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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss.240.14a-12
DYNATRONICS CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule
0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously.
Identify the previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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TABLE OF CONTENTS
Page
Invitation to Shareholders................................................ii
Notice of Meeting..........................................................1
Questions and Answers About the Meeting....................................2
Voting of Shares...........................................................4
Proxy Solicitation.........................................................5
Proposal One - Election of Directors.......................................6
Proposal Two - Ratification of Independent Registered Public
Accounting Firm.........................................................11
Security Ownership of Certain Beneficial Owners and Management............12
Executive Compensation....................................................14
Certain Relationships and Related Transactions............................19
Consideration of Director Nominees........................................19
Section 16(a) Beneficial Ownership Reporting Compliance...................20
Other Business............................................................21
Householding of Annual Meeting Materials..................................21
Proposals for the Next Annual Meeting.....................................21
Information Incorporated by Reference.....................................21
Annual Report.............................................................21
i
DYNATRONICS CORPORATION
7030 Park Centre Drive
Cottonwood Heights, Utah 84121
(801) 568-7000
October 11, 2010
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Dynatronics Corporation that will be held on Monday, November 22, 2010 at 3:00
p.m., at the corporate headquarters located at 7030 Park Centre Drive,
Cottonwood Heights, Utah.
An outline of the business to be conducted at the meeting is given in the
accompanying Notice of Annual Meeting and the Proxy Statement. In addition to
the matters to be voted on, following the meeting there will be a report on our
progress and an opportunity for shareholders to ask questions.
After reading the Proxy Statement, please follow the voting instructions in this
Proxy Statement to ensure that your shares will be represented. YOUR SHARES
CANNOT BE VOTED UNLESS YOU SIGN, DATE, AND RETURN A PROXY CARD, REGISTER YOUR
VOTE BY TELEPHONE, OR ATTEND THE ANNUAL MEETING IN PERSON.
A copy of our Annual Report to Shareholders is available on the Company's
website at www.dynatronics.com. The Annual Report is not a part of the proxy
solicitation materials, except to the extent it is incorporated by reference
therein.
I hope you will be able to join us. The Board of Directors and Company
management look forward to seeing you at the meeting.
Sincerely yours,
/s/ Kelvyn H. Cullimore, Jr.
Kelvyn H. Cullimore, Jr.
Chairman, President and CEO
ii
DYNATRONICS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held November 22, 2010
TO OUR SHAREHOLDERS:
The Annual Meeting of Shareholders of Dynatronics Corporation, a Utah
corporation, will be held at the corporate headquarters located at 7030 Park
Centre Drive, Cottonwood Heights, Utah, on Monday, November 22, 2010, at 3:00
p.m. Mountain Time for the following purposes, all as more fully described in
the accompanying Proxy Statement:
1. To elect five directors to hold office until the 2011 Annual Meeting
of Shareholders and thereafter until their respective successors
have been elected or appointed and qualified;
2. To ratify the appointment of Tanner LLC as our independent
registered public accounting firm for the fiscal year ending June
30, 2011; and
3. To consider any other business that properly comes before the Annual
Meeting or any adjournment thereof.
Only shareholders of record at the close of business on Monday, October 4,
2010, are entitled to notice of, and to vote at, this Annual Meeting and any
adjournment thereof. It is important that your shares be represented at the
meeting. Please follow the voting instructions in this Proxy Statement,
regardless of whether you plan to attend in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Bob Cardon
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Bob Cardon
Vice President of Administration
and Secretary/Treasurer
Cottonwood Heights, Utah
October 11, 2010
IMPORTANT
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
DYNATRONICS CORPORATION
PROXY STATEMENT FOR
2010 ANNUAL MEETING OF SHAREHOLDERS
To Be Held November 22, 2010
The accompanying proxy is solicited on behalf of the Board of Directors of
Dynatronics Corporation, a Utah corporation (the "Company" or "Dynatronics"),
pursuant to Regulation 14A under the Securities Exchange Act of 1934 in
connection with our Annual Meeting of Shareholders to be held at 3:00 p.m.
Mountain Time on Tuesday, November 22, 2010, at our corporate headquarters, 7030
Park Centre Drive, Cottonwood Heights, Utah.
We will pay the cost of preparing and disseminating this information. In
addition to the solicitation of proxies by use of the mail, our directors,
officers and employees may solicit proxies personally or by telephone or
facsimile or otherwise. 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 we will reimburse such brokerage firms and others for their
expenses incurred in connection therewith. Our directors, officers, or employees
will not be additionally compensated for this solicitation but may be reimbursed
for out-of-pocket expenses they incur.
Please register your vote by following the voting instructions in this
Proxy Statement or in the Notice of Internet Availability. Each proxy executed
and returned by a shareholder prior to the Annual Meeting will be voted
according to the instructions given in the proxy. Any shareholder giving a proxy
may revoke it at any time prior to its use at the Annual Meeting by giving
written notice to our Vice President of Administration, by filing a revoking
instrument or a duly executed proxy bearing a later date with our Vice President
of Administration, or by attending the Annual Meeting and voting in person.
Internet Availability of Proxy Materials
In accordance with rules approved by the Securities and Exchange
Commission, instead of mailing a printed copy of the Company's proxy materials
to stockholders, the Company may now furnish proxy materials to stockholders on
the Internet by providing a Notice of Internet Availability of Proxy Materials
(the "Notice of Internet Availability") to stockholders when the materials are
available on the Internet. If you are shareholders of record of the Company and
own shares of our stock in your personal name, you may receive a "full set
delivery" of our proxy materials, including this Proxy Statement, our Annual
Report to Shareholders, and the form of proxy card (the "Full Set Delivery"). In
that event, you may complete and sign the proxy card, and return it to the
Company by mail. However, if you receive the Notice of Internet Availability
only, you will not receive a printed copy of the proxy materials unless you
specifically request one. Instead, the Notice of Internet Availability will
instruct you on how you may access and review all of the Company's proxy
materials and the Company's Annual Report, over the Internet, and to register
your vote. If you receive a Notice of Internet Availability and would still like
to receive a printed copy of all of the Company's proxy materials, including the
Proxy Statement and Annual Report, you should follow the instructions for
requesting these materials included in the Notice of Internet Availability.
