on which a non-employee director commences service or the date the
grant was authorized, for each new non-employee director, and granted options to
acquire 20,000 shares each to Messrs. Reinhardt, Hovee and Zaepfel. During the
year ended June 30, 1996, Messrs. Reinhardt and Hovee were each granted options
to acquire 1,200 shares of the Company's common stock, under the Directors'
Stock Option Plan, exercisable at $4.17 share, the last sale price for the
Company's common stock quoted for NASDAQ on June 30, 1996, the date of grant,
pursuant to the previously adopted plan for grant of options.
On June 24, 1996, the Company's Board of Directors authorized the officers
of the Company to obtain a directors and officers liability policy, subject to
the policy limits and deductibles agreed by the Board of Directors. Such policy
was issued in August 1996. Such policy does not provide coverage for criminal
acts, for fraud upon the Company, or for many other matters. The Company's
directors and officers have been advised that the Securities and Exchange
Commission has taken the position that certain potential liabilities of
directors and officers under the securities laws cannot be indemnified by the
Company.
OPTIONS GRANTED DURING THE LAST FISCAL YEAR.
- --------------------------------------------
The following table provides information on options granted to the
Directors during the year ended June 30, 1996.
OPTIONS GRANTED DURING YEAR ENDED JUNE 30, 1996
OPTIONS EXERCISE POTENTIAL
GRANTED PRICE EXPIRATION VALUE (1)
NAME (#) $/SH) DATE ($)
- -------------------------- -------- --------- ---------- -----------
Kent E. Searl/(2)/ 100,000 $2.13 11-21-05 $ 416,000
Charles E. Strait /(3)/ 295,560 $2.50 7-14-04 1,081,750
George J. Isaac /(2)/ 200,000 $2.13 11-21-05 832,000
-14-
<PAGE>
Richard N. Reinhardt /(4)/ 1,200 $4.17 6-30-06 3,144
Robert A. Hovee /(4)/(5)/ 1,200 $4.17 6-30-06 3,144
- --------------------------------
(1) Potential value is based on the assumption that the price of the stock will
appreciate at an annual compounded rate of 5% until the applicable
expiration dates.
(2) Mr. Searl and Mr. Isaac were granted the indicated options pursuant to the
1994 Stock Option Plan.
(3) Mr. Strait acquired the indicated options pursuant to the vote of the
Company's shareholders at the Annual Meeting to convert previously granted
options to acquire Micro shares to options under the 1994 Stock Option
Plan.
(4) Mr. Reinhardt and Mr. Hovee were granted the indicated options pursuant to
the Directors' Stock Option Plan.
(5) This table does not include the grant to Messrs. Reinhardt, Hovee and
Zaepfel of options to acquire 20,000 shares each in August of 1996,
exercisable at $3.31 and $3.93, respectively.
The following table provides information on exercise of stock options
during the year ended June 30, 1996 by executives and directors and value of
unexercised options at June 30, 1996:
SHARES ACQUIRED ON EXERCISE OF OPTIONS AND VALUE OF OPTIONS
HELD BY EXECUTIVES AND DIRECTORS
AT JUNE 30, 1996
Number of Shares Value of
Underlying Unexercised In
Unexercised the Money
Options at Options at
FY-End (#) FY-End(1)
---------- ---------
Exercise Value Exercisable/ Exercisable/
Name (#) Realized Unexercisable Unexercisable
- ---------------------- --------- -------- ------------- -------------
Kent E. Searl - - 202,051/0 $378,569/0
Charles E. Strait - - 295,560/0 493,585/0
George J. Isaac - - 250,000/0 491,500/0
Richard N. Reinhardt - - 105,005/0 175,884/0
Robert A. Hovee - - 1,200/0 0/0
- ----------------------------------
(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, 1996.
(2) Potential value is based on the assumption that the price of the Company's
common stock will appreciate at an annual compounded rate of 5% until the
applicable expiration date of such options.
_______________
-15-
<PAGE>
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 was 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 option exercise price
must equal fair market value of the Common Stock on the date of grant. No
options to purchase shares of Common Stock were granted under the 1988 Plan
during the fiscal year ended June 30, 1996. At June 30, 1996, options to
purchase an aggregate of 80,000 shares of the Company's Common Stock were
outstanding under this Plan, with options to purchase 30,000 shares exercisable
at $0.25 per share by a former director and options to purchase 25,000 shares
each, exercisable at $1.74 per share by two unrelated parties. On July 5, 1996,
the Company registered the shares underlying the options theretofore granted
under the 1988 Stock Option Plan on a Form S-8 filed with the Securities and
Exchange Commission. Although none of the options under the Plan had been
exercised prior to June 30, 1996, all but 25,000 of such options have now been
exercised. Following exercise of the remaining outstanding options in the Plan,
the Company's Board of Directors intends to eliminate the 1988 Stock Option Plan
during the year ending June 30, 1997, by merger of such Plan into the 1994 Stock
Option Plan.
