DYNATRONICS CORPORATION
7030 Park Centre Drive
Salt Lake City, Utah 84121
(801) 568-7000
October 23, 2003
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Dynatronics Corporation that will be held on Tuesday, November 25, 2003 at 4:00
p.m., at the corporate headquarters located at 7030 Park Centre Drive, Salt Lake
City, Utah.
The formal notice of the Annual Meeting and the Proxy Statement have been made a
part of this invitation.
After reading the Proxy Statement, please mark, date, sign and return, at an
early date, the enclosed proxy in the enclosed envelope to ensure that your
shares will be represented. YOUR SHARES CANNOT BE VOTED UNLESS YOU SIGN, DATE,
AND RETURN THE ENCLOSED PROXY OR ATTEND THE ANNUAL MEETING IN PERSON.
A copy of Dynatronics Corporation's Annual Report to Shareholders is also
enclosed.
The Board of Directors and management look forward to seeing you at the meeting.
Sincerely yours,
/s/ Kelvyn H. Cullimore, Jr.
----------------------------
Kelvyn H. Cullimore, Jr.
President and Chief Executive Officer
DYNATRONICS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held November 25, 2003
TO THE SHAREHOLDERS OF DYNATRONICS CORPORATION:
The Annual Meeting of Shareholders of Dynatronics Corporation, a Utah
corporation (the "Company" or "Dynatronics"), will be held at the corporate
headquarters located at 7030 Park Centre Drive, Salt Lake City, Utah, on
Tuesday, November 25, 2003, at 4:00 p.m. for the following purposes, all as more
fully described in the accompanying Proxy Statement:
1. To elect six directors to hold office until the next Annual
Meeting of Shareholders and thereafter until their respective
successors have been elected or appointed and qualified;
2. To ratify the appointment of Tanner + Co. PC as Dynatronics'
independent public accountants for the fiscal year ending June 30,
2004; and
3. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
Shareholders of record owning shares of common stock at the close of
business on Thursday, October 2, 2003 are entitled to notice of and to vote at
this Annual Meeting and any adjournment thereof. A complete list of shareholders
entitled to vote at the Annual Meeting will be maintained and available for
inspection at the corporate offices of the Company for at least ten days prior
to the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Bob Cardon
--------------
Bob Cardon, Corporate Secretary
Salt Lake City, Utah
October 23, 2003
IMPORTANT
Whether or not you expect to attend the Annual Meeting, we urge you to complete,
date, sign and return the enclosed proxy without delay in the enclosed prepaid
envelope so that your shares are represented at the Annual Meeting. Your proxy
will not be used if you are present at the meeting and desire to vote your
shares personally. Even if you have given your proxy, you may still vote in
person if you attend the meeting. Please note, however, that if your shares are
held of record by a broker, bank or other nominee and you wish to vote at the
meeting, you must obtain from the record holder a proxy issued in your name.
Your proxy is revocable in accordance with the procedures set forth in the Proxy
Statement.
PROXY STATEMENT
DYNATRONICS CORPORATION
7030 Park Centre Drive
Salt Lake City, Utah 84121
This Proxy Statement is furnished to you and other shareholders of
Dynatronics Corporation, a Utah corporation (the "Company" or "Dynatronics")
pursuant to Regulation 14A under the Securities Exchange Act of 1934 in
connection with the solicitation of proxies in the enclosed form for use in
voting at the Annual Meeting of Shareholders and any adjournment thereof. The
Annual Meeting is scheduled to be held at 4:00 p.m. on Tuesday, November 25,
2003, at the corporate headquarters of the Company located at 7030 Park Centre
Drive, Salt Lake City, Utah.
Solicitation of Proxies
The accompanying proxy is solicited by and on behalf of the Board of
Directors of the Company in connection with the Annual Meeting to be held at
Dynatronics Corporation, 7030 Park Centre Drive, Salt Lake City, Utah, on
November 25, 2003, at 4:00 p.m., Mountain Standard Time, or any adjournment
thereof. This Proxy Statement, the Notice of Annual Meeting and the accompanying
form of proxy will be mailed to shareholders of record as of October 2, 2003.
This Proxy Statement, the enclosed proxy card and the Annual Report to
Shareholders will first be mailed to shareholders entitled to vote at the
meeting on or about October 28, 2003.
Dynatronics will pay the cost of preparing and disseminating this
information. In addition to the solicitation of proxies by use of the mails, the
directors, officers and employees of Dynatronics, without receiving additional
compensation therefore, may solicit proxies personally or by telephone or
facsimile. Arrangements will be made with brokerage firms and other custodians,
nominees and fiduciaries for the forwarding of solicitation materials to the
beneficial owners of the shares of common stock held by such persons, and
Dynatronics will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in connection
therewith.
Each proxy executed and returned by a shareholder may be revoked at any
time thereafter by written revocation, by execution of a written proxy bearing a
later date or by attending the Annual Meeting and voting in person. No such
revocation will be effective, however, with respect to any matter or matters
upon which, prior to such revocation, a vote shall have been cast pursuant to
the authority conferred by such proxy.
