-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UwVBFy6DWMKMVltukvQQRxn41c+pR5qSs6B0K1yEkoH97OAeO4iOJsMMisFnTyuQ VxwswAzkSKjZ29zSDJvWaw== 0000864906-97-000004.txt : 19971117 0000864906-97-000004.hdr.sgml : 19971117 ACCESSION NUMBER: 0000864906-97-000004 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19971030 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LUNAR CORP CENTRAL INDEX KEY: 0000864906 STANDARD INDUSTRIAL CLASSIFICATION: 3845 IRS NUMBER: 391200501 STATE OF INCORPORATION: WI FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-18643 FILM NUMBER: 97703674 BUSINESS ADDRESS: STREET 1: 313 W BELTLINE HIGHWAY CITY: MADISON STATE: WI ZIP: 53713 BUSINESS PHONE: 6082742663 MAIL ADDRESS: STREET 1: 313 WEST BELTLINE HIGHWAY CITY: MADISON STATE: WI ZIP: 53713 DEF 14A 1 PROXY STATEMENT Schedule 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant X --- Filed by a Party other than the Registrant --- Check the appropriate box: Preliminary proxy statement --- Confidential, for use of the - - --- Commission only (as permitted X Definitive proxy statement by Rule 14a-6(e)(2)) - - --- Definitive additional materials - - --- Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12 - - --- Lunar Corporation - - -------------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) - - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of filing fee (Check the appropriate box): X No fee required. - - --- Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. - - --- (1) Title of each class of securities to which transaction applies: - - ------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: - - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): - - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - - -------------------------------------------------------------------------------- (5) Total fee paid: - - -------------------------------------------------------------------------------- - - --- Fee paid previously with preliminary materials. - - --- Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount previously Paid: - - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: - - -------------------------------------------------------------------------------- (3) Filing Party: - - -------------------------------------------------------------------------------- (4) Date Filed: - - ------------------------------------------------------------------------------- Lunar Corporation 313 West Beltline Highway Madison, Wisconsin 53713 (608) 274-2663 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO THE HOLDERS OF THE COMMON STOCK OF LUNAR CORPORATION: NOTICE IS HEREBY GIVEN that the Annual Meeting (the "Meeting") of Shareholders of Lunar Corporation (the "Company") will be held at The Sheraton Madison Hotel, 706 John Nolen Drive, Madison, Wisconsin, on Friday, November 21, 1997, at 2:00 p.m., local time, for the following purposes: (1) To elect two (2) directors to serve until the 2000 Annual Meeting of Shareholders. (2) To consider and vote on a proposal to approve an amendment to the Lunar Corporation Amended and Restated Stock Option Plan to increase the number of shares of Common Stock available under the Plan. (3) To ratify the selection of KPMG Peat Marwick LLP as auditors for the Company for the fiscal year ending June 30, 1998. (4) To transact any other business as may properly come before the Meeting or any adjournments thereof. Only shareholders of record at the close of business on October 10, 1997, the record date for the Meeting, shall be entitled to notice of and to vote at the Meeting or any adjournments thereof. IMPORTANT To ensure your representation at the Meeting, please sign and date the enclosed proxy, and return it immediately in the enclosed stamped envelope. Sending in your proxy will not prevent you from personally voting your shares at the Meeting, since you may revoke your proxy by attending the Meeting and voting in person or by advising the Secretary of the Company in writing (by later-dated proxy which is voted at the Meeting or otherwise) of such revocation at any time before it is voted. By Order of the Board of Directors, /s/ Richard B. Mazess, Ph.D. Richard B. Mazess, Ph.D. President Madison, Wisconsin October 29, 1997 Lunar Corporation 313 West Beltline Highway Madison, Wisconsin 53713 (608) 274-2663 PROXY STATEMENT This Proxy Statement is furnished in connection with the solicitation of the accompanying Proxy by the Board of Directors of Lunar Corporation (the "Company") for use at the Annual Meeting (the "Meeting") of Shareholders to be held at The Sheraton Madison Hotel, 706 John Nolen Drive, Madison, Wisconsin, Friday, November 21, 1997, at 2:00 p.m., local time, and at any adjournments thereof. At the Meeting, shareholders will consider proposals to (1) elect two (2) directors to serve until the 2000 Annual Meeting of Shareholders, (2) approve an amendment to the Lunar Corporation Amended and Restated Stock Option Plan (the "Plan") to increase the number of shares of Common Stock available under the Plan (the "Plan Amendment"), and (3) ratify the selection of KPMG Peat Marwick LLP as auditors for the Company for the fiscal year ending June 30, 1998. The Board of Directors does not know of any other matters to be brought before the Meeting; however, if other matters should properly come before the Meeting, it is intended that the persons named in the accompanying Proxy will vote on such matters at their discretion. Shareholders who execute proxies retain the right to revoke them at any time prior to the voting thereof by attending the Meeting and voting in person or by advising the Secretary of the Company of such revocation in writing (by later-dated proxy which is voted at the Meeting or otherwise). PROXY SOLICITATION Proxies will be solicited by mail. In addition to solicitation by mail, certain officers and employees of the Company may solicit by telephone, telegraph, and personally. The cost of the solicitation will be borne by the Company. The Notice of the Meeting, this Proxy Statement, the accompanying form of Proxy, the Report on Form 10-K filed with the Securities and Exchange Commission, and the Annual Report to Shareholders for the fiscal year ended June 30, 1997, were first mailed to shareholders on or about October 29, 1997. SHAREHOLDERS ENTITLED TO VOTE Only holders of record of the shares of Common Stock, $0.01 par value, of the Company at the close of business on October 10, 1997, the record date for the Meeting, are entitled to notice of and to vote at the Meeting and at any adjournments thereof. Shareholders will be entitled to one vote for each full share held. On October 10, 1997, there were outstanding 8,737,535 shares of Common Stock of the Company. VOTING INFORMATION A shareholder may, with respect to the election of directors, (i) vote for the election of both nominees named below to serve until the 2000 Annual Meeting of Shareholders, (ii) withhold authority to vote for both nominees, or (iii) vote for the election of one nominee and withhold authority to vote for the other nominee by striking a line through such other nominee's name on the Proxy. A shareholder may, with respect to each other proposal, (i) vote "FOR" approval or ratification, (ii) vote "AGAINST" approval or ratification, or (iii) "ABSTAIN" from voting on such proposal. Proxies in the accompanying form, properly executed and received by the Company prior to the Meeting and not revoked, will be voted as directed therein on all matters presented at the Meeting. In the absence of a specific direction from the shareholder as to a proposal, the shareholder's Proxy will be voted as to such proposal "FOR" the election of the director nominees named in this Proxy