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
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Lunar Corporation
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(Name of Registrant as Specified in Its Charter)
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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- - --- Fee paid previously with preliminary materials.
- - --- Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Lunar Corporation
726 Heartland Trail
Madison, Wisconsin 53717-1915
(608) 828-2663
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE HOLDERS OF THE COMMON STOCK OF LUNAR CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Lunar
Corporation will be held at Lunar Corporation, 726 Heartland Trail, Madison,
Wisconsin, on Friday, November 19, 1999, at 11:00 a.m., local time, for the
following purposes:
(1) To elect two (2) directors to serve until the 2002 Annual Meeting of
Shareholders.
(2) To consider and vote on a proposal to approve an amendment to Lunar's
stock option plan to increase the number of shares of common stock available
under the plan and to provide that shares subject to a stock option that is
replaced by an option with a lower exercise price will not become available for
future option grants unless shareholder approval is obtained.
(3) To ratify the selection of Arthur Andersen LLP as Lunar's auditors for the
fiscal year ending June 30, 2000.
(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 8, 1999, the
record date for the meeting, are 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 Lunar's Secretary 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 27, 1999
Lunar Corporation
726 Heartland Trail
Madison, Wisconsin 53717-1915
(608) 828-2663
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of the
accompanying proxy by the Board of Directors of Lunar Corporation for use at the
Annual Meeting of Shareholders to be held at Lunar Corporation, 726 Heartland
Trail, Madison, Wisconsin, on Friday, November 19, 1999, at 11:00 a.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 2002 Annual Meeting of Shareholders, (2) approve an
amendment to Lunar's stock option plan to increase the number of shares of
common stock available under the plan and to provide that shares subject to a
stock option that is replaced by an option with a lower exercise price will not
become available for future option grants unless shareholder approval is
obtained, and (3) ratify the selection of Arthur Andersen LLP as Lunar's
auditors for the fiscal year ending June 30, 2000. 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 Lunar's Secretary 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 Lunar may solicit by telephone, telegraph, and
personally. The cost of the solicitation will be borne by Lunar. 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, 1999, were first
mailed to shareholders on or about October 27, 1999.
SHAREHOLDERS ENTITLED TO VOTE
Only holders of record of Lunar's common stock at the close of business on
October 8, 1999, 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 8, 1999, there were
outstanding 8,598,580 shares of common stock.
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 2002 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 Lunar
prior to the meeting and not revoked, will be voted as directed therein. In the
absence of a specific direction from a shareholder, the shareholder's proxy will
be voted "FOR" the election of the director nominees named in this proxy
statement, "FOR" approval of the amendment to Lunar's stock option plan and
"FOR" ratification of the selection of Arthur Andersen LLP as Lunar's auditors.
If a proxy is marked to indicate that all or a portion of the shares represented
by the proxy are not being voted with respect to a particular proposal, those
non-voted shares will not be considered present and entitled to vote on the
proposal.
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 that
nominee from being elected. If a quorum is present, in order to approve the
amendment to Lunar's stock option plan or ratify the selection of Arthur
Andersen LLP as Lunar'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 amendment to Lunar's stock option plan or ratify the selection of
Arthur Andersen LLP as Lunar's auditors will not affect the determination of
whether that matter has been approved or ratified.
ITEM 1 - ELECTION OF DIRECTORS
Lunar'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 1999 Annual Meeting,
two directors, John W. Brown and Reed Coleman, 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 Lunar to serve until the 2002 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
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To serve until the 2002 Annual Meeting of Shareholders:
John W. Brown Director Director since 1988; Chairman
Age 65 of the Board, Chief Executive
Officer, and President of
Stryker Corporation (medical
devices) since 1977; Director
of National City Corporation
since March 1998.
Reed Coleman Director Director since 1985; Chairman
Age 66 of the Board, Chief Executive
Officer, and President 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.
The Board of Directors recommends you vote FOR each of the nominees named above
to serve on Lunar's Board of Directors.
The following table sets forth certain information about the directors of Lunar
whose terms of office will continue after the 1999 Annual Meeting.
