<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ____)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material
[ ] Pursuant to Section 240.14a-11(c) or Section 240.14a-12
MEDSTONE INTERNATIONAL, INC.
(Name of Registrant as Specified in Its Charter)
MARK SELAWSKI, CHIEF FINANCIAL OFFICER
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
4) Proposed maximum aggregate value of transaction:
1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
MEDSTONE INTERNATIONAL, INC.
100 COLUMBIA
SUITE 100
ALISO VIEJO, CALIFORNIA 92656
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 23, 1996
To the Stockholders of
Medstone International, Inc.
The 1996 Annual Meeting of Stockholders of Medstone International,
Inc., a Delaware corporation (the "Company"), will be held at the Company's
headquarters, 100 Columbia, Suite 100, Aliso Viejo, California on July 23, 1996,
at 2:00 p.m., local time (the "Meeting") for the following purposes:
1. To elect a board of four directors of the Company to serve for the
ensuing year and until their successors are duly elected and qualified;
2. To ratify the appointment of Ernst & Young, LLP as independent
auditors of the Company for the year ending December 31, 1996; and
3. To transact such other business as may properly come before the
Meeting and any adjournment or postponement thereof.
THE FOREGOING ITEMS OF BUSINESS ARE MORE FULLY DESCRIBED IN THE PROXY
STATEMENT ACCOMPANYING THIS NOTICE.
The Board of Directors has fixed the close of business on June 7, 1996
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
YOU ARE URGED TO SIGN, DATE AND OTHERWISE COMPLETE THE ENCLOSED PROXY CARD AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND
THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON IF
YOU WISH TO DO SO, EVEN IF YOU HAVE SIGNED AND RETURNED YOUR PROXY CARD.
By order of the Board of Directors,
Mark Selawski, Secretary
Aliso Viejo, California
June 25, 1996
<PAGE> 3
MEDSTONE INTERNATIONAL, INC.
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Medstone International, Inc., a Delaware
corporation (the "Company"), for use at the Company's 1995 Annual Meeting of
Stockholders to be held on July 23, 1996, at 2:00 p.m., local time (the
"Meeting") and at any and all adjournments and postponements of the Meeting.
This Proxy Statement and the accompanying form of proxy are expected to be first
mailed to stockholders on or about June 25, 1996.
PURPOSES OF THE ANNUAL MEETING
The purposes of the Annual Meeting are (1) to elect a Board of
Directors of the Company, (2) to ratify the appointment of Ernst & Young, LLP as
independent auditors of the Company for the fiscal year 1996, and (3) to
transact such other business as may properly come before the Meeting or any and
all postponements or adjournments thereof.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company
(Attention: Mark Selawski, Secretary) a written notice of revocation or a fully
executed proxy bearing a late date or by attending the Meeting and voting in
person.
RECORD DATE AND VOTING SECURITIES
Stockholders of record at the close of business on June 7, 1996 (the
"Record Date") are entitled to notice of and to vote at the Meeting. At the
Record Date, 5,573,594 shares of the Company's Common Stock were issued and
outstanding.
SOLICITATION
The costs of soliciting proxies will be paid by the Company. Proxies
may be solicited in person or by telephone, telegraph or cable by personnel of
the Company who will not receive any additional compensation for such
solicitation. The Company may reimburse brokers or other persons representing
beneficial owners of stock for their expenses in forwarding solicitation
materials to such beneficial owners.
QUORUM AND VOTING
The holders of a majority of the shares of Common Stock outstanding on
the record date and entitled to be voted at the Annual Meeting, present in
person or by proxy, will constitute a quorum for the transaction of business at
the Meeting and any adjournment thereof. Each stockholder is entitled to one
vote for each share of Common Stock on any matter that may be presented for
consideration and action by the stockholders at the Meeting.
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<PAGE> 4
Unless otherwise directed by the stockholder on the proxy card, the
persons named as proxies will vote the shares represented by each proxy FOR the
nominees to be directors named herein and FOR the ratification of the
appointment of Ernst & Young, LLP as the Company's independent auditors.
While there is no definitive statutory or case law authority in
Delaware as to the proper treatment of abstentions, the Company believes that
abstentions should be counted for purposes of determining both (i) the presence
or absence of a quorum for the transaction of business, and (ii) the total
number of votes cast with respect to a proposal (other than the election of
directors). In the absence of a controlling precedent to the contrary, the
Company intends to treat abstentions in this manner. Accordingly, abstentions
will have the same effect as a vote against a proposal.
