PRO-DEX, INC.
1401 Walnut Street, Suite 540
Boulder, CO 80302
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 5, 1998
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Notice is hereby given that the Annual Meeting of Shareholders of
Pro-Dex, Inc. will be held on November 5, 1998, at 9:00 a.m.,
Boulder, Colorado time, at the Hotel Boulderado, 2115 13th Street,
Boulder, Colorado, 80302, for the following purposes:
1. To elect one (1) Class I director to serve for a term of three
years and until his successor is duly elected and qualified.
2. To consider and act upon a proposal to adopt the Employee
Stock Purchase Plan recommended by the Board of 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, 1999.
4. To transact such other business as may properly come before
the Meeting and any adjournment thereof.
A Proxy Statement explaining the matters to be acted upon at the
Meeting is enclosed.
Shareholders of record at the close of business on September 21,
1998 (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, Inc. 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
September 30, 1998
PRO-DEX, INC.
1401 Walnut Street, Suite 540
Boulder, CO 80302
(303) 443-6136
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Proxy Statement
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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 (the "Meeting") of Pro-Dex to be held on November 5,
1998 at 9:00 a.m., Boulder, Colorado time, at the Hotel Boulderado,
2115 13th Street, Boulder, CO 80302, and any adjournment thereof
for the following purposes:
1. To elect one (1) Class I director to serve for a term of three
years and until his successor is duly elected and qualified.
2. To consider and act upon a proposal to adopt the Employee
Stock Purchase Plan recommended by the Board of 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, 1999.
4. To transact such other business as may properly come before
the Meeting and any adjournment thereof.
Pro-Dex Common Stock is currently quoted on The NASDAQ Small Cap
Market(SM) 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 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 September 21, 1998.
INCORPORATION OF CERTAIN DOCUMENTS AND INFORMATION BY REFERENCE
The following documents or portions thereof filed by Pro-Dex,
Inc. ("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) Annual Report on Form 10-KSB for the fiscal year ended June
30, 1998;
(b) Quarterly Reports on Form 10-QSB for the quarters ended
September 30, 1997, December 31, 1997, and March 31, 1998;
(c) Current Report on Form 8-K dated December 17, 1997;
(d) Pro-Dex, Inc. Employee Stock Purchase Plan.
All documents filed by Pro-Dex pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended (the "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, SUITE
540, 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 OCTOBER 16, 1998.
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 MarketSM 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 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's Annual Report on Form 10-KSB for the fiscal year June
30, 1998 being delivered to the shareholders of Pro-Dex with this
Proxy Statement is hereby incorporated by reference.
For the 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 September
21, 1998 (the "Record Date") will be entitled to notice of and to
vote at the Meeting. On the Record Date, there were 8,787,300
shares of Pro-Dex Common Stock outstanding, and there were 78,129
shares of Pro-Dex Preferred Stock, 100% of which are owned by the
Company's officers, directors and their affiliates.
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 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 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
the mails, the directors, officers and employees of Pro-Dex,
without additional compensation, except for the reimbursement of
out-of-pocket expenses, may solicit proxies personally or by
telephone, telegraph, or facsimile transmission.
PROPOSAL ONE - ELECTION OF ONE CLASS I DIRECTOR
The Company's Articles of Incorporation provide for the
classification of the Company's Board of Directors. The Board of
Directors, which currently is composed of six members, is divided
into three classes. One class stands for re-election at each
annual meeting of shareholders. The Board of Directors currently
is classified into one Class I director (George J. Isaac), three
Class II directors, (Richard N. Reinhardt, Robert A. Hovee, and
John B. Zaepfel) and two Class II directors (Kent E. Searl and
Ronald G. Coss), whose terms will expire upon the election and
qualification of directors at the annual meetings of shareholders
held in 1998, 1999 and 2000, respectively. At each annual meeting
of shareholders, directors will be elected to succeed those
directors whose terms are expiring. All directors shall serve
until their successors are duly elected and qualified, subject,
however, to death, resignation, retirement, disqualification or
removal from office.