Voting
The matters to be considered and voted upon at the Annual Meeting will
be:
1. Election of six directors to serve until the next Annual Meeting
of Shareholders and thereafter until their successors are elected
and qualified;
2. Ratification of the selection of Tanner + Co. PC as the
independent public accountants of Dynatronics; and
3. Such other business as may properly come before the Annual Meeting
and at any adjournment thereof.
It is important that you act promptly to vote, sign, date, and return
the enclosed proxy in the enclosed self-addressed envelope. Where instructions
are indicated, proxies will be voted in accordance with the instructions
indicated therein. If no instructions are indicated, proxies will be voted "FOR"
the election of each of the six nominees for director, "FOR" the ratification of
the appointment of Tanner + Co. PC as the independent public accountants of
Dynatronics for the fiscal year ending June 30, 2004, and, in the discretion of
the proxy holder, as to any other matters that may properly come before the
Annual Meeting.
1
The Board of Directors has fixed the close of business on October 2,
2003 as the "Record Date" for determining shareholders entitled to receive
notice of and to vote at the Annual Meeting. At the close of business on the
Record Date, there were 8,793,135 shares of the Company's common stock, no par
value, issued and outstanding, each such share entitled to one vote.
Shareholders will not be allowed to cumulate their shares. A quorum of
shareholders, present in person or by proxy, consists of the holders of a
majority of the outstanding shares as of the Record Date for purposes of
conducting any business at the Annual Meeting. Abstentions and broker non-votes
will be counted as "represented" for the purpose of determining the presence or
absence of a quorum, but will not be counted for any other purpose. Under Utah
law, once a quorum is established, shareholder approval with respect to a
particular proposal is generally obtained when the votes cast in favor of the
proposal exceed the votes cast against the proposal.
PROPOSAL 1 - ELECTION OF DIRECTORS
Directors are elected at each Annual Meeting of the Shareholders and
hold office until the next Annual Meeting when their respective successors are
duly elected and qualified. The persons named in the enclosed proxy intend to
vote for the election of the six nominees listed below, unless instructions to
the contrary are given in the proxy. All of the nominees are currently
directors. The six nominees have indicated that they are able and willing to
continue to serve as directors. The Board of Directors has no reason to believe
that any nominee named herein will be unable or unwilling to serve. However, if
some unexpected occurrence should require the substitution of some other person
or persons for any one or more of the nominees, the person or persons voting the
proxies will vote for such nominee or nominees as the Board of Directors may
select. The affirmative vote of a plurality of votes cast at the Annual Meeting
is required to elect each nominee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH NOMINEE.
The nominees are: Kelvyn H. Cullimore, Kelvyn H. Cullimore Jr., Larry
K. Beardall, E. Keith Hansen, Howard L. Edwards, and Val J. Christensen.
Executive Officers and Directors
The following table contains information concerning the Company's
directors and executive officers at October 2, 2003:
Director
or Officer Position
Name Age Since with Company
---- --- ---------- ------------
Kelvyn H. Cullimore 68 1983 Chairman of the Board
Kelvyn H. Cullimore, Jr. 47 1983 President, CEO and
Director
Larry K. Beardall 47 1986 Executive Vice President
of Sales and Marketing
and Director
E. Keith Hansen, M.D.* 58 1983 Director
Howard L. Edwards** 72 1997 Director
Val J. Christensen** 50 1999 Director
Ronald J. Hatch 59 2002 Vice President of
Operations and R&D
* Member of Compensation Committee of the Board of Directors.
** Member of Audit and Compensation Committee of the Board of Directors.
Kelvyn H. Cullimore has served as Chairman of the Board of Dynatronics
since its incorporation in April 1983. From 1983 until 1992, Mr. Cullimore
served as President of Dynatronics. Mr. Cullimore received a B.S. in Marketing
from Brigham Young University in 1957, and following graduation, worked for a
number of years as a partner in a family-owned home furnishings business in
Oklahoma City, Oklahoma. Mr. Cullimore has participated in the organization and
management of various enterprises, becoming the president or general partner in
several business entities, including real estate, motion picture, and equipment
partnerships. From 1979 until 1992, Mr. Cullimore served as Chairman of the
Board of American Consolidated Industries (ACI), the former parent company of
Dynatronics. From 1986 until 1999, Mr. Cullimore served as President of ITEC
Attractions, Inc., an entertainment, restaurant and retail mall complex in
Branson, MO (ITEC) and from 1986 to 1997 he served as ITEC's Chairman, President
and CEO. Presently, Mr. Cullimore serves on the board of directors of ITEC.
Kelvyn H. Cullimore is the father of Kelvyn H. Cullimore, Jr. No other family
relationships exist among officers and directors.
2
Kelvyn H. Cullimore, Jr. was named President & CEO of Dynatronics
Corporation in 1992. He had previously served as Secretary/Treasurer from 1983
to 1992 and as Administrative Vice President from 1988 to 1992. He has served as
a Director since the inception of the Company. Mr. Cullimore graduated cum laude
from Brigham Young University in 1980 with a degree in Financial and Estate
Planning. In addition to his involvement with Dynatronics, Mr. Cullimore served
as Executive VP and a director of Dynatronics' former parent company. He
currently serves on the board of directors for ITEC. Additionally, he has served
previously on the boards of a printing company, lumber company and travel
agency. Mr. Cullimore is a member of the advisory board of the Utah Life
Sciences Association and in June 2003, accepted an invitation to join the board
of the Medical Device Manufacturer's Association, a national medical device
trade association headquartered in Washington D.C.