Statement,"FOR" the approval of the Plan Amendment, and "FOR" ratification of the selection of KPMG Peat Marwick LLP as the Company's auditors. If a Proxy is marked to indicate that all or a portion of the shares represented by such Proxy are not being voted with respect to a particular proposal, such non-voted shares will not be considered present and entitled to vote on such proposal, although such shares may be considered present and entitled to vote on other matters and will count for purposes of determining the presence of a quorum. The affirmative vote of a plurality of the votes cast by the shares present in person or by proxy at the Meeting and entitled to vote in the election of directors is required to elect directors. Thus, if a quorum is present, the two persons receiving the greatest number of votes will be elected to serve as directors. Accordingly, non-voted shares with respect to the election of directors will not affect the outcome of the election of directors. In addition, withholding authority to vote for a director nominee will not prevent such nominee from being elected. If a quorum is present, in order to approve the Plan Amendment or ratify the selection of KPMG Peat Marwick LLP as the Company's auditors, the number of votes cast favoring such proposal must exceed the number of votes cast opposing such proposal. Accordingly, non-voted shares and abstentions with respect to the proposal to approve the Plan Amendment or ratify the selection of KPMG Peat Marwick LLP as the Company's auditors will not affect the determination of whether such matter has been approved or ratified. PURPOSES OF THE MEETING ITEM 1 - ELECTION OF DIRECTORS The Company's By-Laws authorize the Board of Directors to fix the number of directors, provided that such number shall be not less than six nor more than twelve. Currently, the number is fixed at six. The By-Laws stagger the Board of Directors by dividing the number of directors into three classes, with one class being elected each year for a term of three years. For the 1997 Annual Meeting, two directors, Malcolm R. Powell, M.D. and John J. McDonough, are nominees for election to the Board of Directors. The table below sets forth certain information with respect to the nominees for election as directors of the Company to serve until the 2000 Annual Meeting of Shareholders. Unless otherwise specified, the shares of Common Stock represented by the proxies solicited hereby will be voted "FOR" the election as directors of the persons named below who have been nominated by the Board of Directors. If, at or prior to such person's election, either nominee shall be unwilling or unable to serve, it is presently intended that the proxies solicited hereby will be voted for a substitute nominee designated by the Board of Directors. The Board of Directors has no reason to believe either of the nominees will be unwilling or unable to serve. Positions Principal Occupations Name and Age Held During Past 5 Years - - -------------------------------------------------------------------------------- To serve until the 2000 Annual Meeting of Shareholders: Malcolm R. Powell, M.D. Director Director since 1984; Age 66 President of Nuclear Medicine Consultants (nuclear medicine practice). Chairman and Director of IS2 Research, Inc. since July 1997 (a medical device manufacturing and contract research company). Dr. Powell is a cousin of Mr. Bradt, a Director of the Company. John J. McDonough Director Director since May 1996; Age 61 President and Chief Executive Officer of McDonough Capital Company LLC (a venture capital investment company) since April 1995. Director of AMRESCO, Inc., Applied Power, Inc., Newell Corporation and Plexus Corporation. Chairman of SoftNet Systems, Inc. (an information and document management services company) from July 1995 through August 1996 and Chief Executive Officer from September 1996 through July 1997. Vice Chairman and a Director of Dentsply International, Inc. from 1983 through October 1995 and Chief Executive Officer from April 1983 through February 1995. The Board of Directors recommends you vote FOR each of the nominees named above to serve on the Board of Directors of the Company. The following table sets forth certain information about the directors of the Company whose terms of office will continue after the 1997 Annual Meeting. Positions Principal Occupations Name and Age Held During Past 5 Years - - ------------------------------------------------------------------------------- Terms expiring at the 1998 Annual Meeting of Shareholders: Samuel E. Bradt Director Director since 1984; Age 59 President of Merganser Corporation (a business consulting and venture capital company) since 1980; Director and Chief Financial Officer of Interactive Buyers Network International Ltd. (electronic commerce) since December, 1996; Director of several privately held companies. Mr. Bradt is a cousin of Dr. Powell, a Director of the Company. Richard B. Mazess, Ph.D. Chairman of the Founder of the Company; Age 58 Board, President and President and Director since Chief Executive 1974; Chairman of the Board Officer and Director of Bone Care International, Inc. since 1986; Professor Emeritus of Medical Physics at the University of Wisconsin -Madison since 1985. Terms expiring at the 1999 Annual Meeting of Shareholders: John W. Brown Director Director since 1988; Chairman Age 63 of the Board, Chief Executive Officer, and President of Stryker Corporation (medical devices) since 1977; Director of First of America since 1992. Reed Coleman Director Director since 1985; Chairman Age 64 of Madison-Kipp Corporation (precision engineered components)since 1964; President and owner of The Reed Company since 1985; Director of Regal-Beloit Corporation since 1975, and several privately held companies. Directors do not receive cash compensation for their services to the Company. During the year ended June 30, 1997, non-employee directors were granted nonqualified options to purchase 4,500 shares of Common Stock at the fair market value on the grant date. These options expire ten years after their grant date and vest in one-third increments on the first three anniversaries of the grant date. During the year ended June 30, 1997, a total of 4 meetings of the Board of Directors were held. All of the directors attended 75% or more of such meetings. The Board of Directors has an Audit Committee. The Audit Committee, composed of non-employee directors, oversees the audit of the corporate accounts through independent public accountants whom it recommends for selection by the Board of Directors. The Committee reviews the scope of the audit with such accountants and their related fees. The Audit Committee did not hold any meetings during the fiscal year ended June 30, 1997. Its members are Mr. Bradt and Mr. Coleman. The Company does not have a nominating or compensation committee of the Board of Directors. However, the Plan is administrated by a committee comprised of two members of the Board of Directors. Its members are Mr. Coleman and Mr. Brown. