SCHEDULE 14A INFORMATION
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PRO-DEX, INC.
(Name of Registrant as Specified In Its Charter)
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To
Our Shareholders,
Fiscal
year 2023 was another successful year for Pro-Dex as we continue to challenge ourselves and grow the business. The team was able to achieve
10% in top line sales growth, including a record $13M quarter, while completing the launch of our second facility. This added capacity,
along with a record backlog, are great foundations to build on. In FY2024 we will increase our investment and focus on the sales process
and new products to continue the company trajectory.
I
remain grateful to the team here at Pro-Dex. The company’s success is a result of their efforts. We also appreciate and enjoy our
shareholders. Thank you for your interest and support.
As
always, we are excited about the future at Pro-Dex. I look forward to hearing from you with any questions or feedback that you have.
You can reach me or the Board at (949) 769-3200 or investor.relations@pro-dex.com.
Sincerely,
/s/
Rick Van Kirk
Rick Van Kirk
President
and Chief Executive Officer
2361
McGaw Avenue
Irvine, California 92614
NOTICE OF ANNUAL
MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER
14 ,2023
To the Shareholders
of Pro-Dex, Inc.:
The
Annual Meeting of Shareholders (“Annual Meeting”) of Pro-Dex, Inc. (“Pro-Dex”, the “Company”, “we”,
“us” or “our”) will be held at our assembly facility, 14401 Franklin Avenue, Tustin, California on December 14,
2023, at 9:30 a.m. Pacific Standard Time, for the following purposes:
| 1. | To
elect seven directors to serve until our 2024 annual meeting of shareholders or until their
successors are duly elected and qualified. The nominees for election to our Board of Directors
are named in the attached Proxy Statement, which is part of this Notice. |
| 2. | To
ratify the appointment of Moss Adams, LLP as our independent registered public accounting
firm for the fiscal year ending June 30, 2024. |
| 3. | To
amend the 2014 Employee Stock Purchase Plan in order to extend its term for an additional
ten years. |
| 4. | To
hold an advisory vote to approve the compensation of our Named Executive Officers. |
| 5. | To
transact such other business as may properly come before the Annual Meeting or any adjournments
or postponements thereof. |
Only
shareholders of record at the close of business on October 18, 2023, are entitled to notice of and to vote at the Annual Meeting and
at any adjournments or postponements of the Annual Meeting.
All
shareholders are cordially invited to attend the Annual Meeting in person. Whether or not you plan to attend the Annual Meeting, your
vote is important. In an effort to facilitate the voting process, we are pleased to avail ourselves of Securities and Exchange Commission,
or SEC, rules that allow proxy materials to be furnished to shareholders on the Internet. You can vote by proxy over the Internet by
following the instructions provided in the Notice of Internet Availability of Proxy Materials that was mailed to you on or about October 31,
2023, or, if you request printed copies of the proxy materials by mail, you can also vote by mail or by telephone. Your promptness in
voting by proxy will assist in its expeditious and orderly processing and will assure that you are represented at the Annual Meeting.
If you vote by proxy, you may nevertheless attend the Annual Meeting and vote your shares in person.
TO
ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU ARE URGED TO READ THIS PROXY STATEMENT AND SUBMIT YOUR PROXY OR VOTING INSTRUCTIONS
AS SOON AS POSSIBLE BY FOLLOWING THE INSTRUCTIONS IN THE NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS, WHICH WAS MAILED TO YOU
ON OR ABOUT OCTOBER 31, 2023, OR, IF YOU REQUEST PRINTED COPIES OF THE PROXY MATERIALS BY MAIL, YOU CAN ALSO VOTE BY MAIL OR BY TELEPHONE.
OUR
BOARD OF DIRECTORS RECOMMENDS: A VOTE “FOR” EACH OF THE SEVEN DIRECTOR NOMINEES NAMED IN THE PROXY STATEMENT; A VOTE “FOR”
EACH OF PROPOSALS 2 THROUGH 4.
By Order
of the Board of Directors,
PRO-DEX,
INC.
/s/ Alisha
K. Charlton
Corporate
Secretary
2361 McGaw Avenue
Irvine, California 92614
ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD DECEMBER
14, 2023
PROXY STATEMENT
SOLICITATION
OF PROXIES
The
Board of Directors (“Board”) of Pro-Dex, Inc. (“Pro-Dex”, the “Company”, “we”, “us”
or “our”) has made these materials available to you on the Internet, or, upon your request, has delivered printed versions
of these materials to you by mail, in connection with the Board’s solicitation of proxies for use at our Annual Meeting of Shareholders
(“Annual Meeting”) to be held at Pro-Dex’s assembly facility, 14401 Franklin Avenue, Tustin, California, on Thursday,
December 14, 2023, at 9:30 a.m. Pacific Standard Time, and at any and all adjournments or postponements thereof. Shareholders are requested
to promptly vote by proxy over the Internet by following the instructions provided in the Notice of Internet Availability of Proxy Materials,
which was mailed to you on or about October 31, 2023. If you request printed copies of the proxy materials by mail, you can also
vote by mail or by telephone. All shares represented by each properly submitted and unrevoked proxy received on the Internet or by telephone
prior to 11:59 p.m. Eastern Standard Time on Wednesday, December 13, 2023, or by proxy card prior to or at the Annual Meeting, will be
voted in the manner specified therein, and if no direction is indicated (except in the case of broker non-votes), “for” each
of the seven director nominees named under Proposal No. 1 and “for” each of Proposal Nos. 2 through 4.
Any
shareholder has the power to revoke his or her proxy at any time before it is voted. A proxy may be revoked by delivering a written notice
of revocation to our Secretary prior to or at the Annual Meeting, by voting again on the Internet or by telephone (only your latest Internet
or telephone proxy submitted prior to 11:59 p.m. Eastern Standard Time on Wednesday, December 13, 2023, will be counted), by submitting
prior to or at the Annual Meeting a later dated proxy card executed by the person executing the prior proxy, or by attendance at the
Annual Meeting and voting in person by the person submitting the prior proxy.
Any
shareholder who owns shares in street name and would like to vote in person at the Annual Meeting should inform his or her broker of
such plans and request a legal proxy from the broker. Such shareholders will need to bring the legal proxy with them to the Annual Meeting
and valid picture identification, such as a driver’s license or passport, in addition to documentation indicating share ownership.
Such shareholders who do not receive the legal proxy in time should bring with them to the Annual Meeting their most recent brokerage
account statement showing that they owned our stock as of the record date. Upon submission of proper identification and ownership documentation,
we will be able to admit the shareholder to the Annual Meeting; however, such shareholder will not be able to vote his or her shares
at the Annual Meeting without a legal proxy. Shareholders are advised that if they own shares in street name and request a legal proxy,
any previously executed proxy will be revoked, and such shareholder’s vote will not be counted unless he or she appears at the
Annual Meeting and votes in person.
Our
Board does not presently intend to bring any business before the Annual Meeting other than the proposals referred to in this proxy statement
and specified in the accompanying Notice of Annual Meeting. So far as is known to our Board, no other matters are to be brought before
the Annual Meeting. However, if any other matters are presented properly for action at the Annual Meeting or at any adjournments or postponements
thereof, it is intended that the proxies will be voted with respect thereto by the proxy holders in accordance with the instructions
and at the discretion of our Board or a properly authorized committee thereof.
This
proxy statement, the accompanying shareholder letter, the accompanying proxy card, and our Annual Report on Form 10-K are being made
available to our shareholders on the Internet at www.proxyvote.com through the notice and access process on or about October 31, 2023.
We will bear the cost of soliciting proxies pursuant to this proxy statement. The solicitation will be made through the Internet
and expenses will include reimbursement paid to brokerage firms and others for their expenses in forwarding solicitation material regarding
the Annual Meeting to beneficial owners of our common stock, no par value per share (“Common Stock”). Further solicitation
of proxies may be made by mail upon request, and by telephone or oral communications with some shareholders. Our regular employees, who
will not receive additional compensation for the solicitation, or a compensated proxy solicitation firm, will make such further solicitations.
OUTSTANDING SHARES
AND VOTING RIGHTS
Only
holders of record of the 3,547,330 shares of our Common Stock outstanding at the close of business on October 18, 2023, are entitled
to notice of and to vote at the Annual Meeting or any adjournment or postponement thereof. Under Colorado law, our Articles of Incorporation,
and our Bylaws, the holders of a majority of the total shares entitled to vote at the Annual Meeting, as of the record date, represented
in person or by proxy, will constitute a quorum for the transaction of business at the Annual Meeting. If a quorum is not present, the
Annual Meeting may be postponed or adjourned to allow additional time for obtaining additional proxies or votes. At any subsequent reconvening
of the Annual Meeting, all proxies will be voted in the same manner as the proxies would have been voted at the original convening of
the Annual Meeting, except for any proxies that have been effectively revoked or withdrawn prior to the reconvening of the Annual Meeting.
Shares of our Common Stock represented in person or by proxy (regardless of whether the proxy has authority to vote on all matters),
as well as abstentions and broker non-votes, will be counted for purposes of determining whether a quorum is present at the Annual Meeting.
An
“abstention” is the voluntary act of not voting by a shareholder who is represented in person or by proxy at a meeting and
entitled to vote. “Broker non-votes” are shares of voting stock held in record name by brokers and nominees concerning which:
(i) the broker or nominee does not have discretionary voting power under applicable rules or the instruments under which it serves
in such capacity and instructions have not been received from the beneficial owners or persons entitled to vote; or (ii) the record
holder has indicated on the proxy or has executed a proxy and otherwise notified us that it does not have authority to vote such shares
on that matter.
For
Proposal No. 1 (the election of directors), assuming that a quorum is present, the seven nominees for director receiving the highest
number of affirmative votes will be elected; votes withheld and broker non-votes have no practical effect.
For
Proposal No. 2 (to ratify the appointment of Moss Adams, LLP as our independent registered public accounting firm for the fiscal year
ending June 30, 2024), Proposal No. 3 (amend the 2014 Employee Stock Purchase Plan), and Proposal 4 (advisory vote to approve the
compensation of our Named Executive Officers), assuming that a quorum is present, the matter will be approved if the votes cast in favor
of the matter exceed the votes cast opposing the matter. In such matters, abstentions and broker non-votes will not be included in the
vote totals and, therefore, will have no effect on the vote.
Each
shareholder will be entitled to one vote, in person or by proxy, for each share of Common Stock held of record on the record date. Votes
cast at the Annual Meeting will be tabulated by the person or persons appointed by us to act as inspectors of election for the Annual
Meeting.
Recommendations
of our Board
Our
Board recommends that our shareholders vote “for” each of the seven director nominees named under Proposal No. 1; and “for”
each of Proposal Nos. 2 through 4.
THE
PROPOSALS TO BE VOTED UPON AT THE ANNUAL MEETING ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT. YOU ARE STRONGLY URGED TO READ AND
CONSIDER CAREFULLY THIS PROXY STATEMENT IN ITS ENTIRETY.
ECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information concerning the beneficial ownership of our Common Stock as of October 18, 2023 by:
| • | each
member of the Board; |
| • | each of our Named Executive
Officers listed in the “Summary Compensation Table” included in the “Executive
Compensation” section of this proxy statement; |
| • | all
of our directors and Named Executive Officers as a group; and |
| • | each person or entity known
to us that beneficially owns more than five percent of our Common Stock. |
Beneficial
ownership is determined in accordance with the rules of the SEC. Unless otherwise indicated below, the address of each beneficial owner
is c/o Pro-Dex, Inc., 2361 McGaw Avenue, Irvine, California, 92614. Unless otherwise indicated below, we believe that each of the persons
listed in the table (subject to applicable community property laws) has the sole power to vote and to dispose of the shares listed opposite
the shareholder’s name.