Positions Principal Occupations
Name and Age Held During Past 5 Years
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Terms expiring at the 2000 Annual Meeting of Shareholders:
Malcolm R. Powell, M.D. Director Director since 1984;
Age 68 Private investor since July
1998; President of Nuclear
Medicine Consultants from
1973 to June 1998 (nuclear
medicine practice); Director
of IS2 Research, Inc. since
July 1997 (a medical device
manufacturing and contract
research company); Director
of several privately held
companies. Dr. Powell is a
cousin of Mr. Bradt, a
Director of Lunar.
James W. Nellen, II Director Director since December 1997;
Age 51 President of Ameritech
Wisconsin since August 1999
(tele-communications);
Attorney in private practice
from January 1998 to
July 1999; General Counsel,
Secretary and Vice
President of Fort Howard
Corporation from 1982 to
December 1997.
Terms expiring at the 2001 Annual Meeting of Shareholders:
Samuel E. Bradt Director Director since 1984;
Age 61 President of Merganser
Corporation (a business
consulting and venture
capital company) since 1980;
Director and Chief Financial
Officer of Interactive Buyers
Network International Ltd.
(internet commerce) since
December, 1996; Director of
several privately held
companies. Mr. Bradt is a
cousin of Dr. Powell, a
Director of Lunar.
Richard B. Mazess, Ph.D. Chairman of the Founder of Lunar;
Age 60 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.
Directors do not receive cash compensation for their services to Lunar. During
the year ended June 30, 1999, 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, 1999, a total of 5 meetings of the Board of
Directors were held. Each director attended 75% or more of the meetings held
while serving as a director. 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 auditors whom it recommends for selection
by the Board of Directors. The Committee reviews the scope of the audit with
such auditors. The Audit Committee held two meetings during the fiscal year
ended June 30, 1999. Its members are Mr. Bradt and Mr. Coleman. Lunar does not
have a nominating or compensation committee of the Board of Directors. However,
the Lunar Corporation Amended and Restated Stock Option 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 Lunar 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, Lunar's
common stock, including options to purchase common stock. Reports received by
Lunar indicate that for the period from July 1, 1998, to June 30, 1999,
all reports were filed on a timely basis except that Mr. Peemans reported two
transactions on two reports after the due dates for such reports.
ITEM 2 - APPROVAL OF AMENDMENT TO LUNAR'S STOCK OPTION PLAN
Lunar has used stock options as a significant 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, consultants and non-
employee directors who will contribute to the success and prosperity of Lunar.
Other than Lunar's 401K profit-sharing plan, stock options are the only element
of long-term compensation used by Lunar.
As of October 8, 1999, the number of shares of common stock available under
Lunar's stock option plan was 225,610. Lunar adopted the stock option plan in
1991. Management is seeking shareholder approval of an amendment to the plan
which would increase the number of shares available for future grants of stock
options by 400,000. The amendment would also provide that in the event a stock
option is granted in replacement or cancellation of a stock option previously
granted under the plan or any other plan of Lunar, and the option price per
share of the newly granted option is less than the option price of the replaced
or canceled option, then the shares of common stock subject to the replaced or
canceled option will not be available for future grants of stock options, except
to the extent a majority of the outstanding shares of common stock approves the
replacement or cancellation.
SUMMARY OF THE PLAN. Only nonqualified stock options may be granted under the
plan. The plan is administered by a 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 300 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. As part of the proposed amendment,
shareholder approval also would be required of any plan amendment that would
permit shares subject to an outstanding option that has been replaced by a lower
priced option to become available for future grants. 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 Lunar, 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 Lunar 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 first paragraph of Section 3 of the plan has been
amended, subject to shareholder approval, as follows to reflect the proposed
increase in the number of available shares and the proposed restrictions on
granting replacement options at a lower exercise price per share:
"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 2,400,000, 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; provided, however, that in the event a stock option is granted under
this Plan in replacement or cancellation of, or in exchange for, an outstanding
stock option previously granted under this Plan or any other plan of the
Company, and the option price per share of the newly granted stock option is
less than the option price per share of the stock option being replaced,
canceled or exchanged, then the shares of Common Stock subject to the replaced,
canceled or exchanged stock option shall not be available for future grants of
stock options under this Plan, except to the extent a majority of the
outstanding shares of Common Stock approve any such replacement, cancellation or
exchange."
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. As noted above, stock options are a significant part of Lunar's
compensation program. As of October 8, 1999, the number of shares of common
stock available under the plan for the grant of stock options was 225,610. The
amendment would authorize the grant of an additional 400,000 shares of common
stock under the plan which, as of October 8, 1999, represents approximately 4.7%
of Lunar's outstanding common stock.