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Directors and officers of the Company are required by Section 16 of the Securities Exchange Act of 1934 to report to the Securities and Exchange Commission their transactions in, and beneficial ownership of, the Company's Common Stock, including options to purchase Common Stock. Reports received by the Company indicate that for the period from July 1, 1996, to June 30, 1997, all reports were filed on a timely basis except that Mr. Bradt, Dr. Powell and Mr. Pietropaolo each reported one transaction after the due date for such report. ITEM 2 - APPROVAL OF AMENDMENT TO STOCK OPTION PLAN The Company has used stock options as part of its compensation program for many years. Management believes that the grant of stock options is critical in attracting and retaining officers, key employees and consultants who will contribute to the success and prosperity of the Company. Other than the Company's 401K profit-sharing plan, stock options are the only element of long-term compensation used by the Company. As of October 10, 1997, the number of shares of Common Stock available under the Plan for the grant of stock options was 234,690. Management is seeking shareholder approval of an amendment to the Plan (the "Amendment") which would increase the number of shares available for future grants of stock options by 500,000. SUMMARY OF THE PLAN. Only nonqualified stock options may be granted under the Plan. The Plan is administered by a committee (the "Committee") consisting of two members of the Board of Directors. Mr. Coleman and Mr. Brown presently serve on the Committee. The Committee has the authority, subject to the terms of the Plan, to establish eligibility guidelines, select officers, key employees, consultants and non-employee directors for participation in the Plan and determine the number of shares of Common Stock subject to a stock option, the exercise price for such shares of Common Stock, the time and conditions of exercise, and all other terms and conditions of the stock options. Approximately 250 persons are eligible to receive stock options under the Plan. Other than to comply with applicable rules and regulations, the Plan may be amended by the Board of Directors in any respect, except that no amendment may be made without shareholder approval if such amendment would increase the maximum number of shares of Common Stock available under the Plan (other than certain adjustments for changes in the Company's capitalization) or would otherwise require shareholder approval. The Plan will terminate on November 22, 2001, unless earlier terminated by the Board of Directors. In the event of a change in control of the Company, any stock option not previously exercisable in full will become fully exercisable. As more fully set forth in the Plan, a change in control generally is the acquisition, subject to certain exemptions, by any person of beneficial ownership of 50% or more of the Common Stock, a change in the majority of the Board of Directors and approval by the shareholders of a reorganization, merger, consolidation, or sale of all or substantially all of the assets of the Company unless certain conditions are satisfied. This provision could raise the cost to a potential acquiror of engaging in a transaction that would constitute such a change in control, and, therefore, could affect the willingness of an acquiror to propose such a transaction of the terms thereof. PROPOSED AMENDMENT. The reason for amending the Plan is to provide for an increase in the number of shares of Common Stock available for future grants of stock options under the Plan. An aggregate of 1,500,000 shares have previously been authorized under the Plan. As of October 10, 1997, the number of shares of Common Stock available under the Plan for the grant of stock options was 234,690. The Amendment would authorize the grant of an additional 500,000 shares of Common Stock under the Plan which, as of October 10, 1997, represents approximately 5.7% of the Company's outstanding Common Stock. FEDERAL TAX CONSEQUENCES. For federal income tax purposes, an optionee will not realize taxable income upon the grant of the option, but will recognize taxable income at the time of exercise in the amount of the difference between the purchase price and the fair market value of the shares purchased on the date of exercise. At that time, the Company will be entitled to a deduction as compensation expense in an amount equal to the amount taxable to the participant as income. The following table sets forth the number of shares of Common Stock which were subject to stock options granted to the indicated persons or groups under the Plan during fiscal year 1997. The number of shares reflected includes the amounts issued subject to replacement stock options described under "Stock Option Repricing." All of the stock options were granted at 100% of fair market value of the Common Stock on the date of grant. On October 10, 1997, the closing sale price of the Common Stock as reported on The Nasdaq Stock Market was $19.125 per share. STOCK OPTION PLAN Name and Position Number of Shares - - -------------------------------- ---------------- Richard B. Mazess, Ph.D. Chairman of the Board, President, and Chief Executive Officer 0 Robert A. Beckman Vice President of Finance 35,000 James V. Pietropaolo Vice President of Domestic Sales 50,000 Carl E. Gulbrandsen Former Corporate General Counsel and Secretary 4,000 All executive officers as a group 139,000 All non-employee directors as a group 91,500 All employees as a group (other than executive officers) 297,980 Approval of the Plan Amendment will require that the number of votes cast favoring approval exceeds the number of votes cast opposing approval. Unless otherwise specified, the shares of Common Stock represented by the proxies solicited hereby will be voted "FOR" the proposal to approve the Plan Amendment. The Board of Directors unanimously recommends a vote "FOR" approval of the Proposed Amendment to the Plan. ITEM 3 - RATIFICATION OF SELECTION OF AUDITORS The Board of Directors has selected KPMG Peat Marwick LLP, Chicago, Illinois, as independent certified public accountants to act as auditors for the Company for the fiscal year ending June 30, 1998. KPMG Peat Marwick LLP has examined the accounts of the Company since March 1990, and in the opinion of management, the firm should continue as auditors of the Company. Unless otherwise specified, the shares of Common Stock represented by the proxies solicited hereby will be voted "FOR" the proposal to ratify the selection of KPMG Peat Marwick LLP as the Company's auditors. Representatives of KPMG Peat Marwick LLP are expected to be present at the meeting, will have an opportunity to make a statement if they wish to do so, and will be available to respond to appropriate questions. The Board of Directors recommends you vote FOR the selection of KPMG Peat Marwick LLP as auditors of the Company for the fiscal year ending June 30, 1998. SECURITIES BENEFICIALLY OWNED BY PRINCIPAL SHAREHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information with respect to the beneficial ownership of the Common Stock of the Company by (i) each director of the Company, (ii) each executive officer of the Company who is named in the summary compensation table included in this Proxy Statement, (iii) all directors and executive officers of the Company as a group, and (iv) each person known by the Company to be the beneficial owner of more than 5% of the Common Stock of the Company. Amount and Nature of Percent Name Beneficial Ownership of Class(1) - - ------------------------------------------------------------------------------- Samuel E. Bradt -- * John W. Brown 114,750(2) 1.3% Reed Coleman 181,500(3) 2.1 Richard B. Mazess, Ph.D. 2,859,345(4) 32.7 John J. McDonough 12,000 * Malcolm R. Powell, M.D. 68,485(5) * Robert A. Beckman 63,737(6) * James A. Hanson, Ph.D. 144,337(7) 1.6 James V. Pietropaolo -- * Carl E. Gulbrandsen 13,050(8) * All Directors and Executive Officers as a Group (11 persons) 3,457,204(9) 38.2 RCM Capital Management, L.L.C. 4 Embarcadero Center, Suite 3000 San Francisco, CA 94111 450,400(10) 5.2 Pilgrim Baxter & Associates Ltd. 1255 Drummers Lane Suite 300 Wayne, PA 19087 784,800(11) 9.0 * Less than 1 percent (1%) (1) Except as indicated below, (i) represents