The
percentages of Common Stock beneficially owned are based on 3,547,330 shares of Common Stock outstanding at October 18, 2023.
| |
Number of | |
Percent of |
| |
Shares of Common | |
Common Stock |
| |
Stock Beneficially | |
Beneficially |
Name
and Address of Beneficial Owner | |
Owned | |
Owned(1) |
Nicholas
J. Swenson, AO Partners I, L.P.; and AO Partners, LLC; (2), (4) 5000
West 36th Street, Suite 130 | |
| | | |
| | |
Minneapolis,
MN 55416 | |
| 1,026,343 | | |
| 28.9 | % |
Raymond E. Cabillot; Farnam
Street Partners, L.P.; | |
| | | |
| | |
Farnam
Street Capital, Inc.; and Peter O. Haeg(3), (4) 3033
Excelsior Blvd., Suite 560 | |
| | | |
| | |
Minneapolis, MN 55416 | |
| 364,846 | | |
| 10.3 | % |
Richard
L. Van Kirk(4) | |
| 107,216 | | |
| 3.0 | % |
Katrina
M.K. Philp(4), (5) | |
| 18,696 | | |
| * | |
Angelita
R. Domingo(4) | |
| 14,973 | | |
| * | |
Alisha
K. Charlton(4) | |
| 13,727 | | |
| * | |
William
J. Farrell III(4) | |
| 9,100 | | |
| * | |
David
C. Hovda(4) | |
| 6,300 | | |
| * | |
All
Directors, Director Nominees and Named Executive Officers as a group (8
persons)(4) | |
| 1,561,201 | | |
| 42.6 | % |
____________
| * | Indicates less than 1 percent
of outstanding shares of Common Stock. |
| (1) | Applicable
percentage ownership is based on 3,547,330 shares of Common Stock outstanding as of October
18, 2023. Any securities not outstanding but subject to options exercisable as of October18,
2023, or exercisable within 60 days after such date, are deemed to be outstanding for the
purpose of computing the percentage of outstanding Common Stock beneficially owned by the
person holding such options, but are not deemed to be outstanding for the purpose of computing
the percentage of Common Stock beneficially owned by any other person. |
| (2) | AO
Partners, LLC is the General Partner of AO Partners I, L.P. Nicholas J. Swenson (“Nick”)
is the Managing Member of AO Partners, LLC, and, in such capacity, has the power to direct
the affairs of AO Partners, LLC, including the voting and disposition of shares of our Common
Stock held by AO Partners I, L.P. As such, AO Partners I, L.P., AO Partners, LLC and Nick
may be deemed to share voting and dispositive power with regard to the 926,730 shares of
our Common Stock held by AO Partners I, L.P. The remaining 95,613 shares are owned by Nick
directly. AO Partners I, L.P.’s holdings of 926,730 shares of our Common Stock, plus
additional securities and collateral owned by AO Partners I, L.P., are pledged to secure
a bank loan to AO Partners I, L.P. |
| (3) | Farnam
Street Partners, L.P., Farnam Street Capital, Inc., Raymond E. Cabillot (“Ray”),
and Peter O. Haeg claim shared voting power and shared dispositive power of 360,846 shares
of our Common Stock held by Farnam Street Partners, L.P. |
| (4) | Includes
shares of Common Stock issuable upon the exercise of options that were exercisable as of
October 18, 2023, or exercisable within 60 days after October 18, 2023, as follows:
Nick, 4,000 shares; Ray, 4,000 shares; Richard L. Van Kirk (“Rick”), 18,000 shares;
Katrina M.K. Philp (“Katrina”), 4,000 shares; Angelita R. Domingo (“Angel”),
4,250 shares; Alisha K. Charlton (“Alisha”), 4,250 shares; William J. Farrell
III (“Bill”), 4,000 shares; David C. Hovda (“Dave”), 4,000 shares;
and all directors, director nominees and Named Executive Officers as a group, 46,500 shares. |
| (5) | Of
these shares, 14,696 are owned by Katrina’s spouse and both individuals claim shared
voting power and shared dispositive power with regard to such shares. Of these shares, 7,496
are pledged as collateral for a loan. |
Proposal No. 1
ELECTION OF
DIRECTORS
Current Board Structure and Director
Terms
Our
Board is currently composed of seven members. All directors or their successor nominees stand for election each year at our annual meeting
of shareholders.
Certain
information with respect to each of the nominees who will be presented at the Annual Meeting by our Board for election as a director
is set forth below. Although it is anticipated that each nominee will be available to serve as a director, should a nominee become unavailable
to serve, proxies will be voted for such other person as may be designated by our Board.
Unless
the authority to vote for directors has been withheld in the proxy, the person named in the accompanying proxy intends to vote at the
Annual Meeting for the election of each of the nominees presented below. In the election of directors, assuming a quorum is present,
the seven nominees for director receiving the highest number of votes cast at the Annual Meeting will be elected as our directors.
DIRECTORS
Set
forth below is certain information with respect to our directors.
Name | |
Age | |
Position With Company | |
Audit | |
Compensation | |
Nominating and Governance | |
Investment |
Raymond E. Cabillot | |
| 60 | | |
Director | |
| X | | |
| X | | |
C | |
| X | |
Angelita R. Domingo | |
| 51 | | |
Director | |
| | | |
| | | |
| |
| | |
William J. Farrell III | |
| 50 | | |
Director | |
| | | |
| X | | |
X | |
| | |
David C. Hovda | |
| 61 | | |
Director | |
| C | | |
| | | |
| |
| | |
Katrina M.K. Philp | |
| 38 | | |
Director | |
| X | | |
| X | | |
| |
| | |
Nicholas J. Swenson | |
| 55 | | |
Director, Chairman of the Board | |
| | | |
| C | | |
X | |
| C | |
Richard L. Van Kirk | |
| 63 | | |
Director, Chief Executive Officer, and President | |
| | | |
| | | |
| |
| X | |
____________________________
(X) |
Member of the Committee |
(C) |
Chairman of the Committee |
Ray,
Bill, Dave, Nick and Katrina currently each qualify as an “independent director” as such term is defined in Rule 5605(a)(2)
of the Nasdaq Listing Rules and we expect that each will continue to qualify as an “independent director” if elected.
Our
Board is of the opinion that the election to our Board of the director nominees identified herein, each of whom has consented to serve
if elected, would be in our shareholders’ best interests.
OUR BOARD
RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF THE
NOMINEES NAMED BELOW.
Ray
(60), current director and nominee, has, from January 1998 until the present, served as Chief Executive Officer and a director of Farnam
Street Capital, Inc., the general partner of Farnam Street Partners L.P., a private investment partnership located in Minneapolis, MN. Ray
was a Senior Research Analyst at Piper Jaffray, Inc. from 1990 to 1998. Prior to that, Ray worked for Prudential Capital Corporation
from 1987 to 1990 as an Associate Investment Manager and as an Investment Manager. Ray has served on the board of directors
of Oxbridge Re Holdings Limited, a specialty and casualty reinsurer, from 2013 to 2023 and Air T, Inc. (Nasdaq: AIRT), a provider of
air cargo services and ground equipment sales and support services since November 2016. Ray was a director of O.I. Corporation, a former
Nasdaq listed company, from 2006 to 2010. He served as chairman of the board of O.I. Corporation from 2007 through 2010 and during 2010
served as co-chairman of the board of O.I. Corporation. Ray has a B.A. degree with a double major in Economics and Chemistry from Saint
Olaf College and an M.B.A. from the University of Minnesota. Ray has been a director of ours since January 2013.
Ray brings the following
experience, qualifications, attributes, and skills to our Board:
| · | More than 25 years of experience as a financial analyst and investment
manager; |
| · | Years of public company board experience, including three years
as chairman and one year as co-chairman; and |
| · | Independent of our management. |
Angel
(51), current director and nominee, has served as our Director of Quality Systems and Regulatory Affairs since 2014. Angel joined the
Company in February 2005. Angel’s responsibilities include ensuring that the Company’s Quality Management System and products
consistently meet industry and regulatory standards and customer requirements. This encompasses compliance requirements of local, state,
federal and OUS authorities. Angel holds a B.S. in Biology/Human Physiology and Chemistry minor from California State University, Long
Beach. Angel has been a director of ours since December 2021.
Angel
brings the following experience, qualifications, attributes, and skills to our Board:
| · | Multidisciplinary
business experience within scientific industries; |
|
· | Senior-level
management experience in Regulatory Affairs and Quality Management Systems; |
| · | Operational
and customer project management including customer strategic alliance; and |
| · | Over
15 years of management in the areas of product design, production and quality controls, risk
assessment and risk mitigation, quality management and regulatory compliance. |
Bill
(50), current director and nominee, has from October 2017 until the present, served as SVP of Business Services at Gundersen Health System,
an integrated healthcare organization serving counties in Wisconsin, Iowa, and Minnesota. Bill is co-founder of FreshRealm, LLC, a developer
of new technologies to streamline fresh food distribution, and served as its Chief Operating Officer from January 2013 through September
2017. In addition, from January 2011 until the present, he has served as Chief Executive Officer of Viszy Inc., a company developing
software and services for the consumer market. Bill is also Chief Executive Officer of B ō biam, LLC, a company that turns youth
art into apparel and other products, which it merchandises through its retail store and wholesale channels. From April 1998 to January
2011, Bill held various senior management roles at Medtronic, Inc. (NYSE: MDT), a multi-national medical technology company. Bill’s
engineering career began with eight years in production support, process development and operations. Bill then worked 10 years in product
development for Medtronic, during which time Bill led management teams in program, product and process development. At the end of his
tenure with Medtronic, Bill was Senior Director of Product Development and led corporate-wide initiatives to improve design, reliability
and manufacturability practices. Bill has a B.S. degree in Mechanical Engineering from the University of Minnesota (1996). Bill has been
a director of ours since January 2013.
Bill
brings the following experience, qualifications, attributes, and skills to our Board:
| · | Current
senior-level management, operating and board experience; |
| · | More
than 12 years of experience in engineering and management roles in the medical device industry,
our primary target market; and |
| · | Independent
of our management. |
Dave
(61), current director and nominee, is Founder of MedTech Advisors LLC, a medical device consulting company, and a member of the Board
of Directors of Curvafix, Inc., a privately held medical device company that has developed a pelvic fracture fixation device, since April
2021. Previously, Dave was CEO of Innovein, Inc., a vascular company focused on treating deep venous reflux disease, a position he held
from January 2022 to August 2023. The company developed the ElevateTM Endovenous Valve replacement for treating deep vein
reflux. Prior to Innovein, Inc., Dave served as Chief Executive Officer and a member of the Board of Directors of Simplify Medical, Inc.,
a privately held medical device company that has developed a cervical artificial disc replacement optimized for MRI imaging from 2013
to 2021. Simplify Medical was acquired by Nuvasive in February 2021, the largest spine-focused company in the world. Prior to Dave’s
tenure with Simplify Medical, Dave was President, Chief Executive Officer and a member of the Board of Directors of SpinalMotion, Inc.,
a privately held medical device company that designed, developed and marketed artificial discs for use in the spine, from 2004 to 2013.
Prior to joining SpinalMotion, he held leadership positions with Arthrocare, Inc. (Nasdaq: ARTC), a developer and manufacturer of surgical
devices, instruments, and implants focused on enhancing surgical techniques and patient outcomes, serving as the Vice President/General
Manager of its Spine Division from 1999 to 2004, and as the Managing Director of its ENT Division from 1997 to 1999. From 1992 to 1997,
Dave served in financial analysis and product management positions with Medtronic, Inc. (NYSE: MDT), a multi-national medical technology
company, which culminated in his service as the European Business Manager of its Upper Airway Venture from 1995 to 1997. He holds more
than 40 patents related to radio frequency ablation technology, specific clinical applications, and artificial disc replacement designs
and implantation methods. Dave served for five years with the United States Navy, achieving the rank of Lieutenant. Dave received a Bachelor
of Science degree in Civil Engineering from Northwestern University and an M.B.A. from the Harvard Graduate School of Business Administration.
Dave has been a director of ours since January 2013.
Dave
brings the following experience, qualifications, attributes, and skills to our Board:
| · | Current
senior-level management, operating and board experience based on more than 20 years of participation
in the medical device industry, our primary target market, twelve years of which are specifically
with medical devices to treat disorders of the spine, a sector within the medical device
industry that we believe represents potential for future revenue growth; |
| · | Core
management and leadership skills gained through experience overseeing and managing operations
at the manager and chief executive officer levels, including experience in medical device
intellectual property, product development, clinical testing and marketing; |
| · | Experience
in financial analysis, including operational restructuring, acquisition opportunities, raising
capital, budgeting and forecasting, and market entry feasibility; and |
| · | Independent
of our management. |
Katrina
(38), current director and nominee, has, from January 2014 until the present, served in various capacities at Air T, Inc. (Nasdaq: AIRT),
and most recently as its Chief of Staff from October 2017 to present. Katrina is co-founder of Fox Lake Capital, LLC, where Katrina worked
full time from November 2012 until January 2014, a consulting firm offering financial analysis and investment expertise. Katrina was
a Senior Investment Analyst at Whitebox Advisors, LLC, a multi-strategy hedge fund, from 2007 to 2012. Katrina has a B.A. degree in Business
Administration, Finance and Management from Northwestern College. Katrina has been a director of ours since December 2019.
Katrina
brings the following experience, qualifications, attributes, and skills to our Board:
| · | Current
senior-level management and operating experience; |
| · | Experience
as a financial analyst, and |
| · | Independent
of our management. |
Nick
(55), current Chairman of the Board, director and nominee, is an executive, investor and research analyst. Since January 2012, Nick has
served as the managing partner of AO Partners, LLC, the general partner of AO Partners I, L.P.,
a private investment partnership located in Minneapolis, MN. Nick has served as President and Chief Executive Officer of Air T,
Inc. (Nasdaq: AIRT), since October 2013, as chairman of AIRT’s board since August 2013, and as a member of AIRT’s board of
directors since August 2012. Nick serves as a director of several private companies as well. Nick has a B.A. degree in History from Middlebury
College and an M.B.A. from the University of Chicago. Nick has been a director of ours since January 2013.
Nick
brings the following experience, qualifications, attributes and skills to our Board:
| · | 27
years of experience as a financial analyst and investment manager; |
| · | Public
company C-suite roles, including operating and board experience; and |
| · | Independent
of our management. |
Rick
(63), current director and nominee, has served as our Chief Executive Officer and President since January 2015, in addition to his position
as Chief Operating Officer, which Rick has held since April 2013. Rick joined the Company as Director of Manufacturing in 2006 and was
our Vice President of Operations from 2007 to 2013. Rick has served on the board of directors of Monogram Orthopaedics, Inc. (Nasdaq:
MGRM), a company working to develop a product solution architecture with the long-term goal to enable patient-optimized orthopaedic implants
economically at scale by linking 3D printing and robotics with advanced pre-operative imaging, since April 2017. Prior to joining the
Company, Rick served as Manufacturing Manager and Manager of Product Development for the ChargeSource division of Comarco, Inc., a provider
of power and charging functionality for popular electronic devices and wireless accessories, and as General Manager at Dynacast, a leader
in precision die casting. Rick holds a B.A. in Business Administration from California State University, Fullerton and an M.B.A. from
Claremont Graduate School. Rick has been a director of ours since January 2015.
Rick
brings the following experience, qualifications, attributes, and skills to our Board:
| · | Current
senior-level management experience as our Chief Executive Officer; and |
| · | Over
15 years of senior-level management in the areas of manufacturing, operations, supply chain,
distribution and logistics including over 10 years of experience in our operations management. |
BUSINESS EXPERIENCE
OF KEY MANAGEMENT
Set
forth below is information concerning our other non-director key management personnel.
