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DYNATRONICS CORPORATION
7030 Park Centre Drive
Salt Lake City, Utah 84121
(801) 568-7000
October 16, 2007
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Dynatronics Corporation that will be held on Tuesday, November 27, 2007 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 your
earliest convenience 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, but is not a part of the proxy solicitation materials, except to the
extent it is incorporated by reference therein.
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.
Chairman, President and CEO
DYNATRONICS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held November 27, 2007
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 27, 2007, at 4:00 p.m. Mountain Time for the following
purposes, all as more fully described in the accompanying Proxy Statement:
1. To elect seven 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 LC as Dynatronics' independent
registered public accountants for the fiscal year ending June 30,
2008;
3. To amend the Company's 2005 Equity Incentive Plan to increase the
number of shares available for grant by one million shares; and
4. 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 Tuesday, October 2, 2007, 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, Vice President of Administration
Salt Lake City, Utah
October 16, 2007
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 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
We are furnishing this Proxy Statement 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. Mountain Time on Tuesday,
November 27, 2007, 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. This Proxy
Statement, the Notice of Annual Meeting, the accompanying form of proxy, and the
Annual Report to Shareholders will be mailed on or about October 22, 2007 to
shareholders of record as of October 2, 2007. Only holders of our common stock
at the close of business on October 2, 2007 are 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. The proxy statement will also be made available on the Company's
website, www.dynatronics.com.
Each proxy executed and returned by a shareholder may be revoked at any
time thereafter by written notice to the Company's VP of Administration prior to
the Annual Meeting, 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 seven 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 LC as the independent
registered public accountants of Dynatronics for the fiscal year
ending June 30, 2008;
3. Amendment of the Company's 2005 Equity Incentive Plan to increase
the number of shares available for grant by one million shares;
and
4. 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 seven nominees for director, "FOR" the ratification
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of the appointment of Tanner LC as the independent registered public accountants
of Dynatronics for the fiscal year ending June 30, 2008, "FOR" the amendment to
increase the number of shares available under the Company's 2005 Equity
Incentive Plan by one million shares, and, in the discretion of the proxy holder
as to any other matters that may properly come before the Annual Meeting.
Only those holders of our common stock as of the close of business on
October 2, 2007, which we have designated as the "Record Date," are entitled to
receive notice of and to vote at the Annual Meeting. At the close of business on
the Record Date, there were 13,668,495 shares of the Company's common stock, no
par value, issued and outstanding, each such share entitled to one vote.
Cumulative voting by shareholders in connection with the election of directors
will not be allowed. 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 as proxies in the enclosed proxy
intend to vote for the election of each of the seven nominees listed below,
unless instructions to the contrary are given in the proxy. The seven 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 proxy holder 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 Jr., Kelvyn H. Cullimore, Larry
K. Beardall, E. Keith Hansen, Howard L. Edwards, Val J. Christensen and Joseph
H. Barton.
Executive Officers and Directors
The following table contains information concerning the Company's
directors and executive officers as of the date of this Proxy Statement:
Director
or Officer Position
Name Age Since with Company
------------------------ --- ---------- ---------------------------------
Kelvyn H. Cullimore, Jr. 51 1983 Chairman, President, and CEO
Kelvyn H. Cullimore 72 1983 Vice Chairman
Larry K. Beardall 51 1986 Executive Vice President of
Sales and Marketing and Director
E. Keith Hansen, M.D.* 67 1983 Director
Howard L. Edwards** 76 1997 Director
Val J. Christensen** 54 1999 Director
Joseph H. Barton** 79 2004 Director
Ronald J. Hatch 63 2002 Vice President of R&D
Terry M. Atkinson, CPA 54 2005 Chief Financial Officer
Robert J. Cardon 44 1992 Vice President of Administration,
Secretary & Treasurer
----------------------
* Member of Compensation Committee.
** Member of Audit and Compensation Committees.
Kelvyn H. Cullimore, Jr. has been Chairman of the Board of Directors
since January 2005 and the Company's President and Chief Executive Officer since
1992. He served as Secretary/Treasurer from 1983 to 1992 and as Administrative
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Vice President from 1988 to 1992. He has been a member of the Board of Directors
of the Company and its predecessors since 1979. 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 Attractions, Inc. (ITEC), an
entertainment, restaurant and retail mall operation in Branson, MO. Mr.
Cullimore has served previously on the boards of a printing company, lumber
company, and travel agency. Mr. Cullimore is a member of the board of the
Medical Device Manufacturer's Association, a national medical device trade
association headquartered in Washington D.C. He also serves as the Mayor of
Cottonwood Heights, Utah, a suburb of Salt Lake City, where Dynatronics'
corporate headquarters are located.
Kelvyn H. Cullimore was elected Vice Chairman in January 2007.
Previously, he served as Chairman of the Board from April 1983 until January
2005. From 1983 to 1992, Mr. Cullimore was President of Dynatronics. Mr.
Cullimore received a B.S. degree in Marketing from Brigham Young University in
1957. Following graduation, he 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, the former parent company of Dynatronics. From 1986
until 1999, Mr. Cullimore served as President of ITEC and from 1986 to 1997 he
served as ITEC's Chairman, President and CEO. Mr. Cullimore has served on the
board of directors of ITEC since 1986. From January 2005 until October 2007, he
took a leave of absence from Dynatronics to do humanitarian work in Asia. Kelvyn
H. Cullimore is the father of Kelvyn H. Cullimore, Jr. No other family
relationships exist among officers and directors.
Larry K. Beardall was appointed Executive Vice President of Dynatronics
in December 1992. He has been a director and the Vice President of Sales and
Marketing for Dynatronics since July 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, a supplier of protective sports 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.
E. Keith Hansen, M.D. has been a director of Dynatronics since 1983 and
served as a director of the Company's predecessor from 1979 to 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 medical
practice in Sandy, Utah since 1976. Dr. Hansen was a director of American
Consolidated Industries until 1992 and a director of Mountain Resources
Corporation from 1980 to 1988. Dr. Hansen served on the board of directors of
Alta View Hospital from 1982 to 1990 where he also served as the hospital's
first chief of staff.