shares of Common Stock held of record and beneficially as of the October 10, 1997 record date and (ii) all shares of Common Stock are held with sole voting and investment power. Percentage amounts are based upon an aggregate of 9,056,635 shares issued and outstanding, and shares of Common Stock issuable within 60 days of October 10, 1997 upon exercise of stock options. (2) Includes 69,750 shares of Common Stock issuable within 60 days upon exercise of stock options. (3) Includes 156,750 shares of Common Stock held by The Reed Company, of which Mr. Coleman is sole owner, and 24,750 shares of Common Stock issuable within 60 days upon exercise of stock options. (4) Includes 1,358,835 shares of Common Stock held by Dr. Mazess in joint tenancy with his wife and 587,500 shares of Common Stock held by Dr. Mazess as custodian for his daughters. Dr. Mazess' address is 313 West Beltline Highway, Madison, Wisconsin, 53713. (5) Includes 63,985 shares of Common Stock held in a trust over which Dr. Powell serves as co-trustee, 5,180 shares of Common Stock held by his daughters, and 4,500 shares of Common Stock issuable within 60 days upon exercise of stock options. (6) Includes 63,600 shares of Common Stock issuable within 60 days upon exercise of stock options, and 137 shares of Common Stock held by Mr. Beckman as custodian for his children. (7) Includes 144,000 shares of Common Stock issuable within 60 days upon exercise of stock options. (8) Includes 12,500 shares of Common Stock issuable within 60 days upon exercise of stock options. (9) Includes 319,100 shares of Common Stock issuable within 60 days upon exercise of stock options. (10) Based on a Schedule 13G dated January 30, 1997 furnished to the Company, RCM Capital Management, L.L.C. (RCM Capital) had sole voting power with respect to 394,400 shares of Common Stock and sole dispositive power with respect to 450,400 shares of Common Stock. RCM Limited L.P. is the Managing Agent of RCM Capital and RCM General Corporation is the General Partner of RCM Limited L.P. Based on a Schedule 13G dated February 7, 1997 furnished by Dresdner Bank AG to the Company, RCM Capital is a wholly owned subsidiary of Dresdner Bank AG. (11) Based on a Schedule 13G dated February 14, 1997 furnished to the Company, Pilgrim Baxter & Associates Ltd., an investment adviser registered under Section 203 of the Investment Advisor Act of 1940 ("Pilgrim Baxter"), and PBHG Growth Fund, an investment company registered under Section 8 of the Investment Company Act of 1940, have shared voting power and sole dispositive power with respect to 784,800 shares of Common Stock. Harold J. Baxter is the Chief Executive Officer of Pilgrim Baxter. Gary L. Pilgrim is the Chief Investment Officer of Pilgrim Baxter. EXECUTIVE COMPENSATION BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION The following is a report submitted by the Board of Directors addressing the Company's compensation policy as it related to the Company's executive officers for fiscal year 1997. This report by the Board of Directors and the Performance Graph contained in this Proxy Statement shall not be deemed to be incorporated by reference by any general statement which incorporates by reference this Proxy Statement into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, and they shall not otherwise be deemed filed under such Acts. COMPENSATION POLICY. Due to the Chief Executive Officer's significant holdings of Common Stock, the Chief Executive Officer has elected to receive a base salary which is lower than the salary he would otherwise receive given his duties and responsibilities and the comparative base salaries of the chief executive officer of companies of similar size. In July 1995, the Chief Executive Officer requested that the Company reduce his salary and eliminate his bonus and future commissions. In October 1996, the Chief Executive Officer resumed his salary at an annual rate of $130,000. Effective July 1997, in connection with the scheduled annual salary review, his salary was increased to $145,000. Currently, no bonus or commissions are paid. In accordance with past practice, the Chief Executive Officer is not granted any options to purchase Common Stock due to his already significant holdings of Common Stock. With respect to all executive officers other than the Chief Executive Officer, the goal of the Company's executive compensation policy is to ensure that an appropriate relationship exists between executive pay and the creation of shareholder value, while at the same time motivating and retaining key employees. To achieve this goal, the Company's executive compensation policy integrates annual base salary with cash bonuses, commissions, and stock options based upon corporate performance and individual initiatives and performance. Measurement of corporate performance is primarily based on Company goals and industry performance levels. Accordingly, in years in which performance goals and industry levels are achieved or exceeded, executive compensation would be higher than in years in which performance is below expectations. Companies used in comparative analyses for the purpose of determining each executive officer's compensation are selected by the Board of Directors and include some of the companies in the Standard & Poor's Medical Products and Supplies Index included in the Performance Graph set forth in this Proxy Statement. The selection of such companies is based on various factors, including industry classification and market capitalization. Annual base salary is designed to attract and retain qualified executives. In addition, executive officers are eligible to be granted stock options under the Amended and Restated Stock Option Plan (the "Plan"). The Board of Directors believes that stock options ensure that executives have a continuing stake in the long-term success of the Company and are an effective incentive for executives to create value for shareholders since the value of a stock option bears a direct relationship to the Company's stock price. The Plan was administered in fiscal year 1997 by Mr. Coleman and Mr. Brown. PERFORMANCE MEASURES. In evaluating annual executive compensation, the Board of Directors considers both long- and short-term objectives. Specific measures of short-term goals include earnings per share, sales growth, market share, and overall profitability in comparison to other companies in competition with the Company. Longer-term objectives include strategic planning and alliances which may not immediately impact sales and earnings growth. The Board of Directors does not assign any specific weights to the foregoing performance measures and does not use a fixed formula for determining base salary, bonuses, or long-term compensation. FISCAL YEAR 1997 COMPENSATION. For fiscal year 1997, the Company's executive compensation program consisted of base salary, adjusted from the prior year, and a cash bonus based upon the performance measurements described above. In addition, three executive officers included in the Summary Compensation Table received commissions, and three executive officers included in the Summary Compensation Table were granted options to purchase shares of Common Stock of the Company. Commissions are paid to more directly compensate executive officers for changes in the Company's performance. Stock options are granted from time to time to members of management, based primarily on such person's potential contribution to the Company's growth and profitability. The Chief Executive Officer's compensation for fiscal year 1997 consisted of a base salary of $105,846. As described above, in October 1996, the Chief Executive Officer resumed his salary at an annual