Alisha
(54), was appointed as our Chief Financial Officer in January 2015. Alisha joined the Company in January 2014 as Senior Director of Finance.
Prior to joining the Company, Alisha held various accounting positions at Comarco, Inc., a provider of wireless test solutions for the
cellular industry, emergency call boxes and power adapters for rechargeable consumer electronic devices, from October 2000 to January
2014, culminating in Alisha’s appointment as Chief Accounting Officer in April 2011. Prior to her 13-year tenure at Comarco, Alisha
held various accounting and finance positions with CKE Restaurants, Inc., an owner, operator, and franchisor of quick-service restaurants,
from February 1995 to October 2000. Alisha began her career in July 1991 with KPMG Peat Marwick (now KPMG LLP) and was formerly a certified
public accountant. Alisha holds a B.A. in Business Economics from the University of California, Santa Barbara with high honors and a
CPA license (inactive) from the California State Board of Accountancy.
BOARD MEETINGS AND
RELATED MATTERS
During
the fiscal year ended June 30, 2023, our Board held four meetings and acted once by unanimous written consent. The independent directors
held two executive sessions during the fiscal year ending June 30, 2023. The independent directors consist of all non-employee, “independent
directors” (as defined in Rule 5605(a)(2) of the Nasdaq Listing Rules). No director, other than Bill, attended less than 75% of
the aggregate of all meetings of our Board and all meetings of committees of our Board upon which Bill serves. Bill attended 50% of the
aggregate of all meetings on which Bill was scheduled to attend.
Audit
Committee
Our
Board has an Audit Committee that consists of three Board members, Dave (Chairman), Ray, and Katrina. Nick was a member of the Audit
Committee during the majority of the fiscal year ended June 30, 2023 and resigned from the Audit Committee on June 28, 2023. Katrina
was appointed to the Audit Committee on November 17, 2022. The Audit Committee is comprised entirely of non-employee, “independent
directors” (as defined in Rule 5605(a)(2) of the Nasdaq Listing Rules) that satisfy the additional requirements of Rule 5605(c)(2)
of the Nasdaq Listing Rules and operates under a written charter adopted by our Board. The duties of the Audit Committee include meeting
with our independent registered public accounting firm to review the scope of the annual audit and to review our quarterly and annual
financial statements before the statements are released to our shareholders. The Audit Committee also evaluates the independent public
accounting firm’s performance and appoints or replaces the independent public accounting firm subject, if applicable, to the consideration
of shareholder ratification for the ensuing fiscal year. A copy of the Audit Committee’s current charter may be found at https://www.pro-dex.com/investors/governance.
The Audit Committee and Board have confirmed that the Audit Committee does and will continue to include at least three independent directors
and has confirmed that Dave, Ray, Nick, and Katrina each meet applicable SEC regulations for designation as an “Audit Committee
Financial Expert” based upon their respective experience noted elsewhere in this proxy statement. The Audit Committee held seven
meetings during the fiscal year ended June 30, 2023 and acted once by unanimous written consent.
Nominating/Corporate
Governance Committee
Our
Board has a Nominating/Corporate Governance Committee (“Nominating Committee”) that consists of three Board members, Ray
(Chairman), Bill and Nick. The Nominating Committee is comprised entirely of non-employee, “independent directors” (as defined
in Rule 5605(a)(2) of the Nasdaq Listing Rules) and operates under a written charter adopted by our Board, a copy of which may be found
at https://www.pro-dex.com/investors/governance. In such capacity, the Nominating Committee identifies and reviews the qualifications
of candidate nominees to our Board. During the fiscal year ended June 30, 2023, the Nominating Committee held no meetings and the
full Board carried out the duties ascribed to the Nominating Committee.
The
Nominating Committee works with our Board to determine the appropriate characteristics, skills and experiences for our Board as a whole
and its individual members with the objective of having a Board with diverse experience. The Nominating Committee believes that it is
desirable that directors possess an understanding of our business environment and have the requisite ethical standards, knowledge, skills,
expertise and diversity of experience such that our Board’s ability to manage and direct our affairs and business is enhanced.
Additional considerations may include an individual’s capacity to enhance the ability of committees of our Board to fulfill their
duties and/or satisfy any independence requirements imposed by law, regulation or listing requirements. The Nominating Committee may
receive candidate nomination suggestions from current Board members, our executive officers, our shareholders or other sources, which
may be either unsolicited or in response to requests from our Board for such candidates. The Nominating Committee may also, from time
to time, engage firms that specialize in identifying director candidates. Once a person has been identified by the Nominating Committee
as a potential candidate, the Nominating Committee may collect and review publicly available information regarding the person to assess
whether the person should be considered further. If the Nominating Committee determines that the candidate warrants further consideration,
a member of the Nominating Committee may contact the person. Generally, if the person expresses a willingness to be considered and to
serve on our Board, the Nominating Committee may request information from the candidate, review the person’s accomplishments and
qualifications and may conduct one or more interviews with the candidate. The Nominating Committee may consider all such information
in light of information regarding any other candidates that it might be evaluating for nomination to our Board. The Nominating Committee
or other Board members may also contact one or more references provided by the candidate or may contact other members of the business
community or other persons that may have greater first-hand knowledge of the candidate’s qualifications and accomplishments. With
the candidate’s consent, the Nominating Committee may also engage an outside firm to conduct background checks on the candidate
as part of the evaluation process. The Nominating Committee’s evaluation process does not vary based on the source of the recommendation.
Shareholder
nominations for director should be sent to our Secretary and should include the candidate’s name and qualifications and a statement
from the candidate that he or she consents to being named in the proxy statement and will serve as a director if elected. In order for
any such candidate to be considered for nomination and, if nominated, to be included in our proxy statement, such recommendation must
satisfy the requirements discussed later in this proxy statement under the heading “Proposals of Shareholders.”
In
compiling the list of our Board nominees appearing in this proxy statement, nominee referrals as well as nominee recommendations were
received from existing directors and members of management—both solicited and unsolicited. No paid consultants were engaged by
us, our Board or any of our Board’s committees for the purposes of identifying qualified, interested Board candidates.
Compensation
Committee
Our
Board has a Compensation Committee that consists of four Board members, Nick (Chairman), Ray, Bill and Katrina. Katrina was appointed
to the Compensation Committee on November 17, 2022. The Compensation Committee is comprised entirely of non-employee, “independent
directors” (as defined in Rule 5605(a)(2) of the Nasdaq Listing Rules) and operates under a written charter adopted by our Board.
A copy of the Compensation Committee’s current charter may be found at https://www.pro-dex.com/investors/governance. The Compensation
Committee establishes compensation policies applicable to our executive officers and directors. During the fiscal year ended June 30,
2023, the Compensation Committee held no meetings and acted twice by unanimous written consent.
From time
to time, various members of management and other employees, as well as outside advisors or consultants, may be invited by the Compensation
Committee to make presentations, provide financial or other background information or advice, or otherwise participate in Compensation
Committee meetings or executive sessions of the Board. Among other things, the charter of the Compensation Committee grants the Compensation
Committee authority to obtain, at our expense, advice and assistance from internal and external legal, accounting or other advisors and
consultants and other external resources that the Compensation Committee considers necessary or appropriate in the performance of its
duties. In particular, the Compensation Committee has the sole authority to retain compensation consultants to assist in its evaluation
of executive and director compensation, including the authority to approve the consultant’s reasonable fees and other retention
terms.
Investment Committee
The Investment
Committee was formed in April 2013 and is currently comprised of one management director, Rick, and two non-management directors, Ray
and Nick, who chairs the committee. The purpose of the Investment Committee is to administer and invest surplus capital from time to
time, in such amounts as approved by our Board, in authorized investments. During the fiscal year ended June 30, 2023, the Investment
Committee acted twice by unanimous written consent.
FAMILY RELATIONSHIPS
There
are no family relationships among our executive officers and directors.
BOARD LEADERSHIP
STRUCTURE
Our
Board has separated the roles of Chairman of the Board and Chief Executive Officer. Nick, an independent director, serves as Chairman
of our Board and presides at all Board and shareholder meetings. Rick, our Chief Executive Officer, serves as our primary spokesperson
and supervises our business, subject to the direction of our Board. The independent Board members annually assess Rick’s performance
as Chief Executive Officer. We believe that an independent Chairman of the Board is better able to provide oversight and guidance to
management, especially in relation to the Board’s essential role in risk management oversight, and to ensure the efficient use
and accountability of resources. Furthermore, this separation provides for focused engagement between these two roles in their respective
areas of responsibility, while still providing for collaborative participation. The separation of the Chairman of the Board and Chief
Executive Officer roles, together with our other comprehensive corporate governance practices, are designed to establish and preserve
management accountability, provide a structure that allows the Board to set objectives and monitor performance, and enhance shareholder
value.
BOARD’S ROLE
IN RISK OVERSIGHT
Our
Board has an active role, as a whole and also at the committee level, in overseeing management of our risks. Our Board regularly reviews
information regarding our credit, liquidity and operations, as well as the risks associated with each. The Compensation Committee is
responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. The Audit Committee
oversees management of financial risks. The Nominating Committee manages risks associated with the independence of our Board and potential
conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks,
the entire Board is regularly informed through committee and management reports about such risks and their mitigation. Our Board believes
the division of risk management responsibilities described above is an effective approach for evaluating and addressing the risks we
face and that the structure allows our Board to exercise effective oversight of the actions of management.
BOARD DIVERSITY
The
Nominating Committee believes that diversity is one of many factors to be considered when selecting candidates for nomination to serve
as one of our directors. While the Nominating Committee carefully considers diversity, among other factors, when evaluating nominees
for director, the Nominating Committee has not established a formal policy regarding diversity in identifying director nominees.
The table below summarizes
the composition of our Board pursuant to a confidential survey:
Board Diversity Matrix (as of October 18, 2023) |
Total Number of Directors: | |
| 7 | | |
| | | |
| | | |
| | |
Gender: | |
| Female | | |
| Male | | |
| Non-Binary | | |
| Gender Undisclosed | |
Directors | |
| 2 | | |
| 3 | | |
| — | | |
| 2 | |
Demographic Background | |
| | | |
| | | |
| | | |
| | |
African American or Black | |
| — | | |
| — | | |
| — | | |
| — | |
Alaskan Native or American Indian | |
| — | | |
| — | | |
| — | | |
| — | |
Asian | |
| 1 | | |
| — | | |
| — | | |
| — | |
Hispanic or Latinx | |
| — | | |
| — | | |
| — | | |
| — | |
Native Hawaiian or Pacific Islander | |
| — | | |
| — | | |
| — | | |
| — | |
White | |
| 1 | | |
| 3 | | |
| — | | |
| — | |
Two or More Races or Ethnicities | |
| — | | |
| — | | |
| — | | |
| 1 | |
LGBTQ+ | |
| — | | |
| — | | |
| — | | |
| — | |
Demographic Background Undisclosed | |
| | | |
| | | 1 |
| | | |
| | |
COMPENSATION
OF EXECUTIVE OFFICERS AND MANAGEMENT
Compensation
Committee Procedures
The
Compensation Committee makes its most significant determinations with respect to annual compensation, bonus awards, and new financial
and other corporate performance objectives for executive compensation purposes, at one or more meetings held during the fiscal year for
which the targets and compensation levels are applicable. At various meetings throughout the year, the Compensation Committee also considers
matters related to individual compensation, such as compensation for new executive hires, as well as high-level strategic issues, such
as the efficacy of, and any risks relating to, our compensation strategies, policies and practices, potential modifications to those
strategies, policies and practices, and new trends, plans or approaches to compensation.
Generally,
the Compensation Committee’s process consists of three related elements: (i) the determination of compensation levels, (ii) the
approval of discretionary cash bonus awards based upon company and personal performance, and (iii) the review and determination of equity
incentive awards. For executive officers other than our CEO, the Compensation Committee solicits and considers evaluations and recommendations
submitted to the Compensation Committee by our CEO. In the case of our CEO, the evaluation of his performance is conducted by the Compensation
Committee, which determines any adjustments to his compensation. Our CEO may not participate in, or be present during, any deliberations
or determinations of the Compensation Committee regarding his compensation. For all executive officers and directors, as part of its
deliberations, the Compensation Committee may review and consider, as appropriate, materials such as financial reports and projections,
operational data, tax and accounting information, tally sheets that set forth the total compensation that may become payable to executive
officers in various hypothetical scenarios, our stock performance data, and analyses of historical executive compensation levels and
our current compensation levels. Periodically, the Compensation Committee reviews all of our incentive compensation plans in order to
evaluate the level of risk that such plans may encourage and, along with management’s report concerning such matters and their
mitigation, to ensure that each plan is properly monitored and evaluated.
Compensation
Committee Philosophy
Our
compensation philosophy is predicated upon the following concepts:
| · | We
pay competitively. We are committed to providing a pay program that helps attract and retain
highly qualified people in the industry. To ensure that pay is competitive, we compare our
pay practices with those of other leading companies of similar size and location(s) and set
our pay parameters based on this review. |
| · | We
pay for sustained performance. Executive officers are rewarded based upon corporate performance
and individual performance. Corporate performance is evaluated by the Compensation Committee
by reviewing the extent to which strategic and business plan goals are met, including such
factors as revenues, operating profit, cash flow, and stock price. |
| · | We
strive for fairness in the administration of pay and to achieve a balance of the compensation
paid to a particular individual as compared to the compensation paid to both our executives
and executives at comparable companies. |
| · | We
believe that employees should understand the performance evaluation and pay administration
process. |
The
Compensation Committee believes that it is important that our executives be compensated in a manner that closely links compensation with
performance and yet does not incent excessive risk-taking. To that end, the Compensation Committee has developed a comprehensive and
balanced compensation plan that includes a base salary; discretionary bonuses upon evaluation of Company and personal performance; performance
awards generally payable in shares of Common Stock upon the satisfaction of various service periods and the market price of our Common
Stock achieving certain pre-determined prices; stock options; and, a package of benefits similar in scope and nature to those offered
to all our other employees. Additionally, all employees, including the Named Executive Officers, are eligible to participate in our 2014
Employee Stock Purchase Plan (the “ESPP”), which allows employees to purchase shares of Common Stock from us at 15% discount
from the applicable market price as calculated under the terms of the ESPP.