Larry K. Beardall was appointed Executive Vice President of Dynatronics
in December of 1992. He has served as a Director and the Vice President of Sales
and Marketing for Dynatronics since July of 1986. Mr. Beardall joined
Dynatronics in February of 1986 as Director of Marketing. He graduated from
Brigham Young University with a degree in Finance in 1979. Prior to his
employment with Dynatronics, Mr. Beardall worked with GTE Corporation in Durham,
North Carolina as the Manager of Mergers and Acquisitions and then with Donzis
Protective Equipment in Houston, Texas as National Sales Manager. He also served
on the board of directors of Nielsen & Nielsen, Inc., the marketing arm for
Donzis, a supplier of protective sports equipment.
E. Keith Hansen, M.D. has been a Director of Dynatronics since 1983.
Dr. Hansen obtained a Bachelor of Arts degree from the University of Utah in
1966 and an M.D. degree from Temple University in 1972. He has been in private
practice in Sandy, Utah since 1976. Dr. Hansen was also a director of ACI until
1992 and a director of Mountain Resources Corporation from 1980 to 1988.
Currently, Dr. Hansen serves as a director of Accent Publishers, a privately
held company, based in Salt Lake City, Utah.
Howard L. Edwards was elected a Director in January 1997. From 1968 to
1995 Mr. Edwards served in various capacities at Atlantic Richfield Company
(ARCO) and its predecessor, the Anaconda Company, including corporate secretary,
vice president, treasurer and general attorney. In addition, Mr. Edwards was a
partner in the law firm of VanCott, Bagley, Cornwall and McCarthy, in Salt Lake
City, Utah. He graduated from the George Washington University School of Law in
1959 and received a bachelor's degree in Finance and Banking from Brigham Young
University in 1955.
Val J. Christensen became a member of the Board in January 1999. Since
1996, Mr. Christensen has served as Executive Vice President of Franklin Covey
Company, where he has also served as General Counsel since 1990. He was a member
of Franklin's board of directors from 1991 to 1997. Prior to joining Franklin,
Mr. Christensen was engaged in the private practice of law with the
international law firm of LeBoeuf, Lamb, Leiby & MacRae, specializing in general
business and business litigation matters. Following graduation from law school
in 1980, Mr. Christensen served as a law clerk to the Honorable James K. Logan
of the United States Tenth Circuit Court of Appeals. He is an honors graduate of
the J. Rueben Clark Law School at Brigham Young University and served as
articles editor of the BYU Law Review.
Ronald J. Hatch was appointed Vice President of Operations and R&D in
July 2002. Prior to joining Dynatronics in June 2002, Mr. Hatch worked with
Lineo, Inc. as a Senior Project Manager from 1999 to 2002. From 1972 to 1998, he
served in various management responsibilities at Philips Semiconductors -
Signetics. He graduated from Brigham Young University with a degree in
Electronics Engineering Technology in 1970 and received an MBA degree from the
University of Phoenix (in Salt Lake City) in 1991.
Remuneration of Directors
Directors who are otherwise employed by and receive remuneration as
officers of the Company, are paid $100 per meeting for attendance at regular and
special director's meetings. Outside directors are paid an annual director's fee
of $3,600. In addition, Dynatronics pays all expenses incurred by directors in
connection with attendance at Board and committee meetings.
Each outside director also participates in an annual bonus program. The
full annual bonus per director is an amount equal to one percent of the
Company's pre-tax profits. A total of $6,568 was paid to the outside directors
under this plan for the fiscal year ended June 30, 2003.
3
Committees and Meetings of the Board of Directors
Directors hold office until the next Annual Meeting of Shareholders and
until their successors have been elected or appointed and duly qualified.
Executive officers are appointed by the Board of Directors at the first meeting
after each Annual Meeting of Shareholders and hold office until their successors
are elected or appointed and duly qualified. Vacancies on the Board which are
created by the retirement, resignation or removal of a director may be filled by
the vote of the remaining members of the Board, with such new director serving
the remainder of the term or until his successor shall be elected and qualify.
The Board of Directors presently has one vacancy resulting from the retirement
of Joe Barton earlier in 2003. The Board of Directors in its discretion may
elect to fill that position at any time as provided by the bylaws. At this time
the Board has not identified a successor to Mr. Barton and there are no
immediate plans to name a successor.
There were six regular meetings of the Board of Directors held during
the fiscal year ended June 30, 2003. No director attended fewer than 75% of the
meetings during the fiscal year.
The Board has no formal Nominating Committee. The Board has a standing
Compensation Committee comprising the outside directors that reviews and
approves compensation matters for executive officers and has oversight
responsibility for all benefit plans, including the Company's stock option plan.
Members of the Compensation Committee are: Dr. E. Keith Hansen, Howard L.
Edwards, and Val J. Christensen. The Compensation Committee held one meeting
during the year ended June 30, 2003.