rate of $130,000. In accordance with past practice, the Chief Executive Officer was not granted stock options under the Plan during fiscal year 1997 due to his already significant holdings of Common Stock. STOCK OPTION REPRICING. In fiscal 1997, in exchange for the forfeiture of existing vesting provisions, including currently exercisable options, the Board of Directors approved the repricing of certain outstanding stock options granted under the Plan having an exercise price in excess of the fair market value of the Company's Common Stock at the date of the repricing. Many outstanding options were exercisable at prices that exceeded the market price of the Common Stock at that time, thereby substantially impairing the effectiveness of such options as performance incentives. Consistent with the Company's philosophy of utilizing equity incentives to motivate and retain management and employees, the Board of Directors felt that it was important to restore the performance incentives intended to be provided by options through the repricing of options with exercise prices in excess of the market price at the time of repricing. The exercise price of the repriced options was set at the fair market value of a share ($16.50 per share) of the Company's Common Stock on the effective date of the repricing. A total of 145 option holders holding options to purchase an aggregate of 342,380 shares of the Company's Common Stock with exercise prices ranging from $20.58 to $32.75 per share were granted new options on the terms described above. The Board of Directors believes that linking executive compensation to corporate performance results in a better alignment of compensation with the Company's goals and shareholder interest. As performance goals are met or exceeded, shareholder value should increase through increases in the market value of the Company's Common Stock, and the executives will be rewarded commensurately. The Board of Directors believes that compensation levels during fiscal year 1997 adequately reflect the Company's compensation goals and policies. Respectfully submitted, Samuel E. Bradt John W. Brown Reed Coleman Richard B. Mazess, Ph.D. John J. McDonough Malcolm R. Powell, M.D. SUMMARY COMPENSATION TABLE The table below sets forth the compensation of the Company's Chief Executive Officer and the four other most highly compensated executive officers of the Company as of the end of fiscal year 1997. Long-Term Annual Compensation Compensation ------------------------ ------------ Other Annual Securities All Other Name and Fiscal Compensation Underlying Compensation Principal Position Year Salary($) Bonus($) ($) Options (#) ($)(7) Richard B. Mazess, Ph.D.(1) 1997 105,846 -- -- -- 750 Chairman of the 1996 36,356 -- -- -- 1,578 Board, President, 1995 164,346 3,000 -- -- 2,250 and Chief Executive Officer Robert A. Beckman(2) 1997 196,693 30,975 -- 35,000(6) 2,250 Vice President 1996 166,853 2,250 -- 47,000(8) 2,250 of Finance 1995 161,639 23,000 -- 13,500 2,250 James A. Hanson, Ph.D.(3) 1997 195,439 2,250 -- -- 2,250 Vice President 1996 178,217 2,250 -- -- 2,250 of Marketing 1995 155,885 3,000 -- -- 2,234 James V. Pietropaolo(4) 1997 136,908 750 55,000 50,000(6) -- Vice President 1996 -- -- -- -- -- of Domestic Sales 1995 -- -- -- -- -- Carl E. Gulbrandsen(5) 1997 183,846 27,350 -- 4,000(6) 2,250 Former Corporate 1996 173,847 2,250 -- 4,000(9) 2,250 General Counsel 1995 170,002 3,000 -- 7,500 809 and Secretary (1) Dr. Mazess' salary includes sales-based commissions of $6,548 and $34,539 for fiscal years 1996 and 1995, respectively. (2) Mr. Beckman's salary includes sales-based commissions of $47,078, $33,006 and $12,639 for fiscal years 1997, 1996 and 1995, respectively. In 1997, Mr. Beckman's bonus includes $3,750 representing the fair value of 100 shares of Common Stock awarded under the Company's longevity stock award program upon providing 10 years of service. (3) Dr. Hanson's salary includes sales-based commissions of $70,440, $55,411 and $34,539 for fiscal years 1997, 1996 and 1995, respectively. (4) Mr. Pietropaolo's salary includes sales-based commissions of $38,408 for fiscal year 1997. Other Annual Compensation for Mr. Pietropaolo represents reimbursement for costs associated with relocating his residence upon commencing employment with the Company. (5) Dr. Gulbrandsen became a consultant to the Company effective October 1, 1997. (6) Amounts include stock options relating to the granting of replacement stock options. Mr. Beckman, Mr. Pietropaolo and Dr. Gulbrandsen were granted 25,000, 25,000 and 2,000 stock options as replacement stock options in fiscal 1997. See "Stock Option Repricing." (7) Amounts consist of Company contributions to a defined contribution plan. (8) Represents stock options for 15,000 shares of Lunar Corporation and stock options for 32,000 shares of Bone Care International, Inc., which was a subsidiary of Lunar Corporation until May 8, 1996. See "Certain Transactions" below. (9) Represents stock options for 4,000 shares of Bone Care International, Inc., which was a subsidiary of Lunar Corporation until May 8, 1996. See "Certain Transactions" below. TEN-YEAR OPTION REPRICING The table below provides certain information relating to grants of stock options made by the Company to executive officers in exchange for previously granted options since the Company commenced trading on The Nasdaq Stock Market August 14, 1990. Length of Number Market Original of Securities Price Exercise 10-Year Term Underlying of Stock Price at New Remaining at Options at Time of Time of Exercise Date of Name and Position Date Repriced Repricing Repricing Price Repricing - - -------------------------------------------------------------------------------- FISCAL YEAR ENDED JUNE 30, 1997: Robert A. Beckman Vice President 04/22/97 15,000 $16.50 $20.58 $16.50 8.5 of Finance 04/22/97 10,000 $16.50 $27.50 $16.50 9.5 James V. Pietropaolo Vice President of Domestic Sales 04/22/97 25,000 $16.50 $27.50 $16.50 9.5 George W. Woolston Former Vice President of International Sales 04/22/97 25,000 $16.50 $27.50 $16.50 9.5 Carl E. Gulbrandsen Former Corporate General Counsel and Secretary 04/22/97 2,000 $16.50 $27.50 $16.50 9.5 FISCAL YEAR ENDED JUNE 30, 1993: Robert A. Beckman Vice President of Finance 09/24/92 25,000 $9.25 $15.50 $9.25 9.7 Carl E. Gulbrandsen Former Corporate General Counsel and Secretary 09/24/92 20,000 $9.25 $15.50 $9.25 9.7 Gregory M. Johnson Former Vice President of Sales 09/24/92 5,000 $9.25 $15.50 $9.25 9.7 Michael M. Tesic, Ph.D. Former Vice President of Strategic Product Development 09/24/92 20,000 $9.25 $15.50 $9.25 9.7 Charles W. Bishop, Ph.D. Former Vice President of Bone Care International 09/24/92 25,000 $9.25 $15.50 $9.25 9.7 FISCAL YEAR ENDED JUNE 30, 1992: Robert A. Beckman Vice President of Finance 06/01/92 25,000 $15.50 $20.75 $15.50 9.2 Gregory M. Johnson Former Vice President of Sales 06/01/92 5,000 $15.50 $20.75 $15.50 9.2 Michael M. Tesic, Ph.D. Former Vice President of Strategic Product Development 06/01/92 20,000 $15.50 $20.75 $15.50 9.2 Carl E. Gulbrandsen Former Corporate General Counsel and Secretary 06/01/92 20,000 $15.50 $24.75 $15.50 9.6 Charles W. Bishop, Ph.D. Former Vice President of Bone Care International 06/01/92 25,000 $15.50 $20.75 $15.50 9.2 FISCAL YEAR ENDED JUNE 30, 1991: Robert A. Beckman Vice President of Finance 11/16/90 25,000 $8.50 $12.75 $8.50 9.5 Gregory M. Johnson Former Vice President of Sales 11/16/90 20,000 $8.50 $12.75 $8.50 9.5 Charles W. Bishop, Ph.D. Former Vice President of Bone Care International 11/16/90 15,000 $8.50 $12.75 $8.50 9.5 AGGREGATED STOCK OPTION EXERCISES IN FISCAL YEAR 1997 AND FISCAL YEAR END STOCK OPTION VALUES The following