Lunar's Board of Directors understands that shareholders are often concerned
about the grant of replacement options with exercise prices lower than the
replaced options. As a result, the Board of Directors also amended the plan,
subject to shareholder approval, to provide that shares subject to replaced
options will not be available for future option grants except to the extent
Lunar's shareholders approve of a grant of replacement options. Lunar's Board
believes that this amendment should ease concerns shareholders may have about
replacement options, while also giving Lunar the ability to continue to utilize
stock options as Lunar's primary form of long-term compensation.
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, Lunar 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 1999. The number of shares reflected includes the
amounts issued subject to replacement stock options described under "Replacement
Stock Options", except for the shares granted to Mr. Hanson. All of the stock
options were granted at 100% of fair market value of the common stock on the
date of grant. On October 8, 1999, the closing sale price of the common stock as
reported on The Nasdaq Stock Market was $6.88 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 85,000
James A. Hanson
Vice President of Marketing 10,000
Peter Peemans
Vice President of International Sales 62,000
James V. Pietropaolo
Vice President of Domestic Sales 70,000
All executive officers as a group 327,000
All non-employee directors as a group 78,500
All employees as a group
(other than executive officers) 549,430
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 Arthur Andersen LLP, Milwaukee, Wisconsin,
as independent certified public accountants to act as Lunar's auditors for the
fiscal year ending June 30, 2000. Arthur Andersen LLP has examined the accounts
of Lunar since December 1998, and in the opinion of management, the firm should
continue as Lunar's auditors. 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 Arthur Andersen LLP as Lunar's auditors.
Representatives of Arthur Andersen 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 Arthur Andersen
LLP as Lunar's auditors for the fiscal year ending June 30, 2000.
On December 16, 1998, Lunar engaged the accounting firm of Arthur Andersen LLP
as Lunar's independent accountants. Lunar, on that same date, also informed KPMG
LLP (formerly KPMG Peat Marwick LLP) of their dismissal effective December 16,
1998. The decision to change independent accountants was made upon the
recommendation of the Audit Committee of Lunar's Board of Directors.
During the two fiscal years ended June 30, 1998 and 1997 and interim periods
subsequent to June 30, 1998 and prior to December 16, 1998, there were no
disagreements with KPMG LLP on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.
KPMG LLP's report on Lunar's financial statements for the two fiscal years ended
June 30, 1998 and 1997 did not contain an adverse opinion or a disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles.
During those two fiscal years and interim periods subsequent to June 30, 1998
and prior to December 16, 1998, there were no reportable events.
KPMG LLP furnished Lunar with a letter addressed to the Securities and Exchange
Commission stating that it agreed with the above statements. A copy of the
letter dated December 21, 1998 is filed with the Securities and Exchange
Commission.
During those two fiscal years and interim periods subsequent to June 30, 1998
and prior to employing Arthur Andersen LLP, neither Lunar nor anyone on its
behalf consulted Arthur Andersen LLP regarding the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on Lunar's financial statements or any
matter that was either the subject of a disagreement or a reportable event.
SECURITIES BENEFICIALLY OWNED BY PRINCIPAL SHAREHOLDERS,
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
beneficial ownership of Lunar's common stock by (i) each director of
Lunar, (ii) each executive officer of Lunar who is named in the summary
compensation table included in this proxy statement, (iii) all directors
and executive officers of Lunar as a group, and (iv) each person known by
Lunar to be the beneficial owner of more than 5% of Lunar's common stock.
Amount and Nature of Percent
Name Beneficial Ownership of Class(1)
- - -------------------------------------------------------------------------------
Samuel E. Bradt 5,500(2) *
John W. Brown 143,000(3) 1.7%
Reed Coleman 195,250(4) 2.3
Richard B. Mazess, Ph.D. 2,865,345(5) 33.3
James W. Nellen, II 7,667(6) *
Malcolm R. Powell, M.D. 37,155(7) *
Robert A. Beckman 56,087(8) *
James A. Hanson, Ph.D. 145,837(9) 1.7
Peter Peemans 22,500(10) *
James V. Pietropaolo 9,000(2) *
All Directors and
Executive Officers as a
Group (11 persons) 3,492,341(11) 39.2
Waddell & Reed Investment
Management Company
6300 Lamar Avenue
Shawnee Mission, KS 66201 801,500(12) 9.3
Wellington Management
Company, LLP
75 State Street
Boston, MA 02109 569,000(13) 6.6
State of Wisconsin
Investment Board
P.O. Box 7842
Madison, WI 53707 691,000(14) 8.0
* 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 8, 1999 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 8,598,580 shares issued and
outstanding on October 8, 1999, and shares of common stock issuable within 60
days of October 8, 1999 upon exercise of stock options.
