<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
DESTRON FEARING CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
__________________________________________________
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:
__________________________________________________
<PAGE>
DESTRON FEARING CORPORATION
490 Villaume Avenue
South St. Paul, Minnesota 55075
(612) 455-1621
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 29, 1999
---------------------
TO THE STOCKHOLDERS OF DESTRON FEARING CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Destron Fearing Corporation, a Delaware corporation (the
"Company"), will be held on Friday, January 29, 1999 at 3:30 p.m. (local time)
at Crowne Plaza Northstar Hotel, 618 Second Avenue South, Minneapolis, Minnesota
55402 for the following purposes:
1. To elect nine directors of the Company.
2. To consider and approve an amendment to the Company's Certificate
of Incorporation to effect up to a one-for-five reverse stock
split of the Company's outstanding shares of Common Stock, par
value $.01 per share.
3. To ratify the appointment of Arthur Andersen LLP as independent
auditors for the fiscal year ending September 30, 1999.
4. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
Only holders of record of the Company's common stock at the close of
business on December 23, 1998 are entitled to notice of and to vote at the
Annual Meeting or any adjournment thereof.
Each of you is invited to attend the Annual Meeting in person, if possible.
Whether or not you plan to attend in person, please mark, date and sign the
enclosed proxy, and mail it promptly. A return envelope is enclosed for your
convenience.
By Order of the Board of Directors
/s/ Thomas J. Ahmann
Thomas J. Ahmann, SECRETARY
December 29, 1998
- --------------------------------------------------------------------------------
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING,
PLEASE SIGN THE PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE>
DESTRON FEARING CORPORATION
490 Villaume Avenue
South St. Paul, Minnesota 55075
(612) 455-1621
--------------------
PROXY STATEMENT
--------------------
SOLICITATION OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors
of Destron Fearing Corporation, a Delaware corporation ("Company"), for use at
the Annual Meeting of Stockholders ("Annual Meeting") to be held on January 29,
1999, and any adjournment thereof. This Proxy Statement and the accompanying
form of proxy are being mailed to stockholders on or about December 29, 1998.
The expense of the solicitation of proxies for the Annual Meeting,
including the cost of mailing, has been or will be borne by the Company.
Arrangements will be made with brokerage houses and other custodian nominees and
fiduciaries to send proxies and proxy materials to their principals, and the
Company will reimburse them for their expense in so doing. In addition to
solicitation by mail, proxies may be solicited by telephone, telegraph or
personally.
VOTING AND REVOCATION OF PROXY
Only holders of record of the Company's common stock, par value $.01 per
share ("Common Stock"), at the close of business on December 23, 1998, the
record date for the Annual Meeting, are entitled to notice of and to vote at the
Annual Meeting. On the record date, 13,353,982 shares of the Company's Common
Stock were outstanding. Each share of Common Stock entitles the holder thereof
to one vote upon each matter to be presented at the Annual Meeting. A quorum,
consisting of a majority of the shares of the Company's Common Stock entitled to
vote at the Annual Meeting, must be present in person or by proxy before action
may be taken at the Annual Meeting.
Each proxy returned to the Company will be voted in accordance with the
instructions indicated thereon. If no instructions are indicated, the shares
will be voted (i) FOR the election of the nominees for the Board of Directors
named in this Proxy Statement, (ii) FOR the proposal to amend the Company's
Certificate of Incorporation to effect up to a one-for-five reverse split of the
Company's shares of Common Stock and (iii) FOR the ratification of the
appointment of Arthur Andersen LLP as independent auditors for the fiscal year
ending September 30, 1999. While the Board of Directors knows of no other
matters to be presented at the Annual Meeting or any adjournment thereof, all
proxies returned to the Company will be voted on any such matter in accordance
with the judgment of the proxy holders.
The election of the directors set forth in Proposal 1 requires a plurality
of the votes of the shares of Common Stock present in person or represented by
proxy at the Annual Meeting. If a quorum is present, those nominees receiving a
plurality of the votes cast will be elected. The affirmative vote of a majority
of the outstanding shares of the Company's Common Stock is necessary to approve
the proposed amendment to the Company's Certificate of Incorporation to effect
the proposed reverse stock split of the outstanding shares of the Company's
Common Stock. Finally, if a quorum is present, the affirmative vote of a
majority of the shares of Common Stock present in person or represented by proxy
at the Annual Meeting is required to approve Proposal 3 for the appointment of
Arthur Andersen LLP as
<PAGE>
the independent auditors for the fiscal year ending September 30, 1999. If a
proxy is returned and the stockholder has abstained from voting on any matter,
the shares represented by such proxy will be considered present at the Annual
Meeting for purposes of determining a quorum and for purposes of calculating the
vote on the matter, but will not be considered to have been voted in favor of
such matter. Similarly, broker non-votes are also considered for purposes of
determining a quorum at the Annual Meeting, but will not be considered to have
been voted for or against any matter for which the broker does not have
discretionary voting authority and for which the broker has not received
specific voting instructions from the beneficial owner.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) giving
written notice of such revocation to the Secretary of the Company before or at
the Annual Meeting, (ii) delivering another written proxy bearing a later date,
or (iii) attending the Annual Meeting and voting in person (although attendance
at the Annual Meeting will not in and of itself constitute a revocation of a
proxy).
2
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The business and affairs of the Company are managed under the direction of
its Board of Directors. The Company's Bylaws provide that the Board of
Directors shall consist of one or more members. The Board of Directors
currently consists of nine members. Each Director is elected to serve until the
next annual meeting of stockholders or until their earlier resignation, death or
removal.
Stockholders will be asked at the Annual Meeting to elect nine Directors.
The Board has nominated the nine individuals named below to serve as Directors
of the Company. Unless authority is withheld, all proxies received in response
to this solicitation will be voted for the election of the nominees named below.
Each of the nominees named below is now a Director of the Company and has served
continuously as a Director since the month and year indicated. Such nominees
collectively comprise the entire Board. All nominees have indicated a
willingness to serve if elected. If any nominee becomes unable to serve prior
to the Annual Meeting, the proxies received in response to this solicitation
will be voted for a replacement nominee selected in accordance with the best
judgment of the proxy holders named therein.
