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 DECEMBER 8, 1999
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Notice is hereby given that the Annual Meeting of Shareholders
of Pro-Dex, Inc. will be held on Wednesday, December 8, 1999, 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 two (2) Class II directors to serve for a term of
three (3) years and until their successors are duly elected and
qualified.
2. 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, 2000.
3. 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 October 15,
1999 (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
October 18, 1999
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 Wednesday,
December 8, 1999 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 two (2) Class II directors to serve for a term of
three (3) years and until their successors are duly elected and
qualified.
2. 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, 2000.
3. 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 MarketSM 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
PROPERLY COME BEFORE THE MEETING.
The date of this Proxy Statement is October 15, 1999.
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, 1999;
(b) Quarterly Reports on Form 10-QSB for the quarters ended
September 30, 1998, December 31, 1998, and March 31, 1999;
(c) Current Report on Form 8-K filed by the Company dated March
15, 1999.
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 NOVEMBER 12, 1999.
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
ended June 30, 1999 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 October
15, 1999 (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 (1) 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 TWO (2) CLASS II DIRECTORS
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 five (5) members, is
divided into three (3) classes. One (1) class stands for re-
election at each annual meeting of shareholders. The Board of
Directors currently is classified into one (1) Class I director
(George J. Isaac), two (2) Class II directors (Richard N.
Reinhardt and Robert A. Hovee), and two (2) Class III 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 2001, 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. John B. Zaepfel, a
Class I director, resigned his position effective June 15, 1999,
having no disagreements with Pro-Dex on any matter relating to its
operations, policies, or practices. The Board is currently
seeking a suitable candidate to serve as a Class I director.
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 58 Yes Audit No 6/30/00-III
Ronald G. Coss 62 Yes Compensation(2) No 6/30/00-III
George J. Isaac 54 Yes Audit/Compensation(2) No 6/30/01-I
Richard N. Reinhardt 67 No Compensation Yes 6/30/99-II
Robert A. Hovee(3) 57 No Audit/Compensation No 6/30/99-II
John B. Zaepfel(4) 63 No Audit No 6/30/99-I(5)
(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 election
of the Board.
(4) Director commenced serving August 27, 1996, by election of
the Board.
(5) Mr. Zaepfel resigned his position effective June 15, 1999,
having no disagreements with Pro-Dex on any matter relating to its
operations, policies, or practices.
CLASS II NOMINEES
The Board of Directors unanimously recommends that the
shareholders vote FOR the election of the following nominees as
Class II directors of the Company.
Name Age Position
- ----------------------------------------------------------------
Richard N. Reinhardt 67 Non-Employee
Robert A. Hovee 57 Non-Employee
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
Chairman of the Small Business Development Corporation and Vice
Chairman of the Orange County Business Council. 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.
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 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 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.
George J. Isaac has served as a consultant to the Company and
its predecessor since 1978, and became a member of the Company's
Board of Directors on July 26, 1995. He serves as an ex officio
member of both the Audit 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 is a former director of Professional
Sales Associates, Inc. ("PSA"). 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 2001 annual
shareholders' meeting, or the election and qualification of his
successor.
John B. Zaepfel served as director of the Company from August
27, 1996 until his resignation effective June 15, 1999. He served
on the Company's Audit Committee and 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 has
previously served as a director of other public companies. 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 served as a Class II Director.
The Board is currently seeking a suitable candidate to succeed Mr.
Zaepfel.
The Board of Directors met on five (5) occasions in the year
ended June 30, 1999, all of which were attended by all then
serving directors. Since June 30, 1999, the Board has met on one
(1) occasion which meeting was attended by all then serving
directors. The Compensation and Audit Committees met on two (2)
and two (2) occasions, respectively, during the year ended June
30, 1999.
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 35.79%
(3,144,654) 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
NOMINEES. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE
VOTED FOR THE NOMINEES UNLESS A VOTE AGAINST THE NOMINEE OR AN
ABSTENTION ON SUCH NOMINEE IS SPECIFICALLY INDICATED.