The Board of Directors also has an Audit Committee comprised of: Howard
L. Edwards, and Val J. Christensen. Mr. Edwards is the financial expert member
of the Audit Committee. The Audit Committee held four meetings during fiscal
year 2003.
According to its charter as adopted by the Board of Directors, the
functions of the Audit Committee are (1) to review and approve the selection of,
and all services performed by, the independent auditors, (2) to review and
evaluate the Company's internal controls, and (3) to review and report to the
Board of Directors with respect to the scope of audit procedures, accounting
practices and internal accounting and financial controls of the Company.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
--------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the executive officers and directors, and persons who own more than 10%
of a registered class of the Company's equity securities ("Reporting Persons")
to file initial reports of ownership and to report changes in ownership in
reports filed with the Securities and Exchange Commission. Reporting Persons are
required by regulation of the Securities and Exchange Commission to furnish
Dynatronics with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to
Dynatronics during and with respect to the fiscal year ended June 30, 2003,
Dynatronics believes that during fiscal year 2003 all Section 16(a) filings
applicable to these Reporting Persons were timely filed with the exception of
Form 4 filings for the expiration of stock options for each of the directors.
ADDITIONAL INFORMATION ABOUT THE COMPANY
Voting Securities and Principal Shareholders
The following table contains information as of October 2, 2003, that
has been provided to Dynatronics with respect to beneficial ownership of shares
of common stock, for (1) all the persons known to be holders of more than 5% of
our voting securities; (2) each director, (3) each executive officer named in
the Summary Compensation Table of this Proxy Statement (the "Named Executive
Officers") holding office on October 2, 2003, and (4) all executive officers and
directors as a group. Unless noted otherwise, Dynatronics believes each person
named below has sole voting and investment power with respect to the shares
indicated. Unless otherwise indicated, the address of the shareholder is
Dynatronics' principal executive offices, 7030 Park Centre Drive Salt Lake City,
UT 84121.
4
Shares of Common Stock
Beneficially Owned as of
October 2, 2003 (1)
Name of Beneficial Owner Number of Shares Percent of Class
------------------------ ---------------- ----------------
Kelvyn H. Cullimore, Jr. 704,620 (2) 8.0%
President, CEO, Director
Kelvyn H. Cullimore 199,104 (3) 2.3%
Chairman of the Board
E. Keith Hansen, M.D. 304,650 (4) 3.5%
Director
Larry K. Beardall 116,288 (5) 1.3%
Exec. V.P., Director
Howard L. Edwards 81,000 (6) *
Director
Val J. Christensen 54,000 (7) *
Director
Ronald J. Hatch 18,000 (8) *
Vice President of Operations
and R&D
All executive officers and 1,447,662 (9) 16.1%
directors as a group (7 persons)
* Represents less than 1 percent of outstanding shares of common stock
including shares issuable to such beneficial owner under options which are
presently exercisable or will become exercisable within 60 days.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Included in the computation of the
number of shares beneficially owned by a person and the percentage
ownership of that person are shares of common stock subject to options,
warrants, or other convertible instruments held by that person that are
exercisable or that become exercisable within 60 days of October 2, 2003.
Such shares, however, are not deemed outstanding for purposes of computing
the ownership of any other person.
(2) Includes 501,780 shares owned directly, 142,840 shares owned by Mr.
Cullimore's wife and minor children, 30,000 shares owned by a family
corporation of which Mr. Cullimore is Vice President, and options for the
purchase of 30,000 shares.
(3) Includes 136,191 shares owned directly, 2,913 shares owned by Mr.
Cullimore's wife, 30,000 shares owned by a family corporation of which Mr.
Cullimore is President, and options for the purchase of 30,000 shares.
(4) Includes 194,650 shares owned directly, 80,000 shares owned by a pension
plan as to which Dr. Hansen is a beneficiary and options for the purchase
of 30,000 shares
(5) Includes 75,588 shares owned directly, 15,700 shares owned by Mr.
Beardall's children and options for the purchase of 25,000 shares.
(6) Includes 51,000 shares owned directly and options for the purchase of
30,000 shares.
(7) Includes options for the purchase of 54,000 shares.
(8) Includes options for the purchase of 18,000 shares.
5
(9) The calculation of beneficially owned shares of all executive officers and
directors as a group eliminates the duplicate entries of 30,000 shares
owned by a family corporation which are reflected in the beneficial
ownership of both Kelvyn H. Cullimore and Kelvyn H. Cullimore, Jr.
Litigation Matters
------------------
There are no material legal proceedings to which any director or
executive officer is a party adverse to Dynatronics.
Certain Relationships and Related Transactions
----------------------------------------------
Except as described in this Proxy Statement under the captions,
"Employment Contracts" and "Salary Continuation Plan," during the two years
ended June 30, 2003 Dynatronics was not a party to any transaction in which any
director, executive officer or shareholder holding more than 5% of the issued
and outstanding common stock had a direct or indirect material interest.