<TABLE>
<CAPTION>
NAME POSITIONS WITH THE COMPANY AGE DIRECTOR SINCE
- ---- -------------------------- --- --------------
<S> <C> <C> <C>
Randolph K. Geissler President, Chief Executive 38 November 1993
Officer, Chairman
and Director
David A. Henderson Director 46 April 1994
Kenneth D. Larson Director 58 August 1994
Richard E. Jahnke Director 50 April 1997
Stanley Goldberg Director 52 April 1997
Douglas M. Pihl Director 59 June 1997
John R. Beattie Director 50 September 1998
Gary S. Kohler Director 42 September 1998
Thomas J. Patin Director 53 September 1998
</TABLE>
STOCKHOLDER APPROVAL
The affirmative vote of a plurality of the shares of Common Stock of the
Company represented at the Annual Meeting either in person or by proxy, assuming
a quorum is present, is required for the election of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF THE NOMINEES FOR THE BOARD OF DIRECTORS AS SET FORTH IN PROPOSAL 1.
3
<PAGE>
INFORMATION CONCERNING DIRECTORS
AND EXECUTIVE OFFICERS
DIRECTORS
Each nominee for election to the Company's Board of Directors is presently
serving as a Director of the Company. The following discussion sets forth
certain information concerning the nominees for Directors of the Company.
RANDOLPH K. GEISSLER has served as President and Chief Executive Officer of
the Company since November 12, 1993, as Chairman since February 1997, and as
Interim Chief Executive Officer from March 1, 1993 until November 12, 1993
pursuant to a transition services agreement in conjunction with the merger (the
"Merger") of a wholly-owned subsidiary of the Company and Fearing Manufacturing
Co., Inc. ("Fearing") in November 1993. See "Information Concerning Directors
and Executive Officers -- Certain Transactions." Fearing is now a wholly-owned
subsidiary of the Company. Mr. Geissler is also the President and Chief
Executive Officer of Fearing, a position that he has held since 1987. Prior to
1987, he held a variety of positions with Fearing, including sales
representative, production manager and director of research.
DAVID A. HENDERSON has been a Director of the Company since April 1994. He
has been President of Cherry Tree & Co., a privately-held investment banking
firm, since December 1997. He also is the Managing General Partner of Founding
Partners II Limited Partnership, a privately-held venture capital firm, and has
held that position since April 1990. Mr. Henderson was previously an Executive
Vice President of Cherry Tree Investment Company, which manages approximately
$87 million of venture capital funds. In addition to the Company, he currently
serves as a Director and member of the compensation committee of Coda Music
Technologies, Inc. a publicly-held company, and as a Director of The Gift
Certificate Center, Inc., Cherry Tree & Co. and Transline Communications, Inc.,
which are privately-held companies.
KENNETH D. LARSON has been a Director of the Company since August 1994.
Mr. Larson served as Executive Vice President/Operating Officer for Polaris
Industries, Inc. ("Polaris") from September 1988 to July 1989 and as President
and Chief Operating Officer and a Director of Polaris from July 1989 until his
retirement in September 1998. Polaris is a publicly-held company that designs,
engineers, manufactures, and markets snowmobiles, all-terrain vehicles (ATVs),
and personal watercraft for recreational and utility use. In addition to the
Company, Mr. Larson currently serves as a Director of MVE, Inc., a private
company, and Featherlite Manufacturing, Inc., a publicly-held company.
RICHARD E. JAHNKE has been a Director of the Company since April 1997. Mr.
Jahnke is currently the President of Medical Graphics, Inc., a publicly-held
provider of non-invasive medical diagnostic systems. From 1993 through March
1998 he served as President and Chief Operating Officer and as a member of the
Board of Directors of CNS, Inc., a publicly-held company that designs,
manufactures and markets consumer and health care products. From 1991 to 1993,
he was Executive Vice President and Chief Operating Officer of Lemna
Corporation, which manufactures and sells waste water treatment systems. In
addition to serving on the Boards of the Company and CNS, Inc., Mr. Jahnke is a
Director or Rehabilicare, Inc., a publicly-held manufacturer of medical devices.
STANLEY GOLDBERG has been a Director of the Company since April 1997. He
is Chairman, President and Chief Executive Officer of Verdant Brands
Incorporated (formerly, Ringer Corporation) ("Verdant"), which is a
publicly-held company that develops, manufactures, and markets pesticides for
the retail and commercial marketplace. He has served as Chief Executive Officer
of Verdant since 1993 and became President and began serving on the Verdant
Board of Directors in 1992.
4
<PAGE>
DOUGLAS M. PIHL has been a Director of the Company since June 1997. Mr.
Pihl has been a director of Vital Images, Inc. since May 1997, its Chairman of
the Board since December 1997 and its Chief Executive Officer since February
1998. Vital Images, Inc. is a publicly-held company which develops and markets
visualization software and workstations for medical diagnosis, planning and
research. He has also been a private investor since August 1996. Mr. Pihl was
President, Chief Executive Officer, and a Director of NetStar, Inc. from May
1992 until it was acquired by Ascend Communications, Inc. in August 1996.
NetStar, Inc. was a publicly-held company that designed, manufactured and
marketed high-performance computer networking equipment. Mr. Pihl also serves
as a Director of Astrocom Corporation, a publicly-held company, and as a
Director of RocketChips, Inc. and LSC Corporation, which are private companies.
JOHN R. BEATTIE has been a Director of the Company since September 1998.
Mr. Beattie has been an attorney and shareholder at the law firm of Messerli &
Kramer since January 1996. From 1978 through 1995, Mr. Beattie was an attorney
with the law firm of Larkin, Hoffman, Daly & Lindgren, Ltd.
GARY S. KOHLER has been a Director of the Company since September 1998.
Mr. Kohler has served as Chairman of the Board of Directors of Choicetel
Communications, Inc. since its inception in 1989. Mr. Kohler is also the
President of Kohler Capital Management, Inc., an investment management firm
which he formed in October 1997. From July to October 1997, Mr. Kohler was a
partner in Tarmachan Capital Management, an investment management firm. Prior
to that and since 1984, he was employed as Vice President of Okabena Company, a
private holding company. Mr. Kohler also serves on the board of Northwest
Mortgage Services, Inc.