The following chart indicates the term of service of each
director, assuming that the nominee of the Board of Directors is
elected by the shareholders:
STAGGERED TERMS OF DIRECTORS
Term
Expires/
Name of Director Age Employee Committee Nominated Class #(1)
- -------------------------------------------------------------------------
Kent E. Searl 57 Yes Audit No 06/30/00 - III
Ronald G. Coss 61 Yes Compensation(2) No 06/30/00 - III
George J. Isaac 53 Yes Audit/Compensation(2) Yes 06/30/01 - I
Richard N. Reinhardt 66 No Compensation No 06/30/99 - II
Robert A. Hovee(3) 56 No Audit/Compensation No 06/30/99 - II
John B. Zaepfel(4) 62 No Audit No 06/30/99 - II
(1) Directors to serve until the later of such date or the election
and qualification of their successors.
(2) Director serves on such committee(s) as an ex-officio non-
voting member.
(3) Director commenced serving February 27, 1996, by the election
of the Board.
(4) Director commenced serving August 27, 1996, by election of the
Board.
CLASS I NOMINEE
The Board of Directors unanimously recommends that the
shareholders vote FOR the election of the following nominee as a
Class I director of the Company.
Name Age Position
- ----------------------------------------------------------------
George J. Isaac 53 Director, Vice President,
Secretary/Treasurer
Chief Financial Officer
Mr. 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 and Compensation Committees of the Board of
Directors and is Vice President, Secretary, Treasurer and Chief
Financial Officer of the Company. Mr. Isaac is a certified public
accountant and was a principal in the Certified Public Accounting
firm of Joseph B. Cohan and Associates, Worcester, Massachusetts.
Mr. Isaac recently completed terms as a member of the Board of
Directors for Professional Sales Associates, Inc., the Commerce
Bank and Trust of Worcester, Massachusetts, and 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. degree 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 the 1998 annual shareholders' meeting or the election and
qualification of his successor.
CONTINUING DIRECTORS
Kent E. Searl is a co-founder of the Company and currently serves
as Chairman of the Board, Chief Executive Officer and President.
He has served as a director of the Company and its predecessor
since its inception in 1978. In addition to serving as Chairman of
the Board, Mr. Searl is a member of the Executive Committee of the
Board of Directors. Since August 1969, he has also served on the
Board of Directors of Professional Sales Associates, Inc. ("PSA"),
a national dental equipment manufacturers' representative, which he
co-founded. PSA acted as marketing representative for dental
handpiece products of the Micro subsidiary until June 30, 1997, at
which time Biotrol began marketing those products. 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 the year 2000 annual
shareholders' meeting or the election and qualification of his
successor.
Ronald G. Coss founded Micro Motors, Inc. in 1971 and served as
its Chairman since its organization. He currently serves as the
Vice-Chairman of the Company's Board of Directors and also serves
as an ex officio non-voting member of the Compensation Committee of
the Board of Directors. He also acts as Chief Technology Officer
to the Company. Mr. Coss has been the primary engineer in the
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, Inc. 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 the year 2000 annual
shareholders' meeting or the election and qualification of his
successor.
Richard N. Reinhardt has served as a director of the Company and
its predecessor since 1990. He is a member of 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. He attended Cornell
College and received a B.A. degree in Business Administration from
Northwestern University. Mr. Reinhardt was elected by the
shareholders of the Company to serve as a Class II director until
the 1999 annual shareholders' meeting 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 and
Compensation Committees. 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. degree in Business Administration and a B.A.
degree in International Business from the University of Washington
in Seattle, Washington, as well as a Masters Degree in
International Management from the American Graduate School of
International Management (Thunderbird) where he was the Barton Kyle
Yount Scholar, 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 1999 annual shareholders' meeting or the election
and qualification of his successor.
John B. Zaepfel has served as director of the Company since
August 27, 1996, and commenced service on the Company's Audit
Committee on September 16, 1996. Previously, Mr. Zaepfel served on
the Advisory Committee advising the Board of Directors of Micro
Motors, Inc., prior to its merger into Micro in July 1995. Mr.