table sets forth information on stock options exercised in fiscal year 1997 by the Company's executive officers named in the Summary Compensation Table and the value of such officers' unexercised stock options as of June 30, 1997. Shares Number of Securities Acquired Value Underlying Unexercised Value of Unexercised In-the on Real- Stock Options at Fiscal Money Stock Options at Exercise ized Year End (#) Fiscal Year End ($)(2) Name (#) (1)($) ----------------------- ------------------------- Exercisable Unexercisable Exercisable Unexercisable - - ------------------------------------------------------------------------------- Richard B. Mazess -- -- -- -- -- -- Robert A. Beckman 25,000 822,562 48,900 49,600 739,320 493,380 James A. Hanson 60,000 2,273,025 142,500 3,000 3,044,310 43,260 James V. Pietropaolo -- -- -- 25,000 -- 131,250 Carl E. Gulbrandsen 2,000 52,180 15,000 18,500 216,470 251,685 (1) Fair market value of underlying securities at exercise minus the exercise price (i.e., value before income taxes payable as a result of the exercise). The annualized value realized was $132,886, $238,118, and $12,424 for Mr. Beckman, Dr. Hanson and Dr. Gulbrandsen, respectively. (2) Based upon the closing price of the Company's Common Stock of $21.75 on June 30, 1997, as reported by the The Nasdaq Stock Market minus the exercise price. STOCK OPTION GRANTS IN FISCAL YEAR 1997 The following table sets forth information with respect to individual stock option grants during fiscal 1997 to the Company's executive officers named in the Summary Compensation Table. Number of % of Total Potential Realizable Value Securities Options at Assumed Annual Rates of Underlying Granted Stock Price Appreciation for Options During Exercise Option Term(5),(6) Granted(1) Fiscal Year Price(4) Expiration 0% 5% 10% Name (#) 1997 ($/Share) Date ($) ($) ($) - - -------------------------------------------------------------------------------- Richard B. Mazess -- -- -- -- -- -- -- Robert A. Beckman 25,000(2) 4.7 16.50 4/22/2007 0 259,000 657,500 10,000(3) 1.9 27.50 10/9/2006 0 172,900 438,300 James A. Hanson -- -- -- -- -- -- -- James V. Pietropaolo 25,000(2) 4.7 16.50 4/22/2007 0 259,500 657,500 25,000(3) 4.7 27.50 10/9/2006 0 432,250 1,095,750 Carl E. Gulbrandsen 2,000(2) 0.4 16.50 4/22/2007 0 20,760 52,600 2,000(3) 0.4 27.50 10/9/2006 0 34,580 87,660 (1) All stock options were granted under the Company's Amended and Restated Stock Option Plan. These options are nonqualified and vest 20% each year on the first five anniversaries of the grant date. (2) Amounts represent the granting of replacement stock options which remain outstanding. Equal amounts of previously granted stock options were terminated in fiscal 1997. See "Stock Option Repricing." (3) These stock options were subsequently replaced with repriced stock options and, accordingly, are no longer outstanding. See "Stock Option Repricing." (4) All grants were made at 100% of fair market value as of the grant date. (5) The dollar amounts under these columns are the result of calculations at the 5% and 10% assumed annual growth rates mandated by the Securities and Exchange Commission and, therefore, are not intended to forecast possible future appreciation, if any, in the Company's Common Stock price. The calculations were based on the exercise prices and the 10-year term of the options. No gain to the optionees is possible without an increase in stock price, which will benefit all shareholders proportionately. (6) The "Potential Realizable Value" to all shareholders of the Company as a group which would result from the application of the same assumptions to the 8,721,425 shares of Common Stock outstanding at June 30, 1997, at the closing price of $21.75 per share of Common Stock on June 30, 1997, as reported by The Nasdaq Stock Market is an incremental gain of $0, $119,309,094, and $302,284,591 for 0%, 5%, and 10%, respectively. PERFORMANCE GRAPH The following table compares the cumulative total shareholder return on the Company's Common Stock for the five-year period ended June 30, 1997, with the cumulative total shareholder return of Standard & Poor's 500 Stock Index (the "S&P 500") and Standard and Poor's Medical Products and Supplies Index (the "S&P Med Products"). 6/30/92 06/30/93 06/30/94 6/30/95 6/30/96 6/30/97 S&P 500 $100 $114 $115 $145 $183 $247 S&P Med Products $100 $78 $83 $120 $147 $174 Lunar Corporation $100 $66 $75 $159 $313 $197 The Performance Graph assumes $100 invested on June 30, 1992 in each of the Company's Common Stock, the S&P 500 Index and the S&P Med Products Index. The graph also assumes the reinvestment of dividends. CERTAIN TRANSACTIONS DISTRIBUTION OF COMMON STOCK OF BONE CARE On May 8, 1996, the Company, which then held 97.3% of the issued and outstanding shares of the common stock of Bone Care International, Inc. (Bone Care), distributed to its shareholders of record as of April 24, 1996, all of the shares of Bone Care common stock then owned by the Company in a transaction intended to qualify as a tax-free distribution (the "Distribution"). As a result of the Distribution, Bone Care became a separate publicly owned company. Dr. Mazess, the Chairman of the Board, President and Chief Executive Officer of the Company, is also the Chairman of the Board of Bone Care and is the beneficial owner of approximately 34% of the outstanding capital stock of Bone Care. Mr. Beckman, Vice President of Finance of the Company, is also a director of Bone Care and served as the Vice President of Finance of Bone Care until November 14, 1996. Dr. Gulbrandsen, Corporate General Counsel and Secretary of the Company until September 30, 1997, also served as Corporate General Counsel and Secretary of Bone Care until September 30, 1997. DISTRIBUTION AGREEMENT In connection with the Distribution, the Company and Bone Care entered into a distribution agreement (the "Distribution Agreement") providing for, among other things, the principal corporate transactions required to effect the Distribution, the conditions to the Distribution, the allocation between the Company and Bone Care of certain liabilities and certain other agreements governing the relationship between the Company and Bone Care with respect to or in connection with the Distribution. TAX DISAFFILIATION AGREEMENT In connection with the Distribution, the Company and Bone Care entered into a tax disaffiliation agreement which provides, among other things, for (i) a contribution of $725,000 by the Company to Bone Care completed prior to the Distribution to reflect federal income tax savings previously realized by the Company that were attributable to losses incurred by Bone Care prior to the Distribution and (ii) cross indemnification by each party for certain tax liabilities. LOANS TO EXECUTIVE OFFICERS In connection with Mr. Pietropaolo's commencement of employment, the Company provided a bridge loan in the amount of $165,000. The loan was outstanding for a total of 7 days and was repaid in full with interest of $192 computed at the annual rate of 6.07%. Subsequent to June 30, 1997, in connection with Mr. James T. Karam's commencement of employment as Vice President of Operations, the Company provided a bridge loan in the amount of $100,000. The loan was outstanding for a total of 26 days and was repaid in full with interest of $418 computed at the annual rate of 5.87%. SHAREHOLDER PROPOSALS In order to be considered for inclusion in the Company's proxy materials for the 1998 Annual Meeting of Shareholders, written notice of any shareholder proposal must be delivered or mailed to and received at the Company's principal executive offices at 313 West Beltline Highway, Madison, Wisconsin 53713 by July 1, 1998. FINANCIAL