(2) Represents shares of common stock issuable within 60 days upon exercise of
stock options.
(3) Includes 33,000 shares of common stock issuable within 60 days upon
exercise of stock options.
(4) Includes 162,250 shares of common stock held by The Reed Company, of which
Mr. Coleman is sole owner, and 33,000 shares of common stock issuable within 60
days upon exercise of stock options.
(5) Includes 1,344,835 shares of common stock held by Dr. Mazess in joint
tenancy with his wife and 607,500 shares of common stock held by Dr. Mazess as
custodian for his daughters. Dr. Mazess' address is 726 Heartland Trail,
Madison, Wisconsin, 53717-1915.
(6) Includes 4,000 shares of common stock held in a trust over which Mr. Nellen
serves as trustee, and 3,667 shares of common stock issuable within 60 days upon
exercise of stock options.
(7) Includes 32,155 shares of common stock held in a trust over which Dr.
Powell serves as co-trustee, and 5,000 shares of common stock issuable within 60
days upon exercise of stock options.
(8) Includes 55,950 shares of common stock issuable within 60 days upon
exercise of stock options, and 37 shares of common stock held by Mr. Beckman as
custodian for his children.
(9) Includes 145,500 shares of common stock issuable within 60 days upon
exercise of stock options.
(10) Includes 19,900 shares of common stock issuable within 60 days upon
exercise of stock options.
(11) Includes 315,517 shares of common stock issuable within 60 days upon
exercise of stock options.
(12) Based on Amendment No. 1 to a Schedule 13G dated December 31, 1998
furnished to Lunar, Waddell & Reed Investment Management Company, an investment
advisor, had sole voting and dispositive power with respect to 801,500 shares of
common stock. Waddell & Reed Investment Management Company also filed the
Schedule 13G jointly with Waddell & Reed, Inc., a broker-dealer; Waddell & Reed
Financial Services, Inc., a parent holding company; Waddell & Reed Financial,
Inc., a parent holding company. Each entity that filed the Schedule 13G
indicated that it had sole voting and dispositive power with respect to 801,500
shares of common stock.
(13) Based on a Schedule 13G dated December 31, 1998 furnished to Lunar,
Wellington Management Company, LLP, an investment advisor, had shared voting
power with respect to 389,000 shares of common stock and shared dispositive
power with respect to 569,000 shares of common stock.
(14) Based on a Schedule 13G dated February 1, 1999 furnished to Lunar,
State of Wisconsin Investment Board had sole voting and dispositive power with
respect to 691,000 shares of common stock.
EXECUTIVE COMPENSATION
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
The following is a report submitted by the Board of Directors addressing Lunar's
compensation policy as it related to Lunar's executive officers for fiscal year
1999.
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 has elected not to receive any bonus or stock
options.
With respect to all executive officers other than the Chief Executive Officer,
the goal of Lunar'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, Lunar'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
Lunar's stock option plan. The Board of Directors believes that stock options
ensure that executives have a continuing stake in the long-term success of Lunar
and are an effective incentive for executives to create value for shareholders
since the value of a stock option bears a direct relationship to Lunar's stock
price. Lunar's stock option plan was administered in fiscal year 1999 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
Lunar. 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 1999 COMPENSATION. For fiscal year 1999, Lunar'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, four executive officers included in the summary compensation table
received commissions, and were granted options to purchase shares of common
stock. Commissions are paid to more directly compensate executive officers for
changes in Lunar's performance. Stock options are granted from time to time to
members of management, based primarily on such person's potential contribution
to Lunar's growth and profitability.
The Chief Executive Officer's compensation for fiscal year 1999 consisted of a
base salary of $150,000. The Chief Executive Officer has elected not to receive
any bonus or stock options.