Zaepfel spent fifteen years as a CEO, most recently as Chief
Executive Officer of CPG International, Inc., which he founded in
1985 in a leveraged buy-out of a division of four subsidiaries 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. Mr. Zaepfel 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 degree 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 1999 annual shareholders' meeting or the election
and qualification of his successor.
The Board of Directors met on five occasions in the year ended
June 30, 1998, all of which were attended by all then serving
directors. Since June 30, 1998, the Board has met on one occasion
which meeting was attended by all then serving directors. The
Compensation and Audit Committees met on one and two occasions,
respectively, during the year ended June 30, 1998.
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 RELATED PARTY TRANSACTIONS."
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 voting for directors of the Company. At the close of
business on the Record Date, there were 8,787,300 shares of Pro-Dex
Common Stock outstanding, of which approximately 36.60% (3,216,378)
are owned by officers, directors, 5% shareholders and their
respective affiliates, all of whom have indicated their intention
to vote for the director nominated by the Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
NOMINEE. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED
FOR THE NOMINEE UNLESS A VOTE AGAINST THE NOMINEE OR AN ABSTENTION
ON SUCH NOMINEE IS SPECIFICALLY INDICATED.
PROPOSAL TWO - APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN
On January 19, 1998, the Board of directors adopted the Pro-Dex,
Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan"),
subject to the approval of shareholders at the Annual Meeting. The
Stock Purchase Plan was adopted for the purpose of allowing
eligible employees of Pro-Dex and its subsidiaries to acquire
ownership of Pro-Dex common stock, on a deferred payment basis,
thereby affording them the opportunity to devote themselves to the
future economic growth of the Company.
The following summary of the material features of the Stock
Purchase Plan does not purport to be complete and is qualified in
its entirety by reference to the complete text of the Stock
Purchase Plan.
GENERAL PROVISIONS
Administration. The Stock Purchase Plan will be administered by
the Compensation Committee of the Board of Directors (the
"Committee") which is comprised of three members, each of whom
qualifies as a "Non-Employee Director" as defined in Rule 16-b3
under the Securities and Exchange Act of 1934, as amended (the
"1934 Act") or any successor rule or regulation, and an "outside
director" as defined in Section 162(m) or any successor provision
of the Internal Revenue Code of 1986, as amended (the "Code") and
applicable Treasury regulations thereunder, if such qualification
is deemed necessary in order for the grant or the exercise of
options under the Stock Purchase Plan to qualify for any tax of
other material benefit to optionees ("Optionees") or the Company
under applicable law. Subject to the express provisions of the
Stock Purchase Plan, the Committee will have sole discretion
concerning matters relating to the Stock Purchase Plan.
Participation. Employees who have been employed for six months
or more, whose customary employment is more than 20 hours per week
and more than five months per calendar year, are eligible to
participate in the Stock Purchase Plan.
Offering of Common Stock. Two hundred thousand shares of the
Company's common stock have been reserved under the Stock Purchase
Plan. Those shares will be offered for purchase by employees
during offering periods determined by the Committee. Subject to
certain limitations, each participant may purchase shares on the
last day of an offering with funds deducted from the participant's
compensation during the offering period. The purchase price per
share shall be 85% of the fair market value of the stock on the
first day of the offering period. In no event, however, will the
purchase price be less than $2.00 per share.
Payroll Deductions. Eligible employees may elect to have the
Company deduct any amount between one and ten percent from his or
her compensation for the purchase of shares under the Plan.
Payroll deductions may be increased or decreased on one occasion
during an offering period. Participants may elect to terminate
such deduction from compensation at any time. In the event a
participant's employment is terminated for any reason during an
offering period, such termination shall automatically serve to
terminate the deduction from compensation.