THOMAS J. PATIN has been a Director of the Company since September 1998.
Mr. Patin is currently principally occupied as a consultant and private
investor. Mr. Patin has served as the President and a Director of TR
Restaurants of Bloomington, Inc. from 1988 to present. Mr. Patin also served as
General Counsel for Gaming Corporation of America from August 1992 to December
1995.
Directors of the Company are elected annually to serve until the next
annual meeting of stockholders or until their earlier resignation, death or
removal. There is no family relationship between any of the directors or
executive officers of the Company.
BOARD COMMITTEES AND ACTIONS
During the twelve months ended September 30, 1998, the Board of Directors
met nine times. Each nominee Director attended at least 75% of the total number
of meetings of the Board held during fiscal 1998 while he was a Director.
The Compensation Committee of the Board of Directors, established in August
1994, reviews and makes recommendations to the Board regarding salaries,
compensation and benefits of executive officers and senior management of the
Company and administers the Option Plan. The Compensation Committee met one
time during fiscal 1998. The members of the Compensation Committee in fiscal
1998 were Stanley Goldberg, Chairman, Richard E. Jahnke and Douglas M. Pihl.
The Audit Committee of the Board of Directors, established in August 1994,
reviews the scope and results of the Company's annual audit and other accounting
related matters. The Audit Committee met two times during fiscal 1998. The
members of the Audit Committee in fiscal 1998 were David A. Henderson, Chairman,
and Kenneth D. Larson.
The Board of Directors presently does not have a nominating committee.
5
<PAGE>
Nonemployee Directors of the Company each currently receives a $500 fee for
each Board meeting he attends and an additional $500 for each meeting he attends
of a Board committee of which he is a member. Under this arrangement, the
following nonemployee Directors received the following amounts during fiscal
1998: Mr. Henderson - $5,000; Mr. Larson - $4,000; Mr. Goldberg - $4,000; Mr.
Jahnke - $3,500; Mr. Pihl - $4,500; Mr. Beattie - $500; Mr. Kohler - $500; Mr.
Patin - $500. Additionally, all Directors are reimbursed for expenses incurred
in attending meetings of the Board of Directors, the Compensation Committee and
the Audit Committee (but only if the meetings are held on different days).
Nonemployee Directors of the Company are granted stock options in connection
with their service as Directors. See "Information Concerning Directors and
Executive Officers -- Stock Option Plans."
EXECUTIVE OFFICERS AND SENIOR MANAGEMENT
The following discussion sets forth information about Messrs. Thomas J.
Ahmann, William J. Battista, Robert C. Calgren and Ezequiel M. Mejia, who are
executive officers and members of senior management of the Company but are not
Directors.
<TABLE>
<CAPTION>
NAME POSITIONS WITH THE COMPANY AGE EMPLOYED SINCE
- ---- -------------------------- --- --------------
<S> <C> <C> <C>
Thomas J. Ahmann Vice President -- Finance, 59 July 1993
Chief Financial Officer,
Secretary and Treasurer
William J. Battista Vice President -- North 49 August 1993
American Sales
Robert C. Calgren Controller 52 August 1993
Ezequiel M. Mejia Director of Engineering 55 April 1994
</TABLE>
THOMAS J. AHMANN joined the Company as Vice President -- Finance, Chief
Financial Officer, Secretary and Treasurer in July 1993.
WILLIAM J. BATTISTA has been Vice President -- Fearing Division of the
Company since January 1997. He joined Fearing Corporation ("Fearing") in
October 1986, serving as Eastern Regional Sales Manager from October 1986 to
October 1989, as National Sales Manager from October 1989 to August 1993, and as
Vice President -- North American Sales from August 1993 January 1997. Fearing
was acquired by the Company in a merger transaction effective in November 1993.
ROBERT C. CALGREN has been Controller of the Company since August 1993.
From February 1991 until August 1993, he served as Controller of Fearing.
EZEQUIEL M. MEJIA has been the Director of Engineering for the Company
since April 1994. From October 1993 to April 1994, Mr. Mejia served as
Engineering Manager for Sigmatek Security.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to Randolph J.
Geissler, the President and Chief Executive Officer of the Company, and the two
other most highly compensated executive officer of the Company whose salary
exceeded $100,000 in fiscal 1998 (the "Named Executive Officers"), for each of
the years ended September 30, 1998, 1997 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards
------------------------------------------------- --------------------------
Other Restricted
Name and Annual Stock Other
Principal Position Year Salary ($) Bonus($) Compensation($)(1) Award(s)($) Options(#) Compensation(2)
------------------ ---- ---------- -------- ------------------ ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Randolph K. Geissler 1998 $131,476 N/A N/A N/A N/A $3,120
President and Chief 1997 126,875 N/A N/A N/A N/A 3,744
Executive 1996 127,404 N/A N/A N/A N/A 3,641
Officer
Thomas J. Ahmann 1998 $105,188 N/A N/A N/A N/A $2,476
Vice President, 1997 99,000 N/A N/A N/A N/A 2,943
Finance, Chief 1996 106,000 N/A N/A N/A N/A 2,464
Financial Officer,
Secretary and
Treasurer
William J. Battista 1998 $127,578 N/A N/A N/A N/A $1,083
Vice President - 1997 108,016 N/A N/A N/A N/A 1,300
Fearing Division 1996 99,161 N/A N/A N/A N/A 1,325
</TABLE>
- ------------------------------
(1) The aggregate amount of perquisites and other personal benefits, securities
or property received by Mr. Geissler was less than $50,000 or 10% of his
annual salary.
(2) Consists of contributions made by the Company under its Section 401(k)
Deferred Compensation Plan. See "Information Concerning Directors and
Executive Officers -- Retirement Savings Plan."
The following information is furnished with respect to stock options
exercised in fiscal 1998 and held as of September 30, 1998 by each of the Named
Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at in-the-Money Options at
September 30, 1998(2) September 30, 1998(2)(3)
Shares --------------------- ------------------------
Acquired on Value
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable (#) Unexercisable ($)
---- ----------- -------- ----------------- -----------------
<S> <C> <C> <C> <C>
Randolph K. Geissler. . . 0 N/A 120,000/75,000 $0/$0
Thomas J. Ahmann. . . . . 0 N/A 83,750/36,250 $18,750/$0
William J. Battista . . . 0 N/A 57,500/30,000 $0/$0
</TABLE>
7
<PAGE>
- ------------------------------
(1) The information presented is as of and for the twelve months ended
September 30, 1998.