The Company intends to commence distribution of the Notice of Internet
Availability to stockholders on or about October 13, 2010.
On or about October 13, 2010, the Company first made available the proxy
solicitation materials at
http://dynatronics.com/Portals/0/CorpFiles/ProxyStatement2010.pdf to all
stockholders entitled to vote at the Annual Meeting. You may also request a
printed copy of the proxy solicitation materials and Annual Report by any of the
following methods: by telephone at (800) 874-6251; or by sending an e-mail to
BobC@dynatron.com.
QUESTIONS AND ANSWERS ABOUT THE MEETING
Q: Why am I receiving this Proxy Statement?
A: We are holding our Annual Meeting of Shareholders to elect the members of
our Board of Directors, as described in Proposal One. In addition, we are
seeking shareholder ratification of the appointment of Tanner LLC as our
independent registered public accounting firm for the fiscal year ending
June 30, 2011, as more fully described in Proposal Two.
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Q: What do I need to do now?
A: We urge you to carefully read and consider the information contained in
this Proxy Statement. If applicable, you should then vote as soon as
possible in accordance with the instructions provided in this Proxy
Statement, by telephone, by returning a signed proxy card if you receive
one as a shareholder of record of the Company, or by internet if that
option is available to you.
Q: How do I vote?
A: You can vote your shares using one of the following methods:
o Vote by telephone by following the instructions in the Notice
of Internet Availability;
o For those shareholders of record who receive the Full Set
Delivery of all printed proxy materials, including a form of
proxy card for voting (meaning that you hold your shares in
your own name, not in the name of a broker, bank, or nominee),
you may complete and sign the proxy card, and return it to the
Company by mail; or
o If you hold your shares in "street name," which means your
shares are held of record by a broker, bank or nominee, you
must provide the record holder of your shares with
instructions on how to vote your shares. Please refer to your
proxy card or the voting instruction card delivered by your
broker, bank or nominee to see if you may submit voting
instructions using the internet or telephone; or
o You may request a printed copy of the proxy card, Proxy
Statement, and Annual Report by following the instructions on
the Notice of Internet Availability, then completing, signing,
and returning the proxy card to the Company by mail; or
o Attend and vote at the meeting.
If you use telephone voting as your voting method, you do not need to
return a proxy or voting instruction card. Unless you are planning to vote
at the meeting, your vote must be received by 11:59 PM Mountain Time, on
November 21, 2010.
Even if you submit your vote by one of the first four methods mentioned
above, you may still vote at the meeting if you are the record holder of
your shares or hold a legal proxy from the record holder. Your vote at the
meeting will constitute a revocation of your earlier proxy or voting
instructions.
Q: What happens if I do not vote?
A: If you are a record holder of your shares and you do not submit a proxy
card, vote at the Annual Meeting in person, or register your vote by
telephone, your proxy will not be counted as present for the purpose of
determining the presence of a quorum, and your shares will not be voted at
the meeting. If you submit a proxy card and affirmatively elect to abstain
from voting, your proxy will be counted as present for the purpose of
determining the presence of a quorum but will not be voted at the Annual
Meeting. Broker non-votes will also have the same effect as shares not
voted at the meeting.
Q: If my Dynatronics shares are held in "street name," will my broker, bank,
or nominee vote my shares for me on all proposals?
A: Your broker, bank, or nominee cannot vote your shares on the election of
directors but they can vote your shares on the ratification of
accountants, unless you provide instructions on how to vote in accordance
with the information and procedures provided to you by your broker, bank,
or nominee.
Q: Can I change my vote after I have mailed my signed proxy or direction
form?
A: Yes. If you are a record holder, you can change your vote at any time
before your proxy is voted at our shareholder meeting by:
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o delivering to our Vice President of Administration a signed
notice of revocation;
o granting a new, later-dated proxy, which must be signed and
delivered to the Vice President of Administration; or
o attending the Annual Meeting and voting in person; however,
your attendance alone will not revoke your proxy.
If your shares are held in street name and you have instructed your broker
or nominee to vote your shares, you must follow your broker or nominee's
directions in order to change your vote or revoke your proxy.
Q: What should I do if I receive more than one set of voting materials?
A: You may receive more than one set of voting materials, including multiple
copies of this Proxy Statement and multiple proxy cards or voting
instruction cards. For example, if you hold your shares in more than one
brokerage account, you will receive a separate voting instruction card for
each brokerage account in which you hold shares. If you are a holder of
record and your shares are registered in more than one name, you will
receive more than one proxy card. Please complete, sign, date and return
each proxy card and voting instruction card that you receive.
Q: What if I object to the proposed transactions? Do I have dissenter's
rights?
A: No. Dissenter's rights are not available for the types of transactions
discussed in this Proxy Statement.
Q: Whom should I call with questions?
A: If you have any questions about the meeting, require directions to the
meeting, or need additional copies of this Proxy Statement or the enclosed
proxy card, you should contact:
Dynatronics Corporation
7030 Park Centre Drive
Cottonwood Heights, Utah 84121
Attn: Bob Cardon
Email address: Bobc@dynatron.com
Voting of Shares
Our Board of Directors has fixed the close of business on October 4, 2010
as the "Record Date" for determining the shareholders entitled to receive notice
of, and to vote at the Annual Meeting. At the close of business on the Record
Date, there were 13,439,637 shares of our common stock, no par value, issued and
outstanding, each such share entitled to one vote and held by approximately
3,000 shareholders.
Voting of Proxies
Your shares will be voted as you direct on your signed proxy card. If you
do not specify on your proxy card how you want to vote your shares, we will vote
signed returned proxies:
1. FOR the election of the Board of Directors' nominees for
directors; and
2. FOR ratification of the appointment of Tanner LLC as our
independent registered public accounting firm for the fiscal
year ending June 30, 2011.
We do not know of any other business that may be presented at the meeting.