The
Compensation Committee believes that there are no risks related to our compensation plans that would result in a material adverse impact
on us. This conclusion is based upon management’s risk analysis and the Compensation Committee’s belief that the following
mitigating factors also serve to reduce such risks:
| · | Incentives
are capped at a maximum amount regardless of the degree to which objectives may be exceeded. |
| · | Bonus
payments are based upon audited year end results. |
| · | Multiple
objectives are used as performance targets. |
| · | Computations
are reviewed at regular intervals during the year and are subject to multiple levels of review
at the management, committee, and full Board level. |
Compensation of Executive Officers
The
following table sets forth certain compensation information for the fiscal years ended June 30, 2023 and 2022, for our Chief Executive
Officer and our Chief Financial Officer, who were the only executive officers during the fiscal year ended June 30, 2023 (collectively,
the “Named Executive Officers”).
Summary
Compensation Table (“SCT”)
Name
and | |
| |
Salary | |
Bonus(1) | |
Stock
Awards(2) | |
All
Other Compensation(3) | |
Total |
Principal
Position | |
Year | |
($) | |
($) | |
($) | |
($) | |
($) |
Richard L.
Van Kirk | |
| 2023 | | |
$ | 305,000 | | |
$ | 70,114 | | |
$ | — | | |
$ | 43,491 | | |
$ | 418,605 | |
Director, CEO, President and COO | |
| 2022 | | |
$ | 305,000 | | |
$ | 70,362 | | |
$ | — | | |
$ | 41,020 | | |
$ | 416,382 | |
Alisha K. Charlton | |
| 2023 | | |
$ | 240,000 | | |
$ | 50,114 | | |
$ | — | | |
$ | 7,499 | | |
$ | 297,613 | |
Chief Financial Officer | |
| 2022 | | |
$ | 232,500 | | |
$ | 60,362 | | |
$ | 132,670 | | |
$ | 7,357 | | |
$ | 432,889 | |
(1)
The Bonus amount for fiscal 2023 includes bonuses awarded to Rick and Alisha in the amount of $70,000 and $50,000, respectively, which
were accrued for during fiscal 2023 but paid during fiscal 2024.The Bonus amount for fiscal 2022 includes bonuses awarded to Mr. Van
Kirk and Ms. Charlton in the amount of $70,000 and $60,000, respectively, which were accrued for during fiscal 2022 but paid during fiscal
2023.
(2)
The amounts reported above under the heading “Stock Awards” represent the aggregate grant date value of awards under Accounting
Standards Codification Topic 718, Compensation - Stock Compensation. The assumptions used in calculating the fair value of these
stock awards can be found under Note 11 to the Financial Statements in the Company’s Annual Report on Form 10-K for the year
ended June 30, 2022 and have no relation to amounts or periods in which earnings may be reported in the Named Executive Officer’s
W-2.
(3)
The amounts reported above under the heading “All Other Compensation” consist of the following:
|
|
|
|
All Other Compensation
($) |
| |
| |
Insurance | |
Car | |
401K Matching | |
Imputed | |
|
Name and | |
| |
Premiums | |
Allowance | |
Contributions | |
Earnings | |
Total |
Principal
Position | |
Year | |
($) | |
($) | |
($) | |
($) | |
($) |
Richard L.
Van Kirk | |
| 2023 | | |
$ | 24,767 | | |
$ | 10,000 | | |
$ | 5,160 | | |
$ | 3,564 | | |
$ | 43,491 | |
Director, CEO, President, and COO | |
| 2022 | | |
$ | 23,531 | | |
$ | 10,000 | | |
$ | 3,788 | | |
$ | 3,701 | | |
$ | 41,020 | |
Alisha K. Charlton | |
| 2023 | | |
$ | 2,966 | | |
$ | — | | |
$ | 3,346 | | |
$ | 1,187 | | |
$ | 7,499 | |
Chief Financial Officer | |
| 2022 | | |
$ | 2,901 | | |
$ | — | | |
$ | 3,274 | | |
$ | 1,182 | | |
$ | 7,357 | |
Employment
Agreements with Named Executive Officers
Employment Arrangement with
Richard L. Van Kirk
On
January 12, 2015, Rick began service as our Chief Executive Officer, President and Director, in addition to continuing to serve as our
Chief Operating Officer, a position Rick has held since April 23, 2013. In connection with that appointment, Rick continues his at-will
employment arrangement with the Company. Rick’s compensation consists of the following:
| • | A
base annual salary of $305,000. |
| • | An
annual car allowance of $10,000. |
| • | Rick
is eligible to participate in any program of stock options or other equity grants that we
provide key employees from time to time, including our 2016 Equity Incentive Plan and ESPP. |
| • | Health,
dental, disability and life insurance, qualified retirement plans, and optional employee
benefits on the same terms as other employees. |
Employment Arrangement with Alisha K.
Charlton
On
January 12, 2015, Alisha began service as our Chief Financial Officer. In connection with that appointment, Alisha continued her at-will
employment arrangement with the Company. Alisha’s compensation consists of the following:
| • | A
base annual salary of $240,000 (previously $225,000 through December 13, 2021). |
| • | Alisha
is eligible to participate in any program of stock options or other equity grants that we
provide key employees from time to time, including our 2016 Equity Incentive Plan and ESPP. |
| • | Health,
dental, disability and life insurance, qualified retirement plans, and optional employee
benefits on the same terms as other employees. |
Outstanding Equity Awards at Fiscal Year
End
The
following table sets forth information about outstanding equity awards held by our Named Executive Officers as of June 30, 2023.
| |
Option
Awards |
| |
Number
of Securities Underlying Unexercised
Options | |
Option | |
Option |
Name | |
Exercisable (#) | |
Unexercisable (#)(1) | |
Exercise
Price ($) | |
Expiration Date |
Richard L.
Van Kirk | |
| 18,000 | | |
| — | | |
$ | 27.50 | | |
07/01/2031 |
| |
| | | |
| 4,500 | | |
$ | 39.00 | | |
07/01/2032 |
| |
| | | |
| 18,000 | | |
$ | 42.00 | | |
07/01/2034 |
| |
| | | |
| 18,000 | | |
$ | 45.00 | | |
07/01/2036 |
| |
| | | |
| 18,000 | | |
$ | 47.50 | | |
07/01/2038 |
| |
| | | |
| 18,000 | | |
$ | 50.00 | | |
07/01/2040 |
Alisha K. Charlton | |
| 4,250 | | |
| — | | |
$ | 27.50 | | |
07/01/2031 |
| |
| | | |
| 1,063 | | |
$ | 39.00 | | |
07/01/2032 |
| |
| | | |
| 5,250 | | |
$ | 42.00 | | |
07/01/2034 |
| |
| | | |
| 5,250 | | |
$ | 45.00 | | |
07/01/2036 |
| |
| | | |
| 5,250 | | |
$ | 47.50 | | |
07/01/2038 |
| |
| | | |
| 5,250 | | |
$ | 50.00 | | |
07/01/2040 |
(1) | | Whether any of the unexercisable options vest, and the amount
that does vest, is tied to various service periods corresponding to future testing dates and the achievement of our Common Stock trading
at or above the exercise price. In the event that the market price of our Common Stock does not reach or exceed the exercise price during
the 60 days immediately preceding the three testing dates of the unexercisable options, a fraction, either 50%, 75% or 100% of the above-mentioned
unexercisable stock options will expire. Accordingly, the number of unexercisable options with a strike price of $39.00 represents 25%
of the original award. |
| |
| Stock Awards | |
Name | |
| Equity
Incentive Plan Awards: Number of Unearned Shares That Have Not Vested (#)(1) | | |
| Equity
Incentive Plan Awards: Market Value of Unearned Shares That Have Not Vested ($)(2) | |
Richard L.
Van Kirk | |
| 29,600 | | |
$ | 565,360 | |
Alisha K. Charlton | |
| 19,600 | | |
$ | 374,360 | |
(1) | | Represents performance awards which, upon vesting, will generally
be paid in shares of our Common Stock. Whether any performance awards vest, and the amount that does vest, is tied to the completion
of various service periods that range from July 1, 2024 to July 1, 2027 and the achievement of our Common Stock trading at certain pre-determined
prices. |
(2) | | The payout value of unearned shares is based upon the closing
market price of our Common Stock on June 30, 2023, on the Nasdaq Capital Market of $19.10 per share. |
Pay Versus Performance
As
required by the SEC’s new pay versus performance (“PvP”) disclosure rules as set forth in Item 402(v) of Regulation
S-K, we are providing the following information regarding the relationship between executive compensation actually paid and certain financial
performance of the Company for the last two fiscal years. Under the PvP rules, the SEC has developed a new definition of executive “compensation
actually paid” (“CAP”), which requires us to make various adjustments to amounts reported in the Summary Compensation
Table (“SCT”). As required by SEC rules, the table presented below discloses CAP for (i) the Company’s principal executive
officer (“PEO”), Rick Van Kirk, and (ii) the Company’s Named Executive Officers other than Rick Van Kirk (collectively,
“Non-PEO NEOs”), on an average basis. Note that as a smaller reporting company we only have one Non-PEO NEO, Alisha Charlton,
and as a result, the CAP for Non-PEO NEOs just reflects CAP for Alisha Charlton. Due to the valuation component of CAP, the dollar amounts
do not reflect the actual amount of compensation earned or paid during the year.
The
PvP table below provides compensation values reported in our current and prior SCTs, as well as the CAP amounts required in this section
for the fiscal years ending June 30, 2022 and 2023.
Pay Versus
Performance Table (“PvP”)
| |
| |
| |
| |
| |
| |
|
Year | |
SCT
for PEO(1) | |
CAP
for PEO(2) | |
SCT
for Non-PEO NEO(3) | |
CAP
for Non-PEO NEO(4) | |
Fixed
$100 Investment Based on TSR(5) | |
Net
Income (in
000’s)(6) |
(a) | |
(b) | |
(c) | |
(d) | |
(e) | |
(f) | |
(g) |
| 2023 | | |
$ | 418,605 | | |
$ | 632,137 | | |
$ | 297,613 | | |
$ | 424,446 | | |
$ | 60.49 | | |
$ | 7,074 | |
| 2022 | | |
$ | 416,382 | | |
$ | (445,055 | ) | |
$ | 432,889 | | |
$ | 145,410 | | |
$ | 50.96 | | |
$ | 4,572 | |
| (1) | The
dollar amounts reported in column (b) are the amounts of total compensation reported for
Rick Van Kirk, our Chief Executive Officer, for each corresponding year in the “Total”
column of the SCT. Refer to “Executive Compensation – Summary Compensation Table.” |
| (2) | The
dollar amounts reported in column (c) represent the amount of CAP to Rick Van Kirk, as computed
in accordance with Item 402(v) of Regulation S-K. The dollar amounts do not reflect the actual
amount of compensation earned by or paid to Rick Van Kirk during the applicable year. In
accordance with the requirements of Item 402(v) of Regulation S-K, the following adjustments
were made to Rick Van Kirk’s total compensation as reported in the SCT for each year
to determine the compensation actually paid: |
Year | |
SCT
Total for PEO | |
SCT
Reported Equity Award Value for PEO | |
Equity
Award Adjustments for
PEO(A) | |
CAP
to PEO |
| 2023 | | |
$ | 418,605 | $ | |
| — | | |
$ | 213,532 | | |
$ | 632,137 | |
| 2022 | | |
$ | 416,382 | $ | |
| — | | |
$ | (861,437 | ) | |
$ | (445,055 | ) |
| (A) | Represents
the year-over-year change in the fair value of equity awards to Rick Van Kirk as summarized
below: |
Year | |
Less:
grant date fair value of awards granted during FY | |
Change
in fair value of awards granted in any PY unvested at end of FY | |
Add
for awards granted and vested in the same FY the fair value as of vesting date | |
Change
in fair value as of vesting date of any awards from a PY vested in CY | |
Subtract:
Awards granted in any PY fail to meet vesting conditions during the year; value at end of
PY | |
Total
Equity Award Adjustments |
| 2023 | | |
$ | — | | |
$ | 288,017 | | |
$ | — | | |
$ | 140,840 | | |
$ | (215,325 | ) | |
$ | 213,532 | |
| 2022 | | |
$ | — | | |
$ | (875,913 | ) | |
$ | — | | |
$ | 14,476 | | |
$ | — | | |
$ | (861,437 | ) |
| (3) | The
dollar amounts reported in column (d) of the PvP table represent the amounts reported for
the Non-PEO NEOs in the “Total” column of the SCT in each applicable year. The
Company only has one Non-PEO NEO, Alisha Charlton. |
| (4) | The
dollar amounts reported in column (e) represent the amount of CAP to Alisha Charlton, as
computed in accordance with Item 402(v) of Regulation S-K. The dollar amounts do not reflect
the actual amount of compensation earned by or paid to Alisha Charlton during the applicable
year. In accordance with the requirements of Item 402(v) of Regulation S-K, the following
adjustments were made to Alisha Charlton’s total compensation as reported in the SCT
for each year to determine the compensation actually paid: |
Year | |
SCT
for Alisha Charlton | |
SCT
Reported Equity Award Value for Alisha
Charlton | |
Equity
Award Adjustments for
Alisha Charlton(A) | |
Compensation
Actually Paid
to Alisha
Charlton |
| 2023 | | |
$ | 297,613 | $ | |
| — | | |
$ | 126,833 | | |
$ | 424,446 | |
| 2022 | | |
$ | 432,889 | $ | |
| (132,670 | ) | |
$ | (154,809 | ) | |
$ | 145,410 | |
| (A) | Represents
the year-over-year change in the fair value of equity awards to Alisha Charlton as summarized
below: |
Year | |
Less:
grant date fair value of awards granted during FY | |
Change
in fair value of awards granted in any PY unvested at end of FY | |
Add
for awards granted and vested in the same FY the fair value as of vesting date | |
Change
in fair value as of vesting date of any awards from a PY vested in CY | |
Subtract:
Awards granted in any PY fail to meet vesting conditions during the year; value at end of
PY | |
Total
Equity Award Adjustments |
| 2023 | | |
$ | — | | |
$ | 92,897 | | |
$ | — | | |
$ | 88,184 | | |
$ | (54,248 | ) | |
$ | 126,833 | |
| 2022 | | |
$ | 90,046 | | |
$ | (248,273 | ) | |
$ | — | | |
$ | 3,418 | | |
$ | — | | |
$ | (154,809 | ) |
| (5) | Cumulative
total shareholder return (“TSR”) assumes $100 is invested in Pro-Dex, Inc. common
stock as of July 1, 2021. The TSR represents the cumulative value of the $100 investment
as of the end of each fiscal year presented (each, a measurement period). TSR is calculated
by dividing the sum of the cumulative amount of dividends for the measurement period, assuming
dividend reinvestment, and the difference between the Company’s share price at the
end and the beginning of the measurement period by the Company’s share price at the
beginning of the measurement period. |
| (6) | The
dollar amounts reported represent the amount of net income reflected in the Company’s
audited financial statements for the applicable year. |
Analysis
of the Information Presented in the Pay versus Performance Table
Our
executive compensation program reflects a variable pay-for-performance philosophy, utilizing several performance measures to
align executive compensation with our performance. Moreover, we generally seek to incentivize long-term performance, and therefore do
not specifically align our performance measures with compensation that is actually paid (as computed in accordance with Item 402(v) of
Regulation S-K) for a particular year. In accordance with Item 402(v) of Regulation S-K, we are providing the following
descriptions of the relationships between information presented in the Pay versus Performance table.
