SCHEDULE 14A INFORMATION
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Securities Exchange Act of 1934
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Dynatroncis Corporation
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DYNATRONICS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
November 19, 2002
DEAR SHAREHOLDERS OF DYNATRONICS CORPORATION:
The Annual Meeting of Shareholders of Dynatronics Corporation, a Utah
corporation ("Dynatronics"), will be held at 7030 Park Centre Drive, Salt Lake
City, Utah, 84121, as provided by our bylaws, as amended, on Tuesday, November
19, 2002, at 4:00 p.m., Mountain Daylight Time. At the meeting we will conduct
the following business:
1. To elect a board of seven directors to hold office until the next
Annual Meeting of Shareholders or until their respective successors
have been elected or appointed;
2. To consider and act upon a proposal that the shareholders ratify the
appointment of KPMG LLP as Dynatronics' independent public accountants
for the fiscal year ending June 30, 2003; and
3. To transact such other business as may properly be brought before the
meeting or any adjournment of the meeting.
These items of business, including the nominees for directors, are more
fully described in the Proxy Statement that is attached to and made a part of
this Notice.
Only shareholders of record owning shares of common stock at the close
of business on Thursday, October 10, 2002 will be entitled to vote at this
meeting. A list of shareholders entitled to vote will be available for
inspection at the corporate offices of the company for ten days prior to the
Annual Meeting and at the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Bob Cardon
---------------------------------------
Bob Cardon, Corporate Secretary
Salt Lake City, Utah
October 16, 2002
IMPORTANT
Whether or not you expect to attend the Annual Meeting in person, to
assure that your shares will be represented, please complete, date, sign and
return the enclosed proxy without delay in the enclosed envelope. 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.
1
PROXY STATEMENT
DYNATRONICS CORPORATION
7030 Park Centre Drive
Salt Lake City, Utah 84121
Solicitation of Proxies
This Proxy Statement is furnished to you 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 of Dynatronics Corporation, a Utah corporation, ("Dynatronics") to
be held at 7030 Park Centre Drive, Salt Lake City, Utah 84121, at 4:00 p.m.
(Mountain Daylight Time), on Tuesday, November 19, 2002, and at any and all
adjournments or postponements 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 10, 2002. This Proxy Statement, the enclosed proxy card
and the Annual Report to Shareholders will be mailed on or about October 21,
2002 to shareholders entitled to vote at the meeting.
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.
ANY SHAREHOLDER WHO EXECUTES A PROXY MAY REVOKE IT AT ANYTIME BEFORE IT
IS EXERCISED BY GIVING ANOTHER PROXY OR BY LETTER OR TELEGRAM DIRECTED TO
DYNATRONICS.
THE SOLICITATION OF PROXIES TO WHICH THIS PROXY STATEMENT RELATES IS
BEING MADE ON BEHALF OF DYNATRONICS BY ITS BOARD OF DIRECTORS.
Voting
The matters to be considered and voted upon at the Annual Meeting will
be:
1. Election of seven directors to serve until the next Annual Meeting
of Shareholders or until their successors are elected and
qualified;
2. Ratification of the selection of KPMG LLP as the independent public
accountants of Dynatronics; and
3. Transaction of such other business as may properly come before the
meeting.
It is important that you promptly return your proxy. You are requested
to vote, sign, date and return the proxy in the enclosed self-addressed
envelope. Shares of common stock will be voted in accordance with the
instructions indicated on properly executed proxies. If no instructions are
indicated, those shares will be voted "FOR" the election of each of the seven
nominees for director, "FOR" the ratification of the appointment of KPMG LLP as
the independent public accountants of Dynatronics for the fiscal year ending
June 30, 2003, and, in the discretion of the proxy holder, as to any other
matters that may properly come before the Annual Meeting.
The close of business on October 10, 2002 has been fixed as the "Record
Date" for determining shareholders entitled to receive notice of and to vote at
the meeting. At the close of business on the Record Date, there were 8,869,335
issued and outstanding shares of common stock, no par value, all of which are
entitled to vote and be voted at the meeting. Each share is entitled to one vote
and only shareholders of record of as of the close of business on the Record
Date are entitled to vote their shares at the Annual Meeting. Shareholders will
not be allowed to cumulate their shares. Holders of a majority of the shares
entitled to be voted at the Annual Meeting must be represented at the Annual
Meeting to constitute a quorum for purposes of conducting any business.
Abstentions and broker non-votes will be counted as "represented" for the
2
purpose of determining the presence or absence of a quorum, but will not be
counted for any other purpose.