Howard L. Edwards was elected a director of the Company 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. Prior to
1968, 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 joined the Board of Directors of the Company in
January 1999. Earlier this year, Mr. Christensen became the Executive Vice
President and General Counsel of EnergySolutions LLC. He previously served as
Executive Vice President of Franklin Covey Company from 1996 to 2007, where he
also was General Counsel from 1990. He was a member of Franklin's board of
directors from 1991 to 1997. Prior to joining Franklin, Mr. Christensen
practiced 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.
Joseph H. Barton was elected a director in September 2004. He
previously served on the Company's Board of Directors from 1996 to 2002. 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.
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Ronald J. Hatch currently serves as Vice President of R&D. From 2002
until 2007, he served as Vice President of Operations and R&D. 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.
Terry M. Atkinson, CPA was appointed Chief Financial Officer in January
2005. He previously served as the Company's controller from 1994 to 2004. Prior
to joining the Company, Mr. Atkinson worked as the controller of Southern
American Insurance Company from 1988 to 1994. From 1985 to 1988, he served as
the controller at Doxey-Hatch Medical Center. From 1980 to 1985, Mr. Atkinson
worked as a certified public accountant in public accounting with the accounting
firms of Gothard and Company and Wursten Lewis & Bunker in Salt Lake City. He
received his CPA license in 1983.
Robert J. Cardon was appointed Vice President of Administration in
March 2007. He has served as the Company's Corporate Secretary since 1992 and
was named Treasurer in 2004. From 1992 until 2005, Mr. Cardon also served as
Secretary/Treasurer of ITEC Attractions. From 1987 to 1988, Mr. Cardon was
employed as a registered representative of an investment-banking firm. He
received his BA degree in 1987 and his MBA degree in 1990, both from Brigham
Young University.
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 board
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, or by
an increase in the number of directors, 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.
Independence of the Board
The Board of Directors has determined, after considering all of the
relevant facts and circumstances, that each of Dr. Hansen, Mr. Edwards, Mr.
Christensen and Mr. Barton is an "independent director" within the meaning of
the Nasdaq Marketplace Rules. This means that the Board has determined that none
of those directors (1) is an officer or employee of the Company or its
subsidiaries or (2) has any direct or indirect relationship with the Company
that would interfere with the exercise of his independent judgment in carrying
out the responsibilities of a director. As a result, the Board of Directors has
determined that the Company has a majority of independent directors as required
by the Nasdaq Marketplace Rules.
Committees of the Board of Directors
The Board of Directors has two standing committees: the Compensation
Committee and the Audit Committee. The board does not have a standing nominating
committee or other committee that recommends qualified candidates to the Board
of Directors for nomination or election as directors. For further information on
director nominations, see "Director Nominations" below.
Compensation Committee
The Compensation Committee is responsible for reviewing and approving,
where required, the compensation, as well as evaluating the performance, of our
executive officers, and advising and assisting management in developing our
overall compensation strategy to assure that it promotes shareholder interests,
supports our strategic and tactical objectives, and provides for appropriate
rewards and incentives for our management and employees. In exercising its
responsibilities, the Compensation Committee establishes and monitors policies
governing the compensation of executive officers, reviews the performance of and
determines salaries and incentive compensation for executive officers, and makes
option awards to those individuals. Additionally, the Compensation Committee
administers our stock plans and reviews and approves the structure of our bonus
plans. The Compensation Committee operates under a written Compensation
Committee charter adopted by the Board that reflects standards and requirements
adopted by the Nasdaq Stock Market. The following independent directors are the
members of the Compensation Committee: Val J. Christensen (committee chairman),
E. Keith Hansen, Howard L. Edwards, and Joseph H. Barton. The Compensation
Committee held three meetings during the fiscal year ended June 30, 2007.
4
Audit Committee
The Audit Committee, which has been established in accordance with
requirements of Section 3(a)(58)(A) of the Securities Exchange Act of 1934 (the
"Exchange Act"), is comprised of the following independent directors: Howard L.
Edwards (committee chairman), Joseph H. Barton and Val J. Christensen. The Board
of Directors has determined that each member of the Audit Committee (i) is an
"independent director," (ii) meets the financial literacy requirements of the
Nasdaq Marketplace Rules, and (iii) meets the enhanced independence standards
established by the Securities and Exchange Commission ("SEC") and that Mr.
Edwards qualifies as an "audit committee financial expert" as that term is
defined in Item 407(d)(5)(ii) of Regulation S-B promulgated under the Exchange
Act by the SEC.
The Audit Committee is primarily concerned with the integrity of our
financial statements, the independence, qualifications and performance of our
independent registered public accounting firm, and our compliance with legal
requirements. The Audit Committee operates under a written Audit Committee
charter approved by the Board that reflects standards and requirements adopted
by the SEC and Nasdaq. The Audit Committee held four meetings during fiscal year
2007. According to its charter, the Audit Committee's duties include selecting
the independent registered public accounting firm; reviewing the scope of the
audit to be conducted by our independent registered public accounting firm;
overseeing our independent registered public accounting firm and reviewing the
results of their audit; reviewing our financial reporting processes, including
the accounting principles and practices followed and the financial information
provided to shareholders and others; overseeing our internal control over
financial reporting and disclosure controls and procedures; and serving as our
legal compliance committee.
Meetings of the Board of Directors
There were six regular meetings of the Board of Directors held during
the fiscal year ended June 30, 2007. No director attended fewer than 75% of all
meetings of the board during the fiscal year and all meetings held by committees
on which such director served.
Although the Board of Directors does not have a formal policy regarding
director attendance at the Annual Meeting of Shareholders, the board encourages
all directors and director nominees to attend the Annual Meeting.
Executive Sessions of Independent Directors
The independent directors meet in executive session at scheduled times
during the year. Mr. Christensen presides at these meetings as lead independent
director. If Mr. Christensen is unable to participate, another non-management
director designated by the remaining independent directors will preside at these
meetings.