(2) The options were granted under the Option Plan (as defined below). See
"Information Concerning Directors and Executive Officers -- Stock Option
Plans." The options vest and become exercisable in four equal installments
on the grant date and the first, second and third anniversaries of the
grant date during the term of employment with the Company and expire ten
years from the date of grant.
(3) Consists of the difference between the exercise price of the options and
the $1.25 per share closing sales price of the shares of common stock
underlying the options on September 30, 1998 as quoted on The Nasdaq
SmallCap Market and reported by the NASD. The exercise price for all of
the options held by Messrs. Geissler and Battista are above $1.25 per
share.
RETIREMENT SAVINGS PLAN
All non-bargaining unit personnel of the Company are eligible to
participate in the Company's Section 401(k) Deferred Savings Plan ("401(k)
Plan") established on January 1, 1989. Salary deferrals not in excess of 15% of
the participant's annual compensation up to the maximum permitted by the
Internal Revenue Code of 1986, as amended ("Code") (presently $10,000), may be
contributed to the trust for the 401(k) Plan and invested in various investment
funds. The 401(k) Plan permits, but does not require, contributions by the
Company on behalf of all participants in the 401(k) Plan equal to $0.50 for each
$1.00 contributed by an employee up to a maximum amount equal to 6% of the
employee's wages. The contributions made under the 401(k) Plan by the Company
during fiscal 1998 on behalf of the executive officers in the Summary
Compensation Table are described therein.
STOCK OPTION PLANS
OPTION PLAN
The officers and employees of the Company are eligible to receive grants of
stock options under an employee stock option plan adopted by the Company in 1992
(the "Option Plan"). The purpose of the Option Plan is to advance the interests
of the Company through the motivation, attraction and retention of its
employees. The Option Plan currently authorizes the grant of options to
purchase an aggregate of 2,300,000 shares of common stock. All persons who are
employees of the Company, including directors who are employees, are eligible to
participate in the Option Plan. The Option Plan provides for the grant of
incentive (statutory) stock options ("ISOs"), as defined in Section 422 of the
Code and nonincentive (nonstatutory) stock options ("NSOs").
The Option Plan provides that a committee of disinterested directors, which
is currently the Compensation Committee, will grant options and otherwise
administer the Option Plan. The principal criteria for determining the number
of shares upon which options are granted to an employee are the amount of cash
compensation paid to such employee, the employee's level of responsibility and
the employee's job performance.
During the twelve months ended September 30, 1998, options to purchase
215,000 shares were granted under the Option Plan at an average exercise price
of $1.6875. As of September 30, 1998, there were options to purchase 858,000
shares outstanding under the Option Plan at an average exercise price of $2.68
per share.
8
<PAGE>
1992 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
On July 31, 1992, the Company's stockholders approved the Nonemployee
Director Stock Option Plan (the "Director Plan"). The Director Plan authorizes
the grant of options to purchase an aggregate of 300,000 shares of the Company's
common stock to Directors of the Company who are not employees of the Company
("Nonemployee Directors"). The purpose of the Director Plan is to advance the
interests of the Company through the motivation, attraction and retention of its
Nonemployee Directors. During the twelve months ended September 30, 1998,
options to purchase 57,500 shares were granted under the Director Plan at an
average exercise price of $0.99. As of September 30, 1998, there were options
to purchase 150,000 shares outstanding under the Director Plan at an average
exercise price of $1.79 per share.
Subject to the provisions of the Director Plan, it is administered by the
Compensation Committee of the Board of Directors, which determines the terms of
the options granted under the Plan and interprets the Director Plan. Each
option issued may contain terms and provisions different from other options
granted under the Director Plan to the same optionee or other optionees. The
Director Plan now provides that upon election or appointment to the Company's
Board of Directors, each Nonemployee Director is automatically granted an option
to purchase 15,000 shares of the Company's common stock. After initial election
or appointment to the Board of Directors, each Nonemployee Director
automatically receives an option to purchase an additional 2,500 shares upon
each reelection to the Board of Directors.
CONSULTANTS' STOCK OPTION PLAN
The Board of Directors adopted a Consultants' Stock Option Plan
("Consultants' Plan") on October 16, 1992. Under the Consultants' Plan, options
may be granted to consultants of the Company, including Directors of the Company
who are not employees, at such prices (which may be less than the fair market
value on the date of grant) and on such terms as the Board of Directors or the
Committee administering the Consultants' Plan approves at the time of grant.
Options granted under the Consultants' Plan do not qualify as incentive stock
options under the Code. The aggregate maximum number of shares as to which
options may be granted under the Consultants' Plan is 500,000. During the
twelve months ended September 30, 1998, no options were granted under the
Consultants' Plan. As of September 30, 1998, there were options to purchase
100,000 shares outstanding under the Consultants' Plan at an average exercise
price of $2.13 per share.
CERTAIN TRANSACTIONS
In March 1993, the Company entered into an agreement with Randolph K.
Geissler for $40,000, on an annualized basis, to act as Interim Chief Executive
Officer of the Company. Effective November 12, 1993, the Company entered into
an Employment Agreement with Mr. Geissler, the Company's President and Chief
Executive Officer, which replaced the interim employment agreement and provides
for an annual base salary of $125,000 and an initial term of employment expiring
on November 12, 1995. The term will be extended for successive one-year periods
on November 12 of each year beginning in 1995 unless Mr. Geissler or the Company
provides written notice to the other of his or its intention not to extend. The
Employment Agreement provides that in the event of early termination by the
Company for any reason other than death, disability or termination for good
cause during the initial two-year term, the Company will pay severance
compensation in an amount equal to 24 months' base salary. If the termination
occurs after the initial two-year period, the severance compensation will be
equal to one and one-half months' base salary for every year Mr. Geissler has
been employed by the Company or by Fearing up to a maximum of 24 months' base
salary.