In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware
Supreme Court held that, while broker non- votes should be counted for purposes
of determining the presence or absence of a quorum for the transaction of
business, broker non-votes should not be counted for purposes of determining the
number of votes cast with respect to the particular proposal on which the broker
has expressly not voted. Accordingly, the Company intends to treat broker
non-votes in this manner. Thus, a broker non-vote will not have any effect on
the outcome of the voting on a proposal.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be
presented by such stockholders at the Company's 1997 Annual Meeting of
Stockholders must be received by the Company no later than February 18, 1997 in
order that they may be included in the Proxy Statement and form of proxy
relating to that meeting.
PROPOSAL ONE -
ELECTION OF DIRECTORS
VOTING PROCEDURE
The authorized number of the Company's directors is currently fixed at
four. All four directors will be elected at the Meeting to serve until the next
annual meeting of stockholders and until their successors are duly elected and
qualified. Provided a quorum is present at the Meeting, the four nominees
receiving the greatest numbers of votes will be elected. Each share entitles its
holder to vote for four nominees and to cast one vote for any nominee.
NOMINEES FOR ELECTION
Management's nominees for election as directors at the Meeting are set
forth in the table below. Unless authority to vote for any directors is withheld
in a proxy, it is intended that each proxy will be voted for such nominees. In
the event that any of the nominees for directors before the Meeting become
unavailable to serve, it is intended that shares represented by proxies which
are executed and returned will be voted for such substitute nominees as may be
recommended by the Company's existing Board of Directors, unless other
directions are given in the proxies. To the best of the Company's knowledge, all
the nominees will be available to serve.
NOMINEE AGE PRINCIPAL OCCUPATION
David V. Radlinski 51 Chairman of the Board and
Chief Executive Officer of the Company
Frank R. Pope 46 General Partner
Technology Funding
Donald John Regan 61 Vice President and General Counsel
Kinsell, O'Neil, Newcomb & De Dios, Inc.
Michael C. Tibbitts 48 Officer and Vice President of Business Development
Gulf South Medical Supply, Inc.
2
<PAGE> 5
Mr. Radlinski has been the Chairman and Chief Executive Officer of the
Company since September 1995. He had been the President of the Company's
subsidiary, Medstone International, Inc. and Chief Financial Officer and
Secretary of the Company from January 1991 to September 1995. From July 1987 to
January 1991, he was the Company's Executive Vice President of Finance, Chief
Financial Officer and Secretary. From 1984 to 1987, he was Vice President of
Finance and Chief Financial Officer of Printronix, Inc., a publicly-owned
company which manufactures computer printers.
Mr. Pope is a general partner and officer of the Technology Funding
venture capital management firms. Before joining Technology Funding in March
1981, he was a Tax Manager with the accounting firm of Coopers and Lybrand,
L.L.P. Mr. Pope is a C.P.A. and a member of the California Bar.
Mr. Regan is currently the Vice President and General Counsel of
Kinsell, O'Neal, Newcomb & De Dios, Inc., a municipal investment banking firm.
Mr. Regan has practiced securities, municipal finance, nonprofit corporation,
real estate, and business transactions law for over thirty years. He is a member
of the National Association of Bond Lawyers, has published several articles on
securities law and served as a lecturer for the Practicing Law Institute. He
specializes in revenue and project finance bonds. He is also a founding owner of
and remains as special counsel to ARV Assisted Living, Inc., a developer of
residential retirement facilities and the largest provider of assisted living
services in the United States.
Michael C. Tibbitts, who was elected to the Board of Directors on May
13, 1996, has been with Gulf South Medical Supply, Inc. since 1991 as an officer
and Vice President of Business Development. Prior to joining the Company, he was
employed for 19 years by Johnson & Johnson in two divisions: Sterile Design
(which manufactured and marketed kit packages) and Surgikos (which manufactured
and marketed surgical supplies).
COMMITTEES AND MEETINGS
The Audit Committee of the Board of Directors currently consists of
Messrs. Regan and Pope. The Audit Committee reviews and reports to the Board of
Directors with respect to various auditing and accounting matters, including the
selection of the Company's independent public accountants and the scope of the
annual audit.
The Compensation Committee currently consists of Messrs. Regan and
Pope. The Compensation Committee reviews salaries and other compensation of
employees of the Company and furnishes recommendations for compensation
adjustments to the Board of Directors.
The Stock Option Committee currently consists of Messrs. Regan and
Pope. The Stock Option Committee administers the Company's employee stock option
plans and, to the extent required, the Company's nonemployee director stock
option plan.