Communications with the Board of Directors
Shareholders may communicate directly with the Board of Directors by
writing to them at Board of Directors, c/o Vice President of Administration,
Dynatronics Corporation, 7030 Park Centre Drive, Salt Lake City, Utah 84121. The
VP of Administration will forward the communication to the director or directors
to whom it is addressed, except for communications that are (1) advertisements
or promotional communications, (2) solely related to complaints with respect to
ordinary course of business customer service and satisfaction issues or (3)
clearly unrelated to the Company's business, industry, management or board or
committee matters.
Code of Conduct and Ethics
The Company has established a Code of Business Ethics that applies to
its officers, directors and employees. The Code of Business Ethics contains
general guidelines for conducting the business of the Company consistent with
the highest standards of business ethics, and is intended to qualify as a "code
of ethics" within the meaning of Item 406 of Regulation S-B and as a "code of
business conduct and ethics" within the meaning of the Nasdaq Marketplace Rules.
All of our directors, officers and employees must act in accordance
with our Code of Business Ethics. Employees and directors are required to report
any conduct that they believe in good faith to be an actual or apparent
violation of the Code of Business Conduct and Ethics. In addition, the Company's
Audit Committee has established procedures to receive, retain and treat
5
complaints received regarding accounting, internal accounting controls or
auditing matters and to allow for the confidential and anonymous submission by
employees of concerns regarding questionable accounting or auditing matters.
The Code of Business Ethics is available on the Company's website at
www.dynatronics.com. A copy may also be obtained by writing to the VP of
Administration at Dynatronics Corporation, 7030 Park Centre Drive, Salt Lake
City, Utah 84121.
Director Nominations
The Board of Directors does not have a nominating committee or other
committee that recommends qualified candidates to the board for nomination or
election as directors. The Board of Directors believes that, because of the
Company's relatively small size, and because of the historically few and
infrequent vacancies on the Board, it is in the best interest of the Company to
permit all of the independent directors to fully participate in the director
nomination process. The Board of Directors has adopted a nominations process
that provides that the Company's independent directors, acting by a majority
vote, are authorized to recommend individuals as nominees to the Board of
Directors.
The independent directors are responsible for reviewing and
interviewing qualified candidates to serve on the Board of Directors, for making
recommendations to the full Board for nominations to fill vacancies on the Board
and for selecting the management nominees to the Board to be elected by the
Company's shareholders at each Annual Meeting.
Director Qualifications
The independent directors have established certain criteria they
consider as guidelines in considering nominations to the Board of Directors. The
criteria include: (a) personal characteristics, including such matters as
integrity, age, education, diversity of background and experience, absence of
potential conflicts of interest with the Company or its operations, and the
availability and willingness to devote sufficient time to the duties of a
director of the Company; (b) experience in corporate management, such as serving
as an officer or former officer of a publicly held company; (c) experience in
the Company's industry and with relevant social policy concerns; (d) experience
as a board member of another publicly-held company; (e) academic expertise in an
area of the Company's operations; and (f) practical and mature business
judgment. The criteria are not exhaustive and the independent directors and the
full Board of Directors may consider other qualifications and attributes they
believe are appropriate in evaluating the ability of an individual to serve as a
member of the Board of Directors. The independent directors seek to assemble a
Board of Directors that brings to the Company a variety of perspectives and
skills derived from high-quality business and professional experience.
Identification and Evaluation of Nominees
The independent directors may use multiple sources for identifying and
evaluating nominees for directors, including referrals from the Company's
current directors and management as well as input from third parties, including
executive search firms retained by the Board. The independent directors will
obtain background information about candidates, which may include information
from directors' and officers' questionnaires and background and reference
checks, and will then interview qualified candidates. The Company's other
directors will also have an opportunity to meet and interview qualified
candidates. The independent directors will then determine, based on the
background information and the information obtained in the interviews, whether
to recommend to the Board of Directors that a candidate be nominated to the
Board.
Shareholder Nominations
The independent directors may from time to time consider qualified
nominees recommended by shareholders, who may submit recommendations to the
independent directors through a written notice as described under "Shareholder
Proposals" below. Nominees for director who are recommended by shareholders will
be evaluated in the same manner as any other nominee for director.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act, requires the executive officers and
directors, and persons who own more than 10% of the Company's common stock
("Reporting Persons") to file initial reports of ownership and to report changes
6
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, 2007,
Dynatronics believes that during fiscal year 2007 all Section 16(a) filings
applicable to these Reporting Persons were timely filed, with the exception of a
Form 4 filing for Kelvyn H. Cullimore, Jr. related to a gift of shares made on
December 23, 2006, which was filed late due to a clerical oversight.
BENEFICIAL OWNERSHIP OF SECURITIES
Voting Securities and Principal Shareholders
The following table contains information as of October 11, 2007 with
respect to beneficial ownership of shares of our common stock, for (1) all
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, 2007, 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.
Holders of Greater than 5% of Voting Securities
Name of Beneficial Owner Number of Shares(1) Percent of Class
------------------------ ------------------- ----------------
John Rajala 1,306,453 (2) 9.6%
12 Red Maple Place
Danville, CA 94506
Donald G. Whittington 840,000 6.1%
3707 Spring Hill Lane
Sugarland, TX 77479
Stephen Cyman 750,000 5.5%
50760 Metzen Dr.
Chesterfield, MI 48051
Anthony Trolio 700,000 5.1%
445 Fifth Ave
Hubbard, OH 44425
-----------------
(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 11,
2007. Such shares, however, are not deemed outstanding for purposes of
computing the percentage ownership of any other person.
(2) Includes 12,097 shares owned directly, 96,775 shares owned by Mr.
Rajala's wife and 1,197,581 shares owned by a family trust.