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table summarizes the compensation of the Company's Chief
Executive Officer and the two most highly paid executive officers at June 30,
2003, other than the Chief Executive Officer, whose total salary and bonus
exceeded $100,000 during the year then ended (collectively the "Named Executive
Officers") and the amounts earned by each of them during the past three fiscal
years:
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------------------------------- ------------------
Other Annual Securities
Compensation Underlying Options All Other
Position Year Salary ($) Bonus ($)(1) /SARS (#) Compensation ($)
--------------------------- ------- ------------ ----------- ---------------- ------------------ -----------------
Kelvyn H. Cullimore, Jr. 2001 $ 109,011 $ 21,228 $ 11,232 30,000/0 $ -
CEO / President 2002 $ 109,011 $ 20,803 $ 10,450 0/0 $ -
2003 $ 140,000 $ 16,932 $ 11,710 100,000/0 $ -
Kelvyn H. Cullimore 2001 $ 131,250 $ 35,378 $ 16,363 30,000/0 $ -
Chairman of the Board 2002 $ 131,250 $ 34,671 $ 16,986 0/0 $ -
2003 $ 125,000 $ 16,932 $ 17,159 0/0 $ -
Larry K. Beardall 2001 $ 99,483 $ 28,304 $ 10,762 25,000/0 $ -
Executive Vice President 2002 $ 99,483 $ 27,736 $ 10,073 0/0 $ -
2003 $ 130,000 $ 16,932 $ 10,715 100,000/0 $ -
-----------
(1) Dynatronics provides automobiles for certain executive officers and pays
all vehicle operating expenses. Dynatronics also provides life insurance
for its officers. The amount of this column includes the approximate value
of these benefits to the Named Executive Officer.
During the year ended June 30, 2003, Dynatronics made no awards under
any long-term incentive plan. Dynatronics has never granted stock appreciation
rights.
Employment Contracts
Dynatronics has entered into written employment contracts with two
executive officers, Kelvyn H. Cullimore, Jr., President and Chief Executive
Officer, and Larry K. Beardall, Executive Vice President. The initial terms of
these contracts ran through the end of fiscal year 2003. Both contracts were
6
renewed automatically, subject to the right of either party to terminate the
agreements upon 90 days notice made prior to the last day of the renewal term.
Additional contract extensions would extend each contract for up to an
additional ten years (five renewal terms of two years each). The compensation
package under each contract includes an auto allowance, an annual bonus based on
pre-tax operating profit (at rates established by the Compensation Committee),
and stock options granted under the Company's 1992 Stock Option Plan, as amended
and restated. Each officer also participates in the salary continuation plan and
receives other welfare and employee benefits that are standard in such
agreements, including, by way of example, health insurance and disability
coverage, paid vacation and Company-paid life insurance. The contracts also
contain a provision granting the executives certain rights and protections in
the event of a change in control. Among other things, the change of control
provision of the contracts provide for severance payments to the executives if
their employment is discontinued as a result of the change of control of
Dynatronics.
The employment contracts described above terminate upon the death or
disability of the executive or termination of employment for cause. The
contracts also contain covenants of the executives that, during the term of
their employment and continuing for a specified period after the termination of
their employment for any reason, with or without cause, they will not compete
with Dynatronics or make use of or disclose confidential information of
Dynatronics.
Bonus Plan
Dynatronics maintains a discretionary incentive bonus plan administered
by the Compensation Committee. Pursuant to the plan, the Compensation Committee
granted incentive cash bonuses to certain officers and employees during the year
ended June 30, 2003. The total amount of bonuses paid for fiscal year 2003 was
$166,496, of which $50,796 was paid to Named Executive Officers as a group, in
the amounts included under the "Bonus" heading in the Summary Compensation
Table.
Salary Continuation Plan
During fiscal year 1988, the Board of Directors adopted a salary
continuation agreement for certain Named Executive Officers. This agreement
provides for a pre-retirement benefit to be paid to the officer's designated
beneficiary in the event he dies before reaching age 65 and a retirement benefit
to be paid upon reaching age 65. The pre-retirement benefit provides for payment
of 50% of the officer's compensation at the time of death up to $75,000 annually
for a period of 15 years or until the officer would have reached age 65,
whichever is longer. The retirement benefit provides the officer $75,000
annually for a period of 15 years. Presently, Kelvyn H. Cullimore, Jr. and Larry
K. Beardall are covered under this plan.
Funding for obligations arising in connection with the salary
continuation agreement is provided by life insurance policies on the
participating officers, of which Dynatronics is the owner and beneficiary. The
face amounts of the policies have been determined so that sufficient cash values
and death benefits under the policies will meet the obligations as they occur.
In fiscal year 2003, Dynatronics expensed $13,870 relating to salary
continuation obligations under the salary continuation agreement.
401(k) Plan
Dynatronics has adopted a 401(k) Plan. Employees who are at least age
20 and have completed at least six months of service with the Company are
eligible to participate in the 401(k) Plan.
Eligible employees may make contributions to the 401(k) Plan in the
form of salary deferrals up to 15% of total compensation, not to exceed $11,000,
the maximum allowable amount of salary deferrals for calendar 2002. Dynatronics
matches annual employee contributions at 25% of employee contributions, up to a
maximum of $500 per employee per year.
Participants under the 401(k) Plan are fully vested in their salary
deferral contributions and vest 20% per year after two years of participation in
matching contributions by the Company. Amounts deferred by Named Executive
Officers under the 401(k) Plan are included under "Salary" in the Summary
Compensation Table. Matching contributions for each Named Executive Officer are
included in the "Other Compensation" column in the table above.