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 was
authorized to issue options to purchase up to 500,000 shares of the Company's
Common Stock to employees of the Company. At the Annual Meeting of shareholders
on February 27, 1996, the shareholders approved an increase in the number of
shares authorized for grant of options under the Plan to 1.5 million shares. In
addition, the shareholders also approved conversion of options to acquire shares
of Micro, granted to Micro employees prior to the acquisition to options to
acquire 591,120 shares of the Company's common stock at an exercise price of
$2.50 per share, under the 1994 Stock Option Plan. The 1994 Stock Option Plan
was adopted to advance the interests of the Company and its shareholders by
affording employees an opportunity for investment in the Company. The
Compensation Committee has 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. In addition to the conversion of
Micro Options approved by shareholders on February 27, 1996, the Board of
Directors granted options to purchase 300,000 shares to employees, with an
exercise price of $2.75 per share, during the current fiscal year ended June 30,
1996. As of June 30, 1996, there were outstanding options under the 1994 Stock
Option Plan to acquire 1,141,120 shares of the Company's common stock.
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 was authorized to issue
options to purchase up to 200,000 shares of the Company's Common Stock to non-
employee Directors of the Company. At the February 26, 1996 Annual Meeting, the
Company's shareholders approved an increase in
-16-
<PAGE>
the number of shares authorized for grant of options under the Directors' Stock
Option Plan to 500,000 shares. 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, 1996, options to purchase 1,200 shares were granted to
each of Messrs. Reinhardt and Hovee, with an exercise price of $4.17 per share.
Subsequent to June 30, 1996, the Board of Directors granted options in the
amount of 20,000 shares each to Messrs. Hovee and Zaepfel, upon commencement of
their service on the Board of Directors of the Company as outside directors,
with an exercise price of $3.31 and $3.93, respectively, the last price reported
on NASDAQ for the date prior to the later of commencement of service on the
Board of Directors or the grant of options by the Board of Directors. While the
Board of Directors believes that the Directors' Stock Option Plan currently
permits the grant of options on commencement of an experienced outside
director's service on the Board of Directors, it intends to seek shareholder
approval at the next Annual Meeting for an amendment to the Directors' Stock
Option Plan to explicitly provide for such grants. As of June 30, 1996, there
were outstanding options under the Directors' Stock Option Plan to acquire
58,256 shares of the Company's common stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------
Set forth in the following table is information as of June 30, 1996, with
respect to the beneficial shareholdings of the Company's common stock, by all
directors, individually, and all officers and directors as a group, and
beneficial owners of 5% or more of such common stock.
BENEFICIAL SHAREHOLDINGS OF DIRECTORS, OFFICERS AND
OWNERS OF MORE THAN 5% OF COMMON STOCK
PERCENT
NAME AND ADDRESS NO. OF SHARES OF CLASS(1)
- --------------------------------- ------------------------- -----------
Kent E. Searl
1401 Walnut St., Suite 500
Boulder, CO 80302 983,930/(2)/(3)/(4)/ 10.87%
Ronald G. Coss
1401 Walnut St., Suite 500
Boulder, CO 80302 2,493,528 (5) 27.55%
Richard N. Reinhardt
1401 Walnut St., Suite 500
Boulder, CO 80302 487,184 /(2)/(3)/(4)/(6)/ 5.38%
Charles E. Strait
1401 Walnut St., Suite 500
Boulder, CO 80302 295,560/(7)/ 3.27%
-17-
<PAGE>
George J. Isaac
1401 Walnut St., Suite 500
Boulder, CO 80302 251,000 /(3)/ 2.77%
Mr. Robert A. Hovee
1401 Walnut St., Suite 500
Boulder, CO 80302 1,200 /6)/ 0.13%
All officers and directors as a
group (6 persons) 4,187173 46.42%
(2)(3)(4)(5)(6)(7)(8)
Micro Motors Employee
Stock Ownership Plan
151 E. Columbine 1,099,805 (5) 12.15%
Santa Ana, California
- ------------------------
(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.
(3) 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 Reinhardt to
purchase 50,000 shares (each) at $1.75 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. The table does not include
options of Messrs. Reinhardt, Hovee and Zaepfel to acquire 20,000 shares
each under the Directors' Stock Option Plan.
(4) 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.
(5) 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.
(6) Includes options of Messrs. Reinhardt and Hovee to acquire 1,200 shares
each of the Company's Common Stock at $4.17 per share.