Stock Purchase Accounts. Under the Stock Purchase Plan, non-
interest bearing stock purchase accounts are established and
maintained for each participant. Amounts deducted from
compensation are credited to participants individual accounts,
which credits, on the last day of an offering period, are used to
purchase from the Company the largest number of whole shares that
can be made, subject to certain limitations. No brokerage or
transfer fees are paid by participants. As soon as practicable
after an offering period, the Company issues a statement to each
participant indicating the number of shares of common stock of the
Company purchased at the close of the offering period and the
aggregate number of shares held on behalf of each participant under
the Plan. In the event of an insufficiency of shares available for
purchase at the close of offering period, then the number of shares
that would otherwise be purchased for each participant will be
reduced proportionately. The balance to the credit of each
participant shall then be returned to the participant and the Stock
Purchase Plan shall automatically terminate.
Amendment. In the event an amendment to the plan is intended to
increase the shares reserved, change the method of purchase price
determination, or materially increase the benefits to participants,
such amendment shall require the approval of the shareholders of
the Company.
VOTE REQUIRED
The affirmative vote of a majority of the outstanding shares of
Pro-Dex Common Stock is required to approve the Employee Stock
Purchase Plan. At the close of business on the Record Date, there
were 8,787,300 shares of Pro-Dex Common Stock outstanding, of which
approximately 36.60% (3,216,378) are owned by officers, directors,
5% shareholders and their respective affiliates, all of whom have
indicated their intention to vote for the approval of the Employee
Stock Purchase Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
APPROVAL OF THE EMPLOYEE STOCK PURCHASE PLAN. PROXIES SOLICITED BY
THE BOARD OF DIRECTORS WILL BE VOTED FOR THAT APPROVAL UNLESS A
VOTE AGAINST APPROVAL OR AN ABSTENTION ON SUCH PROPOSAL IS
SPECIFICALLY INDICATED.
PROPOSAL THREE - RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
The Board of Directors recommends that the shareholders ratify
the appointment of McGladrey & Pullen, L.L.P. as independent
certifying accountants for the Company's accounts for the year
ending June 30, 1999. McGladrey & Pullen, L.L.P. served as the
Company's independent certifying accountants for the years ended
June 30, 1998 and June 30, 1997. The reports of McGladrey &
Pullen, L.L.P for those years contained no adverse opinion or
disclaimer of opinion, and were 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
accountants on any matter of accounting principles or practices,
financial statement disclosure, or audit scope or procedure. The
Company's Form 10-KSB including the financial statements as set
forth therein accompanies this Proxy Statement and is incorporated
herein by reference. A representative of McGladrey & Pullen,
L.L.P. is expected to be present at the Meeting. McGladrey &
Pullen, L.L.P. will have an opportunity to make a statement if they
so desire, and are expected to be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
APPOINTMENT OF MCGLADREY & PULLEN, L.L.P. AS THE INDEPENDENT
ACCOUNTANTS FOR THE YEAR ENDING JUNE 30, 1999.
DIRECTORS AND EXECUTIVE OFFICERS
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. SEE "PROPOSAL ONE - ELECTION OF ONE CLASS I DIRECTOR."
MEETINGS AND COMMITTEES OF THE BOARD
The Company's Board of Directors held five meetings during the
fiscal year ended June 30, 1998 at which all directors were present
at each meeting. The Board of Directors has an audit committee
consisting of George J. Isaac (ex officio), Robert A. Hovee and
John B. Zaepfel. The functions of the audit committee are to
review Company financial statements, meet with the Company's
independent auditors and address accounting matters or questions
raised by the auditors. The Board also has a compensation
committee comprised of Ronald G. Coss (ex officio), George J. Isaac
(ex officio), Richard N. Reinhardt, and Robert A. Hovee. The
function of the compensation committee is to review the
compensation of officers and employees.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee develops and recommends to the Board
of Directors the compensation policies of the Company. It also
recommends the compensation to be paid to the executive officers of
the Company. The Compensation Committee consists of three
directors, two of whom are not current or former employees of the
Company and one of whom is a non-voting member and the Company's
Chief Financial Officer. The basic compensation philosophy of the
Board of Directors has been to provide competitive salaries and
competitive incentives to achieve financial goals.