If a proposal other than those listed in the Notice is presented at the Annual
Meeting, your signed proxy card authorizes the persons named in the proxy to
vote your shares on such matters in their discretion.
4
Vote Required for Approval
A plurality of the shares voting at the Annual Meeting is required to
elect directors. This means that if there are more nominees than the five
positions to be filled, the five who receive the most votes will be elected. In
counting votes on the election of directors, abstentions, broker non-votes (i.e.
shares held of record by a broker which are not voted because the broker has not
received voting instructions from the beneficial owner of the shares and either
lacks or declines to exercise authority to vote the shares in its discretion)
and other shares not voted will be counted as not voted. These shares will be
deducted from the total shares of which a plurality is required.
All other proposals presented in this Proxy Statement will be approved if
the votes cast favoring the action exceed the votes cast opposing the action. In
counting votes on each such matter, abstentions will not be counted as voted for
the matter and broker non-votes will be counted as not voted for the matter.
Shares that are not present or represented at the meeting will be deducted from
the total number of shares of which a majority is required.
Quorum
The presence at the Annual Meeting, in person or by proxy, of the holders
of a majority of the outstanding shares of common stock entitled to vote at the
meeting is required for a quorum for the transaction of business. In general,
shares of common stock represented by a properly signed and returned proxy card
will be counted as shares present and entitled to vote at the meeting for
purposes of determining a quorum. Abstentions 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. Inasmuch as street name holders will have
discretionary voting rights with respect to routine Proposal Number
Two--ratification of our public accounting firm, broker non-votes will also be
counted as "represented" for the purpose of determining the presence or absence
of a quorum.
Voting
As an alternative to voting in person at the Annual Meeting, or voting by
telephone, those shareholders who receive a paper proxy card and voting
instructions by mail, and who elect to vote by mail, should sign and return the
mailed proxy card in the pre-addressed envelope that will be enclosed with the
proxy card, and your shares will be voted at the Annual Meeting in the manner
you direct.
If your shares are registered in the name of a bank or brokerage firm
(your record holder), you will receive instructions from your record holder that
must be followed in order for your record holder to vote your shares per your
instructions. Many banks and brokerage firms have a process for their beneficial
holders to provide instructions via the Internet or over the telephone. If you
hold shares through a bank or brokerage firm and wish to be able to vote in
person at the Annual Meeting, you must obtain a legal proxy from your brokerage
firm, bank or other holder of record and present it to the inspector of
elections with your ballot.
Important Notice Regarding the Availability of Proxy Materials for the Annual
Meeting
Under Securities and Exchange Commission rules, this Proxy Statement, the
form of proxy card, and our 2010 Annual Report to shareholders are available on
the Internet. These materials are available at:
http://dynatronics.com/Portals/0/CorpFiles/2010Annual.pdf
http://dynatronics.com/Portals/0/CorpFiles/ProxyStatement2010.pdf
http://dynatronics.com/Portals/0/CorpFiles/ProxyCard2010.pdf
PROXY SOLICITATION
We are soliciting proxies from our shareholders for our Annual Meeting of
Shareholders. We will pay the cost of solicitation of proxies from our
shareholders, including preparation, assembly, printing and mailing of this
Proxy Statement and the proxy cards. Copies of solicitation materials will be
furnished to banks, brokerage houses, fiduciaries and custodians holding in
their names shares of our common stock beneficially owned by others to forward
to such beneficial owners. We may reimburse persons representing beneficial
owners of our common stock for their costs of forwarding solicitation materials
to such beneficial owners. In addition to solicitation by use of the mail,
proxies may be solicited by our Board of Directors, officers and employees, in
person or by telephone, electronic mail, or other means of communication. No
additional compensation for soliciting proxies will be paid to our Board of
Directors, officers or regular employees for such services.
5
PROPOSAL ONE - ELECTION OF DIRECTORS
Five directors will be elected at the Annual Meeting. 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 five nominees listed below, unless instructions to
the contrary are given in the proxy. Each of the five nominees currently serving
as a member of our board has indicated that he is able and willing to continue
to serve as a director. Our 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 holders will vote for
such nominee or nominees as the Board of Directors may select.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH NOMINEE.
Information About Nominees
The names of the Board of Directors' nominees and certain biographical
information about the nominees are set forth below.
Kelvyn H. Cullimore, Jr. Mr. Cullimore has been our Chairman since January
Age 54 2005 and President and Chief Executive Officer
Director since 1983 since 1992. He served as our Secretary/Treasurer
from 1983 to 1992 and as Administrative Vice
President from 1988 to 1992. Mr. Cullimore
graduated cum laude from Brigham Young University
in 1980 with a bachelor's degree in Financial and
Estate Planning. In addition to his involvement
with Dynatronics, Mr. Cullimore served as Executive
Vice President and a director of our former parent
company. He currently serves on the board of
directors of ITEC Attractions, Inc. (ITEC), an
entertainment, restaurant and retail mall operation
in Branson, MO. Mr. Cullimore has served previously
on the board of directors of a printing company,
lumber company, and travel agency. Mr. Cullimore is
a member of the board of the Medical Device
Manufacturers 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.
Larry K. Beardall Mr. Beardall was appointed as our Executive Vice
Age 54 President in December 1992. He has been a director
Director since 1986 and the Vice President of Sales and Marketing since
July 1986. Mr. Beardall joined Dynatronics in
February 1986 as Director of Marketing. He
graduated from Brigham Young University with a
bachelor's 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.
Howard L. Edwards* From 1968 to 1995, Mr. Edwards served in various
Age 79 capacities at Atlantic Richfield Company (ARCO) and
Director since 1997 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* Since December 2008, Mr. Christensen has been the
Age 57 President of EnergySolutions, Inc. (NYSE: ES).