7
Stock Option Grants in Fiscal Year 2003
During fiscal year 2003, the Company granted options to purchase
324,651 shares of common stock under the 1992 Stock Option Plan to employees,
officers and outside directors. Of this amount, 200,000 options were granted to
the Named Executive Officers. When vested, the options give the participants the
right to purchase common stock. The weighted average per share exercise price of
all options granted during fiscal year 2003 was $.77.
Option Grants in Last Fiscal Year
Individual Grants
Potential Realizable
Value at Assumed Annual
Rates of
Stock Price
Percent of Total Appreciation for Option
Number of Securities Options Granted Term
Underlying Options to Employees in Exercise Price Expiration -------------------------
Name Granted (#)(1) Fiscal Year ($/Sh) Date 5% ($) 10% ($)(1)
-------------------------------------------------------------- ---------------- ------------ --------------------------
Kelvyn H. Cullimore, Jr. 100,000 31% $.78 5/20/08 $21,550 $47,620
Larry K. Beardall 100,000 31% $.78 5/20/08 $21,550 $47,620
(1) Amount reflects the potential realizable value at assumed annual rates of
appreciation for the option term, less the exercise price. Options vest
one year from the date of grant.
Stock Options Exercised and Outstanding
The following table contains certain information, including the fiscal
year-end value of unexercised stock options held by the Named Executive Officers
as of June 30, 2003.
Aggregated Option Exercises in Last Fiscal Year
And Fiscal Year-End Option Values
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
At 6/30/2003 /SARs At 6/30/2003
Shares Acquired Value(#) (#) Exercisable/ ($) Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable (1)
----------------------- ----------------------------- -------------------- -------------------
Kelvyn H. Cullimore, Jr. - $ - 30,000 / 100,000 $0 / 0
Kelvyn H. Cullimore - $ - 30,000 / 0 $0 / 0
Larry K. Beardall - $ - 25,000 / 100,000 $0 / 0
-----------
(1) Value is based on the fair market value of the common stock on June 30,
2003. Values indicated reflect the difference between the exercise price of
the unexercised options and the market value of shares of common stock on
June 30, 2003. The closing bid price of the common stock on June 30, 2003,
the last trading date in the Company's fiscal year, as reported by NASDAQ,
was $.77 per share. The exercise prices for the options listed above range
between $.78 and $1.13 per share, therefore the options were not in the
money at June 30, 2003.
Amended and Restated Stock Option Plan of 1992
The following summary describes the material features of the Amended
and Restated Stock Option Plan of 1992 (the "Plan"). The Plan contains two
optional forms of awards that may be used at the sole discretion of the
Compensation Committee (the "Committee"). Incentive awards under the Plan may
take the form of stock options that may be incentive stock options ("ISOs")
intended to qualify for special tax treatment or non-qualified stock options
("NSOs").
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The Committee will determine the eligible participants who will be
granted incentive awards, determine the amount and type of award, determine the
terms and conditions of awards, construe and interpret the Plan, and make all
other determinations with respect to the Plan, to the extent permitted by
applicable law. Options may be granted under the Plan to directors, officers and
employees of the Company, and to other key individuals such as consultants and
non-employee agents to the Company who the Committee believes have made or will
make an essential contribution to the Company; provided, however, that Incentive
Stock Options may only be granted to employees.
The original term of the Plan was ten years from its effective date of
August 18, 1992; the Board of Directors extended the term of the Plan on
September 18, 2001 to expire September 18, 2011. The shareholders approved the
amendment and extension of the Plan on November 20, 2001. Notwithstanding the
extension of the Plan termination date, no option granted under the Plan,
regardless of when granted, may be exercised more than ten years from the date
of grant.
The Committee may grant ISOs and NSOs to eligible participants, subject
to the terms and conditions of the Plan.
At the time an option is exercised, shares of Common Stock may be
purchased using (1) cash; (2) shares of the Company's common stock owned by the
optionee for at least one year; (3) a "cashless exercise" procedure (whereby a
broker sells the shares or holds them as collateral for a margin loan, delivers
the option price to the Company, and delivers the remaining sale or loan
proceeds to the optionee); or (4) any combination of the foregoing or any other
method of payment which the Committee may allow.
At June 30, 2003, there were 959,816 shares of the Company's common
stock reserved for issuance under the Plan. As of the Record Date, options to
purchase an aggregate of 926,629 shares were outstanding and 936,832 shares were
available for future grant.
REPORT OF THE DYNATRONICS
BOARD OF DIRECTORS
COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") of the Board of Directors
of the Company determines the Company's executive compensation policies. The
Committee is comprised of three independent non-employee Directors. After
evaluating the performance of the Company and its executive officers, the
Committee recommends compensation programs and salary levels to the entire Board
of Directors for approval. Set forth below is the report submitted by the
Committee addressing the Company's compensation policies for the fiscal year
ended June 30, 2003 as they affected the executive officers of the Company.
Employment Contracts for the Company's Chief Executive Officer and President and
for the Executive Vice President of the Company were approved by the
Compensation Committee. The Compensation Committee approved the extension of
those contracts in August 2003.