REPLACEMENT STOCK OPTIONS. In October 1998, in exchange for the forfeiture of
certain outstanding stock options, including currently exercisable options,
having an exercise price in excess of the fair market value of the common stock
at the time of the exchange, the stock option plan committee approved the grant
of replacement options providing for new vesting periods and a ten-year term.
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 Lunar's
philosophy of utilizing equity incentives to motivate and retain management and
employees, the committee felt that it was important to restore the performance
incentives intended to be provided by options through the replacement of certain
outstanding options with exercise prices in excess of the market price at the
time of the exchange. The exercise price of the replacement options was set at
the fair market value of a share ($9.25 per share) of common stock on the
effective date of the exchange. A total of 169 option holders holding options to
purchase an aggregate of 544,230 shares of common stock with exercise prices
ranging from $16.25 to $20.50 per share were granted options.
The Board of Directors believes that linking executive compensation to corporate
performance results in a better alignment of compensation with Lunar's goals and
shareholder interest. As performance goals are met or exceeded, shareholder
value should increase through increases in the market value of the common stock,
and the executives will be rewarded commensurately. The Board of Directors
believes that compensation levels during fiscal year 1999 adequately reflect
Lunar's compensation goals and policies.
Respectfully submitted,
Samuel E. Bradt
John W. Brown
Reed Coleman
Richard B. Mazess, Ph.D.
James W. Nellen, II
Malcolm R. Powell, M.D.
SUMMARY COMPENSATION TABLE
The table below sets forth the compensation of Lunar's Chief Executive
Officer and the four other most highly compensated executive officers as of the
end of fiscal year 1999.
Long-Term
Annual Compensation Compensation
------------------------- ------------
Other Annual Securities All Other
Name and Fiscal Compensation Underlying Compensation
Principal Position Year Salary($) Bonus($) ($) Options (#) ($)(5)
- - -------------------------------------------------------------------------------
Richard B.
Mazess, Ph.D. 1999 150,000 -- -- -- 4,000
Chairman of the 1998 145,000 -- -- -- 4,000
Board, President, 1997 105,846 -- -- -- 750
and Chief Executive
Officer
Robert A.
Beckman(1) 1999 256,721 750 -- 85,000(6) 4,000
Vice President 1998 254,033 1,125 -- 30,000 4,000
of Finance 1997 196,693 30,975 -- 35,000 2,250
James A.
Hanson, Ph.D.(2) 1999 199,881 750 -- 10,000 4,000
Vice President 1998 194,206 1,125 -- -- 4,000
of Marketing 1997 195,439 2,250 -- -- 2,250
Peter
Peemans(3) 1999 206,670 6,750 -- 62,000(6) --
Vice President 1998 190,396 19,375 -- 18,000 --
of International 1997 181,336 10,925 -- 14,000 --
Sales
James V.
Pietropaolo(4) 1999 203,295 9,250 -- 70,000(6) 4,000
Vice President 1998 189,573 10,125 -- 15,000 4,000
of Domestic Sales 1997 136,908 750 55,000 50,000 --
--
(1) Mr. Beckman's salary includes sales-based commissions of $71,421, $84,033,
and $47,078 for fiscal years 1999, 1998 and 1997, respectively.
(2) Dr. Hanson's salary includes sales-based commissions of $69,881, $64,206,
and $70,440 for fiscal years 1999, 1998 and 1997, respectively.
(3) Mr. Peemans' salary includes sales-based commissions of $72,144, $69,238,
and $51,026 for fiscal years 1999, 1998 and 1997, respectively. Lunar has
guaranteed Mr. Peemans the payment of his base salary for one year should he be
dismissed for any reason other than cause in the first 24 months following his
relocation to the United States. Mr. Peemans will receive payment of his base
salary for six months if such dismissal occurs after 24 months but before the
end of the 60th month of his relocation to the United States.
(4) Mr. Pietropaolo's salary includes sales-based commissions of $60,195,
$54,573 and $38,408 for fiscal years 1999, 1998 and 1997, respectively.
(5) Amounts consist of company contributions to a defined contribution plan.
(6) Amounts include stock options relating to the granting of replacement stock
options. Mr. Beckman, Mr. Peemans and Mr. Pietropaolo were granted 55,000,
27,000 and 40,000 stock options as replacement stock options in fiscal 1999.
REPLACEMENT STOCK OPTIONS
The table below provides certain information relating to grants of stock options
made by Lunar to executive officers in exchange for previously granted options
since Lunar commenced trading on The Nasdaq Stock Market August 14, 1990.