Director since 1999 Prior to this appointment, Mr. Christensen served
as an Executive Vice President and General Counsel
and Corporate Secretary of EnergySolutions, Inc.
from May 2006 to December 2008. From 1989 to 2006,
Mr. Christensen served in various executive
positions at Franklin Covey Co. (NYSE: FC), a
global consulting and training company, eventually
as Executive Vice President, General Counsel and
Secretary, as well as being a director. Prior to
that, he was a partner at the law firm of LeBoeuf,
Lamb, Leiby & MacRae, where he handled commercial
litigation and general business matters in the
firm's Salt Lake City office from 1986 to 1989. He
received a B.A and J.D. from Brigham Young
University.
6
Joseph H. Barton* Mr. Barton previously served on the Board of
Age 82 Directors from 1996 to 2002. Mr. Barton has held
Director since 2004 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. Mr. Barton also served as Senior Vice
President of GranCare, Inc. from 1989 to 1994. He
received a Civil Engineering degree from the
University of California at Berkeley.
* Denotes member of our Audit and Compensation Committees.
Additional Information About our Board of Directors and its Committees
Directors hold office until the next annual meeting of shareholders and
until their successors have been elected or appointed and duly qualified.
Vacancies on the board which are created by the retirement, death, 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
We continue to monitor the rules and regulations of the Securities and
Exchange Commission and the Nasdaq Stock Market to ensure that a majority of our
Board of Directors remain "independent" directors. Our Board of Directors has
determined, after considering all of the relevant facts and circumstances, that
each of Mr. Edwards, Mr. Christensen and Mr. Barton is independent within the
meaning of the applicable Nasdaq Marketplace Rules. This means that the Board of
Directors has determined that those directors (1) are not officers or employees
of Dynatronics or its subsidiary and (2) have no direct or indirect relationship
with Dynatronics that would interfere with the exercise of their independent
judgment in carrying out the responsibilities of a director. As a result, the
Board of Directors has determined that we have a majority of independent
directors as required by the Nasdaq Marketplace Rules.
Committees
Our Board of Directors has two standing committees: the Compensation
Committee and the Audit Committee, each comprised solely of independent
directors. 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. The Compensation
Committee does not have a separate charter. 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 following independent directors constituted the Compensation
Committee for the fiscal year ended June 30, 2010 and continue to function as
such as of the date of this Proxy Statement: Val J. Christensen (committee
chairman), Howard L. Edwards and Joseph H. Barton. The Compensation Committee
held two meetings during the fiscal year ended June 30, 2010. All members of the
committee attended at least 75% of all meetings of the Compensation Committee.
7
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
(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
independent, (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-K 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 charter approved by
the Board of Directors and the Audit Committee, that reflects standards and
requirements adopted by the SEC and Nasdaq. The Audit Committee Charter can be
found on our website, www.dynatronics.com, in the "Company Information, Investor
Relations, Company Policies" section. The Audit Committee held four meetings
during the fiscal year ended June 30, 2010. Each member of the Audit Committee
attended at least 75% of the Audit Committee's meetings except Val Christensen,
who attended 50% of the meetings.
According to its charter, the Audit Committee's duties include selecting
and engaging our 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, 2010. No director attended fewer than 75% of all
meetings of the Board of Directors during the fiscal year.
Although the Board of Directors does not have a formal policy regarding
director attendance at the Annual Meeting of Shareholders, the Board of
Directors 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. During the year ended June 30, 2010, the independent directors met in
executive session on four occasions, with each independent director in
attendance at least 75% of such meetings.
Board Leadership Structure and Role in Risk Oversight
Currently, Kelvyn Cullimore, Jr. serves as our Chairman of the Board of
Directors, and as Chief Executive Officer. The Company does not have a formal
policy with respect to separation of the offices of Chairman of the Board and
Chief Executive Officer, and the Board of Directors believes that flexibility in
appointing the Chairman of the Board and Chief Executive Officer allows the
Board of Directors to make a determination as to such positions from time to
time and in a manner that it believes is in the best interest of the Company and
its shareholders.
The Board of Directors believes that the traditional practice of combining
the roles of chairman of the board and chief executive officer currently
provides the preferred form of leadership for the Company. Given Mr. Cullimore's
vast experience with the Company, the tremendous respect which he has earned
from employees, business partners and shareholders, as well as other members of
the medical device manufacturers industry, and his proven leadership skills, the
Board believes the best interests of the Company's shareholders are met by Mr.
Cullimore's continued service in both capacities. The Board believes Mr.
Cullimore's fulfillment of both responsibilities encourages clear accountability
and effective decision-making, and provides strong leadership for the Company's
employees and other stakeholders.
8
Given the outstanding experience and qualifications the Company's
directors contribute to the Board's activities, the Company has implemented a
number of practices designed to encourage effective corporate governances. These
practices include:
o the requirement that at least a majority of the Company's
directors meet the standards of independence applicable to the
Company;
o the appointment of Val J. Christensen as lead independent
director, who is empowered to schedule and conduct meetings of
the independent directors, communicate with the Chairman of
the Board, disseminate information to the Board and raise
issues with management on behalf of the independent directors
when appropriate;
o executive sessions of the Board and committee meetings which
include individual sessions with representatives of the
Company's independent registered public accounting firm, as
well as the Company's CFO and CEO; and
o performance evaluations of the Company's Chief Executive
Officer by the Compensation Committee.
The Company's management is primarily responsible to manage risk and
inform the Board of Directors regarding the most material risks confronting the
Company. The Board of Directors has oversight responsibility of the processes
established to monitor and manage such risks. The Board of Directors believes
that such oversight function is the responsibility of the entire Board of
Directors through frequent reports and discussions at regularly scheduled Board
meetings. In addition, the Board has delegated specific risk management
oversight responsibility to the Audit Committee and to the independent members
of the Board. In particular, the Audit Committee oversees management of risks
related to accounting, auditing and financial reporting and maintaining
effective internal controls for financial reporting. The independent members of
the Board oversee risk management related to the Company's corporate governance
practices and the Company's executive compensation plans and arrangements. These
specific risk categories and the Company's risk management practices are
reviewed by the entire Board of Directors in the ordinary course of regular
Board meetings.
Communications with the Board of Directors
Shareholders may communicate directly with our Board of Directors by
writing to them at Board of Directors, c/o Vice President of Administration,
Dynatronics Corporation, 7030 Park Centre Drive, Cottonwood Heights, Utah 84121.