The Board of Directors has not established a standing nominating
committee or other committee performing similar functions.
During the Company's fiscal year ended December 31, 1995, there were 3
meetings of the Board of Directors 5 Stock Option Committee meetings and 1
Compensation Committee meeting. Messrs. Payne, Quadros, Pope and Regan attended
100% of these meetings applicable to them.
COMPENSATION OF DIRECTORS
The Company currently compensates Messrs. Regan and Tibbitts $1,000 per
meeting for their services, in addition to reimbursement for expenses incurred
by them in connection with the Company's business.
3
<PAGE> 6
Under the Nonemployee Director Stock Option Plan, each new nonemployee
director is automatically granted an option to purchase up to 5,000 shares as of
the effective date of his or her first appointment to the Board or first
election to the Board by the shareholders, whichever is earlier. Subject to
acceleration of the option exercises in the event of certain events specified in
the plan, each such option becomes exercisable with respect to 1/60 of the
shares issuable for each elapsed full month during the five-year period after
its grant date, but will not be initially exercisable until six months after the
grant date. The exercise price of each option will equal the fair market value
of the underlying Common Stock on the date the option is granted. Each option
will expire six years after its grant, except that the expiration will be
extended until one year after the optionee's death if it occurs less than one
year before the option's expiration date. An option granted under the plan is
not transferrable during the grantee's lifetime and must be exercised within one
year following his or her death, or within 90 days after the grantee ceases to
be a member of the Board for any other reason, and will only be exercisable to
the extent it is exercisable on the date the grantee leaves the Board. Under
this plan, Mr. Pope was granted 5,000 shares in January 1992 and Mr. Regan was
granted 5,000 shares in September 1995 and Mr. Tibbitts was granted 5,000 shares
in May 1996.
VOTE REQUIRED AND RECOMMENDATION OF BOARD OF DIRECTORS
The nominees receiving the highest number of affirmative votes of the
shares entitled to be voted, up to the number of directors to be elected, shall
be elected as directors. Votes withheld will be counted for purposes of
determining the presence of a quorum for the transaction of business at the
meeting but have no other legal effect upon election of directors under Delaware
law.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR"
THE NOMINEES SET FORTH HEREIN.
PROPOSAL TWO -
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young, LLP, independent
auditors, to audit the financial statements of the Company for the year ending
December 31, 1996, and recommends that the stockholders vote for the
ratification of such appointment. In the event such ratification is not approved
by the holders of a majority of the shares represented either in person or by
proxy, the Board of Directors will reconsider its selection. Ernst & Young, LLP
has audited the Company's financial statements since 1987. Representatives of
Ernst & Young, LLP are expected to be present at the Annual Meeting of
Stockholders and will have the opportunity to make statements if they so desire.
The representatives also are expected to respond to appropriate questions from
stockholders.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR"
THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG, LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1996.
4
<PAGE> 7
SECURITY OWNERSHIP
The following table sets forth the number of shares of the Company's
Common Stock known to the Company to be beneficially owned as of June 1, 1996 by
each person who owns beneficially more than 5 percent of the outstanding shares
of Common Stock, by each of the present directors and nominees for director, by
each of the executive officers named in the Executive Compensation table below
and by all executive officers and directors of the Company as a group, and the
percentage of the total outstanding shares of Common Stock such shares
represented as of June 1, 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OWNERSHIP
<S> <C> <C>
Frank R. Pope(2) 244,541(3)(4) 4.4%
2000 Alameda de las Pulgas
San Mateo, CA 94402
Technology Funding 237,541(3) 4.3%
2000 Alameda de las Pulgas
San Mateo, CA 94402
Errol G. Payne 459,059 8.2%
100 Columbia, Suite 100
Aliso Viejo, CA 92656
Hathaway & Associates, Ltd. 375,000 6.7%
119 Rowayton Avenue
Rowayton, CT 06853
David V. Radlinski(5) 165,815(6) 3.0%
100 Columbia, Suite 100
Aliso Viejo, CA 92656
Thomas W. Gardner(5) 116,656(7) 2.1%
100 Columbia, Suite 100
Aliso Viejo, CA 92656
Mark Selawski(5) 8,180(8) (10)
100 Columbia, Suite 100
Aliso Viejo, CA 92656
Donald J. Regan(2) 10,333(9) (10)
462 Stevens Avenue, Suite 308
Solana Beach, CA 92075
Michael Tibbitts(2) 2,000 (10)
27001 La Paz Rd., Suite 448B
Mission Viejo, CA 92691
All executive officers and directors
as a group (5 persons) (11) 272,630 4.82%
</TABLE>
- ---------------
(1) All such shares were held of record with sole voting and investment power,
subject to applicable community property laws, by the named individual
and/or by his wife, except as indicated in the following footnotes.