Compensation Philosophy
The goal of the Company is to be a significant provider of quality
products in the markets it serves. To support this and other strategic
objectives as approved by the Board of Directors and to provide adequate returns
to shareholders, the Company must compete for, attract, develop, motivate and
retain top quality executive management.
In designing and administering the executive compensation program, the
Committee strives to balance short and long term incentive objectives and use
prudent judgment in establishing performance criteria, evaluating performance
and determining actual incentive awards. The Committee believes that stock
ownership by executive officers is beneficial in aligning the common interests
of management and stockholders to enhance stockholder value.
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Compensation of Chief Executive Officer
In addition to the factors mentioned above, the Committee's general
approach in setting Mr. Cullimore's annual compensation is to seek to be
competitive with other companies in the Company's industry and to reward Mr.
Cullimore's strategic management abilities in directing the Company's expansion
efforts and its development exploitation of new markets and new business
opportunities.
Compensation Committee
Dr. E. Keith Hansen
Howard L. Edwards
Val J. Christensen
REPORT OF THE DYNATRONICS
BOARD OF DIRECTORS AUDIT COMMITTEE
The Audit Committee has prepared this report of its activities for the
year ended June 30, 2003. This report shall not be deemed incorporated by
reference by any general statement incorporating this Proxy Statement into any
other filing under the Securities Act of 1933 or under the Securities Exchange
Act of 1934, except to the extent Dynatronics specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
statutes.
The Audit Committee is composed entirely of independent directors, and
operates under a written charter. The Audit Committee assists the Board of
Directors in fulfilling their responsibility to shareholders, potential
shareholders and the investment community relating to accounting and financial
reporting practices.
The Audit Committee meets with management periodically to consider the
adequacy of the Company's internal controls and the objectivity of its financial
reporting. The Audit Committee discusses these matters with the independent
auditors and with appropriate financial personnel.
As needed, the Audit Committee meets privately with both the
independent auditors and the appropriate financial personnel, each of whom has
unrestricted access to the members of the Audit Committee. The Audit Committee
also selects and appoints the independent auditors and reviews periodically the
auditors' performance and independence from management as well as the
compensation paid to the auditors for services provided to the Company.
All members of the Audit Committee are "independent" for purposes of
Rule 4200(a)(15) of The National Association of Securities Dealers' listing
standards and applicable Marketplace Rules. That is, the Board of Directors has
determined that none of the members of the Audit Committee has a relationship to
Dynatronics that may interfere with their independence from Dynatronics and its
management.
Management has primary responsibility for the Company's financial
statements and the overall reporting process, including the Company's system of
internal controls. The independent auditors audit the annual financial
statements prepared by management, express an opinion as to whether those
financial statements fairly present the financial position, results of
operations and cash flows of Dynatronics in conformity with accounting
principles generally accepted in the United States of America and discuss with
us any issues they believe should be raised with the committee.
For the fiscal year ended June 30, 2003, the Audit Committee reviewed
the audited financial statements and met with both management and KPMG LLP, the
independent auditors for fiscal year 2003, to discuss those financial
statements. Management has represented to us that the financial statements were
prepared in accordance with accounting standards generally accepted in the
United States of America.
In discharging the Committee's oversight responsibility for the audit
process, we have discussed with KPMG LLP, the Company's independent auditors for
the year ended June 30, 2003, the matters required to be discussed by SAS 61
(Communications with Audit Committees). SAS 61 requires the Company's
Independent Auditors to provide the Committee with additional information
regarding the scope and results of their audit of the Company's financial
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statements, including with respect to (i) their responsibilities under generally
accepted auditing standards, (ii) significant accounting policies, (iii)
management judgments and estimates, (iv) any significant accounting adjustments,
(v) any disagreements with management and (vi) any difficulties encountered in
performing the audit.
The Committee has obtained from KPMG LLP a letter providing the
disclosures required by Independence Standards Board Standard No. 1
(Independence Discussion with Audit Committees) with respect to any relationship
between KPMG LLP and the Company which in their professional judgment may
reasonably be thought to bear on independence. KPMG LLP discussed its
independence with the Committee, and has confirmed in its letter to the
Committee that, in its professional judgment, it is independent of the Company
within the meaning of the United States securities laws.
Based on these reviews and discussions, we recommended to the Board of
Directors that Dynatronics' audited consolidated financial statements be
included in the Company's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 2003.
In an effort to reduce expenses, effective October 10, 2003, the Audit
Committee of the Company's Board of Directors approved the dismissal of the
Company's independent accountants, KPMG LLP, and the appointment of Tanner + Co.
as the Company's independent accountants for the fiscal year ending June 30,
2004. The reports of KPMG for the fiscal years ended June 30, 2002 and June 30,
2003 contained no adverse opinions, disclaimer of opinion or qualification or
modification as to uncertainty, audit scope or accounting principles, except as
follows:
KPMG LLP's report on the financial statements of the Company as of and
for the years ended June 30, 2003 and 2002 contained a separate
paragraph stating that "the Company adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets, in
2003".