All communications received in this manner will be forwarded to the director or
directors to whom 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 our business, industry, management, Board of
Directors, or related committee matters.
Code of Conduct and Ethics
We have established a Code of Business Ethics that applies to our
officers, directors and employees. The Code of Business Ethics contains general
guidelines for conducting our business consistent with the highest standards of
business ethics, and is intended to qualify as a "code of ethics" within the
meaning of the Exchange Act 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, our Audit Committee has
established procedures to receive, retain and treat 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 our website at
www.dynatronics.com, in the "Company Information, Investor Relations, Company
Policies" section. A copy may also be obtained by writing to the Vice President
of Administration, Dynatronics Corporation, 7030 Park Centre Drive, Cottonwood
Heights, Utah 84121.
9
Compensation Committee Interlocks and Insider Participation
No member of our Board of Directors is employed by us except for Mr.
Cullimore, Jr., who is employed as our President and Chief Executive Officer,
and Mr. Beardall, who is employed as our Executive Vice President. None of our
executive officers serves on the board of directors of another entity, whose
executive officers serve on the Compensation Committee of our Board of
Directors. No officer or employee of Dynatronics participated in deliberations
of our Compensation Committee concerning executive officer compensation.
EXECUTIVE OFFICERS
The following table sets forth data concerning our executive officers as
of the date of this Proxy Statement. Biographical information regarding
executive officers who are not also directors (whose biographical information is
contained elsewhere in this Proxy Statement under the heading "Information About
Nominees") follows.
Director
or Officer Position
Name Age Since with Company
----------------------- --- ---------- -----------------------------
Kelvyn H. Cullimore, Jr. 54 1983 Chairman, President, and CEO
Larry K. Beardall 54 1986 Executive Vice President of
Sales and Marketing and
Director
Kelvyn H. Cullimore 75 1983 National Sales Manager -
Aesthetics
Douglas G. Sampson 56 2009 Vice President of Production
and R&D
Terry M. Atkinson, CPA 57 2005 Chief Financial Officer
Robert J. Cardon 47 1992 Vice President of
Administration, Secretary &
Treasurer
Kelvyn H. Cullimore has served as the Company's National Sales Manager -
Aesthetics since 2000. 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.
Douglas G. Sampson was appointed Vice President of Production and Research
and Development in September 2009, replacing Ronald Hatch who retired. Prior to
joining Dynatronics, Mr. Sampson worked for Philips for 29 years. His positions
included executive and management responsibilities in various Philips
subsidiaries in Asia and the United States. From 2002 to 2007, he was Country
Manager and Managing Director of NXP Semiconductor, Philips Semiconductor
Thailand, where he was primarily responsible for all aspects of the
manufacturing and sales operations of that subsidiary. Most recently, from 2007
to 2008, he served as Vice President of Outsourced Manufacturing for Fairchild
Semiconductors in Singapore. Mr. Sampson earned a Master of Business
Administration degree from the University of New Mexico, Anderson School of
Management. He also holds a Bachelor's of Science degree in electronics
engineering technology from Brigham Young University, and an Associate's Degree
in electronics engineering technology from Brigham Young University Idaho
(formerly Ricks College).
Terry M. Atkinson, CPA was appointed Chief Financial Officer in January
2005. He previously served as our Controller from 1994 to 2004. Prior to joining
Dynatronics, 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 Utah in 1983.
10
Robert J. Cardon was appointed Vice President of Administration in March
2007. He has served as our Corporate Secretary since 1992 and was named
Treasurer in 2004. From 1992 until 2005, Mr. Cardon also served as
Secretary/Treasurer of ITEC. From 1987 to 1988, Mr. Cardon was employed as a
registered representative of an investment-banking firm. He received his
Bachelor of Arts degree in 1987 and his Master of Business Administration degree
in 1990, both from Brigham Young University.
PROPOSAL TWO - RATIFICATION OF
SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has selected the firm Tanner LLC to serve as our
independent registered public accounting firm for the fiscal year ending June
30, 2011. The shareholders have been asked to ratify this appointment. If the
shareholders fail to ratify the selection, the Audit Committee may reconsider
its decision. Even if the selection is ratified, the Audit Committee, in its
discretion, may direct the appointment of a different independent registered
public accounting firm at any time during the year if the Audit Committee
believes that such a change would be in our best interests.
Representatives of Tanner LLC 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
We did not engage Tanner LLC to provide any professional services in
connection with (i) operating or supervising the operation of our information
system or managing our 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 our financial
statements taken as a whole.
Audit Fees
The aggregate fees billed by Tanner LLC for professional services rendered
for the fiscal year ended June 30, 2010 and the fiscal year ended June 30, 2009
in connection with (i) the audit of our annual financial statements set forth in
our Annual Report on Form 10-K for the fiscal years ended June 30, 2010 and June
30, 2009 and (ii) the reviews of our quarterly financial statements set forth in
our Quarterly Reports on Form 10-Q for each of our fiscal quarters during the
periods then ended, totaled approximately $122,000 and $123,000, respectively.
Audit Committee Policy Regarding Pre-Approval of Audit and Permissible Non-Audit
Services of the Company's Independent Registered Public Accounting Firm
The Audit Committee has established a policy that all audit and
permissible non-audit services provided by the independent registered public
accounting firm 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 independent registered
public accounting firm. 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 accounting firm and our 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 reviewed and discussed Dynatronics' audited financial
statements for the fiscal year ended June 30, 2010 with our management. The
Audit Committee discussed with Tanner LLC, our independent auditors for the
fiscal year ended June 30, 2010, the matters required to be discussed by
Statement on Auditing Standards No. 114, The Auditors Communication with Those
Charged with Governance. The Audit Committee also received the written
communication from Tanner LLC required by PCAOB Ethics and Independence Rule
3526, Communication with Audit Committees Concerning Independence, and the Audit
Committee has discussed the independence of Tanner LLC with them.