9
<PAGE>
In October, 1998, the Company retained Thomas J. Patin, a director, as a
consultant. In that capacity, Mr. Patin is paid compensation at the rate of
$10,000 per month.
During fiscal 1998, Richard E. Jahnke, a director of the Company, served as
a consultant to the Company and received remuneration in the aggregate amount of
$12,500.
During fiscal 1998, Cherry Tree & Co., a privately-held investment company
for which David A. Henderson serves as president, performed investment banking
services for the Company and received compensation of $42,500.
During fiscal years 1997 and 1998, the Company purchased marketing products
and services from Battista & Co. in amounts of $62,210 and $43,741,
respectively. Battista & Co. is owned by the brother of William J. Battista, an
officer of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Decisions and recommendations regarding compensation paid and options
granted to the Company's executive officers in fiscal 1998 were made by the
Compensation Committee consisting of Stanley Goldberg, Chairman, Richard E.
Jahnke, Douglas M. Pihl each of whom is a non-employee director of the Company.
See "Report of the Compensation Committee." Randolph K. Geissler, the only
executive officer of the Company who serves on the Board of Directors, abstains
from voting on compensation matters affecting his compensation.
10
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Committee") is
composed of three non-employee directors of the Company. For fiscal 1998, the
Committee consisted of Stanley Goldberg, Chairman of the Committee, Richard E.
Jahnke and Douglas M. Pihl. The Committee is responsible for assuring that
compensation for executives is consistent with the Company's compensation
philosophy. The Committee also administers and makes grants under the Company's
Option Plan with respect to the Company's executive officers.
The Company's executive compensation program is based on a
pay-for-performance philosophy. Under the Company's program, an executive's
compensation consists of two components: base salary and long-term incentives
(consisting of stock options). Base salary is determined by an assessment of
the executive's sustained performance against his or her individual job
responsibilities, including the impact of such performance on the business
results of the Company, as well as the level of achievement of annual
performance targets, including pre-tax earnings and other performance targets
related to business functions under the executive's direction. Annual
performance targets are based upon the Company's annual strategic plan as
reviewed by the Board of Directors.
The Company's long-term incentives are in the form of stock options. The
objectives of these awards is to advance the longer term interests of the
Company and its stockholders, complement incentives tied to annual performance,
and align the interests of executives more closely with those of stockholders.
The Company also believes that the entrepreneurial character of its executives
makes the long-term incentives provided by its stock option program especially
significant in the motivation and retention of its executives. The number of
stock options awarded to an executive is based on the executive's position and
his or her performance in that position. The stock options granted to the
Company's executives, including those granted to Mr. Geissler, vest over a
three-year period, and each option is exercisable, to the extent it has vested,
over a ten-year period following the date of its grant.
Mr. Geissler's base salary results from his participation in the same
compensation program as the other executives of the Company. His base salary is
reviewed periodically, and it was increased in fiscal 1996, 1997 and 1998. The
stock options granted to Mr. Geissler in 1996, 1997 and 1998 reflects the
Company's compensation philosophy of providing long-term incentives aligned with
the interests of stockholders.
The Committee believes that the Company's executives are focused on the
attainment of a sustained high rate of growth and profitability for the benefit
of the Company and its stockholders, and that the Company's compensation
program, with its emphasis on performance-based and long-term incentive
compensation, serves to reinforce this focus.
By the Compensation Committee
Stanley Goldberg, Chairman
Richard E. Jahnke
Douglas M. Pihl
11
<PAGE>
PERFORMANCE GRAPH
The Company's Common Stock was quoted on The Nasdaq National Market from
April 1992 until September 1994, and it has been quoted on The Nasdaq SmallCap
Market since September 4, 1994. The following graph shows changes during the
period from September 30, 1993 to September 30, 1998 in the value of $100
invested in: (1) the Company's Common Stock; (2) the Total Return Index for The
Nasdaq Stock Market (U.S.) compiled by the Center for Research in Securities
Prices ("CRSP") at the University of Chicago, Chicago, Illinois; and (3) the
CRSP Total Return Index for Nasdaq Non-Financial Stocks. The values of each
investment as of the dates indicated are based on share prices plus any
dividends paid in cash, with the dividends reinvested on the date they were
paid. The calculations exclude trading commissions and taxes.
[GRAPH]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
09/30/93 09/30/94 09/30/95 09/30/96 09/30/97 09/30/98
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Destron Fearing Corporation $100.00 $135.29 $494.12 $270.59 $205.88 $117.65
- -------------------------------------------------------------------------------------------------
CRSP Index for Nasdaq Stock Market $100.00 $100.83 $139.28 $165.24 $226.81 $231.79
(U.S.)
- -------------------------------------------------------------------------------------------------
CRSP Index for Nasdaq Non-Financial $100.00 $ 99.45 $138.62 $161.82 $217.29 $219.97
Stocks
- -------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information as of November 30, 1998
regarding the beneficial ownership of shares of Common Stock of the Company by
(i) each person (including any "group") who is known by the Company to
beneficially own more than 5% of the Company's Common Stock, (ii) each executive
officer named in the Summary Compensation Table, (iii) each Director of the
Company, and (iv) all Directors and executive officers of the Company as a
group. Except as otherwise indicated, the Company believes that the beneficial
owners of the common stock described below, based on information furnished by
such owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING SHARES(1)
- ------------------------ ------------------ ---------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Randolph K. Geissler 631,880(2) 4.7%
Thomas J. Ahmann 101,550(3) *
David A. Henderson 61,500(4) *
William J. Battista 67,500(5) *
Kenneth D. Larson 40,000(6) *
Richard E. Jahnke 17,500(7) *
Stanley Goldberg 17,500(7) *
Douglas M. Pihl 17,500(7) *
Robert C. Calgren 38,000(8) *
John R. Beattie 69,700(9) *
Gary S. Kohler 15,000(7) *
Thomas J. Patin 165,000(10) 1.2%
All executive officers and
Directors as a group (11 persons) 1,310,130(11) 9.4%
CERTAIN OTHER BENEFICIAL OWNERS:
The Destron Fearing Shareholder
Group (a group consisting of 12 1,144,950(12) 8.6%
individual stockholders)
1800 Fifth Street Towers
150 South Fifth Street
Minneapolis, Minnesota 55402
</TABLE>
- ---------------------
* Less than 1%.