Each of the proposed actions to be considered requires the affirmative
approval of a majority of the votes cast at the Annual Meeting where holders of
a majority of the shares issued and outstanding are present in person or by
proxy. 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. Both
abstentions and broker non-votes will be counted for purposes of determining the
presence or absence of a quorum, but broker non-votes are not considered present
and entitled to vote on any matter.
INFORMATION ABOUT THE COMPANY
Voting Securities and Principal Shareholders
The following table contains information as of October 10, 2002, 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 10, 2002, 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.
Amount and
Nature of
Beneficial Percent of
Name of Beneficial Owner Ownership (1) Class
Kelvyn H. Cullimore, Jr. 804,620 (2) 8.9%
President, CEO, Director
Kelvyn H. Cullimore 199,104 (3) 2.2%
Chairman of the Board
E. Keith Hansen, M.D. 304,650 (4) 3.4%
Director
Larry K. Beardall 216,288 (5) 2.4%
Exec. V.P., Director
Howard L. Edwards 81,000 (6) *
Director
Joseph H. Barton 42,000 (7) *
Director
Val J. Christensen 51,000 (8) *
Director
All executive officers and 1,668,662 (9) 17.9%
directors as a group (8 persons)
* Less than 1 percent of outstanding shares
(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 10, 2002.
Such shares, however, are not deemed outstanding for purposes of computing
the ownership of any other person.
3
(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 130,000 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 125,000 shares.
(6) Includes 51,000 shares owned directly and options for the purchase of
30,000 shares.
(7) Includes 21,000 shares owned directly and options for the purchase of
21,000 shares.
(8) Includes options for the purchase of 51,000 shares.
(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.
The Board of Directors
Directors hold office until the next annual meeting of the 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.
Meetings and Committees
There were six regular meetings of the Board of Directors held during
the fiscal year ended June 30, 2002. 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, Joseph H.
Barton, Howard L. Edwards, and Val J. Christensen. The Compensation Committee
held two meetings during the year ended June 30, 2002.
The Board of Directors also has an Audit Committee comprising the same
directors who serve as members of the Compensation Committee of the Board. The
Audit Committee held three meetings during fiscal year 2002.
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.
The Audit Committee has prepared the following report of its activities
for the year ended June 30, 2002. The following 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.
4
Report of the Audit Committee
The Audit Committee (referred to in this report as "we" and "us") is
composed entirely of independent directors, and operates under a written
charter. The Audit Committee assists the Board 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.
This year, the Audit Committee reviewed the audited financial
statements and met with both management and KPMG LLP, the independent auditors,
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.
We have received from and discussed with KPMG LLP the written
disclosure as required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees). These items relate to that
firm's independence from Dynatronics. We also discussed with KPMG LLP any
matters required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees).
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, 2002.
Management has advised us that for the year ended June 30, 2002,
Dynatronics paid fees to KPMG LLP for services in the following categories:
Audit fees.........................$ 49,500
Other nonaudit fees................$ 21,025
KPMG LLP provided no financial information systems design
implementation or consulting services. Other nonaudit fees consisted of tax
consulting and compliance services. We have considered and determined that the
provision of the non-audit services noted in the foregoing table is compatible
with maintaining KPMG LLP's independence under applicable rules.
Members of the Audit Committee
Howard L. Edwards, Chairman
Dr. E. Keith Hansen
Joseph H. Barton
Val J. Christensen
5
Litigation Matters
There are no material legal proceedings to which any director or
executive officer is a party adverse to Dynatronics.
Remuneration of Directors
Directors who are otherwise employed by and receive remuneration as
officers, 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 $27,780 was paid to the outside directors
under this plan for the fiscal year ended June 30, 2002.
Executive Officers and Directors
The following table contains information concerning the company's
directors and executive officers at October 10, 2002:
Director
or Officer Position
Name Age Since with Company
Kelvyn H. Cullimore 67 1983 Chairman of the Board
Kelvyn H. Cullimore, Jr. 46 1983 President, CEO and Director
Larry K. Beardall 46 1986 Executive Vice President of
Sales and Marketing and Director
E. Keith Hansen, M.D. 57 1983 Director
Joseph H. Barton 74 1995 Director
Howard L. Edwards 71 1997 Director
Val J. Christensen 49 1999 Director
Ronald J. Hatch 58 2002 Vice President of Operations and R&D
Kelvyn H. Cullimore is the father of Kelvyn H. Cullimore, Jr. No other
family relationships exist among officers and 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. (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, Jr. became President and Chief Executive Officer
of Dynatronics in December of 1992. He has been a Director since the company's
incorporation. He served as Secretary/Treasurer of Dynatronics from 1983 until
1992 and Administrative Vice President from 1988 until 1992. Mr. Cullimore
graduated from Brigham Young University with a degree in Financial and Estate
Planning in 1980. Mr. Cullimore has served on the board of directors of several
businesses, including Dynatronics Marketing Company and ACI. He currently serves
on the board of ITEC. In addition, he was Secretary/Treasurer of ACI and
Dynatronics Marketing Company. From 1983 until 1992 Mr. Cullimore served as
Executive Vice President and Chief Operating Officer of ACI.