CAP
and TSR
As
demonstrated by the following graph, the amount of compensation actually paid (‘CAP”) to Rick Van Kirk for 2023 and 2022
and the CAP to our Non-PEO NEO, Alisha Charlton, is generally aligned with our TSR over the two years presented in the table. The alignment
of CAP with our TSR over the period presented is because a significant portion of the CAP to Rick Van Kirk and to Alisha Charlton is
comprised of equity awards.
CAP and Net Income
As demonstrated by
the following graph, the amount of CAP to Rick Van Kirk for 2022 and 2023 and the CAP to our Non-PEO NEO, Alisha Charlton, is generally
aligned with our net income over the two years presented in the table. However, as noted above a significant portion of the CAP to Rick
Van Kirk and Alisha Charlton is comprised of equity awards, and therefore this will not always be the case.
Compensation of Directors
In
May 2016, our Board approved the following compensation plan for our non-employee directors:
| · | A
cash fee of $18,000 per fiscal year, paid quarterly in arrears; and |
| · | An
additional cash fee of $7,000 per fiscal year for the Audit Committee Chair, paid quarterly
in arrears. |
The following table details the fees earned
by our non-employee directors during fiscal 2023.
Name | |
Fees
Earned or Paid in Cash(1)
($) | | |
Total
($) | |
David C. Hovda | |
$ | 25,000 | | |
$ | 25,000 | |
Raymond E. Cabillot | |
$ | 18,000 | | |
$ | 18,000 | |
William J. Farrell III | |
$ | 18,000 | | |
$ | 18,000 | |
Katrina M.K. Philp | |
$ | 18,000 | | |
$ | 18,000 | |
Nicholas J. Swenson | |
$ | 18,000 | | |
$ | 18,000 | |
| (1) | The
cash amount reported in this column represents amounts earned during fiscal 2023. All amounts
were paid in fiscal 2023 except for the 4th quarter accrual, which was paid in
fiscal 2024. |
EQUITY COMPENSATION
PLAN INFORMATION
The following
table provides information as of June 30, 2023 with respect to shares of Common Stock that may be issued under the Company’s equity
compensation plans.
Plan
Category | |
Number
of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | | |
Weighted-Average
Exercise Price of Outstanding Options, Warrants and Rights | | |
Number
of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in the first
column) | |
Equity compensation
plans approved by Stockholders: | |
| | | |
| | | |
| | |
2016
Equity Incentive Plan | |
| 363,737 | (1) | |
$ | 42.19 | (2) | |
| 898,238 | |
2014 Employee
Stock Purchase Plan | |
| — | | |
| — | | |
| 672,217 | |
| (1) | Represents
both performance awards issued to employees (including the Named Executive Officers) as well
as nonqualified stock options issued to employees (including the Named Executive Officers)
and directors which, upon vesting, will generally be paid in shares of our Common Stock.
Whether any performance awards or options vest, and the amount that does vest, is tied to
the completion of various service periods that range from January 1, 2024 to July 1,
2031 and the achievement of our Common Stock trading at certain pre-determined prices. |
| (2) | Represents
the weighted average exercise price of the 298,937 non-qualified stock options included in
the “Number of Securities to be Issued Upon Exercise of Outstanding Options Warrants
and Rights” column. |
Options and Equity Awards Generally
2016 Equity Incentive Plan
Our
Compensation Committee, as the administrator of the 2016 Equity Incentive Plan listed above, has the discretion to accelerate the vesting
of any outstanding options or Stock Appreciation Rights (“SARs”) held by the employees, consultants and directors in the
event of an acquisition of us by a merger or asset sale in which the outstanding options and SARs under the plan are not to be assumed
by the successor corporation or substituted with options to purchase shares of such corporation.
In
the event of a change of control (as such term is defined in the 2016 Equity Incentive Plan, which definition includes, among other items,
(a) conditions under which a person or group becomes a beneficial owner of 50% or more of the voting power of our outstanding stock,
or (b) a majority change in the composition of our Board occurring within a one-year period, or (c) a change in the ownership of
more than 40% of the Company’s assets, or (d) a complete liquidation or dissolution of the Company), the Board has the discretion
to accelerate the vesting of any outstanding options or SARs. The number of shares subject to Restricted Shares and RSU awards would
be immediately delivered as a result of a change of control. All performance awards shall immediately become vested and payable to participants
within 30 days after a change of control.
AUDIT COMMITTEE
REPORT
The
Audit Committee reports to and acts on behalf of our Board in providing oversight to our financial management, independent registered
public accounting firm, and financial reporting procedures. Our management is responsible for preparing our financial statements and
the independent registered public accounting firm is responsible for auditing those statements. In this context, the Audit Committee
has reviewed and discussed the audited financial statements contained in our 2023 Annual Report on Form 10-K with management and Moss
Adams, LLP, the independent registered public accounting firm engaged to audit such financial statements.
The
Audit Committee has discussed with Moss Adams, LLP the matters required to be discussed by Auditing Standard No. 16 (“Communications
with Audit Committees”). The Audit Committee has received the written disclosures and the letter from Moss Adams, LLP required
by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s
communications with the audit committee concerning independence and has discussed with Moss Adams, LLP its independence. In concluding
that Moss Adams, LLP is independent, the Audit Committee considered, among other factors, whether any non-audit services provided by
Moss Adams, LLP were compatible with maintaining its independence.
In
reliance on the reviews and discussions referred to above, the Audit Committee recommended to our Board that the audited financial statements
be included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, and be filed with the SEC.
The
Audit Committee has appointed Moss Adams, LLP to serve as our independent auditors for the fiscal year ending June 30, 2024.
AUDIT COMMITTEE
|
|
|
|
|
David C. Hovda |
|
Raymond E. Cabillot |
|
Katrina M.K. Philp |
CODE OF BUSINESS CONDUCT AND
ETHICS
Our code of
ethics and business conduct, as approved by our Board, can be obtained from https://www.pro-dex.com/investors/governance.
We
intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating to amendments to or waivers from provisions of
the code that relate to one of more of the items set forth in Item 406(b) of Regulation S-K and its successor regulation, by describing
on our Internet website, within four business days following the date of a waiver or a substantive amendment, the date of the waiver
or amendment, the nature of the amendment or waiver, and the name of the person to whom the waiver was granted. There have been no waivers
of the ethics policy granted during the fiscal year ended June 30, 2023, and through the date of this proxy statement, nor have there
been any requests for such waivers during that period.
Information
on our Internet site is not, and shall not be deemed to be, a part of this proxy statement or incorporated into any other filings we
make with the SEC.
DELINQUENT
SECTION 16(a) REPORTS
Under
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our directors and officers and
any person who owns more than ten percent of our Common Stock are required to report their initial ownership of our Common Stock and
any subsequent changes in that ownership to the SEC and the Nasdaq Capital Market. Officers, directors and greater than 10% shareholders
are required by SEC regulations to furnish us with copies of all forms they file in accordance with Section 16(a). To our knowledge,
based solely on our review of the copies of such reports furnished to us or filed with the SEC and written representations that no other
reports were required, for the fiscal year ended June 30, 2023, all Section 16(a) reports required to be filed by our officers,
directors and greater than 10% shareholders were properly and timely filed, other than one late filing for each of Rick, Alisha, and
Angel related to the vesting of a previously granted stock award for 9,706, 4,703, 3,568 shares, respectively. These three Form 4s were
due by July 14, 2022 but were not filed until August 8, 2022 due to an administrative delay.
POLICY ON
HEDGING, SHORT-SELLING AND PLEDGING
Under
our Policy on Insider Trading, unless advance approval is obtained from our Chief Financial Officer (who has been appointed as the compliance
officer under our Policy on Insider Trading), our directors, executive officers, including our Named Executive Officers, and certain
other employees are prohibited from: (i) purchasing financial instruments that are designed to hedge our securities or offset any fluctuations
in the market value of our Common Stock; (ii) purchasing shares of our Common Stock on margin; (iii) short-selling shares of our Common
Stock; and (iv) pledging, whether directly or indirectly, shares of our Common Stock as collateral for a loan, unless the aggregate fair
market value of all collateral for the loan (inclusive of the fair market value of our Common Stock pledged as collateral for the loan)
equals or exceeds 200% of the total obligations under the loan from time to time outstanding.
POLICIES
AND PROCEDURES FOR APPROVAL OF RELATED PARTY TRANSACTIONS
Our
Board has the responsibility to review and discuss with management and approve, and has adopted written policies and procedures relating
to approval or ratification of, interested transactions with related parties. During this process, the material facts as to the
related party’s interest in a transaction are disclosed to all Board members or an applicable committee. Under the policies
and procedures, the Board is to review each interested transaction with a related party that requires approval and either approve or
disapprove of the entry into the interested transaction. An “interested transaction” is any transaction in which we
are a participant and any related party has or will have a direct or indirect interest. Transactions that are in the ordinary course
of business and would not require either disclosure pursuant to Item 404(a) of Regulation S-K under the Securities Act or approval
of the Board or an independent committee of the Board pursuant to applicable Nasdaq rules would not be deemed interested transactions. No
director may participate in any approval of an interested transaction with respect to which such director is a related party. Our
Board intends to approve only those related party transactions that are in the best interests of the Company and our shareholders.
We
invest surplus cash from time to time through our Investment Committee, which is comprised of one management director, Rick, and two
non-management directors, Ray and Nick, who chairs the committee. Both Ray and Nick are active investors with extensive portfolio
management expertise. We leverage the experience of these committee members to make investment decisions for the investment of
our surplus operating capital or borrowed funds. Additionally, many of our securities holdings include stocks of public companies
that either Nick or Ray or both may own from time to time either individually or through the investment funds that they manage, or other
companies whose boards they sit on, such as Air T, Inc. (described below).
Certain Relationships and Related
Transactions
We
have invested in marketable equity securities at June 30, 2023 in the amount of $1,134,000 in the common stock of Air T, Inc. Two of
our Board members are also board members of Air T, Inc. and both either individually or through affiliates own an equity interest in
Air T, Inc. Our Chairman, one of the two Board members aforementioned, also serves as the Chief Executive Officer and Chairman of Air
T, Inc. Another of our Board members is employed by Air T, Inc. as its Chief of Staff. The shares have been purchased through 10b5-1
Plans, which in accordance with our internal policies regarding the approval of related party transactions, was approved by our then
three Board members that are not affiliated with Air T, Inc.
We
hold a warrant representing our right to purchase up to 5% of the outstanding stock of Monogram Orthopaedics Inc. (“Monogram”)
which we were granted on December 18, 2018. As of June 30, 2023, this warrant had an estimated fair value of $6.2 million. Additionally,
Rick, our Chief Executive Officer, was appointed to Monogram’s board of directors during fiscal 2017, a position he has held since
that time.
We
have entered into indemnification agreements with each of our directors and executive officers. The indemnification agreements and
our certificate of incorporation and bylaws require us to indemnify our directors and officers to the fullest extent permitted by Colorado
law.
Director Independence
Our
corporate governance guidelines provide that a majority of the Board and all members of the Audit, Compensation and Nominating Committees
of the Board will be independent. On an annual basis, each director and executive officer is obligated to complete a Director and
Officer Questionnaire that requires disclosure of any transactions with us in which a director or executive officer, or any member of
his or her immediate family, have a direct or indirect material interest. Following completion of these questionnaires, the Board, with
the assistance of the Nominating Committee, makes an annual determination as to the independence of each director using the current standards
for “independence” established by the SEC and Nasdaq, additional criteria set forth in our corporate governance guidelines
and consideration of any other material relationship a director may have with us.