(2) Director of the Company.
(3) Includes 211,351 shares held by Technology Funding Partners I and 26,190
shares held by Technology Funding Partners II. Technology Funding, Inc.
and Technology Funding Ltd. (together, "Technology Funding"), of which
Frank R. Pope is an officer or general partner, are the managing general
partners of Technology Funding Partners I and II. Technology Funding and
Mr. Pope are entitled to exercise voting and investment power with respect
to all shares owned by Technology Funding Partners I and Technology
Funding Partners II and therefore are deemed to be beneficial owners of
such shares.
5
<PAGE> 8
(4) Includes 5,000 shares issuable upon exercise of presently outstanding
stock options under the Company's Non-employee Director Stock Option Plan.
(5) Executive officer of the Company.
(6) Includes 26,667 shares issuable upon exercise of presently outstanding
stock options.
(7) Includes 8,000 shares issuable upon exercise of presently outstanding
stock options.
(8) Includes 4,000 shares issuable upon exercise of presently outstanding
stock options.
(9) Includes 3,833 shares issuable upon exercise of presently outstanding
stock options.
(10) Percentage information is omitted because the beneficially owned shares
represent less than 1% of the outstanding shares of the Company's Common
Stock
(11) Includes 47,500 shares issuable upon exercise of presently outstanding
stock options.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation paid by the Company during each of the Company's last three fiscal
years to the Company's Chief Executive Officer and to each of the Company's
executive officers who received salary and bonus payments in excess of $100,000
during fiscal 1995.
<TABLE>
<CAPTION>
SUMMARY OF COMPENSATION TABLE
LONG TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------- ------------------------- -------
NAME OTHER RESTRICTED SECURITIES
AND ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL FISCAL SALARY BONUS COMPENSATION AWARDS(S) OPTIONS PAYOUTS COMPENSATION
POSITION YEAR ($)(1) ($) ($) ($) (#)(2) ($) ($)
-------------- ---- ------- ----- ------------ ---------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David V. Radlinski (3) 1995 181,250 -- -- -- 150,000 -- --
Chairman of the Board and 1994 175,000 -- -- -- -- -- --
Chief Executive Officer 1993 162,500 12,500 -- -- -- -- --
Errol G. Payne (4) 1995 200,000 -- -- -- -- -- --
Chairman of the Board 1994 200,000 -- -- -- -- -- --
and Chief Executive Officer 1993 200,000 -- -- -- -- -- --
(Retired)
Mark Selawski (5) 1995 72,730 7,500 -- -- 20,000 -- --
Chief Financial Officer, Vice 1994
President of Finance 1993
and Secretary
Thomas W. Gardner 1995 83,750 20,000 2,815 -- 40,000 -- --
Executive Vice President of 1994 95,000 -- -- -- -- -- --
Sales and Marketing 1993 127,500 12,500 1,724 -- -- -- --
</TABLE>
- ---------------------------------
(1) In addition to the cash compensation shown in the table, executive officers
of the Company may receive indirect compensation in the form of perquisites
and other personal benefits. For each of the named executive officers, the
amount of this indirect compensation in 1995, 1994 and 1993 did not exceed
the lesser of $50,000 or 10% of the executive officer's total salary and
bonus for that year.
(2) Options to acquire shares of Common Stock.
(3) Mr. Radlinski served as the Chief Financial Officer and Secretary of the
Company until his election as Chairman of the Board and Chief Executive
Officer on September 21, 1995.
(4) Mr. Payne served as Chairman of the Board and Chief Executive Officer
through September 21, 1995 and resigned from the Company effective December
31, 1995.
(5) Mr. Selawski was appointed Chief Financial Officer, Vice President of
Finance and Secretary on September 21, 1995.