6
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.
Joseph H. Barton was elected a Director in November 1995, and began
serving in January 1996. Mr. Barton received a Civil Engineering degree from the
University of California at Berkeley and has held various executive positions
including President of J.H. Barton Construction Company, Senior Vice President
of Beverly Enterprises, and President of KB Industries, a building and land
development company. Most recently, Mr. Barton served as Senior Vice President
of GranCare, Inc. from 1989 to 1994 and currently is a consultant for Covenant
Care, a company that owns and manages long-term care facilities throughout the
United States.
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.
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, 2002 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.
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, 2002,
Dynatronics believes that during fiscal year 2002 all Section 16(a) filings
7
applicable to these Reporting Persons were timely filed with the exception of
one Form 4 filing made by each of Kelvyn H. Cullimore, Kelvyn H. Cullimore, Jr.
and Larry K Beardall in September 2001, which were filed one week late.
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table summarizes the compensation of the company's Chief
Executive Officer and the three most highly paid executive officers at June 30,
2002, other than the Chief Executive Officer, whose total salary and bonus
exceeded $100,000 during the year then ended (collectively the "Named Executive
Officers") and the amounts earned by each of them during the past three fiscal
years:
Summary Compensation Table
Annual Compensation Long-Term Compensation
-------------------------------------------- -------------------------------------
Other Annual Securities AllOOther
Compensation Underlying Options Compensation ($)
Position Year Salary ($) Bonus ($)(1) /SARs(#) (2)
--------------------------- ------- ------------- ----------- -------------------------------------------------------
Kelvyn H. Cullimore, Jr. 2000 $ 109,011 $ 17,417 $ 10,414 0/0 $ -
CEO / President 2001 $ 109,011 $ 21,228 $ 11,232 30,000/0 $ -
2002 $ 109,011 $ 20,803 $ 10,450 0/0 $ -
Kelvyn H. Cullimore 2000 $ 105,000 $ 28,633 $ 15,006 0/0 $ 481,894
Chairman of the Board 2001 $ 131,250 $ 35,378 $ 16,363 30,000/0 $ -
2002 $ 131,250 $ 34,671 $ 16,986 0/0 $ -
Larry K. Beardall 2000 $ 99,483 $ 23,223 $ 9,944 0/0 $ -
Executive Vice President 2001 $ 99,483 $ 28,304 $ 10,762 25,000/0 $ -
2002 $ 99,483 $ 27,736 $ 10,073 0/0 $ -
John S. Ramey (3) 2000 $ 84,300 $ 11,612 $ 7,872 0/0 $ -
Senior Vice President 2001 $ 84,300 $ 14,151 $ 8,124 20,000/0 $ -
2002 $ 88,146 $ 13,868 $ 9,599 0/0 $ -
(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.
(2) Includes amounts received in settlement of compensation payable under a
salary continuation plan, as discussed below in greater detail.
(3) Mr. Ramey retired in July 2002 due to health reasons.
During the most recent completed fiscal year, 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 run through the end of fiscal year 2003. Both contracts may be
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 initial term or
any renewal term. The 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
8
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 agreements described above terminate upon the death or
disability of the executive or termination of employment for cause. The
agreements 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 bonuses to certain officers and employees during the year
ended June 30, 2002. The total amount of bonuses paid for fiscal year 2002 was
$182,747, of which $97,078 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. Until April 2000, Kelvyn H. Cullimore,
the Chairman of the Board was also 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 2002, Dynatronics expensed $13,020 relating to salary
continuation obligations under the salary continuation agreement.
In April 2000, Dynatronics entered into a settlement agreement with
Kelvyn H. Cullimore with respect to his salary continuation agreement as
Chairman of the Board of Directors. Under the terms of the settlement,
Dynatronics made a lump sum payment of $481,894 and terminated Mr. Cullimore's
salary continuation agreement. The payment was funded from the surrender of a
life insurance policy that was used as the funding vehicle for his Salary
Continuation Agreement. The surrender of the life insurance policy resulted in
income tax expense of approximately $79,000 since the tax basis of the policy
was lower than the amount received by Dynatronics. The settlement with Mr.