EXECUTIVE OFFICERS
The Company's executive officers are elected by the Board of
Directors at the first meeting of the Board following each annual
meeting of the shareholders and hold office until the next such
meeting of directors or their earlier resignation or removal.
There is no arrangement or understanding between any directors or
executive officers and any other person or persons pursuant to
which he or she was or is to be selected as a director or executive
officer nor is there any family relationship between or among any
of the Company's directors or executive officers.
RECENT EVENTS AND TRANSACTIONS
Effective May 31, 1997, the Company completed the sale of the
assets and business, exclusive of accounts receivable, of Pro-Dex
Management, Inc., the Company's dental clinic management subsidiary
in California ("DCM"). The sale of assets was made to Professional
Dental Management, L.L.C., now Consolidated Dental Management, Inc.
M. Larry Kyle, D.D.S. is a principal of CDM and prior to the sale
was general manager of DCM and a member of the Company's Board.
The terms of the sale provided that PDM assume DCM liabilities of
approximately $670,000 in exchange for the inventory and equipment
of DCM. In addition, with assistance from the purchaser, the
Company maintained ownership of approximately $1,800,000 in
existing net accounts receivable. During 1998, DCM collected
approximately $650,000 of the $1.8 million of accounts receivable,
but due to financial difficulties remitted only $50,000 of the
amount collected to the Company. Subsequent to year end and in
conjunction with a reorganization by the purchaser, and in
consideration for guaranteeing collection of the full net amount of
the accounts receivable, the Company agreed to restructure the
balance owed of $1,750,000 as follows: a five year, 6% promissory
note totaling $850,000, and 5% convertible preferred stock of the
purchaser's entity valued at $900,000 together with a warrant to
purchase common stock of DCM's purchaser.
On April 25, 1997, the Company unwound the acquisition of Pnu-
Light Tool Works, Inc. ("Pnu-Light"). The Company acquired the
assets of Pnu-Light, a developer of patented pneumatic lighting
mechanisms for hand tools in May 1996, in exchange for 368,483
shares of the Company's common stock. The Company anticipated that
Pnu-Light's patented lighting apparatus would complement the
pneumatic motors used in dental handpieces manufactured by Micro.
The anticipated synergy between Pnu-Light and Micro did not meet
the Company's expectations. Accordingly, and pursuant to the
procedures contained in the Pnu-Light Asset Purchase Agreement, all
of the shares of its common stock issued in the transaction for the
Pnu-Light assets were returned to the Company. In exchange for the
reconveyance of its shares, the Company assigned the patent
covering the pneumatic lighting apparatus to Pnu-Light's successor
entity, while retaining a nonexclusive, fully paid, worldwide
license to the technology.
On July 5, 1996, the Company filed a Form S-8 to register the
shares of common stock underlying options previously granted
pursuant to its 1988 Stock Option Plan. Dr. Kyle, President of DCM
and a former director of the Company, held 30,000 of such options,
exercisable at $0.25 per share.
OTHER MANAGEMENT INFORMATION
Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's officers, directors and persons who own 10% or more
of the Company's outstanding common stock, to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and owners of 10% or more
of the Company's outstanding common stock are required by SEC
regulations to furnish the Company with a copy of all Section 16(a)
forms they file.
Based solely upon a review of the Forms 3 and 4 and any
amendments thereto furnished to the Company during the Company's
fiscal year ended June 30, 1998, and Forms 5 and amendments thereto
furnished to the Company with respect to such fiscal year, or
written representations that no Forms 5 were required to be filed
by such persons, the Company is not aware of any failure of any
officer, director or beneficial owner of 10% or more of the
Company's outstanding common stock during the fiscal year ended to
make timely filings in accordance with the requirement of Section
16(a).
Business Experience of Key Management of Subsidiaries.
Set forth below is information concerning certain key management
personnel of the Company's operating subsidiaries.
Daniel S. Reinhardt joined Biotrol International, Inc. as a sales
representative in September of 1988. He was promoted to National
Sales Manager in January of 1991, and effective January 1, 1997,
Mr. Reinhardt was made Vice President and Chief Operating Officer
of Biotrol International, Inc.