(1) Based on 13,353,982 shares outstanding as of November 30, 1998, which does
not include 904,750 shares of common stock issuable upon exercise of stock
options and warrants vested at November 30, 1998. However, each figure
showing the percentage of outstanding shares owned
13
<PAGE>
beneficially has been calculated by treating as outstanding and owned the
shares which could be purchased by each beneficial owner within 60 days
upon the exercise of stock options and warrants.
(2) Includes 145,000 shares issuable upon exercise of options held by Mr.
Geissler that were exercisable as of November 30, 1998 or that will
become exercisable within 60 days of that date.
(3) Includes 96,250 shares issuable upon exercise of options held by Mr.
Ahmann that were exercisable as of November 30, 1998 or that will become
exercisable within 60 days of that date.
(4) Includes 27,500 shares issuable upon exercise of options directly owned
by Mr. Henderson. Also includes 30,000 shares issuable upon exercise of
warrants owned of record by Founding Partners II Limited Partnership, an
entity for which Mr. Henderson is a managing partner.
(5) Consists of 67,500 shares issuable upon exercise of options held by Mr.
Battista that were exercisable as of November 30, 1998 or that will
become exercisable within 60 days of that date.
(6) Includes 25,000 shares issuable upon exercise of options held by Mr.
Larson that were exercisable as of November 30, 1998.
(7) Consists of shares issuable upon exercise of vested options.
(8) Consists of shares issuable upon exercise of options held by Mr. Calgren
that were exercisable as of November 30, 1998 or that will become
exercisable within 60 days of that date.
(9) Includes 54,700 shares held in Mr. Beattie's 401(k) account. Also
includes 15,000 shares issuable upon exercise of options held by Mr.
Beattie that were exercisable as of November 30, 1998. Mr. Beattie is
also a member of a group of 12 individuals which has filed a Schedule 13D
covering 1,144,950 shares of the Company's Common Stock, including the
shares beneficially owned by Mr. Beattie. See footnote 12 below.
(10) Includes 10,000 shares owned by Mr. Patin's spouse. Also includes 15,000
shares issuable upon exercise of options held by Mr. Patin that were
exercisable as of November 30, 1998.
(11) Includes 559,250 shares issuable upon exercise of vested options and
warrants, or options that are exercisable within 60 days of November 30,
1998, held by all executive officers and Directors as a group.
(12) Information as to The Destron Fearing Shareholder Group (the "Group") is
based upon a Schedule 13D filed by the Group with the Securities and
Exchange Commission (the "Commission") on April 16, 1998, as amended by
Amendment No. 1 to such Schedule 13D filed with Commission on May 13,
1998.
SECTION 16 (a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
As required by rules adopted by the Securities and Exchange Commission
("SEC") under Section 16 of the Securities Exchange Act of 1934, directors and
executive officers of the Company are required to file with the SEC an Initial
Report of Beneficial Ownership on Form 3 within a certain period after becoming
an executive officer or director stating the number of shares of common stock
owned, a
14
<PAGE>
Report of Change in Beneficial Ownership on Form 4 to report transactions in the
Company's common stock, and an Annual Statement of Beneficial Ownership of
Securities on Form 5 to report other transactions in securities of the Company
that are not required to be reported on a Form 4. Based upon the Company's
review of such Forms furnished to it by the directors and executive officers
required to file such Forms, the Company believes that, except as hereinafter
reported, all of these filing requirements have been satisfied. On September
11, 1998, Messrs. John R. Beattie, Gary S. Kohler and Thomas J. Patin became
directors of the Company, and as a result, were required to file Initial Reports
of Beneficial Ownership on Form 3 on or before September 21, 1998. The
Company's records indicate that such Reports were filed on September 23, 1998.
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION TO EFFECT
UP TO A ONE-FOR-FIVE REVERSE STOCK SPLIT
GENERAL
The Board of Directors of the Company has approved and recommends to the
stockholders that they consider and approve a proposal to amend the Company's
Certificate of Incorporation ("Certificate of Incorporation") to provide that up
to five (5) shares of the currently issued and outstanding shares of Common
Stock of the Company, par value $.01 per share (the "Old Common Stock"), shall
be converted into one (1) issued and outstanding share of Common Stock of the
Company, par value $.01 per share (the "New Common Stock"). This proposed
amendment is referred to herein as the "Reverse Stock Split". If the proposed
amendment is approved by stockholders and following such approval, the Board of
Directors still believes the Reverse Stock Split is in the best interests of the
Company and its stockholders, Article V of the Company's Certificate of
Incorporation would be amended as set forth in the Certificate of Amendment
attached to this Proxy Statement as Exhibit A (the "Amendment"). The Board of
Directors of the Corporation, in its discretion, will determine the actual
number of shares of Old Common Stock (up to five shares) to be reverse split and
combined into one share of New Common Stock. Accordingly, the Board of
Directors may make appropriate changes to the form of Amendment to reflect its
final determination as to the reverse stock split ratio (up to one-for-five).
The effective date of the Reverse Stock Split shall be the date upon which said
Amendment is filed with the Secretary of State of the State of Delaware (the
"Effective Date").
The Certificate of Incorporation, as amended to date, provides for
20,000,000 authorized shares of Common Stock, par value $.01 per share. As of
the Record Date, 13,353,982 shares of Common Stock were issued and outstanding.
The Company is not proposing to reduce the number of authorized shares of Common
Stock in connection with the Reverse Stock Split.
In order to effect the Reverse Stock Split, the stockholders are being
asked to approve the Amendment. The Board of Directors of the Company believes
that the Reverse Stock Split is in the best interests of both the Company and
its stockholders and has approved the Reverse Stock Split. The Board of
Directors of the Company reserves the right, notwithstanding stockholder
approval and without further action by the stockholders, to decide not to
proceed with the Reverse Stock Split if at any time prior to its effectiveness
it determines, in its sole discretion, that the Reverse Stock Split is no longer
in the best interests of the Company and its stockholders.