The
Board has determined that all of its directors are independent under these standards, except for Rick, our Chief Executive Officer
and President, and Angel, our Director of Quality Systems and Regulatory Affairs.
COMMUNICATIONS
WITH DIRECTORS
Our
Board has established a process to receive communications from shareholders. Shareholders and other interested parties may contact any
member (or all members) of our Board, or the independent directors as a group, any Board committee or any Chair of any such committee
by mail or electronically. To communicate with our Board, any individual directors or any group or committee of directors, correspondence
should be addressed to our Board or any such individual directors or group or committee of directors by either name or title. All such
correspondence should be sent “c/o Corporate Secretary” at 2361 McGaw Avenue, Irvine, California 92614. To communicate with
any of our directors electronically, a shareholder should send an email to our Secretary: alisha.charlton@pro-dex.com.
All
communications received as set forth in the preceding paragraph will be opened by the Company’s Secretary for the sole purpose
of determining whether the contents represent a message to one or more of the directors. Any contents that are not in the nature of advertising,
promotions of a product or service or patently offensive material will be forwarded promptly to the addressee. In the case of communications
to the Board or any group or committee of directors, the Company’s Secretary will make sufficient copies (or forward such information
in the case of e-mail) of the contents to send to each director who is a member of the group or committee to which the envelope or e-mail
is addressed.
It
is our policy that our directors are invited and encouraged to attend all of our annual meetings of shareholders either in person or
telephonically. All of our directors were in attendance at the 2022 Annual Meeting either in person or telephonically.
Proposal
No. 2
RATIFICATION
OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The
Audit Committee has appointed the firm of Moss Adams, LLP as our independent registered public accounting firm for the fiscal year ending
June 30, 2024, and requests our shareholders to ratify this appointment. In the event that our shareholders do not ratify the selection
of Moss Adams, LLP as our independent public accountants, our Board will consider the selection of another independent public accounting
firm. Even if the appointment 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 it determines that such a change would be in our best interest and the
best interest of our shareholders.
A
representative of Moss Adams, LLP is expected to be present at the Annual Meeting. He or she will have the opportunity to make a statement
if such representative desires to do so and will be available to respond to appropriate questions.
ACCOUNTING FEES
The
Audit Committee’s policy is to pre-approve all auditing services and permitted non-audit services (including the fees and terms
thereof) to be performed for us by our independent registered public accounting firm, subject to the de minimis exceptions for non-audit
services described in Section 10A(i)(1)(B) of the Exchange Act, which are approved by the Audit Committee prior to the completion
of the audit. The Audit Committee considers whether the performance of any service by our independent registered public accounting firm
is compatible with maintaining such firm’s independence.
The
following table sets forth the aggregate fees paid during the fiscal years ended June 30, 2023 and 2022 to our independent registered
public accounting firm, Moss Adams, LLP, all of which were preapproved by the Audit Committee.
| | |
Years
ended June 30, | |
| | |
2023 | | |
2022 | |
| Audit
Fees(1) | | |
$ | 249,375 | | |
$ | 230,475 | |
| (1) | Audit
Fees consist of fees billed for professional services rendered for the audit of our consolidated
annual financial statements and review of the interim consolidated financial statements included
in quarterly reports and services that are normally provided in connection with statutory
and regulatory filings or engagements. The amounts above reflect amounts paid during the
fiscal year which may include a combination of pre-billings and billings in arrears. |
Required Vote and Board Recommendation
Although
shareholder ratification is not required for the appointment of Moss Adams, LLP as our independent registered public accounting firm
for the fiscal year ending June 30, 2024, our Board has directed that this appointment be submitted to our shareholders for ratification
at the Annual Meeting. Assuming a quorum is present at the Annual Meeting, this proposal will be ratified and approved if the votes cast
in favor of this proposal exceed the votes cast opposing this proposal.
OUR
BOARD RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF MOSS ADAMS, LLP TO SERVE AS OUR
INDEPENDENT PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING JUNE 30, 2024.
Proposal
No. 3
AMEND THE
2014 EMPLOYEE STOCK PURCHASE PLAN
The
Board unanimously adopted the 2014 Employee Stock Purchase Plan (the “ESPP Plan”) in September 2014 and it was approved by
shareholders at the 2014 Annual Meeting, allowing for the issuance of 704,715 shares. In October 2023, the Board approved an amendment
to the ESPP Plan for it to continue un-interrupted for an additional ten (10) years, or twenty (20) offering periods. The text of the
amendment is attached to this proxy statement as Exhibit A. The below summary is qualified in its entirety by the full text of the ESPP
Plan, which is set forth as Exhibit B to this proxy statement. Capitalized terms used in this proposal are defined in the ESPP Plan.
Reasons for
the Amendment
The
Company believes its employees are valuable assets. Offering an Employee Stock Purchase Plan can assist us in attracting and retaining
our valuable employees. In addition, the Company believes that employees who have a stake in the future success of its business become
highly motivated to achieve the Company’s long-term business goals and to expend maximum effort in the creation of shareholder
value, thereby linking the interests of such individuals with those of shareholders generally.
The
Company has granted 34,519 shares out of the 704,715 shares presently available under the ESPP Plan. The Board believes that increased
time provided by the amendment is essential to the Company’s continued growth, and therefore in the best interest of its shareholders.
Summary of the ESPP Plan
The
ESPP Plan is administered by the Committee (comprised of the Compensation Committee as designated by the Board). The Committee will delegate
to the Chief Financial Officer of the Company (or his or her designee) the day-to-day administration of, and other responsibilities relating
to, the ESPP Plan. The Committee or its delegate will have full power and authority to promulgate any rules and regulations that it deems
necessary for the proper administration of the ESPP Plan, to interpret the provisions and supervise the administration of the ESPP Plan,
to identify Eligible Employees or the parameters by which they shall be identified, to make factual determinations relevant to ESPP Plan
entitlements and to take all necessary or advisable actions in connection with administration of the ESPP Plan.
Eligibility
of Employees
Unless
otherwise determined by the Committee, any person who is an Employee as of the first day of the enrollment period designated by the Committee
that immediately precedes the Offering Date of a given Offering Period will be eligible to participate in that Offering Period under
the ESPP Plan.
The
ESPP Plan has Offering Periods lasting six (6) months. The Committee will have the power to change the duration and/or the
frequency of Offering Periods (as well as the start and end dates of Offering Periods) of future offerings without shareholder approval,
subject to limited exceptions.
Subject
to the terms of the ESPP Plan, on the Offering Date of each Offering Period, each Eligible Employee participating in such Offering Period
will be granted an option to purchase on each Purchase Date a number of shares of the Company’s Common Stock determined by dividing
such Eligible Employee’s Contributions accumulated prior to such Purchase Date and retained in the participant’s account
as of the Purchase Date by the applicable Purchase Price.
A
participant can elect to have payroll deductions made on each payday during the Offering Period, but the deduction cannot be more than
fifteen percent (15%) of the compensation he or she receives on each payday during the Offering Period. Once this election has been made
and the Offering Period begins, the participant may adjust the amount deducted only one time during that Offering Period. A participant
may not discontinue participation in the ESPP Plan, except upon termination of such participant’s status as an Eligible Employee
or Continuous Status as an Employee prior to the Purchase Date of an Offering Period. Subject to the other limitations described above
and below, the maximum number of shares a participant may purchase during each Offering Period is 7,500 shares.
Purchase
of Common Stock
The
purchase price of shares of our Common Stock purchased under the ESPP Plan is anticipated to be the greater of: (a) 85% of the Fair Market
Value of a share of our Common Stock on the Purchase Date or (b) 85% of the arithmetic average of the VWAP of our Common Stock for each
of the thirty (30) Trading Days preceding the Purchase Date, provided, however, that the Committee may designate a price with respect
to future Offering Periods, subject to certain parameters.
The
purchase of shares will happen automatically on the Purchase Date of each Offering Period. The contributions in the participant’s
account will be used to purchase the greatest number of whole shares of Common Stock possible at the applicable Purchase Price. No fractional
shares will be purchased, and any excess contributions in a participant’s account that cannot purchase a whole share will be returned
to the participant. As soon as possible, the number of shares of Common Stock purchased by each participant will be deposited into an
account established in the participant’s name. A participant may, at any time, direct the designated broker to sell his or her
shares and deliver to the participant the proceeds from the sale, less applicable expenses.
In
no event will any participant be entitled to purchase an amount of shares representing 5% or more of the total combined voting power
of all classes of capital stock of the Company or at a rate that exceeds $25,000 of the Fair Market Value of such stock in any calendar
year. Any payroll deductions accumulated in a participant’s account that are not applied toward the purchase of shares on a Purchase
Date due to these limitations will be returned to the participant.
Termination
of Employment
Participation
in the ESPP Plan will discontinue upon termination of the participant’s status as an Eligible Employee and/or Continuous
Status as an Employee, for any reason, prior to the Purchase Date of an Offering Period. If participation is discontinued, the contributions
credited to the participant’s account will be returned to him or her or, in the case of his or her death, to the person or persons
entitled them, and his or her option will be automatically terminated.
Amendment
and Termination
The
Board and/or the Committee may amend or terminate the ESPP Plan at any time. With limited exceptions, termination of the ESPP Plan cannot
be done in a manner that would affect options that were previously granted. The Board and/or Committee also cannot change the ESPP Plan
in a way that would adversely affect the rights of a participant in options that were previously granted.
Accordingly, we ask our shareholders
to vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that the shareholders
amend the 2014 Employee Stock Purchase Plan.”
Required Vote and Board Recommendation
Assuming a
quorum is present at the Annual Meeting, this proposal to approve the amendment to the ESPP Plan will be approved if the votes cast in
favor of this proposal exceed the votes cast opposing this proposal.
OUR
BOARD RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR” THE AMENDMENT TO THE 2014 EMPLOYEE STOCK PURCHASE PLAN.
Proposal
No. 4
ADVISORY VOTE
TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
Pursuant
to Section 14A of the Exchange Act, we are asking our shareholders to vote to approve, on a nonbinding, advisory basis, the compensation
of our Named Executive Officers, commonly referred to as the “say-on-pay” vote. In accordance with the Exchange Act requirements,
we are providing our shareholders with an opportunity to express their views on our Named Executive Officers’ compensation. Although
this advisory vote is nonbinding, our Board and the Compensation Committee will review and consider the voting results when making future
decisions regarding our Named Executive Officer compensation and related executive compensation programs.
We
encourage shareholders to read the “Compensation of Executive Officers and Management” section in this proxy statement, including
the compensation tables and the related narrative disclosure, which describes the structure and amounts of the compensation of our Named
Executive Officers for the fiscal year ended June 30, 2023. The compensation of our Named Executive Officers is designed to enable
us to attract and retain talented and experienced executives to lead us successfully in a competitive environment. The Compensation Committee
and our Board believe that our executive compensation strikes the appropriate balance between utilizing responsible, measured pay practices
and effectively incentivizing our Named Executive Officers to dedicate themselves fully to value creation for our shareholders.
Accordingly,
we ask our shareholders to vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED,
that the shareholders approve, on an advisory basis, the compensation of our Named Executive Officers, as disclosed pursuant to Item
402 of Regulation S-K, including the compensation tables and any other related disclosure in the proxy statement.”
Required Vote and Board Recommendation
Assuming
a quorum is present at the Annual Meeting, this proposal to approve, on an advisory basis, the compensation of our Named Executive Officers
will be approved if the votes cast in favor of this proposal exceed the votes cast opposing this proposal.
OUR
BOARD RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR”, ON AN ADVISORY BASIS, THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.
ANNUAL REPORT
Our Annual
Report on Form 10-K containing audited financial statements for the fiscal year ended June 30, 2023 accompanies this proxy statement.
Such report is not incorporated herein and is not deemed to be a part of this proxy solicitation material.
PROPOSALS OF SHAREHOLDERS
Proposals
by shareholders and submissions by shareholders of director nominees that are intended for inclusion in our proxy statement and proxy
card and to be presented at our next annual meeting must be received by us by June 5, 2024 (120 days prior to the anniversary of the
mailing date of this proxy statement), in order to be considered for inclusion in our proxy materials. Such proposals should be addressed
to our Secretary and must be received at our principal executive officers and may be included in next year’s proxy materials if
they comply with certain rules and regulations of the SEC governing shareholder proposals.
Proposals
by shareholders, as well as shareholder nominees for director, for possible consideration at our next annual meeting that are not intended
for inclusion in our proxy materials must also be received by our Secretary no later than June 5, 2024 (120 days prior to the anniversary
of the mailing date of this proxy statement). Every shareholder notice must also comply with certain other requirements set forth in
our Bylaws, a copy of which may be obtained by written request delivered to our Secretary.
In addition
to complying with our Bylaws, shareholders who intend to solicit proxies in support of a director nominee other than our nominees for
consideration by the shareholders at our next annual meeting must also comply with the additional requirements of the SEC’s “universal
proxy card” rules under Rule 14a-19 of the Exchange Act. Rule 14a-19 requires proponents to provide a timely notice to the Secretary
(as described above), setting forth all of the information and disclosures required by Rule 14a-19.
OTHER MATTERS
Our
Board knows of no other matters which will be acted upon at the Annual Meeting. If any other matters are presented properly for action
at the Annual Meeting or at any adjournment or postponement thereof, it is intended that the proxy will be voted with respect thereto
in accordance with the best judgment and in the discretion of the proxy holder.