Charles L. 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.
Gary Garleb has served as Vice President and General Manager of
Oregon Micro Systems, Inc. since its acquisition 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.
George M. Saiz has served as Vice President and General Manager
of Micro Motors, Inc. since January 1998. Mr. Saiz has significant
experience in the medical device manufacturing arena, having served
as General Manager of Shutt Medical Technologies, part of the
Bristol-Myers Squibb Companies since 1991.
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
Annual Compensation Long Term Compensation Awards
------------------- -----------------------------
Secur- All
Other Re- ities Other
Annual strict- Under- Com-
Compen- ed lying LTIP pen-
Name and sa- Stock Options/ Pay- sation
Principal Position Year Salary Bonus tion Awards SAR(#) outs (4)
- ------------------ ---- -------- ----- ---- ------ -------- ---- ------
Kent E. Searl 1998 $174,858 - - - None - -
Chairman/CEO/ 1997 160,000 - - - 100,000(1)- -
President 1996 150,000 - - - 50,000 - -
Ronald G. Coss(2) 1998 $325,163 - $35,406 - None - $1,671
Vice Chairman 1997 364,320 - - - None - -
Chief Technical 1996 360,000 - - - N/A - -
Officer
George J. Isaac(3) 1998 $189,269 - - - None - -
Vice President, 1997 180,000 - - - 200,000(1)- -
Chief Financial 1996 170,000 - - - 50,000 - -
Officer, Secretary-
Treasurer,
Director
Charles L. Bull 1998 $100,000 $28,563 - - None - $1,633
General Manager 1997 100,000 13,276 - - None - -
Challenge 1996 100,000 10,000 - - None - -
Products, Inc.
Gary G. Garleb 1998 $118,563 - $15,539 - None - $1,350
General Manager 1997 111,435 - - - None - -
Oregon Micro 1996 101,826 - - - None - -
Systems, Inc.
(1) Options to purchase 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 Company's 1994 Stock Option
Plan.
(2) 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, Inc. with
and into the Company's Micro Acquisition subsidiary.
(3) Mr. Isaac was granted an option to purchase 50,000 shares under
the 1994 Stock Option Plan in connection with his acceptance of
employment by the Company.
(4) Employer contributions to the Pro-Dex, Inc. 401(k) Plan.
Employment Agreements
On June 30, 1998, all but two of the long-term employment
agreements with certain executive officers of the Company entered
into on July 26, 1995 expired. The remaining employment agreements
with Mr. Coss and Mr. Bull expire June 30, 2000 and December 31,
2001 respectively. The Compensation Committee of the Board of
Directors has not renewed these contracts as the Committee has
recently taken under advisement the implementation of a system of
compensation, which system includes a performance based component.
While the expiration of those agreements terminates the contractual
obligations of certain executive officers to the Company, the
Company is confident that those officers will remain in the employ
of the Company. The Company paid salaries in an aggregate amount
of $689,290 to its executive officers for the year ended June 30,
1998.
Ronald G. Coss currently serves as Vice Chairman and Chief
Technology Officer of the Company. Mr. Coss had, prior to the
merger, been compensated by Micro Motors, Inc. at a salary of
$560,000 for the fiscal year ended March 31, 1995 and $456,000 for
the fiscal year ended March 31, 1994. Annual base compensation to
Mr. Coss under the employment agreement is $360,000, and is
adjustable upward for inflation each July 1. Mr. Coss has
subsequently agreed to a temporary reduction in base salary, which
reduction is reflected by his actual base salary of $325,163 for
the year ended June 30, 1998. The agreement accords Mr. Coss's six
weeks annual leave which he may elect to take in cash in lieu of
leave, provides that he receive use of a Company vehicle for
business purposes, and certain other perquisites comparable to with
those received prior to the merger. Mr. Coss's 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. Upon the merger, the
Company also assumed two notes payable by Micro Motors, Inc. to Mr.