Market Length of
Number Price Exercise Original
of Securities of Stock Price at New 10-Year Term
Underlying at Time of Time of Exercise Remaining at
Options Repricing Repricing Price Date of
Name and Position Date Repriced ($) ($) ($) Repricing
- - --------------------------------------------------------------------------------
FISCAL YEAR ENDED JUNE 30, 1999:
Robert A. Beckman
Vice President 10/14/98 25,000 9.25 16.50 9.25 8.5
of Finance 10/14/98 20,000 9.25 18.50 9.25 9.0
10/14/98 10,000 9.25 16.25 9.25 9.7
Peter Peemans
Vice President 10/14/98 9,000 9.25 16.50 9.25 8.5
of International 10/14/98 8,000 9.25 18.50 9.25 9.0
Sales 10/14/98 10,000 9.25 16.25 9.25 9.7
James V. Pietropaolo
Vice President 10/14/98 25,000 9.25 16.50 9.25 8.5
of Domestic 10/14/98 5,000 9.25 18.50 9.25 9.0
Sales 10/14/98 10,000 9.25 16.25 9.25 9.7
John A. Comerford
Corporate
General Counsel 10/14/98 10,000 9.25 19.50 9.25 9.2
and Secretary 10/14/98 10,000 9.25 16.25 9.25 9.7
James T. Karam
Former Vice
President
of Operations 10/14/98 30,000 9.25 19.00 9.25 8.8
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 1999
AND FISCAL YEAR END STOCK OPTION VALUES
The following table sets forth information on the value of unexercised stock
options as of June 30, 1999 held by Lunar's executive officers named in the
summary compensation table. Such officers did not exercise any stock options
during fiscal year 1999.
Number of Securities
Underlying Unexercised Value of Unexercised In-the
Stock Options at Fiscal Money Stock Options at
Year End (#) Fiscal Year End ($)(1)
Name ----------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
- - -------------------------------------------------------------------------------
Richard B.
Mazess -- -- -- --
Robert A.
Beckman 41,250 87,700 43,477 63,776
James A.
Hanson 145,500 10,000 1,069,485 25,100
Peter
Peemans 12,000 63,500 3,120 75,870
James V.
Pietropaolo -- 70,000 -- 62,750
(1) Based upon the closing price of the common stock of $7.88 on June 30, 1999,
as reported by The Nasdaq Stock Market minus the exercise price.
STOCK OPTION GRANTS IN FISCAL YEAR 1999
The following table sets forth information with respect to individual stock
option grants during fiscal 1999 to Lunar's executive officers named in the
summary compensation table.
Number of % of Total Potential Realizable Value
Securities Options at Assumed Annual Rates of
Underlying Granted Stock Price Appreciation for
Options During Exercise Option Term(4),(5)
Granted(1) Fiscal Year Price(2) Expiration 0% 5% 10%
Name (#) 1999 ($/Share) Date ($) ($) ($)
- - --------------------------------------------------------------------------------
Richard B.
Mazess -- -- -- -- -- -- --
Robert A.
Beckman 25,000 2.6 5.37 4/13/2009 0 84,500 214,000
5,000 0.5 9.25 10/14/2008 0 29,100 73,700
55,000(3) 5.7 9.25 10/14/2008 0 320,100 810,700
James A.
Hanson 10,000 1.0 5.37 4/13/2009 0 33,800 85,600
Peter
Peemans 30,000 3.1 5.37 4/13/2009 0 101,400 256,800
5,000 0.5 9.25 10/14/2008 0 29,100 73,700
27,000(3) 2.8 9.25 10/14/2008 0 157,140 397,980
James V.
Pietropaolo 25,000 2.6 5.37 4/13/2009 0 84,500 214,000
5,000 0.5 9.25 10/14/2008 0 29,100 73,700
40,000(3) 4.2 9.25 10/14/2008 0 232,800 589,600
(1) All stock options are nonqualified and vest 20% each year on the first five
anniversaries of the grant date.
(2) All grants were made at 100% of fair market value as of the grant date.
(3) Amounts represent the granting of replacement stock options which remain
outstanding. Equal amounts of previously granted stock options were terminated
in fiscal 1999.
(4) 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 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.