11
Based on the Audit Committee's review and discussions noted above, the
Audit Committee recommended to our Board of Directors that Dynatronics' audited
financial statements be included in our Annual Report on Form 10-K for the
fiscal year ended June 30, 2010 filed with the SEC on September 22, 2010.
THE AUDIT COMMITTEE
Howard L. Edwards, Chairman
Val J. Christensen
Joseph H. Barton
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL TWO
RATIFYING THE SELECTION OF TANNER LLC AS OUR INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR
ENDING JUNE 30, 2011.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Voting Securities and Principal Shareholders
The following tables contain information as of October 4, 2010 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 Named Executive Officer in the Summary Compensation Table of
this Proxy Statement holding office on October 4, 2010, and (4) all executive
officers and directors as a group. Unless noted otherwise, we believe 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
the address of our principal executive office, 7030 Park Centre Drive,
Cottonwood Heights, UT 84121.
Holders of Greater than 5% of Voting Securities
Percent
Name of Beneficial Owner Number of Shares(1) of Class
------------------------ ---------------- --------
John Rajala 1,154,938 (2) 8.6%
12 Red Maple Place
Danville, CA 94506
Donald G. Whittington 850,000 6.3%
3707 Spring Hill Lane
Sugarland, TX 77479
Stephen Cyman 776,136 5.8%
50760 Metzen Dr.
Chesterfield, MI 48051
Anthony Trolio 725,000 5.4%
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 4, 2010.
Such shares, however, are not deemed outstanding for purposes of computing
the percentage ownership of any other person.
(2) Includes 1,154,938 shares owned by a family trust.
12
Security Ownership of Management
Percent
Name of Beneficial Owner Number of Shares(1) of Class
------------------------ ------------------- --------
Directors & Exec. Officers
Kelvyn H. Cullimore, Jr. 644,780 (2) 4.8%
Larry K. Beardall 240,588 (3) 1.8%
Howard L. Edwards 107,021 (4) *
Joseph H. Barton 61,021 (5) *
Val J. Christensen 52,021 (6) *
Other Executive Officers
Kelvyn H. Cullimore 189,104 (7) 1.4%
Douglas G. Sampson - *
Robert J. Cardon 93,500 (8) *
Terry M. Atkinson 50,000 (9) *
All executive officers and
directors as a group (9 persons) 1,438,035 10.4%
* 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
SEC. 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 4, 2010. Such shares, however, are
not deemed outstanding for purposes of computing the percentage ownership
of any other person.
(2) Includes 481,780 shares owned directly, 93,000 shares owned by Mr.
Cullimore's wife and daughter, and options for the purchase of 70,000
shares.
(3) Includes 175,588 shares owned directly and options for the purchase of
65,000 shares.
(4) Includes 83,021 shares owned directly and options for the purchase of
24,000 shares.
(5) Includes 34,021 shares owned directly and options for the purchase of
27,000 shares.
(6) Includes 31,021 shares owned directly and options for the purchase of
21,000 shares.
(7) 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.
(8) Includes 43,500 shares owned directly and options for the purchase of
50,000 shares.
(9) Includes 10,000 shares owned directly and options for the purchase of
40,000 shares.
Equity Compensation Plans
We have two equity compensation plans, the Amended and Restated 1992 Stock
Option Plan (the "1992 Plan") and the 2005 Equity Incentive Plan (the "2005
Plan"). Both plans were approved by our shareholders. Nonstatutory and statutory
options and other awards have been granted to our employees, officers, directors
and consultants under these plans. The Compensation Committee of our Board of
Directors administers both plans. As of June 30, 2010, options for the purchase
of 545,464 shares are exercisable and outstanding under these plans.
With the adoption of the 2005 Plan, our Board of Directors determined that
no further awards would be granted under the 1992 Plan. As of June 30, 2010, a
total of 1,038,411 shares were available for issuance through options or awards
yet to be granted under the 2005 Plan. During the fiscal year ended June 30,
2010, each of the three independent directors received 1,851 shares of
restricted common stock under the 2005 Plan.
13
The following table sets forth information as of June 30, 2010 about our
stock option plans and our non-plan options under which our equity securities
are authorized for issuance.
Number of Number of securities
securities to be remaining available
issued upon Weighted-average for future issuance
exercise of exercise price under equity
outstanding of outstanding compensation plans
options, options, (excluding
warrants and warrants securities reflected
rights and rights in column (a))
Plan Category (a) (b) (c)
------------------------------ ------------------ ----------------- ---------------------
Equity compensation plans
approved by security holders 932,805 $1.35 1,038,411
Equity compensation plans not
approved by security holders - - -
------------------ ---------------------
Total 932,805 1,038,411
================== =====================
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes information concerning the compensation
awarded to, earned by or paid to, our Chief Executive Officer and Chief
Financial Officer during the fiscal year ended June 30, 2010 and our three other
highest paid executive officers earning in excess of $100,000 for services
rendered in all capacities (collectively, the "Named Executive Officers").
Nonequity Nonqualified
incentive deferred All other
Name Year plan compen- compensation
and ended Stock Option compen- sation ($)
principal June Salary Bonus awards awards sation earnings (Note 1) Total
position 30, ($) ($) ($) ($) ($) ($) (i) ($)
----------------------- -------- ---------- -------- -------- -------- ---------- ------------- ------------- ----------
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
------------------------ -------- ---------- -------- -------- -------- ---------- ------------- ------------- ----------
Kelvyn H. Cullimore, 2010 $171,635 $16,500 - - - - $23,047 $211,182
Jr., Chairman,
President
and CEO
Terry M. Atkinson, CPA 2010 $83,365 $6,000 - - - - $10,811 $100,176
Chief Financial Officer
Larry K Beardall, 2010 $156,923 $16,500 - - - - $20,965 $194,388
Executive Vice
President
Douglas Sampson 2010 $91,385 - - - - - $10,504 $101,889
VP of Operations
Robert J. Cardon 2010 $85,327 $6,000 - - - - $16,499 $107,826
VP Administration
Secretary/Treasurer
(1) For each of the individuals listed in the table above, "All Other
Compensation" includes but is not limited to perquisites including the
dollar value of insurance premiums paid with respect to health and dental
insurance, and life insurance for the benefit of the Named Executive
Officer, use of Company paid automobile, and cellular phone.