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STOCK OPTION GRANTS AND EXTENSIONS DURING 1995
The following table provides information related to the stock options
that in March 1995 had their expiration date extended one year until April 2,
1996 at the original exercise price and new options granted in 1995.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
INDIVIDUAL EXTENSIONS AND GRANTS APPRECIATION FOR
OPTION TERM
- -------------------------------------------------------------------------------------- --------------------
% OF TOTAL
SHARES EMPLOYEE
UNDERLYING OPTIONS
OPTIONS GRANTED OR EXERCISE
EXTENDED EXTENDED IN PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
---- --------- ------------- --------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Errol G. Payne (1) --- --- --- --- --- ---
David V. Radlinski 11,750 2% 4.43 4/2/96 2,603 5,205
25,000 4% 5.00 4/2/96 6,250 12,500
10,000 2% 5.00 4/2/96 2,500 5,000
50,000 9% 8.50 7/26/01 144,500 327,250
100,000 19% 10.63 9/25/01 361,250 818,125
Thomas W. Gardner 5,000 1% 5.00 4/2/96 1,250 2,500
40,000 7% 8.50 7/26/01 115,600 261,800
Mark Selawski 3,000 1% 5.00 4/2/96 750 1,500
20,000 4% 8.50 7/26/01 57,800 130,900
</TABLE>
- ---------------------------
(1) Mr. Payne retired as Chairman of the Board and Chief Executive Officer on
September 21, 1995.
STOCK OPTIONS HELD AT END OF FISCAL YEAR
The following table provides information related to options exercised
during 1995 and options held by the named executive officers at December 31,
1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)(1)
SHARES ACQUIRED ------------------------------- ------------------------------
NAME ON EXERCISE (#) VALUE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------ --------------- ----------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Errol G. Payne (2) 218,059 2,153,333 --- --- --- ---
David V. Radlinski 100,000 442,200 70,167 140,833 379,045 91,666
Thomas W. Gardner 73,656 465,545 3,333 36,667 6,666 73,334
Mark Selawski 1,504 8,678 6,278 18,333 31,917 36,666
</TABLE>
- ------------------
(1) The closing price for the Company's Common Stock as reported by the
National Association of Securities Dealers (NASD) on December 31, 1995 was
$10.50. Value is calculated on the basis of the difference between the
option exercise price and $10.50, multiplied by the number of shares of
Common Stock underlying the option.
(2) Mr. Payne resigned as Chairman of the Board and Chief Executive Officer on
September 21, 1995 and subsequently exercised all available stock options.
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<PAGE> 10
CERTAIN TRANSACTIONS
During 1991, the Company was a party to the formation of Cardiac
Science, Inc., for which the Company purchased 5,353,031 shares of common stock,
for a cash payment of $.0016 per share. This purchase represented 77.3% of the
outstanding stock. As of July 8, 1991, the Company distributed, as a dividend to
its shareholders of record on that date, one share of Cardiac Science, Inc.
stock for each share of Medstone stock held. The Company retained 629,768 shares
of common stock of Cardiac Science, Inc.
In June 1991, the Company agreed to loan Cardiac Science, Inc. up to
$220,000 to provide working capital pursuant to the terms of a revolving note
agreement. The unpaid principal amount of the loan, together with interest
accrued thereon at the rate of 10% per annum, was due and payable to Medstone in
December 1991. Medstone then agreed to extend this note and to loan additional
amounts to Cardiac Science, Inc. As of April 30, 1992, the Company had loaned
Cardiac Science, Inc. approximately $310,000. In April 1992, the Company agreed
to extend its initial loan to Cardiac Science, Inc. and to loan Cardiac Science,
Inc. an additional $200,000. These loans bore interest at a rate of 8% per
annum, payable quarterly, and are secured by Cardiac Science's assets and were
to mature on the earlier of April 1, 1995 or the closing of the initial public
offering of Cardiac Science's Common Stock. Cardiac Science, Inc. has the option
to pay the interest on the notes in either cash or shares of its common stock
valued at $.15 per share. To pay such interest, Cardiac Science, Inc. had issued
419,054 shares of its common stock to the Company as of December 31, 1995. In
connection with such loan extension and the agreement to make additional loans,
Cardiac Science issued to Medstone 3,400,000 warrants to purchase shares of its
common stock at $.15 per share for an aggregate exercise price of up to
$510,000.