EFFECTS OF THE REVERSE STOCK SPLIT
If effected, a one-for-five Reverse Stock Split would reduce the number of
outstanding shares of Old Common Stock from 13,353,982 as of the Record Date to
approximately 2,670,796 shares of New
15
<PAGE>
Common Stock as of the Effective Date. (The foregoing assumes no issuances or
repurchases of Common Stock between the Record Date and the Effective Date.)
The Reverse Stock Split would have no effect on the number of authorized shares
of the Common Stock or the par value of the Common Stock and each share of New
Common Stock will continue to entitle its holder to one vote. Since the total
number of authorized shares of Common Stock will not be adjusted in connection
with the Reverse Stock Split, the number of authorized and unissued shares
available for future issuance will increase as a result of the Reverse Stock
Split. While the increased number of authorized but unissued shares of Common
Stock will provide the Company with greater flexibility to issue additional
shares of Common Stock in the future, the Company does not currently have any
plans regarding the issuance of such shares.
As of the Record Date, in addition to the 13,353,982 shares of Old Common
Stock outstanding, the Company had (i) an aggregate of 3,100,000 shares of Old
Common Stock reserved for issuance upon exercise of options granted under the
Company's Option Plan, Director Plan and Consultants' Plan, of which options to
purchase 1,066,000 shares of Old Common Stock are outstanding , and (ii) 484,037
shares of Old Common Stock issuable upon exercise of outstanding warrants. The
number of shares reserved for options and warrants, the number of shares covered
by outstanding options and warrants and the exercise price for outstanding
options and warrants will be proportionately adjusted to reflect the Reverse
Stock Split. Therefore, if the proposed Amendment is approved and assuming a
one-for-five Reverse Stock Split is effected, on the Effective Date, there will
be an aggregate of 310,007 shares of New Common Stock reserved for issuance upon
exercise of outstanding options and warrants.
The following table illustrates the principal effects of the proposed
Amendment for a one-for-five reverse stock split on the Company's capital stock:
<TABLE>
<CAPTION>
Number of Shares Prior to Proposed After Proposed
of Common Stock Reverse Stock Split Reverse Stock Split
--------------- ------------------- -------------------
<S> <C> <C>
Authorized Shares . . . . . . . . . 20,000,000 20,000,000
Issued and Outstanding . . . . . . 13,353,982 2,670,795
Available for Future Issuance . . . 6,646,018 17,329,205
</TABLE>
The Reverse Stock Split would not affect any stockholder's proportionate
equity interest or proportional voting power in the Company except for those
stockholders who would receive cash in lieu of fractional shares as described
below. None of the rights currently accruing to holders of the Company's Common
Stock or options or warrants to purchase Common Stock will be affected by the
Reverse Stock Split. Although the Board of Directors believes as of the date of
this Proxy Statement that the Reverse Stock Split is advisable, the Reverse
Stock Split may be abandoned by the Board of Directors at any time before,
during or after the Annual Meeting and prior to the Effective Date. The Board
of Directors may make any and all changes to the Amendment that it deems
necessary in order to file the Amendment with the Delaware Secretary of State
and give effect to the Reverse Stock Split.
BACKGROUND AND REASONS FOR THE REVERSE STOCK SPLIT
The principal reason for the Reverse Stock Split is to maintain the
continued listing of the Company's Common Stock on the Nasdaq SmallCap Market.
In order to maintain listing on the Nasdaq SmallCap Market, the Company's Common
Stock must satisfy the Nasdaq SmallCap Market minimum closing bid price
requirement of $1.00 per share. On November 17, 1998, the Common Stock had been
trading below $1.00 for 30 consecutive trading days. On such date, the Company
was notified in writing that the Company's Common Stock had failed to maintain a
closing bid price of greater than or equal to $1.00 per share as required by the
Nasdaq SmallCap Market. Unless the Common Stock maintains a closing bid price
of at least $1.00 per share for ten consecutive trading days during a period
ending on
16
<PAGE>
February 17, 1999, the Common Stock will be delisted from the Nasdaq SmallCap
Market. In such event, trading, if any, in the Common Stock or New Common
Stock, as the case may be, would thereafter be conducted in the over-the-counter
market in the so-called "pink sheets" or the NASD's Electronic Bulletin Board.
Consequently, the liquidity of such securities could be severely adversely
affected, not only in the number of shares which could be bought and sold, but
also through delays in the timing of transactions, reduction in security
analysts' and the news media's coverage of the Company and lower prices for such
securities than might otherwise be attained.
The reduction in the number of issued and outstanding shares of Common
Stock caused by the Reverse Stock Split is expected to increase the market price
of the Common Stock to a level above the current market trading price to permit
continued listing on the Nasdaq SmallCap Market. While the Board of Directors
believes that the shares of Common Stock will trade at higher prices than those
which have prevailed over the recent weeks, there can be no assurance that such
increase in the trading price will occur or, if it does occur, that it will
equal or exceed the direct arithmetical result of the Reverse Stock Split since
there are numerous factors and contingencies which could affect such price.
Further, there can be no assurance that the Company will comply with the
continued listing requirements of the Nasdaq SmallCap Market following the
Reverse Stock Split or that the reduced number of shares outstanding after the
Reverse Stock Split will not adversely affect the liquidity of the Common Stock.
The Board of Directors also believes that the proposed Reverse Stock Split
will result in a broader market for the Common Stock than that which currently
exists. A variety of brokerage house policies and practices tend to discourage
individual brokers within those firms from dealing with lower priced stocks.
Some of those policies and practices pertain to the payment of broker's
commissions and to time consuming procedures that function to make the handling
of lower priced stock economically unattractive to brokers. In addition, the
structure of trading commissions also tends to have an adverse impact upon
holders of lower priced stock because the brokerage commission on a sale of
lower priced stock generally represents a higher percentage of the sales price
than the commission on a relatively higher priced issue. The Reverse Stock
Split may result in a price level for the Common Stock that will reduce, to some
extent, the effect of the above-referenced policies and practices of brokerage
firms and diminish the adverse impact of trading commissions on the market for
the Common Stock. The expected increased price level may also encourage
interest and trading in the Common Stock and possibly promote greater liquidity
for the Company's stockholders.