PROPOSAL TWO -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, 2000. McGladrey & Pullen, L.L.P. served as the
Company's independent certifying accountants for the years ended
June 30, 1999 and June 30, 1998. 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 (2) 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, 2000.
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 TWO (2) CLASS II
DIRECTORS."
MEETINGS AND COMMITTEES OF THE BOARD
The Company's Board of Directors held five (5) meetings during
the fiscal year ended June 30, 1999, at which all directors were
present at each meeting. The Board of Directors has an audit
committee consisting of George J. Isaac (ex officio) and Robert A.
Hovee. John B. Zaepfel served on the audit committee until his
June 15, 1999 resignation. The functions of the audit committee
are to review the Company's 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 (3)
directors, two (2) of whom are not current or former employees of
the Company, and one (1) 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
On June 12, 1997, the Company completed the sale of certain
assets of its dental clinic management ("DCM") subsidiary in
California. The Company retained ownership of approximately
$1,800,000 in net accounts receivable. During 1998, the purchaser
collected $650,000 of the receivables, but due to financial
difficulties was only able to remit $50,000 to the Company. In
October 1998, the purchaser was reorganized and in consideration
of the successor to the purchaser's guarantee of the collection of
the full net amount of the accounts receivable, the Company agreed
to restructure the balance owed of $1,750,000 in exchange for a
five year 6% promissory note totaling $850,000, 5% cumulative
preferred stock in the successor entity then valued at $900,000,
and warrants to acquire common stock in the successor entity. The
financial condition of the purchaser of the dental centers is
poor, and management believes that it is unlikely it will be able
to collect the 6% promissory note of $850,000. Nor does it
believe that the convertible preferred stock of $900,000 has any
future value. Consequently, the Company has taken an unusual
charge for the write-off of the promissory note and the
convertible preferred stock in the amount of $1,750,000 in the
fourth quarter of 1999.
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.
On March 10, 1999, the Company filed a Form 8-K to report the
distribution of shares of the Company's common stock owned by the
Micro Motors Employee Stock Ownership Plan (the "Plan") The
Company previously had applied for and received a favorable
determination from the Internal Revenue Service with respect to
the termination of the Plan and the distribution of its shares.
The shares, acquired by the Plan in conjunction with the 1995
merger of Micro Motors, Inc. into a wholly owned subsidiary of the
Company, were issued without restriction to non-affiliate
participants. Of the 1,042,195 shares transferred to
participants, 481,513 are held by affiliates of the Registrant.
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, 1999, 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 1988. He was promoted to
National Sales Manager in January 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 1995. Prior to that time, he served as Vice President for
Operations and Manufacturing of Micro Motors, Inc. 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
Re- ities Other
Annual strict- Under- Compen-
Compen- ed lying LTIP sa-
Name and sa- Stock Options/ Pay- tion
Principal Position Year Salary Bonus tion Awards SAR(#) outs (4)
- -----------------------------------------------------------------------
Kent E. Searl 1999 $162,528 - - - None - -
Chairman/CEO/ 1998 174,858 - - - None - -
President 1997 160,000 - - - None - -
Ronald G. Coss(1) 1999 $359,062 - $39,619 - 100,000(2) - $1,593
Vice Chairman 1998 325,163 - 35,406 - None - 1,671
Chief Technical 1997 364,320 - - - N/A - -
Officer
George J. Isaac(3) 1999 $195,436 - - - None - $1,466
Vice President, 1998 189,269 - - - None - -
Chief Financial 1997 180,000 - - - None - -
Officer, Secretary-
Treasurer,
Director
Charles L. Bull 1999 $100,000 $39,089 - - None - $1,739
General Manager 1998 100,000 28,563 - - None - 1,633
Challenge 1997 100,000 13,276 - - None - -
Products, Inc.
Gary G. Garleb 1999 $124,271 - $9,986 - None - $1,467
General Manager 1998 118,563 - 15,539 - None - 1,350
Oregon Micro 1997 111,435 - - - None - -
Systems, Inc.