Security Ownership of Management
Name of Beneficial Owner Number of Shares(1) Percent of Class
-------------------------------- ------------------- ----------------
Directors
Kelvyn H. Cullimore, Jr. 688,060 (2) 5.0%
Kelvyn H. Cullimore 189,104 (3) 1.4%
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Name of Beneficial Owner (cont.) Number of Shares(1) Percent of Class
-------------------------------- ------------------- ----------------
E. Keith Hansen, M.D. 227,819 (4) 1.7%
Larry K. Beardall 240,588 (5) 1.7%
Howard L. Edwards 94,169 (6) *
Joseph H. Barton 42,169 (7) *
Val J. Christensen 42,169 (8) *
Other Named Executive Officers
Ronald J. Hatch 58,000 (9) *
Terry M. Atkinson 50,000 (10) *
All executive officers and
directors as a group (10 persons) 1,697,078 11.9%
-------------------------
* Represents less than one percent of the 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 11, 2007.
Such shares, however, are not deemed outstanding for purposes of computing
the percentage ownership of any other person.
(2) Includes 381,780 shares owned directly, 136,280 shares owned by Mr.
Cullimore Jr.'s wife and minor children, and options for the purchase of
170,000 shares.
(3) Includes 126,191 shares owned directly, 2,913 shares owned by Mr.
Cullimore's wife, 30,000 shares owned by a family corporation and options
for the purchase of 30,000 shares.
(4) Includes 203,819 shares owned directly and options for the purchase of
24,000 shares.
(5) Includes 75,588 shares owned directly and options for the purchase of
165,000 shares.
(6) Includes 73,169 shares owned directly and options for the purchase of
21,000 shares.
(7) Includes 24,169 shares owned directly and options for the purchase of
18,000 shares.
(8) Includes 21,169 shares owned directly and options for the purchase of
21,000 shares.
(9) Includes 10,000 shares owned directly and options for the purchase of
48,000 shares.
(10) Includes 10,000 shares owned directly and options for the purchase of
40,000 shares.
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
----------------------------------------------
Kelvyn H. Cullimore is the father of Kelvyn H. Cullimore, Jr. No other
family relationships exist among the officers and directors.
Except as described in this Proxy Statement under the captions,
"Employment Contracts" and "Salary Continuation Plan," during the two years
8
ended June 30, 2007 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.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Director Compensation
Directors who are employed by and receive remuneration as officers of
the Company, are paid $100 per meeting for attendance at regular and special
meetings of the Board. Non-employee, non-executive directors are paid an annual
fee of $14,000. In addition, independent directors receive $1,000 annually for
participating on each Board committee and receive $2,000 in restricted stock
awards. The chairman of the Audit Committee receives an additional $2,000 for
serving as the Committee Chairman and the Company's financial expert.
Dynatronics pays all expenses incurred by directors in connection with their
attendance at Board and committee meetings.
The following table summarizes the compensation paid during the fiscal
year ended June 30, 2007, to directors of the Company other than those directors
who are also Named Executive Officers whose compensation is included in the
Summary Compensation Table elsewhere in this Proxy Statement.
2007 DIRECTOR COMPENSATION
---------------- --------- ----------- ---------- ---------------- --------------- ---------------- -------------
Name Fees Stock Option Non-Equity Change in All Other Total
Earned Awards Awards Incentive Plan Pension Value Compensation ($)
or Paid ($) ($) Compensation and ($)
in Cash ($) Nonqualified
($) Deferred
Compensation
Earnings
($)
(a) (b) (c) (d) (e) (f) (g) (h)
---------------- --------- ----------- ---------- ---------------- --------------- ---------------- -------------
E. Keith Hansen $15,000 $2,000 0 0 0 0 $17,000
---------------- --------- ----------- ---------- ---------------- --------------- ---------------- -------------
Howard L. $18,000 $2,000 0 0 0 0 $20,000
Edwards
---------------- --------- ----------- ---------- ---------------- --------------- ---------------- -------------
Val J. $16,000 $2,000 0 0 0 0 $18,000
Christensen
---------------- --------- ----------- ---------- ---------------- --------------- ---------------- -------------
Joseph H. $16,000 $2,000 0 0 0 0 $18,000
Barton
---------------- --------- ----------- ---------- ---------------- --------------- ---------------- -------------
During the year ended June 30, 2007, Dynatronics made no awards to
executive officers or directors under any long-term incentive plan. Dynatronics
has never granted stock appreciation rights.
Executive Compensation
Compensation Discussion and Analysis
The Compensation Committee oversees our executive compensation program
and reviews all compensation decisions relating to our executive officers. The
Compensation Committee evaluates both performance and compensation to ensure
that we are able to attract and retain the best possible employees in key
positions and that the compensation provided to key employees remains
competitive with the compensation provided to employees of our peer group
comprised of companies of comparable revenue and market capitalization in the
diversified high technology market. The following is a discussion of the
Company's compensation program for compensation of its named executive officers
and directors.
Compensation Program Objectives
Executive compensation is determined by several factors. The following
are the main objectives of the executive compensation program of the Company as
determined by the Compensation Committee:
9
- Retention of qualified officers.
- Providing overall corporate direction for the officers and also to
provide direction that is specific to officer's respective areas
of authority. The level of compensation amongst the officer group,
in relation to one another, is also considered in order to
maintain a high level of satisfaction within the leadership group.
We consider the relationship that the officers maintain to be one
of the most important elements of the leadership group.
- Providing a performance incentive for the officers.
The compensation program is designed to reward the officers in the
following areas:
- Achievement of specific goals
- Creativity in the form of innovative ideas and analysis for new
programs and projects
- New program implementation
- Attainment of Company goals, budgets, and objectives
- Results-oriented determination and organization
- Positive and supportive direction for company personnel
The Compensation Committee determines the portion of compensation
allocated to each element for each individual executive officer. The discussions
of compensation practices and policies are of historical practices and policies.
Our Board of Directors and the Compensation Committee expect to continue these
policies and practices, but will reevaluate the practices and policies as they
consider advisable.
The principal elements of the Company's executive compensation program
include:
- Base salary - Performance bonus
- Stock options and stock awards - Employee benefits in the form of:
- health and dental insurance
- life insurance
- Other benefits including use of company automobile and cell phone
Base salary
Base salary is intended to provide competitive compensation for job
performance and to attract and retain qualified named executive officers. The
base salary level is determined by considering several factors inherent in the
market place such as: the size of the company; the prevailing salary levels for
the particular office or position; prevailing salary levels in a given
geographic locale; and the qualifications and experience of the executive
officer. In determining the salary of the executive officers, the Compensation
Committee considered the comparable salary levels provided by various published
executive compensation survey reports for the medical device industry.