14
The following table summarizes the outstanding equity awards held by our
Named Executive Officers as of June 30, 2010:
Outstanding Equity Awards at Fiscal Year-End 2010
Option Awards Stock Awards
Equity
incentive Equity
plan incentive
awards: plan
Market number awards:
Number value of market or
Equity of of unearned payout
incentive shares shares shares, value of
plan or or units, unearned
awards: units units or shares,
Number of Number of number of of of other units, or
securities securities securities stock stock rights other
underlying underlying underlying that that that rights
unexercised unexercised unexercised Option have have have that have
options options unearned exercise Option not not not not
(#) (#) options price expiration vested vested vested vested
Name exercisable unexercisable (#) ($) date (#) ($) (#) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
----------------------------------------------------------------------------------------------------------------------
Kelvyn H. Cullimore, 40,000 - - $1.72 5/24/15 - - - -
Jr. 30,000 - - $1.42 11/22/15 - - - -
Principal Executive
Officer
Larry K Beardall 40,000 - - $1.72 5/24/15 - - - -
25,000 - - $1.42 11/22/15 - - - -
Terry M. Atkinson, CPA 40,000 - - $1.72 5/24/15 - - - -
Principal Financial
Officer
Robert J. Cardon 40,000 - - $1.72 5/24/15 - - - -
10,000 - $ .97 5/1/18 - - - -
Director Compensation
Members of the Board of Directors who are employed by and receive
remuneration as officers of Dynatronics are paid $100 per meeting for attendance
at regular and special meetings of the Board of Directors.
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 $2,000 for serving as the
Committee Chairman and "financial expert." Our directors are reimbursed for
their out-of-pocket expenses related to their services as directors or
attendance at Board of Directors and committee meetings.
The following table summarizes the compensation paid during the fiscal
year ended June 30, 2010, to non-employee directors.
Fees Non-equity Nonqualified
earned incentive deferred
or paid Stock Option plan compensation All other
in cash awards awards compensation earnings compensation Total
Name ($) ($) ($) ($) ($) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h)
----------------------------------------------------------------------------------------------------------
Howard L. Edwards $18,000 $2,000 - - - - $20,000
Val J. Christensen $16,000 $2,000 - - - - $18,000
Joseph H. Barton $16,000 $2,000 - - - - $18,000
15
During the year ended June 30, 2010, we made no awards to executive
officers or directors under any long-term incentive plan. We have never granted
stock appreciation rights.
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 our
compensation program for compensation of our Named Executive Officers and
directors.
Compensation Program Objectives
Executive compensation is determined by several factors. The following are
the main objectives of our executive compensation program as determined by the
Compensation Committee:
o Retention of qualified officers.
o 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.
o Providing a performance incentive for the officers.
The compensation program is designed to reward the officers in the following
areas:
o Achievement of specific goals
o Creativity in the form of innovative ideas and analysis for
new programs and projects
o New program implementation
o Attainment of company goals, budgets, and objectives
o Results-oriented determination and organization
o 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 our executive compensation program include:
o Base salary
o Performance bonus
o Stock options and stock awards
o Employee benefits in the form of:
o health and dental insurance
o life insurance
o Other benefits including use of Company automobile and cell
phone
16
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
our pre-tax profit is used in determining the performance bonus for the
executive officers.
Stock options and stock awards
Stock ownership is provided to enable executive officers to participate in
our success. 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 our shareholders.
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
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 and 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 our compensation program, 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 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
Howard L. Edwards
Joseph H. Barton
17
Employment Agreements
We believe it is in our best interests to secure the services of key
executives and that it is appropriate to provide these executives with
protection should their employment with Dynatronics be terminated under certain
circumstances. Therefore, we have entered into written employment contracts with
Kelvyn H. Cullimore, Jr., our Chairman, President and Chief Executive Officer,
and Larry K. Beardall, our Executive Vice President. These agreements were
approved by the Compensation Committee. The Compensation Committee currently is
negotiating new, long-term employment agreements with these executives. The
compensation package under each existing 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 our 2005 Equity Incentive Plan and the 1992 Stock Option Plan, as
amended and restated. Each of these officers also receives other welfare and
employee benefits that are standard in such agreements, including, by way of
example, health insurance, 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 Dynatronics through a purchase of
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 50% or more of the combined voting power of our then
outstanding voting securities; or the composition of the Board of Directors is
changed such that the former members of the Board of Directors cease to
constitute at least a majority of the Board of Directors; or our shareholders
approve an agreement for the sale or disposition by us of all or substantially
all of our assets.
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, (2) one and
one-half times the average annual bonus paid by us to the executive over the
previous three complete fiscal years, and (3) a bonus of $200,000 for the
executive's efforts in facilitating the change in control. Of the amount payable
under items (1) and (2) above under the agreement, 50% is to be paid within 30
days after termination and the balance is to be paid ratably over the subsequent
six months. In addition, we 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 us 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 we 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.
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 us 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 $16,500,
the maximum allowable amount of salary deferrals for calendar year 2010. We
match annual employee contributions at 25% of employee contributions, up to a
maximum of $500 per employee per year.
Participants in 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. Amounts deferred by Named Executive Officers in the 401(k) plan,
along with the 25% matching contributions, are included under "Other
Compensation" in the Summary Compensation Table.
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Certain Relationships and Related Transactions
Transaction Review
We have adopted a policy that any transactions with directors, officers or
entities of which they are also officers or directors or in which they have a
financial interest, will only be on terms consistent with industry standards and
approved by a majority of the disinterested directors of our board. Our bylaws
provide that no such transactions by us shall be either void or voidable solely
because of such relationship or interest of directors or officers or solely
because such directors are present at the meeting of our Board of Directors or a
committee thereof which approves such transactions, or solely because their
votes are counted for such purpose if:
o The fact of such common directorship or financial interest is
disclosed or known by our Board of Directors or committee and
noted in the minutes, and our Board of Directors or committee
authorizes, approves or ratifies the contract or transaction
in good faith by a vote for that purpose without counting the
vote or votes of such interested directors; or
o The fact of such common directorship or financial interest is
disclosed to or known by the shareholders entitled to vote,
and they approve or ratify the contract or transaction in good
faith by a majority vote or written consent of shareholders
holding a majority of the shares of common stock entitled to
vote (the votes of the interested directors or officers shall
be counted in any such vote of shareholders); or
o The contract or transaction is fair and reasonable to us at
the time it is authorized or approved.