During the Company's fiscal years ended June 30, 2002 and 2003, and the
subsequent interim period through October 10, 2003, there were no disagreements
between the Company and KPMG on any accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which, if not
resolved to the satisfaction of KPMG, would have caused them to make reference
to the subject matter of the disagreement in connection with its report. None of
the "reportable events" described in Item 304(a)(1)(v) of Regulation S-K have
occurred during the fiscal years ended June 30, 2002 and June 30, 2003, or
through the interim period through October 10, 2003.
We did not consult with Tanner + Co. during the Company's fiscal years
ended June 30, 2002 or 2003, or the subsequent interim period through October
10, 2003, on any matter which was the subject of any disagreement or any
reportable event or on the application of accounting principles to a specified
transaction, either completed or proposed.
Presented by the members of
the Audit Committee:
Howard L. Edwards, Chairman
Val J. Christensen
PROPOSAL 2 - RATIFICATION OF SELECTION OF AUDITORS
The Audit Committee of the Board has selected the firm Tanner + Co. PC
to serve as the Company's independent public accountants for the fiscal year
ending June 30, 2004. The shareholders have been asked to ratify this
appointment. If the shareholders fail to ratify the selection, the Board of
Directors will reconsider its decision. Even if the selection is ratified, the
Audit Committee, in its discretion, may direct the appointment of a different
independent accounting firm at any time during the year if the Audit Committee
feels that such a change would be in the Company's and its shareholders' best
interests.
Representatives of Tanner + Co., PC will be present at the Annual
Meeting, will have the opportunity to make a statement if they desire to do so,
and will be available to respond to appropriate questions.
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The firm of KPMG LLP served as independent public accountants for the
Company during the years ended June 30, 2002 and 2003. During those fiscal years
and the subsequent interim period, there were no disagreements on financial
disclosures or accounting matters with the independent public accountants
engaged by the Company.
Financial Information Systems Design and Implementation Fees
The Company did not engage its Independent Auditors to provide any
professional services in connection with (i) operating or supervising the
operation of its information system or managing its local area network or (ii)
designing or implementing a hardware or software system that aggregates source
data underlying the financial statements or generates information that is
significant to the Company's financial statements taken as a whole.
Auditor Fees
Audit Fees
The aggregate fees billed by the Company's Independent Auditors for
professional services rendered in fiscal 2003 and fiscal 2002 in connection with
(i) the audit of the Company's annual financial statements set forth in its
Annual Report on Form 10-KSB for the fiscal years ended June 30, 2003 and June
30, 2002 and (ii) the review of the Company's quarterly financial statements set
forth in its Quarterly Reports on Form 10-QSB for each of its fiscal quarters,
totaled approximately $51,000 and $49,500, respectively.
Audited-Related Fees
KPMG LLP provided no audited-related services in fiscal years 2003 and
2002.
Tax Fees
Fees for tax services, including tax compliance, tax advice and tax
planning, totaled approximately $17,450 in fiscal year 2003 and $21,025 in
fiscal year 2002.
All Other Fees
The Company did not engage KPMG LLP on any other matters not otherwise
included in the above categories in either fiscal year 2003 or 2002.
The Audit Committee has advised the Company that it has determined that
the non-audit services rendered by its Independent Auditors during its most
recent fiscal year are compatible with maintaining their independence.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL #2
RATIFYING THE SELECTION OF TANNER + CO. PC AS AUDITORS
FOR DYNATRONICS FOR THE FISCAL YEAR ENDING JUNE 30, 2004.
OTHER MATTERS
The Board of Directors knows of no other matters to be presented at the
Annual Meeting. If, however, any further business should properly come before
the Annual Meeting, the persons named as proxies in the accompanying form will
vote on such business in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Regulations adopted by the Securities and Exchange Commission require
that shareholder proposals must be furnished to Dynatronics a reasonable time in
advance of the meeting at which the action is proposed to be taken. Shareholder
proposals intended to be presented at next year's 2004 Annual Meeting of the
Shareholders must be received by Dynatronics at its corporate headquarters on or
before July 31, 2004, in order to be included in the Proxy Statement and Form of
Proxy relating to that meeting. Receipt of a shareholder proposal does not
necessarily guarantee that the proposal will be included in the proxy. If a
shareholder intends to propose any matter for a vote at the Annual Meeting of
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Shareholders to be held in 2004, but fails to notify Dynatronics of such
intention prior to the date indicated above, then a proxy solicited by the Board
of Directors may be voted on such matter in the discretion of the proxy holder,
without discussion of the matter in the proxy statement soliciting such proxy
and without such matter appearing as a separate item on the proxy card.
ADDITIONAL INFORMATION
Dynatronics will provide, without charge, to each shareholder to whom
this Proxy Statement is delivered, upon written or oral request, a copy of the
Company's annual report on Form 10-KSB for the year ended June 30, 2003,
including the financial statements and schedules thereto, as filed with the
Securities and Exchange Commission. The requested document will be sent by first
class mail or other equally prompt means. Written or oral requests for such
information should be directed to Mr. Bob Cardon, Corporate Secretary,
Dynatronics Corporation, 7030 Park Centre Drive, Salt Lake City, UT 84121.
DYNATRONICS CORPORATION
By order of the Board of Directors
/s/ Bob Cardon
---------------
Bob Cardon, Corporate Secretary
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