Coss relating to termination of Mr. Coss's long term employment
agreement with Micro Motors, Inc. and prior unpaid earned
compensation. See "CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS."
Kent E. Searl serves as the Chairman, Chief Executive Officer and
President of the Company. He is the co-founder of the Company, and
has served as a director of the Company since its organization.
For the year ending June 30, 1998, Mr. Searl was paid a salary of
$174,858. Pursuant to his employment agreement, which expired on
June 30, 1998, Mr. Searl was entitled to a salary of $180,000. Mr.
Searl was also entitled to reimbursement of reasonable expenses and
to such other benefits as the Company's Board of Directors approved
for executive management. Mr. Searl is located in the Company's
Boulder, Colorado executive offices and travels frequently to all
the Company's subsidiaries.
George J. Isaac has served as the Company's Vice President and
Chief Financial Officer since July 26, 1995. On September 21,
1995, he was elected the Company's Secretary-Treasurer by the Board
of Directors. Mr. Isaac's employment agreement, which expired on
June 30, 1998, provided that he receive a salary of $190,000 for
the year ended June 30, 1998. In addition, Mr. Isaac is entitled
to reimbursement of reasonable expenses and to such other benefits
as the Company's Board of Directors approved for executive
management.
On August 1, 1993, the Company entered into an employment
agreement with Mr. Charles L. Bull, former President of Challenge
Products. An agreement was recently reached to extend that
contract on the same terms and conditions through December 31,
2001.
Compensation to Directors
Directors who are employees of the Company do not receive
additional compensation for services as directors, except for
reimbursement of reasonable meeting attendance expenses. Non-
employee directors each receive a $12,000 annual fee, $1,000 for
each meeting attended and $500 for each board of directors
Committee meeting attended on a date other than a regular meeting
of the Board. The Company paid an aggregate of $56,000 as non-
employee director compensation for the year ended June 30, 1998.
The Company has a shareholder approved Director's Stock Option
Plan (the "Directors' Plan") pursuant to which non-employee
directors may be granted options to purchase shares of the
Company's common stock. In accordance with the Directors' Plan's
provisions, the Board of Directors previously adopted a policy to
grant each outside director an option to purchase 20,000 shares of
common stock on the date of his commencement of service as a
director and an option to purchase 15,000 shares annually,
exercisable at the average closing price on NASDAQ for the month of
November of the year of grant, on the anniversary date of such
service. The maximum term of each option is ten years. During the
fiscal year ended June 30, 1998, the Company's three outside
directors, Messrs. Reinhardt, Hovee and Zaepfel, each were granted
options to purchase 15,000 shares of common stock exercisable at
$2.50, $2.50, and $2.90 respectively.
Option Grants and Exercised During the Last Fiscal Year
The following tables set forth information regarding stock
options granted to and exercised by the named executive officers
during the fiscal year ended June 30, 1998.
INDIVIDUAL OPTIONS/SAR GRANTS IN LAST FISCAL YEAR(1)
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted Fiscal Year Per Share Date
---- ------- ----------- --------- ----
Kent E. Searl None -- -- --
George J. Isaac None -- -- --
(1) No named executive officer received or was granted any stock
options in fiscal 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES(1)
Number of Value of
Securities Underlying Unexercised
Unexercised Options at In-the-Money Options
Fiscal Year-End at Fiscal Year-End(2)
------------------------- -------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------
Kent E. Searl 202,051 -0- $9,000 -0-
George J. Isaac 250,000 -0- -0- -0-
(1) No named executive officer exercised any stock options in
fiscal 1998.
(2) The indicated value of the unexercised In-the-Money Options was
determined by multiplying the number of unexercised options (that
were In-the-Money on June 30, 1998) by the closing sales of the
Company's common stock on June 30, 1998 (as reported on NASDAQ) and
from that total, subtracting the total exercise price.
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, 1998. At June 30, 1998, all
available options for grant were exhausted and no options to
purchase were outstanding under this Plan.