Performance bonus
Bonuses are based on company performance. A percentage formula based on
the Company's pre-tax profit is used in determining the performance bonus for
the executive officers. In 2007, the percentage formula provided each officer a
certain percentage of pre-tax profits ranging from one to four percent,
excluding non-operating items.
Stock options and stock awards
Stock ownership is provided to enable executive officers to participate
in the success of the Company. The direct or potential ownership of stock is
expected to provide the incentive to expand the involvement of the executive
officer to include, and therefore be mindful of, the perspective of shareholders
of the Company.
Employee benefits
Employee benefits for the executive officers are selected to provide
security. Most notably, insurance coverage for health, life, and disability are
intended to provide a level of protection that will enable the executive
10
officers to function without having the distraction of having to manage undue
risk. The health insurance also provides access to preventative medical care
which will help the executive officers function at a high energy level, manage
job related stress, and contribute to the overall well being of the executive
officers, all of which contribute to an enhanced job performance.
Other benefits
Other employee benefits such as cell phones and auto usage are directly
related to job functions but contain a personal use element which is considered
to be a goodwill gesture that contributes to enhanced job performance.
As discussed above, the Compensation Committee determines the portion
of compensation allocated to each element for each individual executive officer.
As a general rule, base salary is competitively based while giving consideration
to employee retention, qualifications, performance, and general market
conditions. Typically, stock options are based on the current market value of
the underlying common shares and how that will contribute to the overall
compensation of the executive officer. Consideration is also given to the fact
that the option has the potential for an appreciated future value. As such this
future value may in fact be the most significant factor of the option, but it is
also more difficult to quantify as a benefit to the executive officer.
Accordingly, in determining the compensation program for the Company,
as well as setting the compensation for each executive officer, the Compensation
Committee attempts to attract the interest of the executive officer within the
constraints of a compensation package that is fair and equitable to all parties
involved.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation
Discussion and Analysis required by Item 402(b) of Regulation S-B with our
management. Based on this review and discussion, the Compensation Committee
recommended to the Board of Directors that the Compensation Discussion and
Analysis be included in this Proxy Statement.
Respectfully submitted,
Val J. Christensen, Chairman
Dr. E. Keith Hansen
Howard L. Edwards
Joseph H. Barton
Summary of Executive Compensation
The following table summarizes information concerning the compensation
of the Company's Chief Executive Officer and the Company's two most highly
compensated executive officers other than the CEO (collectively the "Named
Executive Officers") for the last two completed fiscal years:
11
SUMMARY COMPENSATION TABLE
--------------- --------- ----------- ---------- ---------- ---------- ----------- ---------------- ------------- ------------
Name and Year Salary Bonus Stock Option Non-Equity Nonqualified All Other Total
Principal Ending ($) ($) Awards Grants Incentive Deferred Compen- ($)
Position June 30, ($) ($) Plan Compensation sation
Compen- Earnings (Note 1)
sation ($)
($)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
--------------- --------- ----------- ---------- ---------- ---------- ----------- ---------------- ------------- ------------
Kelvyn H. 2007 $154,000 $ 9,904 0 0 0 $10,994 $29,649 $204,547
Cullimore,
Jr., Chairman 2006 $154,000 $13,833 0 $36,900 0 $ 9,045 $26,523 $240,301
and President
--------------- --------- ----------- ---------- ---------- ---------- ----------- ---------------- ------------- ------------
Larry K 2007 $143,000 $ 9,904 0 0 0 $10,994 $23,566 $187,464
Beardall,
Executive 2006 $143,000 13,833 0 $30,750 0 $ 9,045 $23,433 $220,061
Vice President
--------------- --------- ----------- ---------- ---------- ---------- ----------- ---------------- ------------- ------------
Ronald J. 2007 $ 95,000 $ 3,714 0 0 0 0 $24,305 $123,019
Hatch,
Sr. Vice 2006 $ 95,000 $ 5,187 0 0 0 0 $17,686 $117,873
President
--------------- --------- ----------- ---------- ---------- ---------- ----------- ---------------- ------------- ------------
(1) For each of the individuals listed in the table above, "All Other
Compensation" includes but is not limited to perquisites including the
dollar value of insurance premiums paid with respect to health and dental
insurance, and life insurance for the benefit of the Named Executive
Officer, use of company paid automobile, and cellular phone.
Employment Contracts
Dynatronics has entered into written employment contracts with Kelvyn
H. Cullimore, Jr., its Chairman, President and Chief Executive Officer, and
Larry K. Beardall, its Executive Vice President. The initial terms of these
contracts run through June 30, 2009. Additional contract extensions would extend
each contract automatically for one-year terms unless terminated at the end of
any renewal period with at least 60 days prior written notice. These agreements
have been approved by the Compensation Committee of the Board of Directors. The
compensation package under each contract includes a salary, an auto allowance,
an annual bonus based on pre-tax operating profit (at rates established by the
Compensation Committee), and stock and/or stock options granted under the
Company's 2005 Equity Incentive Plan and the 1992 Stock Option Plan, as amended
and restated. Each of these officers also participates in the salary
continuation plan described below 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.