In addition, interested directors may be counted in determining the
presence of a quorum at a meeting of our Board of Directors or a committee
thereof that approves such transactions. If there are no disinterested
directors, we shall obtain a majority vote of the shareholders approving the
transaction.
Transactions with Related Parties
We rent office and warehouse space in Pleasanton, California from the
Rajala Family Trust, a shareholder of Dynatronics. The monthly lease payment is
$10,000 and the lease term is renewable annually. In addition, we rent office
and warehouse space in Detroit, Michigan from Steve Cyman, a shareholder of the
Company. The monthly lease payment is $3,500 and the lease automatically renews
on a semi-annual basis unless it is terminated. We also rent office and
warehouse space in Girard, Ohio from Tony Trolio, a shareholder of the Company.
The monthly lease payment is $3,000 and the lease term is on a month-to-month
basis. These shareholders are the former owners of three of the dealerships
acquired on June 30 and July 2, 2007. As part of the purchase price for their
distribution companies, the Rajala Family Trust, Steve Cyman and Tony Trolio
were paid with shares of Dynatronics common stock and each currently holds 5% or
more of our outstanding common stock. Management believes that the monthly
rental payments for each facility are comparable to or below market rates for
similar properties.
Except as described above and in this Proxy Statement under the captions,
"Employment Contracts" and "Salary Continuation Plan," during the two years
ended June 30, 2010, 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.
CONSIDERATION OF DIRECTOR NOMINEES
Director Nominations
Our Board of Directors does not have a nominating committee or other
committee that recommends qualified candidates to the Board of Directors for
nomination or election as directors. The Board of Directors believes that,
because of our relatively small size, and because of the historically few and
infrequent vacancies on the Board of Directors, it is in our best interest 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 independent directors, acting by a majority vote, are
authorized to recommend individuals as nominees to the Board of Directors.
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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 of Directors for nominations to fill vacancies
on the Board of Directors, and for selecting the nominees to be elected by our
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 us or our operations, and the availability and
willingness to devote sufficient time to the duties of a director; (b)
experience in corporate management, such as serving as an officer or former
officer of a publicly held company; (c) experience in our 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 our 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 a
variety of perspectives and skills derived from high-quality business and
professional experience.
Board Diversity
In identifying nominees, the independent directors do not have a formal
policy regarding the consideration of gender, race, sexual preference, religion,
and other traits typically associated with the term "diversity." As described in
" Director Qualifications " above and " Identification and Evaluation of
Nominees " below, the independent directors consider it important that the Board
be composed of directors with a diverse range of experience, areas of expertise
and skills, but has not adopted any formal policy.
Identification and Evaluation of Nominees
The independent directors may use multiple sources for identifying and
evaluating nominees for directors, including referrals from our current
directors and management as well as input from third parties, including
executive search firms retained by the Board of Directors. The independent
directors will obtain background information about candidates, which may include
information from questionnaires and background and reference checks, and will
then interview qualified candidates. Our 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 of Directors.
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 our common stock ("Reporting
Persons") to file initial reports of ownership and to report changes in
ownership in reports filed with the SEC. Reporting Persons are required by
regulation of the SEC to furnish us with copies of all Section 16(a) forms they
file.
Based solely on review of the copies of such forms furnished to us during
and with respect to the fiscal year ended June 30, 2010, we believe that during
the fiscal year ended June 30, 2010 all Section 16(a) filings applicable to
these Reporting Persons were timely filed.
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OTHER BUSINESS
We know of no other matters that will 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.
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
Some banks, brokers and other nominee record holders may be participating
in the practice of "householding" proxy statements and annual reports. This
means that only one copy of our Proxy Statement or Annual Report to Shareholders
may have been sent to multiple shareholders in each household. We will promptly
deliver a separate copy of either document to any shareholder upon written
request to Investor Relations, Dynatronics Corporation, 7030 Park Centre Drive,
Cottonwood Heights, Utah 84121 or bobc@dynatron.com.
Any shareholder who wants to receive separate copies of our Proxy
Statement or Annual Report in the future, or any shareholder who is receiving
multiple copies and would like to receive only one copy per household, should
contact the shareholder's bank, broker, or other nominee record holder, or the
shareholder may contact us at the above address.
SHAREHOLDER PROPOSALS
We must receive proposals intended to be presented at next year's 2011
Annual Meeting of the Shareholders on or before June 25, 2011, to be considered
for inclusion in our Proxy Statement relating to that meeting. Receipt of a
shareholder proposal does not necessarily guarantee that the proposal will be
included in the Proxy Statement. If a shareholder intends to propose any matter
for a vote at the Annual Meeting of Shareholders to be held in 2011, but fails
to notify us 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 holders, 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.
INFORMATION INCORPORATED BY REFERENCE
We are permitted to incorporate by reference information that we file with
the SEC. Accordingly, we incorporate by reference our Annual Report on Form 10-K
for the fiscal year ended June 30, 2010, which was filed with the SEC on
September 22, 2010, except to the extent information in that report is different
from the information contained in this Proxy Statement.
ANNUAL REPORT
We will provide, without charge, to each shareholder to whom this Proxy
Statement is delivered, upon written or oral request, a copy of our Annual
Report on Form 10-K for the year ended June 30, 2010, including the financial
statements, as filed with the SEC. 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, Cottonwood
Heights, UT 84121.
DYNATRONICS CORPORATION
By order of the Board of Directors
/s/ Bob Cardon
--------------------------------------------
Bob Cardon
Vice President of Administration, Secretary,
Treasurer
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