OUR
SHAREHOLDERS ARE URGED TO PROMPTLY SUBMIT THEIR PROXY OR VOTING INSTRUCTIONS AS SOON AS POSSIBLE BY FOLLOWING THE INSTRUCTIONS IN THE
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS, WHICH WAS MAILED TO YOU ON OR ABOUT OCTOBER 31, 2023. IF YOU REQUEST PRINTED COPIES
OF THE PROXY MATERIALS BY MAIL, YOU CAN ALSO VOTE BY MAIL OR BY TELEPHONE.
By Order
of the Board of Directors,
PRO-DEX,
INC.
/s/ Alisha
K. Charlton
Corporate
Secretary
Irvine,
California
SHAREHOLDERS
MAY OBTAIN, FREE OF CHARGE, A PAPER COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 2023, (WITHOUT EXHIBITS)
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BY WRITING TO: INVESTOR RELATIONS, PRO-DEX, INC., 2361 MCGAW AVENUE, IRVINE, CALIFORNIA
92614 OR CALLING (949) 769-3200.
Exhibit A
PRO-DEX, INC.
FIRST AMENDMENT TO
2014 EMPLOYEE STOCK PURCHASE PLAN
This First Amendment (this
“Amendment”) to the 2014 Employee Stock Purchase Plan (the “Plan”) is made as of October 2, 2023.
Capitalized terms used herein without definition shall have the meanings ascribed to those terms in the Plan.
WHEREAS, in September 2014,
the Board of Pro-Dex, Inc., a Colorado corporation (the “Company”) established, adopted and approved the Plan, which
was ratified and approved by the shareholders of the Company at the Company’s 2014 Annual Meeting of Shareholders;
WHEREAS, Section 17 of
the Plan permits the Board to amend the Plan, provided that to the extent necessary to comply with Rule 16b-3 under the Securities Exchange
Act of 1934, as amended, or under Section 423 of the Internal Revenue Code of 1986, as amended (or any successor rule or provision or
any applicable law or regulation), the Company shall obtain shareholder approval in such a manner and to such a degree as so required;
WHEREAS, the Board desires
to amend the Plan to extend its term through December 31, 2034,
WHEREAS, this Amendment
shall be submitted to the Company’s shareholders for approval, and shall become effective as of the date on which the Company’s
shareholders approve this Amendment (the “Amendment Effective Date”);
WHEREAS, the Board has
approved and authorized this Amendment to the Plan and has recommended that the shareholders of the Company approve this Amendment;
WHEREAS, if the Company’s
shareholders fail to approve this Amendment, the existing Plan shall continue in full force and effect;
NOW, THEREFORE, pursuant
to Section 17 of the Plan, the Plan is hereby amended as follows, effective as of the Amendment Effective Date:
| 1. | Section 20 of the Plan is hereby amended and restated in its entirety to
read as follows: |
20. Term
of Plan; Effective Date. The Plan became effective on December 3, 2014 and shall continue in effect through December 31,
2034 unless sooner terminated under Section 17.
| 2. | Except as expressly amended by this Amendment, all terms and conditions
of the Plan shall remain in full force and effect. |
IN WITNESS WHEREOF, the
Company, by its duly authorized officer, has executed this Amendment to the 2014 Employee Stock Purchase Plan, on the date first set forth
above, to be effective as of the Amendment Effective Date.
Pro-Dex,
Inc.
/s/ Richard Van Kirk
By: Richard Van Kirk
Title: Chief Executive
Officer
Exhibit
B
PRO-DEX, INC.
2014 EMPLOYEE
STOCK PURCHASE PLAN
This
2014 Employee Stock Purchase Plan (the “Plan”) provides Eligible Employees with an opportunity to purchase Company
Common Stock through payroll deductions and is intended as an employment incentive and to encourage ownership of Company Common Stock
to enable Eligible Employees to participate in the economic progress of the Company during the term of the Plan.
The
Company intends to have the Plan qualify as an “employee stock purchase plan” under Section 423 of the Code. The provisions
of the Plan shall be construed so as to extend and limit participation in a manner consistent with the requirements of Section 423
of the Code.
1.
Definitions. Any capitalized term used in this Plan but not otherwise defined shall, unless otherwise indicated or required
by the particular context, have the following meanings:
(a)
Board of Directors: The Board of Directors of the Company.
(b)
Code: The Internal Revenue Code of 1986, as amended.
(c)
Common Stock: The no par value common stock of Pro-Dex, Inc.
(d)
Company: Pro-Dex, Inc., a corporation incorporated under the laws of Colorado, together with any successors thereto.
(e)
Compensation: The salary and wages paid to an Eligible Employee by the Company or a Designated Related Company including
any pre-tax contributions under any tax-qualified retirement plan sponsored by the Company. In addition, to the extent designated by
the Committee, “Compensation” may also include bonus or other cash incentive compensation, overtime, commissions,
and, to the extent applicable, salary reduction amounts contributed to any cafeteria plan, flexible benefit plan, or qualified transportation
plan established by the Company or any Designated Related Company in accordance with Code Section 125 and related sections of the
Code, but shall not include severance pay, cost of living pay, housing pay, relocation pay, other taxable fringe benefits and other extraordinary
compensation, all as determined by the Committee in its sole discretion.
(f)
Committee: The committee of the Board of Directors designated to administer the Plan, or, if no committee of the Board
of Directors is designated as the “Committee”, then the Board of Directors shall serve as the “Committee”.
(g)
Continuous Status as an Employee: The absence of any interruption or termination of service as an Employee. Continuous
Status as an Employee shall not be considered interrupted in the case of (i) sick leave; (ii) military leave; (iii) any
other leave of absence approved by the Committee, provided that any such military, sick, or other leave of absence is for a period of
not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute; or (iv) in
the case of transfers between locations of the Company or between the Company and any Designated Related Company.
(h)
Contributions: All amounts credited to the account of a participant pursuant to the Plan.
(i)
Corporate Transaction: A merger, consolidation, acquisition of property or stock, a separation, reorganization, or liquidation
of the Company and such other corporate events as are described in Section 424 of the Code and the Treasury regulations promulgated
thereunder.
(j)
Designated Related Company: Any corporation that is a “parent corporation” or a “subsidiary corporation”
with respect to the Company, as those terms are defined in Section 424 of the Code and that has been designated by the Committee from
time to time in its sole discretion as eligible to participate in the Plan.
(k)
Eligible Employee: An Employee eligible to participate in the Plan under the terms of Section 2.
(l)
Employee: Any person, who is an officer or employee of the Company or a Designated Related Company.
(m)
Exchange Act: The Securities Exchange Act of 1934, as amended.
(n)
Fair Market Value: The fair market value of the Company’s Common Stock on a given date is (i) if the Company’s
Common Stock is publicly traded, the closing price of the Common Stock on the Principal Market on such date (or, if such date is not
a Trading Day, then the closing price of the Common Stock on the Principal Market on the immediately preceding Trading Day), or (ii)
if the Company’s Common Stock is not publicly traded, as determined by the Committee in good faith; provided, however, that the
Committee may in its discretion designate (i) the mean between the highest and lowest reported sales prices of the Common Stock
reported on the Principal Market on a given date as Fair Market Value as of such date for any purpose under the Plan and/or (ii) the
actual sales price as Fair Market Value in the case of dispositions of Common Stock under the Plan.
(o)
Offering Date: The first business day of each Offering Period under the Plan.
(p)
Offering Period: Means a period of six (6) months commencing on January 1 and July 1 of each year, or such
other date as designated by the Committee, provided, that, pursuant to Section 3, the Committee may change the duration of future
Offering Periods (subject to a maximum Offering Period of twenty-seven (27) months) and/or the start and end dates of future Offering
Periods. If the Common Stock is publicly traded and last day of an Offering Period would otherwise fall on a date that the Principal
Market is closed, the Offering Period shall end on the last business day immediately preceding such date on which the Principal Market
is open.
(q)
Principal Market. (i) The NASDAQ Capital Market, or (ii) if the Company’s Common Stock is not then listed on the
NASDAQ Capital Market, the principal securities exchange or any other national market system or automated quotation system on which the
shares of Common Stock are listed, quoted or traded.
(r)
Purchase Date: The last day of each Offering Period of the Plan.
(s)
Purchase Price: With respect to an Offering Period, an amount equal to the greater of (x) 85% (or such greater percentage
as designated by the Committee) of the Fair Market Value of a Share of Common Stock on the Purchase Date and (y) 85% (or such greater
percentage as designated by the Committee) of the arithmetic average of the VWAP of the Common Stock for each of the thirty (30) Trading
Days preceding the Purchase Date; provided, however, that the Committee may designate the Purchase Price with respect to future Offering
Periods to be an amount equal to 85% (or such greater percentage as designated by the Committee) of the Fair Market Value of a Share
of Common Stock on the Offering Date or on the Purchase Date, whichever is lower.
(t)
Share: A share of Common Stock, as adjusted in accordance with Section 16 of the Plan.
(u)
Trading Day. Any day on which the Common Stock is listed, quoted or traded on the Principal Market; provided that “Trading
Day” shall not include any day on which there are no reported sales or trades of the Company’s Common Stock.
(v)
VWAP: If the Company’s Common Stock is publicly traded, as of a given date, the dollar volume-weighted average price
for the Company’s Common Stock on the Principal Market during the period beginning at 9:30:01 a.m., New York time, and ending at
4:00:00 p.m., New York time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not
apply, the dollar volume-weighted average price of the Common Stock in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg,
or, if no dollar volume-weighted average price is reported for the Common Stock by Bloomberg for such hours, the average of the highest
closing bid price and the lowest closing ask price of any of the market makers for the Common Stock as reported by OTC Markets Group
(or an equivalent quotation or reporting system). If the “VWAP” cannot be calculated for the Common Stock on such date on
any of the foregoing bases, the “VWAP” of the Common Stock on such date shall be the fair market value as determined by the
Committee. All calculations of “VWAP” shall be appropriately adjusted for any stock dividend, stock split, stock combination
or other similar transaction during such period. References in this Plan to “VWAP” shall be disregarded if the Company’s
Common Stock is not then publicly traded.
2.
Eligibility.
(a)
Unless otherwise determined by the Committee (in a manner consistent with Section 423 of the Code), any person who is an
Employee as of the first day of the enrollment period designated by the Committee that immediately precedes the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under the Plan, subject to the requirements of Section 4(a)
and the limitations imposed by Section 423(b) of the Code.
(b)
Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan if, immediately
after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d)
of the Code) would own capital stock of the Company and/or hold outstanding options to purchase stock possessing five percent (5%) or
more of the total combined voting power or value of all classes of stock of the Company or of any Designated Related Company, or (ii)
if such option would permit his or her rights to purchase stock under all employee stock purchase plans (described in Section 423
of the Code) of the Company and any Designated Related Company to accrue at a rate that exceeds Twenty-Five Thousand Dollars ($25,000)
of the Fair Market Value of such stock (determined at the time such option is granted) for each calendar year in which such option is
outstanding at any time.
(c)
Under the situations detailed in Sections 2(a) and 2(b), to the extent necessary to comply with those Sections, a participant’s
Contributions credited to his or her account may be returned to him or her and his or her option(s) may be terminated.
3.
Offering Periods. The Plan shall initially be implemented by a series of Offering Periods of six (6) months’
duration, with new Offering Periods commencing on or about January 1 and July 1 of each year or at such other time or times
as may be determined by the Committee. The Plan shall continue until terminated in accordance with Section 17 hereof. The Committee
shall have the power to change the duration and/or the frequency of Offering Periods (as well as the start and end dates of
Offering Periods) with respect to future offerings without shareholder approval; provided however any such change shall comply with Section 423(b)
of the Code.
4.
Participation.
(a)
An Eligible Employee may become a participant in the Plan by completing required documents (“Enrollment Documents”)
and submitting them to the stock brokerage or other financial services firm or other agent designated by the Company (“Designated
Broker”) prior to the applicable Offering Date. The Enrollment Documents and their submission may be electronic, as directed
by the Company. The Enrollment Documents shall set forth the dollar amount of the participant’s Compensation (subject to Section 5(a)
below) to be paid as Contributions pursuant to the Plan.
(b)
Payroll deductions shall commence on the first full payroll paid following the Offering Date and shall end in the last payroll
paid on or prior to the Purchase Date of the Offering Period to which the Enrollment Documents are applicable, subject to Section 9.
5.
Method of Payment of Contributions.
(a)
Subject to the limitations set forth in Section 2(b), a participant shall elect at the time and manner prescribed by the
Designated Broker to have payroll deductions made on each payday during the Offering Period in an amount not exceeding fifteen percent
(15%) of the Compensation which he or she receives on each payday during the Offering Period (or such other percentage as the Committee
may establish from time to time before an Offering Date); provided further that once such election has been made and the Offering Period
begins, the participant may only increase or decrease such election amount one time during such Offering Period or as detailed in Section 5(b)
or elsewhere in this Plan. Notwithstanding the foregoing, any such change to an election amount must be effected by completing and filing
with the Designated Broker the required documents authorizing such a change in the payroll deduction rate at least five (5) days
prior to the Purchase Date. All payroll deductions made by a participant shall be credited to his or her account under the Plan. A participant
may not make any additional payments into such account. Finally, subject to the limitations set forth in Section 2(b), and absent
an affirmative election to have his or her same contribution election and attendant payroll deduction authorization carry over into subsequent
Offering Periods, a participant must affirmatively elect to participate in the Plan pursuant to this Section 5(a) for each Offering
Period.