(5) The "Potential Realizable Value" to all Lunar shareholders as a group which
would result from the application of the same assumptions to the 8,598,580
shares of common stock outstanding at June 30, 1999, at the closing price of
$7.88 per share of common stock on June 30, 1999, as reported by The Nasdaq
Stock Market is an incremental gain of $0, $42,648,957, and $107,998,165
for 0%, 5%, and 10%, respectively.
PERFORMANCE GRAPH
The following table compares the cumulative total shareholder return on Lunar's
common stock for the five-year period ended June 30, 1999, 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").
6/30/94 06/30/95 06/30/96 6/30/97 6/30/98 6/30/99
S&P 500 $100 $126 $159 $214 $279 $342
S&P Med Products $100 $144 $177 $209 $276 $377
Lunar Corporation $100 $213 $419 $264 $223 $ 96
The performance graph assumes $100 invested on June 30, 1994 in each of Lunar's
common stock, the S&P 500 Index and the S&P Med Products Index. The graph also
assumes the reinvestment of dividends.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended June 30, 1999, Lunar did not have a compensation or
similar committee. Dr. Mazess, the Chairman of the Board, President and Chief
Executive Officer of Lunar, participated in decisions concerning executive
officer compensation.
CERTAIN TRANSACTIONS
On June 30, 1999 Lunar completed the purchase of a used Artoscan magnetic
resonance imager from a limited liability corporation owned 50% by Mr. Beckman.
The purchase price for the system was $167,000. Lunar resold the Atroscan system
for $193,480 in the quarter ended June 30, 1999.
SHAREHOLDER PROPOSALS
In order to be considered for inclusion in Lunar's proxy materials for the
2000 annual meeting of shareholders, written notice of any shareholder proposal
must be received by Lunar by June 29, 2000. In addition, regardless of whether a
shareholder proposal is set forth in Lunar's 1999 Proxy Statement as a matter to
be considered by shareholders, Lunar's Bylaws establish an advance notice
procedure for shareholder proposals to be brought before any annual meeting of
shareholders, including proposed nominations of persons for election to the
Board of Directors. Shareholders at the 1999 annual meeting may consider a
proposal or nomination brought by a shareholder of record on October 8, 1999 who
has given Lunar timely written notice, in proper form, of the shareholder's
proposal or nomination. A shareholder proposal or nomination intended to be
brought before the 1999 annual meeting must have been received by Lunar on or
after July 22, 1999 and on or prior to August 21, 1999. Lunar did not receive
notice of any shareholder proposal or nomination relating to the 1999 annual
meeting. The 2000 annual meeting of shareholders is expected to be held on
November 17, 2000. A shareholder proposal or nomination intended to be brought
before the 2000 annual meeting must be received by Lunar on or after July 22,
2000 and on or prior to August 21, 2000. All proposals and nominations should be
directed to Lunar's principal executive offices at 726 Heartland Trail, Madison,
Wisconsin, 53717-1915, Attention: Vice President of Finance.
FINANCIAL STATEMENTS
A copy of the Annual Report to Shareholders of Lunar, 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, 1999, 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 27, 1999
Proxy for
Lunar Corporation
Annual Meeting of Shareholders
November 19, 1999
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
LUNAR CORPORATION.
The undersigned hereby appoints ROBERT A. BECKMAN and JOHN A. COMERFORD, 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, which the
undersigned, as designated below, would be entitled to vote if personally
present at the Annual Meeting of Shareholders to be held at Lunar Corporation,
726 Heartland Trail, Madison, Wisconsin, on Friday, November 19, 1999, at 11:00
a.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.
John W. Brown Reed Coleman
(2) To consider and vote on a proposal to approve an amendment to Lunar's
stock option plan to increase the number of shares of common stock available
under the plan and to provide that shares subject to a stock option that is
replaced by an option with a lower exercise price will not become available for
future option grants unless shareholder approval is obtained.
/ / For / / Against / / Abstain
(3) To ratify the selection of Arthur Andersen LLP as Lunar's auditors for the
fiscal year ending June 30, 2000.
/ / 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, FOR APPROVAL OF THE PROPOSED AMENDMENT TO LUNAR'S STOCK OPTION PLAN, FOR
RATIFICATION OF ARTHUR ANDERSEN LLP AS LUNAR'S AUDITORS 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 , 1999
---------------------------- -------------------------------
Co-Owner Sign Here Shareholder Sign Here