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. Under the plan, 1.5
million shares have been reserved. 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. As of June 30, 1998 there were outstanding options under
the 1994 Stock Option Plan to acquire 1,108,505 shares of the
Company's common stock.
Directors' Stock Option Plan
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. Under the plan, 500,000 shares have been
reserved. As of June 30, 1998, there were outstanding options
under the Directors' Stock Option Plan to acquire 140,856 shares of
the Company's common stock. A disinterested majority of the Board
has voted, in furtherance of the Board's decision respecting the
remuneration of non-employee directors, in favor of the additional
automatic grant each year during the term of service to purchase
15,000 shares of the Company's common stock, which grants are
reflected in the foregoing total of outstanding options.
Security Ownership of Certain Beneficial Owners and Management
Set forth in the following table is information as of June 30,
1998, 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
Amount
Name and Address and Nature of Percent
Of Beneficial Owners Beneficial Ownership of Class (1)
- -------------------- -------------------- ------------
Kent E. Searl
1401 Walnut St., Suite 540
Boulder, CO 80302 947,680(2)(3)(4) 10.78%
Ronald G. Coss
1401 Walnut St., Suite 540
Boulder, CO 80302 2,485,528(5) 28.28%
Richard N. Reinhardt
1401 Walnut St., Suite 540
Boulder, CO 80302 545,884(2)(3)(4)(6)(7)(8) 6.21%
George J. Isaac
1401 Walnut St., Suite 540
Boulder, CO 80302 255,500(3) 2.90%
Robert A. Hovee
1401 Walnut St., Suite 540
Boulder, CO 80302 50,000(6)(7)(8) 0.56%
John B. Zaepfel
1401 Walnut St., Suite 540
Boulder, CO 80302 35,000(6)(7) 0.39%
All officers and directors 4,319,592(2)(3)(4)(5)
as a group (6 persons) (6)(7)(8)(9) 49.15%
Micro Motors Employee
Stock Ownership Plan
151 E. Columbine
Santa Ana, California 1,070,932(5) 12.18%
(1) Calculated pursuant to Rule 13d-3 under Securities Exchange Act
of 1934.
(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 404,500 shares of common stock and
19,900 shares of preferred stock. Mr. Reinhardt, individually,
owns of record 41,850 shares. In addition, Mr. Reinhardt's spouse,
individually, owns 29,000 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 applicable individual percentage of
beneficial ownership.
(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 applicable individual
percentage of beneficial ownership.
(5) Includes 584,377 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's name and are
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, Hovee, and Zaepfel to
purchase 20,000 shares each of the Company's common stock at $2.44
per share.
(7) Includes options of Messrs. Reinhardt, Hovee, and Zaepfel to
purchase 15,000 shares each of the Company's common stock at $2.90
per share.
(8) Includes options of Messrs. Reinhardt and Hovee to acquire
15,000 shares each of the Company's common stock at $2.50 per
share.
(9) The officers and directors as a group had in the aggregate, at
June 30, 1998, together with their affiliates, voting power with
respect to 2,632,001 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 report, 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,
1998 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
Amount
Name and Address and Nature of Percent
Of Beneficial Owners Beneficial Ownership of Class (1)
- -------------------- -------------------- ------------
Kent E. Searl
1401 Walnut Street, Suite 540
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 (2 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
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 a
base salary of $360,000 annually as Vice Chairman of the Company
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.
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 $2,198, 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 $28,576. 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 July 5, 1996, the Company filed a Form S-8 to register the
shares of common stock underlying options previously granted
pursuant to its 1988 Stock Option Plan. Dr. Kyle, President of DCM
and a former director of the Company, held 30,000 of such options,
exercisable at $0.25 per share.
Effective May 31, 1997, the Company completed the sale of DCM.
In exchange for inventory, property, and equipment, Professional
Dental Management, LLC, now Consolidated Dental Management, Inc.,
assumed approximately $670,000 of the Company's liabilities. The
managing member of the purchaser was formerly a director of the
Company and the long-term general manager of the DCM.
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 1999 Annual Meeting of Shareholder must be
received not later that May 30, 1999.