STATEMENTS A copy of the Annual Report to Shareholders of the Company, and the Report on Form 10-K filed with the Securities and Exchange Commission containing audited consolidated financial statements for the fiscal year ended June 30, 1997, is enclosed herewith. By Order of the Board of Directors, /s/ Richard B. Mazess, Ph.D. Richard B. Mazess, Ph.D. President Madison, Wisconsin October 29, 1997 Proxy for Lunar Corporation Annual Meeting of Shareholders November 21, 1997 THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. The undersigned hereby appoints ROBERT A. BECKMAN and CHARLES V. SWEENEY, and each of them, as proxies, with full power of substitution, to vote for the undersigned all shares of the Common Stock of LUNAR CORPORATION (the "Company"), which the undersigned, as designated below, would be entitled to vote if personally present at the Annual Meeting of Shareholders to be held at The Sheraton Madison Hotel, 706 John Nolen Drive, Madison, Wisconsin, on Friday, November 21, 1997, at 2:00 p.m., local time, and at any adjournments thereof. (1) Elect Directors / / GRANT AUTHORITY / / WITHHOLD AUTHORITY to vote for nominees to vote for nominees listed below listed below Instructions: To withhold authority to vote for any individual nominee, strike a line through the nominee's name in the list below. Malcolm R. Powell, M.D. John J. McDonough (2) Approve an amendment to the Lunar Corporation Amended and Restated Stock Option Plan to increase the number of shares of Common Stock available under the Plan. / / For / / Against / / Abstain (3) Ratify selection of KPMG Peat Marwick LLP as auditors of the Company for the fiscal year ending June 30, 1998. / / For / / Against / / Abstain (4) In their discretion, upon such other matters as may properly come before the meeting or any adjournments thereof. This proxy will be voted as specified. IF NO CONTRARY SPECIFICATION IS MADE, IT WILL BE VOTED FOR THE ELECTION OF THE DIRECTOR NOMINEES NAMED ON THE REVERSE SIDE AND FOR ITEMS 2 AND 3, AND, IN THE DISCRETION OF THE PERSONS DESIGNATED HEREIN AS PROXIES, UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF. Please date this proxy and sign exactly as your name or names appear therein. If shares are jointly owned, one or more joint owners should sign. Administrators, executors, trustees and others signing in representative capacity should indicate the capacity in which they sign. The undersigned hereby revokes all proxies heretofore given to vote at the aforesaid meeting. Dated , 1997 ---------------------------- ------------------------------- Co-Owner Sign Here Shareholder Sign Here EX-10.1 2 LUNAR CORPORATION AMENDED AND RESTATED STOCK OPTION PLAN EXHIBIT 10.1 LUNAR CORPORATION AMENDED AND RESTATED STOCK OPTION PLAN 1. Plan. To provide incentives to officers, key employees and consultants of Lunar Corporation (the "Company"), its subsidiaries, and any other entity (collectively "subsidiaries") designated by the Board of Directors of the Company (the "Board"), and members of the Board to contribute to the success and prosperity of the Company, based upon the ownership of the common stock, par value $.01, of the Company ("Common Stock"), the Committee hereinafter designated, may grant nonqualified stock options to officers, key employees, consultants and eligible members of the Board on the terms and subject to the conditions stated in this Plan. 2. Eligibility. Officers, key employees and consultants of the Company and its subsidiaries and members of the Board who are not employees of the Company ("non-employee directors") shall be eligible, upon selection by the Committee, to receive stock options as the Committee, in its discretion, shall determine. 3. Shares Issuable. The maximum number of shares of Common Stock to be issued after the effective date of this Plan pursuant to all grants of stock options hereunder shall be 1,000,000, subject to adjustment in accordance with Section 5. Shares of Common Stock subject to a stock option granted hereunder, which are not issued by reason of the expiration, cancellation or other termination of such stock option, shall again be available for future grants of stock options under this Plan. Shares of Common Stock to be issued may be authorized and unissued shares of Common Stock, treasury stock, or a combination thereof. To the extent required by Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and the rules and regulations thereunder, the maximum number of shares of Common Stock with respect to which options may be granted during any calendar year to any person shall be 100,000, subject to adjustment as provided in Section 5. 4. Administration of the Plan. This Plan shall be administered by a committee designated by the Board (the "Committee") consisting of two or more members of the Board, each of whom shall be a "Non-Employee Director" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and an "outside director" within the meaning of Section 162(m) of the Code. The Committee shall, subject to the terms of this Plan, establish eligibility guidelines, select officers, key employees, consultants and non-employee directors for participation in this Plan and determine the number of shares of Common Stock subject to a stock option granted hereunder, the exercise price for such shares of Common Stock, the time and conditions of vesting or exercise and all other terms and conditions of the stock option, including, without limitation, the form of the option agreement. The Committee may establish rules and regulations for the administration of the Plan, interpret the Plan and impose, incidental to the grant of a stock option, conditions with respect to the grant or award of stock options or competitive employment or other activities not inconsistent with or conflicting with this Plan. All such rules, regulations and interpretations relating to this Plan adopted by the Committee shall be conclusive and binding on all parties. All grants of stock options under this Plan shall be evidenced by written agreements between the Company and the optionees, and no such grant shall be valid until so evidenced. 5. Changes in Capitalization. Appropriate adjustments shall be made by the Committee in the maximum number of shares to be issued under the Plan and the maximum number of shares which are subject to any stock option granted hereunder, and the exercise price therefor, to give effect to any stock splits, stock dividends and other relevant changes in the capitalization of the Company occurring after the effective date of this Plan (which shall not include the sale by the Company of shares of Common Stock or securities convertible into shares of Common Stock). 6. Effective Date and Term of Plan. This Plan shall be submitted to the shareholders of the Company for approval and, if approved, shall become effective on the date thereof. This Plan shall terminate ten years after it becomes effective unless terminated prior thereto by action of the Board. No further grants shall be made under this Plan after termination, but termination shall not affect the rights of any optionee under any grants made prior to termination. 7. Amendments. This Plan may be amended by the Board in any respect, except that no amendment may be made without shareholder approval if such amendment would (a) increase the maximum number of shares of Common Stock available for issuance under this Plan (other than as provided in Section 5) or (b) otherwise require shareholder approval. 8. Existing Stock Options. Stock options granted by the Company prior to the date of shareholder approval of this Plan shall continue in effect in accordance with their terms. 