In September 1994, Cardiac Science reached an agreement with Medstone
pursuant to which, and concurrently with the closing of a Private Placement of
Cardiac Science's Common Stock, (i) Medstone exercised the warrants to the
extent of 2,720,000 shares, (ii) Cardiac Science utilized the proceeds therefrom
($408,000) to pay an equivalent portion of the note, (iii) the due date for the
remaining principal balance on the note ($102,000) was extended to April 1,
1996, (iv) Medstone maintains its current lien on the assets of the Company
until the balance of the note is paid, (v) the expiration date for the remaining
warrants to purchase 680,000 shares of Cardiac Science common stock was changed
to March 31, 1996, and (vi) all outstanding unsecured obligations owing by
Cardiac Science to Medstone (approximately $270,000) were satisfied by the
issuance to Medstone of 1,800,000 shares of common stock and a ten year warrant
to purchase 1,000,000 shares of common stock at $.001 per share. Per an oral
agreement between the Company and Cardiac Science, interest payment on the note
were suspended in April 1995 due to prior considerations paid during the
renegotiation of the unsecured debt in 1994.
As of December 31, 1995, Cardiac Science's outstanding note balance was
$107,055, including accrued interest. A reserve of $107,055 has been provided
for non-payment of the note.
Separately, the Company advanced amounts to Cardiac Science for health
insurance. These amounts were to be repaid by Cardiac Science on a
month-to-month basis. As of December 31, 1995, $8,290 had been advanced to
Cardiac Science. A reserve of $2,617 has been provided for non-payment of the
advances.
In September 1994, Cardiac Science received additional financing and,
effective October 7, 1994, all Cardiac Science business is conducted at a
location completely independent of Medstone.
From January 1995 to September 1995, the Compensation Committee
consisted of Paul Quadros and Frank Pope. When Mr. Quadros did not continue
serving on the Board, Mr. Regan was appointed to the Compensation Committee.
None of these individuals was at any time during 1995 or prior thereto an
officer or employee of the Company. Mr. Quadros received compensation during
1996 of $40,000 for consulting services regarding the spinout of the Company's
two subsidiaries.
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<PAGE> 11
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The Company is not aware of any director, officer, or 10% shareholder
who during 1995 failed to file on a timely basis any report regarding the
Company's securities required by Section 16(a) of the Securities Exchange Act of
1934.
OTHER MATTERS
The Board of Directors of the Company does not know of any other
matters that are to be presented for action at the Meeting. Should any other
matters properly come before the Meeting or any adjournment or postponement
thereof, it is the intention of the persons named in the enclosed proxy to vote
the shares they represent as the Board of Directors may recommend.
ANNUAL REPORT
The Company's 1995 Annual Report to Stockholders is being mailed to
stockholders concurrently with this Proxy Statement, but such report is not
incorporated herein and is not deemed to be a part of this proxy solicitation
material.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WITHOUT EXHIBITS, WILL BE FURNISHED WITHOUT
CHARGE TO ANY PERSON FROM WHOM THE ACCOMPANYING PROXY IS SOLICITED UPON WRITTEN
REQUEST TO THE COMPANY'S SECRETARY, MR. MARK SELAWSKI, AT MEDSTONE
INTERNATIONAL, INC., 100 COLUMBIA, SUITE 100, ALISO VIEJO, CALIFORNIA 92656.
FOR THE BOARD OF DIRECTORS,
Mark Selawski, Secretary
Aliso Viejo, California
June 25, 1996
STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES ON, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL
AND YOUR COOPERATION WILL BE APPRECIATED.
<PAGE> 12
PROXY MEDSTONE INTERNATIONAL, INC.
100 COLUMBIA
SUITE 100
ALISO VIEJO, CA 92656
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints David V. Radlinski and Mark Selawski, and
each of them, as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote as designated below all the
shares of Common Stock of Medstone International, Inc. held of record by the
undersigned on June 7, 1996 at the Annual Meeting of Stockholders to be held on
July 23, 1996, and at any adjournments thereof.
1. ELECTION OF DIRECTORS
<TABLE>
<S> <C> <C> <C>
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
</TABLE>
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, line
through or otherwise strike out the nominee's name below)
David V. Radlinski, Frank R. Pope, Donald J. Regan and Michael Tibbitts
2. RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG, LLP AS INDEPENDENT AUDITORS
OF THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 1996.
/ / FOR / / AGAINST / / ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Important -- please sign on other side)
<PAGE> 13
(Continued from other side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE NOMINEES NAMED IN PROPOSAL 1 AND FOR PROPOSAL 2.
DATED: , 1996
---------------------------
Signature
---------------------------
Signature
Please sign exactly as name
appears hereon. When shares
are held by joint tenants,
both should sign. When
signing as attorney,
executor, administrator,
trustee or guardian, please
give full title as such. If
a corporation, please sign
in full corporate name by
President or other
authorized officer. If a
partnership, please sign in
partnership name by
authorized person
/ / I plan to attend the
meeting
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