(7) Includes options of Mr. Strait to acquire 295,560 shares of the Company's
Common Stock at $2.50 per share, pursuant to conversion of options to
acquire Micro granted prior to the Micro acquisition, approved by the
Company's shareholders on February 27, 1996.
(8) 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
-18-
<PAGE>
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, 1996 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
PERCENT
NAME AND ADDRESS NO. OF SHARES OF CLASS
- ------------------------------------- ---------------- ---------
Kent E. Searl
1401 Walnut Street, Suite 500
Boulder, CO 80302 78,129(1) 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%
- ------------------------
(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.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
On July 26, 1995, 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. The Micro Motors Employee Stock Ownership Plan (the "Micro ESOP") holds
1,099,805 of the shares issued in connection with the acquisition of Micro, and
has certain limited demand registration rights in respect thereof, exercisable
from July 26, 1996 through July 26, 1997, at the expense of the Micro ESOP. In
addition, the Micro ESOP has limited concurrent registration rights, sharing
costs on a pro-rata basis, in the event the Company should undertake an
underwritten public offering prior to July 26, 2000. The Company's shareholders
at the Company's Annual Meeting on February 27, 1996 approved conversion of
outstanding options of Micro Motors Incentive Stock Option Plan into options to
acquire 591,120 shares of the Company's Common Stock.
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
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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 employed as
Vice Chairman of the Company, with compensation of $360,000 per annum,
adjustable upward for inflation. 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 "EXECUTIVE COMPENSATION -
EMPLOYMENT AGREEMENTS."
Prior to the merger transaction, Mr. Coss also entered into an agreement to
terminate his long term employment contract with Micro Motors, for $677,400,
payable over five years, at 11% interest per annum. The Company 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
July of 1996, the Company also entered into a flexible Line of Credit Loan
Agreement, whereby Mr. Coss borrowed $500,000, 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.
The Company currently markets certain of the dental equipment manufactured
by Micro through PSA, a firm for which Messrs. Searl, Reinhardt and Isaac are
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 the Company's Micro subsidiary. 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 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.
The Company leases its offices in Boulder, Colorado from PSA, a firm for
which Messrs. Searl, Reinhardt and Isaac are directors, as sub-lessees under a
master lease between PSA and a third party unrelated to PSA or the Company. The
sublease between the Company and PSA is on a month to month basis. The Company's
monthly lease payments are $1,883, which is equal to the amount of the lease
payments due from PSA to the third party lessor, on a per square foot basis.
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 sub-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.
Micro 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 May 11, 1996, the Company and its Pnu-Light subsidiary entered into an
Asset Purchase Agreement with Pnu-Light Tool Works, Inc., a Missouri corporation
("Pnu-Light Tools") and Mr. Marty J. Anderson, its principal shareholder. The
initial consideration for
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acquisition of Pnu-Light Tools assets, including the a letter patent relating to
a pneumatic light for hand tools, was issuance of 368,483 restricted shares of
the Company's common stock. Pnu-Light Tools has certain limited concurrent
registration rights in respect of the shares issued it, which rights are
exercisable from May 11, 1997 through May 11, 1999, with pro rata sharing of
costs of such registration and any offering. Additional consideration for
acquisition of the Pnu-Light assets is payable by issuance of additional stock,
based upon an interim calculation as of December 31, 1997, and a final
calculation as of June 30, 1999. The total purchase price is to equal five (5)
times the net after tax earnings of Pnu-Light for the year ending June 30, 1999,
with a minimum total consideration of $4 million giving credit against such
minimum for (a) the greater of (i) the fair market value, as of the date of
issue, of the Company's stock previously issued as consideration or (ii) the
fair market value, as of June 30, 1999, of the Company's stock previously issued
as consideration, (b) patent related costs incurred subsequent to closing, (c)
excess payables, and (d) research and development costs incurred within 120 days
after closing. In addition, the Company, at the Company's sole option, may
unwind the transaction at any time prior to payment of final consideration as of
June 30, 1999, provided that the value of total consideration payable at 5 times
net after tax earnings shall not then exceed $4 million. The Company's
subsidiary entered into a three year employment agreement with Mr. Anderson, at
an annual salary of $60,000. Mr. Anderson is also obligated under a Non-
Competition Agreement.
On July 5, 1996, the Company filed a Form S-8 to register the shares of
common stock underlying options theretofore granted pursuant to its 1988
Employee Stock Option Plan. Dr. Kyle, President of PDM and a former director of
the Company, held 30,000 of such options, exercisable at $0.25 per share.
OTHER MATTERS
The Company's Board of Directors does not know of any other matters to be
brought before the Meeting.
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 November 10, 1996.
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