Cullimore eliminated approximately $500,000 in expenses over the subsequent 15
years, and would have reduced net income of Dynatronics in those future periods.
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 Dynatronics 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 $10,500,
the maximum allowable amount of salary deferrals for calendar 2001. 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.
9
Stock Option Grants in Fiscal Year 2002
During fiscal year 2002, the company granted options to purchase 90,861
shares of common stock under the 1992 Stock Option Plan to employees and outside
directors. The options granted give the participant the right to purchase common
stock and are exercisable commencing one year from the date of grant. The
weighted average per share exercise price of these options was $1.12. No options
were granted to the Named Executive Officers during the fiscal year ended June
30, 2002.
Stock Options Exercised and Outstanding
The following table contains certain information, including the fiscal
year-end value of unexercised stock options held by the Named Executive Officers
as of June 30, 2002.
Aggregated Option Exercises in Last Fiscal Year
And Fiscal Year-End Option Values
Name Number of Securities
Underlying Value of Unexercised
Unexercised Options /In-the-MoneyEOptions
Shares At 6/30/2002 SARsnAte6/30/200
Acquired on ValuesRealized (#) Exercisable/ Exercisable /
Exercise (#) ($) Unexercisable Unexercisable (1)
-------------- ---------------------------------------------------------------------------------------------------------
Kelvyn H. Cullimore, Jr. 25,000 $ 23,500 130,000 / 0 $0 / 0
Kelvyn H. Cullimore 10,000 $ 9,400 30,000 / 0 $0 / 0
Larry K. Beardall 20,000 $ 18,800 125,000 / 0 $0 / 0
John S. Ramey 15,000 $ 14,100 35,000 / 0 $0 / 0
(1) Value is based on the fair market value of the common stock on June 30,
2002. 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, 2002. The closing bid price of the common stock on June 30, 2002,
the last trading date in the company's fiscal year, as reported by NASDAQ,
was $.93 per share. The exercise prices for the options listed above range
between $.97 and $1.13 per share and the options were therefore not in the
money.
PROPOSAL 1 - ELECTION OF DIRECTORS
At the Annual Meeting of Shareholders, seven directors will be elected.
The nominees are: Kelvyn H. Cullimore, Kelvyn H. Cullimore Jr., Larry K.
Beardall, E. Keith Hansen, Joseph H. Barton, Howard L. Edwards, and Val J.
Christensen. Biographical information about these nominees is included at pages
six and seven of this Proxy Statement. The Board of Directors has no reason to
believe that any nominee named herein will be unable or unwilling to serve. Each
nominee presently serves as a director and has consented to be named as a
nominee for re-election.
Assuming a quorum is present for the meeting, the seven nominees
receiving the highest number of affirmative votes of shares entitled to be voted
will be elected as directors of Dynatronics for the ensuing year. Shareholders
are not allowed to cumulate votes in the election of directors. Unless marked
otherwise, proxies received will be voted FOR the election of each nominee.
Recommendation of the Board
THE BOARD RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL BOARD NOMINEES
NAMED ABOVE.
10
PROPOSAL 2 - RATIFICATION OF SELECTION OF AUDITORS
The firm of KPMG LLP served as independent public accountants for
Dynatronics for the fiscal year ended June 30, 2002. KPMG LLP has served as the
company's independent public accountants since 1988. The Audit Committee of the
Board has selected the firm to continue in this capacity for the current fiscal
year ending June 30, 2003. The shareholders have been asked to approve and
ratify the selection of KPMG LLP as independent public accountants to audit the
accounts and records of Dynatronics for the fiscal year ending June 30, 2003,
and to perform other appropriate services as determined by the Audit Committee.
If the stockholders fail to ratify the selection, the Board of Directors will
reconsider its decision.
Recommendation of the Board
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL #2
RATIFYING THE SELECTION OF KPMG LLP AS AUDITORS FOR DYNATRONICS FOR THE FISCAL
YEAR ENDING JUNE 30, 2003.
Representatives of KPMG LLP are expected to be present at the Annual
Meeting, will have the opportunity to make a statement if they desire and may be
available to respond to appropriate questions. During the two most recent fiscal
years, there has been no resignation or dismissal of the independent public
accountants engaged by Dynatronics.
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 2003 Annual Meeting of the
Shareholders must be received by Dynatronics at its corporate headquarters on or
before July 31, 2003, 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
Shareholders to be held in 2003, 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, 2002,
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