(1) 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. In
addition, the Company assumed two notes of Micro Motors, Inc.
payable to Mr. Coss in the aggregate amount of $938,450, relating
to termination of Mr. Coss's long term employment agreement with
Micro Motors, Inc. and prior unpaid earned compensation.
(2) On April 8, 1999, Mr. Coss was granted an option to
purchase 100,000 shares of the Company's common stock under the
1994 Stock Option Plan in consideration for his agreement to
restructure his employment agreement effectively relieving the
Company of the obligation to pay any bonus contemplated by his
previous agreement.
(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, Termination of Employment, and Change of
Control Arrangements
The Compensation Committee of the Board of Directors has
renewed employment agreements with certain executive officers of
the Company entered into on July 26, 1995, which expired on June
30, 1998. During the 1999 fiscal year, the Company also
renegotiated its agreement with Mr. Coss previously scheduled to
expire on June 30, 2000. Effective April 1, 1999, Mssrs. Searl,
Isaac and Coss agreed to salary reductions of 10% due to the
financial condition of the Company, which reductions shall remain
effective until such time as the Company's financial condition
improves. The remaining employment agreement with Mr. Bull
expires December 31, 2001. The Company accrued salaries in an
aggregate amount of $717,026 to its executive officers for the
year ended June 30, 1999.
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, 1999, Mr. Searl was
paid a salary of $162,528. Pursuant to his three year employment
agreement, effective July 1, 1998, Mr. Searl is entitled to an
annual salary of $180,000. Mr. Searl is 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 November 5, 1998,
he was re-elected the Company's Secretary-Treasurer by the Board
of Directors. Mr. Isaac's three year employment agreement
effective July 1, 1998 provides that he receive an annual salary
of $195,000 during the term of the agreement as well as
reimbursement of reasonable expenses and to such other benefits as
the Company's Board of Directors approved for executive
management.
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. Under his current
Agreement, annual base compensation to Mr. Coss was $360,000,
adjustable upward for inflation each July 1. The agreement
accords Mr. Coss 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.
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."
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 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.
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 $3,000 quarterly 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. Non-employee directors unanimously elected to waive
their fee for the quarter ended June 30, 1999. The Company
accrued an aggregate of $53,000 as non- employee director
compensation, of which $38,000 has been paid, for the year ended
June 30, 1999.
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, 1999, 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
$2.00, $2.00, and $2.50 respectively.
Option Grants and Exercises in 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, 1999:
INDIVIDUAL OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Number of Percent of
Securities Total Options
Underlying Granted to Exercise Expir-
Options Employees in Price ation
Name Granted Fiscal Year Per Share Date
- ------------------------------------------------------------------
Kent E. Searl None - - -
Ronald G. Coss(1) 100,000 46% $1.25 04/07/09
George J. Isaac None - - -
(1) On April 8, 1999, Mr. Coss was granted an option to
purchase 100,000 shares of the Company's common stock under the
1994 Stock Option Plan in consideration for his agreement to
restructure his employment agreement effectively relieving the
Company of the obligation to pay any bonus contemplated by his
previous agreement.
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-
Ronald G. Coss(1) 50,000 50,000 $4,500 $4,500
George J. Isaac 250,000 -0- -0- -0-
(1) 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, 1999) by the closing sales of
the Company's common stock on June 30, 1999 (as reported on
NASDAQ) and from that total, subtracting the total exercise price.
(2) On April 8, 1999, Mr. Coss was granted an option to
purchase 100,000 shares of the Company's common stock under the
1994 Stock Option Plan in consideration for his agreement to
restructure his employment agreement effectively relieving the
Company of the obligation to pay any bonus contemplated by his
previous agreement.