As defined in the employment contracts, a "change of control" will
occur in transactions such as an acquisition of the Company through a purchase
of its shares or assets or by merger in which any person is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding voting securities; or
the composition of the Board of Directors of the Company is changed such that
the former members of such Board cease to constitute at least a majority of the
Board; or the shareholders of the Company approve an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
12
If a change of control occurs and the employment of the executive is
terminated voluntarily within six months of the change in control or
involuntarily within 12 months thereof, the executive is to be paid an amount in
cash equal to (1) one and one-half times the executive's annual base salary (as
defined in the agreement) in effect at the time of such termination, and (2) one
and one-half times the average annual bonus paid by the Company to the executive
over the previous three complete fiscal years. Fifty percent of the amount
payable under the agreement is to be paid within thirty days after termination
and the balance is to be paid ratably over the subsequent six months. In
addition, the Company will continue to provide and fund all other employee
benefits for the executive for 18 months following termination. All stock
options, warrants and other similar rights granted by the Company to the
executive prior to termination will immediately and entirely vest and will be
immediately delivered to the executive without restriction or limitation of any
kind (except for normal transfer restrictions required by law). The agreement
also provides that the Company will pay the executive an amount equal to the
cash surrender value, if any, of certain life insurance policies provided for
the benefit of the executive under the agreement during his employment by the
Company for the purpose of funding the Company's obligations under the salary
continuation agreement and that the Company will transfer to the executive
title, free and clear of all encumbrances, to either (i) the Company-owned
vehicle used by the executive at the time of termination, or (ii) a vehicle of
substantially similar market value.
The employment contracts terminate upon the death or disability of the
executive or termination of employment for cause. The contracts also contain
covenants against competition by the executives during the term of their
employment and for a specified period after the termination of their employment
for any reason.
Salary Continuation Plan
During fiscal year 1988, the Board of Directors adopted a salary
continuation agreement. Presently Kelvyn H. Cullimore, Jr. and Larry K. Beardall
are covered by this plan. The 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 annual
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.
Funding for obligations arising in connection with the salary
continuation agreement is provided by life insurance policies on the lives of
the participating officers. The Company is the owner and beneficiary of these
policies. 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 2007, Dynatronics expensed $21,988
relating to salary continuation obligations under the salary continuation
agreement.
401(k) Plan
Dynatronics has adopted a 401(k) Plan. Employees who are 20 years of
age or older 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 of up to 20% of total compensation, not to exceed
$15,500, the maximum allowable amount of salary deferrals for calendar year
2007. Dynatronics matches annual employee contributions at 25% of employee
contributions, up to a maximum of $500 per employee per year.
Participants under the 401(k) Plan are fully vested in their salary
deferral contributions and vest 20% per year after two years of participation in
matching contributions by the Company. Amounts deferred by Named Executive
Officers under the 401(k) Plan, along with the 25% matching contributions made
by the Company, are included under "Other Compensation" in the Summary
Compensation Table.
Equity Compensation
The following table summarizes the equity compensation of the Named
Executive Officers as of June 30, 2007:
13
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
--------------- ----------------------------------------------------------------- -------------------------------------------
Option Awards Stock Awards
--------------- ----------------------------------------------------------------- -------------------------------------------
Name Number of Number of Equity Option Option Number Market Equity Equity
Securities Securities Incentive Exercise Expiration of Value Incentive Incentive
Underlying Underlying Plan Awards: Price ($) Date Shares of Plan Plan
Unexercised Unexercised Number of or Shares Awards: Awards:
Options (#) Options Securities Units or Number of Market or
Exercisable (#) Underlying of Units Unearned Payout
Unexercisable Unexercised Stock of Shares, Value of
Unearned That Stock Units, or Unearned
Options Have That Other Shares,
(#) Not Have Rights Units, or
Vested Not That Have Other
(#) Vested Not Vested Rights
($) (#) That Have
Not Vested
($)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
--------------- ------------- ------------- -------------- ---------- ----------- --------- --------- ----------- -----------
Kelvyn H. 170,000 0 0 $.78- 5/20/08 - 0 0 0 0
Cullimore, Jr. $1.72 11/22/15
--------------- ------------- ------------- -------------- ---------- ----------- --------- --------- ----------- -----------
Larry K 165,000 0 0 $.78- 5/20/08 - 0 0 0 0
Beardall, $1.72 11/22/15
--------------- ------------- ------------- -------------- ---------- ----------- --------- --------- ----------- -----------
Ronald J. 48,000 0 0 $.82- 7/16/09 - 0 0 0 0
Hatch, $1.72 5/24/15
--------------- ------------- ------------- -------------- ---------- ----------- --------- --------- ----------- -----------
Equity Compensation Plans
The Company maintains the Amended and Restated 1992 Stock Option Plan
(the "1992 Plan") approved by shareholders under which options and other awards
were granted to employees, officers, directors and consultants of the Company.
The Compensation Committee of the board of directors administers the 1992 Plan.
As of June 30, 2007, options for the purchase of 956,035 shares remained
outstanding under the 1992 Plan, and no further awards are available to be
granted under the 1992 Plan.
In 2005, the Company adopted and the shareholders approved the
Dynatronics Corporation 2005 Equity Incentive Plan ("2005 Plan"), under which
nonstatutory and statutory awards have been granted to employees, officers and
directors. With the adoption of the 2005 Plan, the Board of Directors determined
that no further awards would be granted under the 1992 Plan. As of June 30,
2007, a total of 520,854 shares were available for issuance under options or
awards yet to be granted under the 2005 Plan, and 92,157 shares were issuable
under outstanding options granted under the 2005 Plan. In addition, each of the
four independent directors received 3,169 shares of restricted common stock
under the 2005 Plan.
The following table sets forth information as of June 30, 2007, with
respect to shares of common stock to be issued upon the exercise, and the
weighted-average exercise price, of all outstanding options and rights granted
under our equity compensation plans, as well as the number of shares available
for future issuance under those plans.
14
Number of Securities to be Weighted-Average Number of Securities
Issued upon Exercise of Exercise Price of Remaining Available for
Outstanding Options, Outstanding Options, Future Issuance Under
Plan Category (1) Warrants and Rights Warrants and Rights Equity Compensation Plans
----------------- --------------------------- -------------------- -------------------------
2005 Equity
Incentive Plan 92,157 $1.39 520,854
1992 Stock Option
Plan 956,035 $1.40 0
--------- ----- -------
Total 1,048,192 $1.40 520,854
--------------------------------------------------------------------------------------------------
PROPOSAL 2 - RATIFICATION OF SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
The Audit Committee has selected the firm Tanner LC to serve as the
Company's independent registered public accountants for the fiscal year ending
June 30, 2008. The shareholders have been asked to ratify this appointment. If
the shareholders fail to ratify the selection, the Audit Committee 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 LC 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.