9. Grants of Stock Options. Options to purchase shares of Common Stock may be granted hereunder to such eligible officers, key employees, consultants, and non-employee directors as may be selected by the Committee. 10. Option Price. The option price per share of Common Stock purchasable upon exercise of an option granted hereunder shall be determined by the Committee; provided, however, that the option price per share of Common Stock purchasable upon exercise of an option granted under this Plan shall be 100% of the fair market value of a share of Common Stock on the date of grant of such option. For purposes hereof, "fair market value" shall be determined by the Committee. 11. Stock Option Period. Each stock option granted hereunder may be granted at any time on or after the effective date, and prior to the termination, of this Plan. The Committee shall determine whether such stock option shall become exercisable in cumulative or non-cumulative installments or in full at any time. An exercisable stock option may be exercised in whole or in part with respect to whole shares of Common Stock only. The period for the exercise of each stock option shall be determined by the Committee. 12. Exercise of Stock Options. (a) Upon exercise, the option price may be paid in cash, in shares of Common Stock having a fair market value on the date of exercise equal to the option price, or in a combination thereof. The Company may arrange or approve of a cashless option exercise procedure which complies with the provisions of Section 16 of the Exchange Act and the rules and regulations thereunder. (b) An option may be exercised during an optionee's continued employment with the Company or one of its subsidiaries, or service on the Board, as the case may be, and, except in the event of such optionee's death, within a period of 30 days following termination of such employment or service, but only to the extent exercisable and within the term of such option at the time of the termination of such employment or service; provided, however, that if employment of the optionee by the Company or one of its subsidiaries or service on the Board shall have terminated by reason of retirement after age 60, then the option may be exercised within a period not in excess of one year following such termination of employment or service on the Board, but only to the extent exercisable and within the term of such option at the time of such termination of employment or service. (c) No option shall be transferable except that in the event of the death of an optionee (i) during employment or service on the Board, as the case may be, (ii) within a period of one year after termination of employment or service on the Board, as the case may be, by reason of retirement after age 60 at a time when the option is otherwise exercisable or (iii) within 30 days after termination of employment or service on the Board, as the case may be, for any other reason, outstanding stock options may be exercised, but only to the extent exercisable and within the term of such option prior to the application of this Section 12, by the executor, administrator or personal representative of such deceased optionee within one year of the death of such optionee in the case of clauses (i) and (ii) or within 90 days of the death of such optionee in the case of clause (iii). 13. Acceleration of Options upon a Change in Control. The following provisions shall apply in the event of a "Change in Control": (a) In the event of a Change in Control, any stock options not previously exercisable in full shall become fully exercisable. (b) For purposes hereof, "Change in Control" means: (1) The acquisition by any individual, entity or group (a "Person"), including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 50% or more of the then outstanding shares of Common Stock (the "Outstanding Common Stock"); provided, however, that the following acquisitions shall not constitute a Change in Control: (A) any acquisition by the Company, (B) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (C) any acquisition by an underwriter or underwriters as part of a bona fide public distribution of securities of the Company or (D) any acquisition by any Person which beneficially owned as of the effective date of this Plan, 30% or more of the outstanding Common Stock; and provided further that, for purposes of clause (A), if any Person (other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company) shall become the beneficial owner of 50% or more of the outstanding Common Stock by reason of an acquisition by the Company and such Person shall, after such acquisition by the Company, become the beneficial owner of any additional shares of the Outstanding Common Stock and such beneficial ownership is publicly announced, such additional beneficial ownership shall constitute a Change in Control; (2) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided, however, that any individual who becomes a director of the Company subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed to have been a member of the Incumbent Board; and provided further, that no individual who was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall be deemed to have been a member of the Incumbent Board; (3) Approval by the shareholders of the Company of a reorganization, merger or consolidation unless, in any such case, immediately after such reorganization, merger or consolidation, (i) more than 50% of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and more than 50% of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals or entities who were the beneficial owners, respectively, of the Outstanding Common Stock immediately prior to such reorganization, merger or consolidation and in substantially the same proportions relative to each other as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Common Stock, (ii) no Person (other than the Company, any employee plan (or related trust) sponsored or maintained by the Company or the corporation resulting from such reorganization, merger or consolidation (or any corporation controlled by the Company) and any Person which beneficially owned, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 30% or more of the Outstanding Common Stock) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of such corporation or 50% or more of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the Board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such reorganization, merger or consolidation; or (4) Approval by the shareholders of the Company of (i) a plan of complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company other than to a corporation with respect to which, immediately after such sale or other disposition, (A) more than 50% of the then outstanding shares of common stock thereof and more than 50% of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Common Stock immediately prior to such sale or other disposition and in substantially the same proportions relative to each other as their ownership, immediately prior to such sale or other disposition, of the Outstanding Common Stock, (B) no Person (other than the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or such corporation (or any corporation controlled by the Company) and any Person which beneficially owned, immediately prior to such sale or other disposition, directly or indirectly, 30% or more of the Outstanding Company Common Stock) beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock thereof or 50% or more of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors and (C) at least a majority of the members of the Board of directors thereof were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition. -----END PRIVACY-ENHANCED MESSAGE-----