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, 1999. At June 30,
1999, 50,000 shares were available for grant 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, 1999 there were outstanding options
under the 1994 Stock Option Plan to acquire 1,138,505 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, 1999, there were
outstanding options under the Directors' Stock Option Plan to
acquire 135,856 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,
1999, 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
Name and Address Number of Shares Percent of Class(1)
- ----------------------------------------------------------------
Kent E. Searl 950,680(2)(3)(4) 10.81%
1401 Walnut St.,
Suite 540
Boulder, CO 80302
Ronald G. Coss 2,511,104(5) 28.57%
1401 Walnut St.,
Suite 540
Boulder, CO 80302
Richard N. Reinhardt 560,884(2)(3)(4)(6)(7)(8) 6.38%
1401 Walnut St.,
Suite 540
Boulder, CO 80302
George J. Isaac 255,500(3) 2.90%
1401 Walnut St.,
Suite 540
Boulder, CO 80302
Robert A. Hovee 65,000(6)(7)(8) 0.74%
1401 Walnut St.,
Suite 540
Boulder, CO 80302
John B. Zaepfel 50,000(6) 0.56%
1401 Walnut St.,
Suite 540
Boulder, CO 80302
All officers and 4,056,639(2)(3)(4) 50.00%
directors as a (5)(6)(7)(8)
group (6 persons)
(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 407,200 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 547,953 shares of the Company's common stock
distributed from the Micro Motors Employee Stock Ownership Plan
during the year, and options held by Mr. Coss to purchase 100,000
shares of the Company's common stock at $1.25 per share.
(6) Includes automatic grant options to outside directors
Messrs. Reinhardt, Hovee, and Zaepfel to purchase 20,000 shares
each of the Company's common stock at $2.44 per share and 15,000
shares at $2.90 per share.
(7) Includes automatic grant of options of outside directors
Messrs. Reinhardt and Hovee to acquire 15,000 shares each of the
Company's common stock at $2.50 per share and 15,000 shares a
$2.00 per share.
(8) The officers and directors as a group had in the aggregate,
as of June 30, 1999, together with their affiliates, voting power
with respect to 3,144,654 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.
Set forth in the following table is information as of June 30,
1999 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
Name and Address Number of Shares Percent of Class
- --------------------------------------------------------------
Kent E. Searl 78,129(1) 100.0%
1401 Walnut Street,
Suite 540
Boulder, CO 80302
Richard N. Reinhardt 58,229(1) 74.5%
1401 Walnut Street,
Suite 500
Boulder, CO 80302
All officers and 78,129(1) 100.0%
directors as a
group (3 persons)
Professional Sales 58,229 74.5%
Associates, Inc.
1401 Walnut Street,
Suite 500
Boulder, CO 80302
(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 of Micro with the Company's subsidiary,
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. During the first quarter of 1999,
management amended his duties under that employment contract.
Management determined the value of the new position is less than
the previous position of the executive; however, the Company is
required to honor its obligation under the contract. As a result,
management charged operations for approximately $525,000, which
represents the excess of the payments required under the contract
compared to the value established for the new position.
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 $29,147. 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 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 June 12, 1997, the Company completed the sale of certain
assets of its dental clinic management (DCM) subsidiary operation
in California and recorded the loss on this sale as discontinued
operations. In connection with the sale and in subsequent re-
negotiations, the Company received a promissory note for $850,000
and convertible preferred stock in California Dental Management
(CDM), the predecessor to DCM, totaling $900,000 plus warrants to
acquire additional common stock. CDM has continued to perform
poorly and during the fourth quarter of 1999, management
determined that the receivable and the preferred stock were
worthless and accordingly, charged operations for approximately
$1,750,000. At June 30, 1999, no assets of the discontinued
operations remain on the balance sheet of the Company.
On March 8, 1999, the Company distributed shares of Pro-Dex,
Inc. common stock owned by the Micro Motors Employee Ownership
Plan (the "Plan"). The Company previously made application for
and received a favorable determination from the Internal Revenue
Service with respect to the termination of the Plan and
distribution of its shares. The shares, acquired by the Plan in
conjunction with the 1995 merger of Micro Motors, Inc. into a
wholly owned subsidiary of the Registrant, were issued without
restriction to non-affiliate participants. Of the 1,042,195
shares transferred to participants, 481,513 are held by affiliates
of the Registrant.
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 2000 Annual Meeting of Shareholders must be
received not later that May 30, 2000.