Financial Information Systems Design and Implementation Fees
The Company did not engage Tanner LC 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
The aggregate fees billed by Tanner LC for professional services
rendered in fiscal year 2007 and fiscal year 2006 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, 2007 and June 30, 2006
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 $101,116 and $79,743, respectively.
All Other Fees
The Company, with the approval of the Audit Committee, engaged Tanner
LC to provide accounting advice related to six acquisitions the Company made on
June 30, 2007 and July 2, 2007, for which fees totaling $11,102 were incurred in
fiscal year 2007. The Company did not use Tanner LC for acquisition accounting
advice in fiscal year 2006. The Company engaged Tanner LC to provide filing
services for the SEC electronic filing system (Edgar system) at a cost of $1,140
in fiscal year 2006. The Company did not use Tanner LC for its electronic
filings in fiscal year 2007.
The Audit Committee has advised the Company that it has determined that
the non-audit services rendered by Tanner LC during its most recent fiscal year
are compatible with maintaining their independence.
15
Audit Committee Policy Regarding Pre-Approval of Audit and Permissible Non-Audit
Services of the Company's Independent Auditors
The Audit Committee has established a policy that all audit and
permissible non-audit services provided by the independent registered public
accountants will be pre-approved by the Audit Committee. These services may
include audit services, audit-related services, tax services and other services.
The Audit Committee considers whether the provision of each non-audit service is
compatible with maintaining the independence of the Company's independent
registered public accountants. Pre-approval is detailed as to the particular
service or category of services and is generally subject to a specific budget.
The independent registered public accountants and management are required to
periodically report to the Audit Committee regarding the extent of services
provided in accordance with this pre-approval, and the fees for the services
performed to date.
Report of the Audit Committee
The Audit Committee has prepared this report of its activities for the
year ended June 30, 2007. 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 adopted by the Board of Directors. The Audit
Committee assists the Board of Directors in fulfilling its 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 registered public accountants 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
registered public accountants and reviews periodically the auditors' performance
and independence from management as well as the fees paid to the independent
registered public accountants 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 his 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 registered public accounting firm audits the
annual financial statements prepared by management, expresses 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
discusses with us any issues they believe should be raised with the Committee.
For the fiscal year ended June 30, 2007, the Audit Committee reviewed
the audited financial statements and met with both management and Tanner LC, the
independent registered public accounting firm for fiscal year 2007, to discuss
those financial statements. Management has represented to us that the financial
statements were prepared in conformity with accounting principles generally
accepted in the United States of America.
In discharging the Committee's oversight responsibility for the audit
process, we have discussed with Tanner LC the matters required to be discussed
by Auditing Standards No. 61, as amended (Communications with Audit Committees),
as adopted by the Public Company Accounting Oversight Board ("AS 61"). AS 61
requires the Company's independent registered public accounting firm to provide
the Committee with additional information regarding the scope and results of
their audit of the Company's financial 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.
16
The Committee has obtained from Tanner LC a letter providing the
disclosures required by Independence Standards Board Standard No. 1
(Independence Discussion with Audit Committees) with respect to any relationship
between Tanner LC and the Company which in its professional judgment may
reasonably be thought to bear on independence. Tanner LC 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, 2007.
During the Company's fiscal years ended June 30, 2007 and 2006, there
were no disagreements between the Company and its independent registered public
accounting firm on any accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which, if not resolved to the
satisfaction of the independent accountants, 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)(iv) of
Regulation S-B have occurred during the fiscal years ended June 30, 2007 and
June 30, 2006.
We did not consult with any independent registered public accountants
not formally engaged by the Company during fiscal years ended June 30, 2007 or
2006, 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
Joseph H. Barton
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL #2
RATIFYING THE SELECTION OF TANNER LC AS
AUDITORS FOR DYNATRONICS FOR THE FISCAL YEAR ENDING
JUNE 30, 2008.
PROPOSAL 3 - APPROVAL TO AMEND THE 2005 EQUITY INCENTIVE PLAN TO INCREASE
THE NUMBER OF SHARES AVAILABLE UNDER
THE PLAN BY ONE MILLION SHARES
Shareholders are requested in this Proposal 3 to consider and approve
an increase in the number of shares available to grant under the Dynatronics
2005 Equity Incentive Award Plan (the "2005 Plan") by one million shares. On
September 27, 2007, the Board of Directors adopted an amendment to the 2005
Plan, subject to shareholder approval, which adds one million shares to the
Plan. The amendment to the 2005 Plan will become effective upon shareholder
approval at the 2007 Annual Meeting of Shareholders. Upon approval of the
amendment by the shareholders, the Plan will have approximately 1.2 million
authorized but unissued shares available for grant.
The Board believes that the 2005 Plan promotes the success and enhances
the value of the Company by:
o closely associating the interests of management, employees and
consultants of the Company with the shareholders of the Company by
reinforcing the relationship between participants' rewards and
shareholder gains;
o providing management and employees with an equity ownership in the
Company commensurate with Company performance, as reflected in
increased shareholder value;
o maintaining competitive compensation levels; and
17
o providing an incentive to management and employees to remain in
continuing employment with the Company and to put forth maximum
efforts for the success of its business.
The 2005 Plan provides for the possible grant by the Compensation
Committee of various types of equity awards, including incentive stock options,
nonqualified stock options, restricted stock, stock appreciation rights,
performance shares, performance stock units, stock payments, deferred stock,
restricted stock units, other stock-based awards, and performance-based awards
to eligible individuals.
Administration
The Compensation Committee administers the 2005 Plan. The Compensation
Committee may delegate to a committee of one or more members of the board the
authority to grant or amend awards to participants other than senior executives
of the Company who are subject to Section 16 of the Exchange Act, or employees
who are "covered employees" within the meaning of Section 162(m) ("Section
162(m)") of the Internal Revenue Code (the "Code"). The Compensation Committee
includes at least two directors, each of whom qualifies as a non-employee
director pursuant to Rule 16b-3 of the Exchange Act, and an "outside director"
pursuant to Section 162(m).