(b)
A participant may not discontinue his or her participation in the Plan, except as provided in Section 9; provided, however,
that, a participant may (irrespective of the one-time per-Offering Period change in election set forth in Section 5(a)) reduce his or
her payroll deduction to zero during an Offering Period by completing and filing with the Designated Broker the required documents authorizing
such a change in the payroll deduction rate if the documents are completed at least five (5) days prior to the Purchase Date. Such
change to zero will apply for the remainder of the Offering Period and will be irrevocable with respect to the Offering Period. A participant’s
Contributions prior to the processing of the change in his or her payroll deduction rate to zero will be paid to such participant, and
his or her option for the current Offering Period will be automatically terminated, and no further Contributions for the purchase of
Shares shall be made during the Offering Period. Such a participant will be required to actively make a new election for the next Offering
Period that he or she chooses to participate in.
(c)
Notwithstanding the foregoing, solely to the extent necessary to comply with Section 423(b)(8) of the Code and Section 2(b)
herein, a participant’s payroll deductions may be decreased during any Offering Period scheduled to end during the then-current
calendar year to any amount below the elected dollar amount including a decrease to $0. Payroll deductions shall re-commence at the rate
provided in such participant’s Enrollment Documents at the beginning of the first Offering Period that is scheduled to end in the
following calendar year, unless terminated as provided in Section 9.
6.
Grant of Option. On the Offering Date of each Offering Period, each Eligible Employee participating in such Offering Period
shall be granted an option to purchase on each Purchase Date a number of Shares of the Company’s Common Stock determined by dividing
such Eligible Employee’s Contributions accumulated prior to such Purchase Date and retained in the participant’s account
as of the Purchase Date by the applicable Purchase Price; provided however that the maximum number of Shares an Eligible Employee may
purchase during each Offering Period shall be 7,500 Shares (subject to any adjustment pursuant to Section 16 below), and provided
further that such purchase shall be subject to the limitations set forth in Sections 2(b) and 11.
7.
Exercise of Option. Subject to Section 9, a participant’s option for the purchase of Shares will be exercised
automatically on the Purchase Date of each Offering Period, and the greatest number of whole Shares subject to the option will be purchased
at the applicable Purchase Price with the accumulated Contributions in his or her account. No fractional shares shall be issued, and
any excess Contributions in a participant’s account that cannot purchase a whole Share shall be returned to such participant. The
Shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the participant on the Purchase Date. During
his or her lifetime, a participant’s option to purchase Shares hereunder is exercisable only by him or her.
8.
Holding Period and Delivery. As promptly as practicable after a Purchase Date, the number of Shares purchased by each participant
upon exercise of his or her option shall be deposited into an account established in the participant’s name with the Designated
Broker. Any payroll deductions accumulated in a participant’s account that are not applied toward the purchase of Shares on a Purchase
Date due to limitations imposed by the Plan shall be returned to the participant. The Committee may require that Shares be retained with
the Designated Broker for a designated period of time and/or may establish other procedures to permit tracking of disqualifying
dispositions of such Shares. Subject to the holding period described in the following sentence, a participant may, at any time, direct
the Designated Broker to sell his or her Shares and deliver to the participant the proceeds therefrom, less applicable expenses. Notwithstanding
any other provision of the Plan to the contrary, all Shares purchased by a participant cannot be sold or otherwise transferred by the
participant to anyone else until twelve (12) months after the Purchase Date; provided, however, that the Committee may increase
or decrease (or waive) such holding period with respect to future Offering Periods.
9.
Withdrawal; Termination of Employment.
(a)
Upon termination of the participant’s status as an Eligible Employee and/or Continuous Status as an Employee
prior to the Purchase Date of an Offering Period for any reason, whether voluntary or involuntary, including retirement or death, the
Contributions credited to his or her account will be returned to him or her or, in the case of his or her death, to the person or persons
entitled thereto under Section 13, and his or her option will be automatically terminated.
(b)
Subject to Section 9(a), in the event an Eligible Employee fails to remain in Continuous Status as an Employee of the Company
during the Offering Period in which the employee is a participant, he or she will be deemed to have elected to withdraw from the Plan
and the Contributions credited to his or her account will be returned to him or her and his or her option terminated.
(c)
An Eligible Employee’s withdrawal from an offering (other than under Section 9(a)) will not have any effect upon his
or her eligibility to participate in a succeeding offering or in any similar plan that may hereafter be adopted by the Company.
10.
Interest. No interest shall accrue on the Contributions of a participant in the Plan.
11.
Stock.
(a)
Subject to adjustment as provided in Section 16, the maximum number of Shares that shall be made available for sale under
the Plan shall be 704,715 Shares. If the Committee determines that, on a given Purchase Date, the number of shares with respect to which
options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the
Offering Date of the applicable Offering Period, or (ii) the number of shares available for sale under the Plan on such Purchase
Date, the Committee may in its sole discretion provide (1) that the Company shall make a pro rata allocation of the Shares of Common
Stock available for purchase on such Offering Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and
as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such
Purchase Date, and continue the Plan as then in effect, or (2) that the Company shall make a pro rata allocation of the Shares available
for purchase on such Offering Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine
in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Purchase Date, and
terminate the Plan pursuant to Section 17 below. The Company may make a pro rata allocation of the Shares available on the Offering
Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional Shares for
issuance under the Plan by the Company’s shareholders subsequent to such Offering Date.
(b)
The participant shall have no interest or voting right in Shares covered by his or her option until such option has been exercised.
12.
Administration. The Committee shall supervise and administer the Plan and shall have full power to adopt, amend and rescind
any rules deemed desirable and appropriate for the administration of the Plan and not inconsistent with the Plan, to construe and interpret
the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. The Committee delegates the
routine day-to-day administration of the Plan (including the selection of a Designated Broker for the Plan) to the Chief Financial Officer
of the Company (or his or her designee to perform such day-to-day administration).
13.
Designation as Beneficiary.
(a)
A participant may designate a beneficiary who is to receive any Shares and cash, if any, from the participant’s account
under the Plan in the event of such participant’s death subsequent to the end of an Offering Period but prior to delivery to him
or her of such Shares and cash. In addition, a participant may designate a beneficiary who is to receive any cash from the participant’s
account under the Plan in the event of such participant’s death prior to the Purchase Date of an Offering Period. If a participant
is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective.
Beneficiary designations under this Section 13(a) shall be made in the form and manner prescribed by the Designated Broker.
(b)
Such designation of beneficiary may be changed by the participant (and his or her spouse, if any) at any time by submission of
the required notice, which required notice may be electronic. In the event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such participant’s death, the Company shall deliver such Shares and/or cash
to the executor or administrator of the estate of the participant, on behalf of such estate, or if no such executor or administrator
has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Shares and/or cash to
the applicable heirs at law.
14.
Transferability. Neither Contributions credited to a participant’s account nor any rights with regard to the exercise
of an option or to receive Shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than
by will, the laws of descent and distribution, or as provided in Section 13) by the participant. Any such attempt at assignment,
transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 9.
15.
Use of Funds. All Contributions received or held by the Company under the Plan may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such Contributions.
16.
Adjustments Upon Changes in Capitalization; Corporate Transactions.
(a)
Subject to any required action by the shareholders of the Company, the number of Shares covered by each option under the Plan
that has not yet been exercised, the number of Shares that have been authorized for issuance under the Plan but have not yet been placed
under option (collectively, the “Reserves”), the maximum number of Shares of Common Stock that may be purchased by
a participant in an Offering Period, the number of Shares of Common Stock set forth in Section 11(a) above, and the price per Share
of Common Stock covered by each option under the Plan that has not yet been exercised, shall be proportionately adjusted for any increase
or decrease in the number of issued Shares resulting from a spin-off, stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock (including any such change in the number of Shares of Common Stock effected in connection with a
change in domicile of the Company), or any other increase or decrease in the number of Shares effected without receipt of consideration
by the Company. Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject
to an option.
(b)
In the event of a dissolution or liquidation of the Company, any Offering Period then in progress will terminate immediately prior
to the consummation of such action, unless otherwise provided by the Committee. In the event of a Corporate Transaction, each option
outstanding under the Plan shall be assumed or an equivalent option shall be substituted by the successor corporation or a parent or
subsidiary of such successor corporation. In the event that the successor corporation refuses to assume or substitute for outstanding
options, each Offering Period then in progress shall be shortened and a new Purchase Date shall be set (the “New Purchase Date”),
as of which date any Offering Period then in progress will terminate. The New Purchase Date shall be on or before the date of consummation
of the transaction and the Committee shall notify each participant in writing, at least five (5) days prior to the New Purchase
Date, that the Purchase Date for his or her option has been changed to the New Purchase Date and that his or her option will be exercised
automatically on the New Purchase Date, subject to Section 9. For purposes of this Section 16, an option granted under the
Plan shall be deemed to be assumed or substituted, without limitation, if, at the time of issuance of the stock or other consideration
upon a Corporate Transaction, each holder of an option under the Plan would be entitled to receive upon exercise of the option the same
number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive
upon the occurrence of the transaction if the holder had been, immediately prior to the transaction, the holder of the number of Shares
of Common Stock covered by the option at such time (after giving effect to any adjustments in the number of Shares covered by the option
as provided for in this Section 16); provided however that if the consideration received in the transaction is not solely common
stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Committee may, with the consent
of the successor corporation, provide for the consideration to be received upon exercise of the option to be solely common stock of the
successor corporation or its parent equal in Fair Market Value to the per Share consideration received by holders of Common Stock in
the transaction.
17.
Amendment or Termination.
(a)
The Board and/or the Committee may at any time and for any reason terminate or amend the Plan. Except as provided in Section 16,
no such termination of the Plan may affect options previously granted. Except as provided in Section 16 and in this Section 17,
no amendment to the Plan shall make any change in any option previously granted that adversely affects the rights of any participant.
In addition, to the extent necessary to comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the Code
(or any successor rule or provision or any applicable law or regulation), the Company shall obtain shareholder approval in such a manner
and to such a degree as so required.
(b)
Without shareholder consent and without regard to whether any participant rights may be considered to have been adversely affected,
the Committee shall be entitled to change the Offering Periods (solely prior to the commencement of the affected Offering Periods), limit
the frequency and/or number of changes in the amount withheld during an Offering Period (solely prior to the commencement of
the affected Offering Periods), permit payroll withholding in excess of the amount designated by a participant in order to adjust for
delays or mistakes in the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment
periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant
properly correspond with amounts withheld from the participant’s Compensation, and establish such other procedures as the Committee
determines in its sole discretion advisable that are consistent with the Plan.
18.
Notices. All notices or other communications by a participant to the Company under or in connection with the Plan shall
be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by
the Company for the receipt thereof.
19.
Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such Shares pursuant thereto shall comply with all applicable provisions of law, domestic or
foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, applicable state securities laws and the requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of
an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the
Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion
of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.
20.
Term of Plan; Effective Date. The Plan shall become effective upon approval by the Company’s shareholders. It
shall continue in effect for a term of ten (10) years unless sooner terminated under Section 17.
21.
Additional Restrictions of Rule 16b-3. The terms and conditions of options granted hereunder to, and the
purchase of Shares by, persons subject to Section 16 of the Exchange Act shall comply with the applicable provisions of Rule 16b-3. This
Plan shall be deemed to contain, and such options shall contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to qualify for the maximum exemption from Section 16
of the Exchange Act with respect to Plan transactions.
22.
Not a Contract of Employment. The adoption and maintenance of the Plan shall not be deemed to be a contract between
the Company or any Designated Related Company and any person or to be consideration for the employment of any person. Participation in
the Plan at any given time shall not be deemed to create the right to participate in the Plan, or any other arrangement permitting an
employee of the Company or any Designated Related Company to purchase Common Stock at a discount, in the future. The rights and obligations
under any participant’s terms of employment with the Company or any Designated Related Company shall not be affected by participation
in the Plan. Nothing herein contained shall be deemed to give any person the right to be retained in the employ of the Company or any
Designated Related Company or to restrict the right of the Company or any Designated Related Company to discharge any person at any time,
nor shall the Plan be deemed to give the Company or any Designated Related Company the right to require any person to remain in the employ
of the Company or any Designated Related Company or to restrict any person’s right to terminate his or her employment at any time.
The Plan shall not afford any participant any additional right to compensation as a result of the termination of such participant’s
employment for any reason whatsoever.
23.
Equal Rights and Privileges. All Eligible Employees shall have equal rights and privileges with respect to the Plan
so that the Plan qualifies as an “employee stock purchase plan” within the meaning of Section 423 of the Code and the
related Treasury regulations. Any provision of the Plan which is inconsistent with Section 423 of the Code shall without further
act or amendment by the Company or the Committee be reformed to comply with the requirements of Section 423. This Section shall
take precedence over all other provisions of the Plan.
24.
Other Provisions.
(a)
The use of a masculine gender in the Plan shall also include within its meaning the feminine, and the singular may include the
plural, and the plural may include the singular, unless the context clearly indicates to the contrary.
(b)
Any expenses of administering the Plan shall be borne by the Company.
(c)
This Plan shall be construed to be in addition to any and all other compensation plans or programs. Neither the adoption of the
Plan by the Board of Directors nor the submission of the Plan to the shareholders of the Company shall be construed as creating any limitations
on the power of authority of the Board of Directors to adopt such other additional incentive or other compensation arrangements as the
Board of Directors may deem necessary or desirable.
(d)
The corporate laws of the State of Colorado shall govern all issues concerning the relative rights of the Company and its shareholders
under the Plan. All other questions and obligations under the Plan shall be construed and enforced in accordance with the internal laws
of the State of California, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of
California or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of California.
(e)
If any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
(f)
Headings are given to the sections of this Plan solely as a convenience to facilitate reference. The reference to any statute,
regulation or other provision of law shall be construed to refer to any amendment to or successor of such provision of law.
(g)
The Plan shall be binding upon the Company, its successors and assigns, and participants, their executors, administrators and
permitted transferees and beneficiaries.
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