The Compensation Committee has the exclusive authority to determine
eligibility, the types and sizes of awards, the price and timing of awards and
the acceleration or waiver of any vesting restriction, provided that the
Compensation Committee does not have the authority to accelerate vesting or
waive the forfeiture of any performance-based awards.
Eligibility
Persons eligible to participate in the 2005 Plan include non-employee
members of the Board, consultants to the Company, and all of the employees of
the Company and its subsidiaries, as determined by the Compensation Committee.
Limitation on Awards and Shares Available
The maximum number of shares of common stock available for issuance
under the 2005 Plan will be approximately 1.2 million following the approval of
Proposal 3 herein. To the extent that an award terminates, expires or lapses for
any reason, any shares subject to the award may be used again for new grants
under the 2005 Plan. In addition, shares tendered or withheld to satisfy the
grant or exercise price or any tax withholding obligation may be used for grants
under the 2005 Plan. Shares issued in assumption of, or in substitution for, any
outstanding awards of any entity acquired in any form of combination by the
Company or any of its subsidiaries will not be counted against the shares
available for issuance under the 2005 Plan. Notwithstanding the foregoing, no
shares will become available (a) upon the cancellation of existing awards or any
similar transactions following the tenth anniversary of shareholder approval of
the 2005 Plan or (b) if the return of shares would require additional
shareholder approval of the 2005 Plan pursuant to applicable rules of the
NASDAQ. The shares of common stock covered by the 2005 Plan may be treasury
shares, authorized but unissued shares, or shares purchased in the open market.
The maximum number of shares of stock with respect to one or more
awards that may be granted to any one participant during a one-year period
(measured from the date of any grant) shall be 100,000 shares.
Awards
The 2005 Plan provides for the grant of incentive stock options and
nonqualified stock options, restricted stock, stock appreciation rights,
performance shares, performance stock units, dividend equivalents, stock
payments, deferred stock, restricted stock units, other stock-based awards and
performance-based awards. No determination has been made as to the types or
amounts of awards that will be granted to specific individuals pursuant to the
2005 Plan.
Stock options, including incentive stock options, as defined under
Section 422 of the Code, and nonqualified stock options may be granted pursuant
to the 2005 Plan. The option exercise price of all incentive stock options
granted pursuant to the 2005 Plan will be at least 100% of the fair market value
of the common stock on the date of grant. Stock options may be exercised as
determined by the Compensation Committee, but in no event after the tenth
anniversary of the date of grant. The aggregate fair market value of the shares
with respect to which options intended to be incentive stock options are
exercisable for the first time by an employee in any calendar year may not
exceed $100,000, or such other amount as the Code provides.
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Restricted stock may be granted pursuant to the 2005 Plan. A restricted
stock award is the grant of shares of common stock at a price determined by the
Compensation Committee (including zero) that is nontransferable and may be
subject to substantial risk of forfeiture until specific conditions are met.
Conditions may be based on continuing employment or achieving performance goals.
During the period of restriction, participants holding shares of restricted
stock may have full voting and dividend rights with respect to such shares. The
restrictions will lapse in accordance with a schedule or other conditions
determined by the Compensation Committee.
A stock appreciation right (an "SAR") is the right to receive payment
of an amount equal to the excess of the fair market value of a share of common
stock on the date of exercise of the SAR over the fair market value of a share
of common stock on the date of grant of the SAR.
The other types of awards that may be granted under the 2005 Plan
include performance shares, performance stock units, deferred stock, restricted
stock units, and other stock-based awards.
Changes in Capital Structure
In the event of a stock dividend, stock split, combination or exchange
of shares, merger, consolidation, spin-off, recapitalization, distribution of
assets or any other corporate event affecting the common stock or the share
price of the common stock in a manner that causes dilution or enlargement of
benefits or potential benefits under the 2005 Plan, then the Compensation
Committee may make proportionate adjustments to: (i) the aggregate number of,
and types of, shares of stock subject to the 2005 Plan, (ii) the terms and
conditions of any outstanding awards (including any applicable performance
targets) and (iii) the grant or exercise price for any outstanding awards.
Amendment and Termination
The Compensation Committee, subject to approval of the Board, may
terminate, amend, or modify the 2005 Plan at any time; provided, however, that
shareholder approval must be obtained for any amendment to the extent necessary
or desirable to comply with any applicable law, regulation or stock exchange
rule, to increase the number of shares available under the 2005 Plan, to extend
the exercise period for an option beyond ten years from the date of grant or to
allow a material increase in the benefits or change the eligibility requirements
under the 2005 Plan. In addition, without approval of the Company's
shareholders, no option may be amended to reduce the per share exercise price of
the shares subject to such option below the per share exercise price as of the
date the option was granted and, except to the extent permitted by the 2005 Plan
in connection with changes in the Company's capital structure, no option may be
granted in exchange for, or in connection with, the cancellation or surrender of
an option having a higher per share exercise price.
In no event may an award be granted pursuant to the 2005 Plan on or
after May 24, 2015.
Vote Required
The affirmative vote of the majority of the shares present in person or
represented by proxy and entitled to vote at the meeting is required to approve
the increase in shares in the 2005 Plan. Abstentions will be considered shares
entitled to vote in the tabulation of votes cast on this proposal, and will have
the same effect as negative votes. Broker non-votes are not counted for the
purpose of determining whether this matter is approved, and therefore will not
have the effect of a negative vote with respect to the approval of Proposals 1,
2 and 3.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL #3
TO AMEND THE 2005 EQUITY INCENTIVE PLAN TO INCREASE
THE NUMBER OF SHARES AVAILABLE UNDER THE PLAN
BY ONE MILLION SHARES.
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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 2008 Annual Meeting of the
Shareholders must be received by Dynatronics at its corporate headquarters on or
before June 25, 2008, 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 2008, 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, 2007,
including the financial statements, 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, Vice President of Administration, 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
Vice President of Administration
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