CERTAIN ANTI-TAKEOVER EFFECTS OF THE PROPOSED AMENDMENT
Approval of the proposed Amendment to the Certificate of Incorporation will
increase the number of authorized shares of Common Stock available for future
issuance. Under certain circumstances, the Board of Directors could create
impediments to, or delay persons seeking to effect, a takeover of transfer of
control of the Company by causing such additional authorized shares to be issued
to a holder or holders who might side with the Board in opposing a takeover bid
that the Board of Directors determines is not in the best interests of the
Company and its stockholders. Such an issuance could diminish the voting power
of existing stockholders who favor a change in control, and the ability to issue
the shares could discourage an attempt to acquire control of the Company. While
it may be deemed to have potential anti-takeover effects, the Board is proposing
the Amendment solely for the purpose of maintaining the Company's listing on the
Nasdaq SmallCap Market, and the proposed Amendment is not prompted by any
specific effort or takeover threat currently perceived by management. Moreover,
management does not currently intend to propose additional anti-takeover
measures in the foreseeable future.
17
<PAGE>
MECHANICS OF REVERSE STOCK SPLIT
If the Reverse Stock Split is approved by the requisite vote of the
Company's stockholders, the Amendment will be filed with the Delaware Secretary
of State no later than April 1, 1999 and the Reverse Stock Split will thus be
effected, unless abandoned by the Board of Directors as described above. Upon
filing of the Amendment, up to five (5) issued and outstanding shares of Old
Common Stock will, immediately following filing of the Amendment, be
automatically and without any action on the part of the stockholders converted
into and reconstituted as one (1) share of New Common Stock.
As soon as practical after the Effective Date, the Company will forward a
letter of transmittal to each holder of record of shares of Old Common Stock
outstanding as of the Effective Date. The letter of transmittal will set forth
instructions for the surrender of certificates representing shares of Old Common
Stock to Norwest Bank Minnesota, N.A., the Company's transfer agent ("Exchange
Agent") in exchange for certificates representing the number of whole shares of
New Common Stock into which the shares of Old Common Stock have been converted
as a result of the Reverse Stock Split. CERTIFICATES SHOULD NOT BE SENT TO THE
COMPANY OR THE EXCHANGE AGENT PRIOR TO RECEIPT OF SUCH LETTER OF TRANSMITTAL
FROM THE COMPANY.
Until a stockholder forwards a completed letter of transmittal together
with certificates representing his shares of Old Common Stock to the Exchange
Agent and receives a certificate representing shares of New Common Stock, such
stockholder's Old Common Stock shall be deemed equal to the number of whole
shares of New Common Stock to which each stockholder is entitled as a result of
the Reverse Stock Split.
No scrip or fractional share certificates evidencing shares of Common Stock
will be issued in connection with the Reverse Stock Split. If a stockholder is
entitled to a fractional interest of a share, he or she will receive in lieu
thereof, cash (without interest) in an amount equal to such fractional share of
Common Stock multiplied by the last reported sale price of the Common Stock on
the Nasdaq SmallCap Market on the last business day prior to the Effective Date
or, if no such sale is made on such day, the average of the closing bid and
asked prices for such day on the Nasdaq SmallCap Market. Stockholders are
encouraged to surrender their Old Common Stock certificates to the Exchange
Agent for certificates evidencing whole shares of New Common Stock and to claim
the sums, if any, due them for fractional interests as promptly as possible
following the Effective Date. No holder shall be entitled to dividends, voting
rights or any other rights as a stockholder with respect to any fractional
shares. No service charge will be payable by stockholders in connection with
the exchange of certificates or the issuance of cash for fractional interests,
all of which costs will be borne and paid by the Company.
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT
The following is a summary of the material anticipated federal income tax
consequences of the Reverse Stock Split to stockholders of the Company. This
summary is based on the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury Department Regulations (the "Regulations")
issued pursuant thereto, and published rulings and court decisions in effect as
of the date hereof, all of which are subject to change. This summary does not
take into account possible changes in such laws or interpretations, including
amendments to the Code, applicable statutes, Regulations and proposed
Regulations or changes in judicial or administrative rulings, some of which may
have retroactive effect. No assurance can be given that any such changes will
not adversely affect the discussion of this summary. This summary is provided
for general information only and does not purport to address all aspects of the
possible federal income tax consequences of the Reverse Stock Split and IS NOT
INTENDED AS TAX ADVICE TO ANY PERSON. ACCORDINGLY, EACH STOCKHOLDER IS
ENCOURAGED TO CONSULT HIS OR HER TAX ADVISOR REGARDING
18
<PAGE>
THE SPECIFIC TAX CONSEQUENCES OF THE PROPOSED TRANSACTION TO SUCH STOCKHOLDER,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
The Company believes that the Reverse Stock Split will qualify as a
"recapitalization" under Section 368(a)(1)(E) of the Code. As a result, no gain
or loss will be recognized by the Company or its stockholders in connection with
the Reverse Stock Split. A stockholder of the Company who exchanges his or her
Old Common Stock solely for New Common Stock will recognize no gain or loss for
federal income tax purposes (except to the extent of any cash received in lieu
of fractional shares of New Common Stock). Cash payments in lieu of fractional
shares of New Common Stock should be treated as if the fractional shares were
issued to the stockholder and then redeemed by the Company for cash. A Company
stockholder receiving such payment should recognize gain or loss equal to the
difference, if any, between the amount of cash received and the stockholder's
basis in the fractional share (determined as provided below). Such gain or loss
will be capital gain or loss if the shares are held as a capital asset at the
time of the Reverse Stock Split, the payment of cash in lieu of the fractional
share is a mere mechanical rounding off of fractions and not separately
bargained for consideration, and the payment is "not essentially equivalent to a
dividend" with respect to the stockholder under the federal income tax law. For
this purpose, a payment is not essentially equivalent to a dividend if it
results in a "meaningful reduction" in the stockholder's percentage interest in
the Company, taking into account the constructive ownership rules and
redemptions of the fractional shares from all the stockholders. The Internal
Revenue Service has ruled publicly that any reduction in the percentage interest
of a small minority stockholder in a publicly-held corporation who exercises no
control over corporate affairs should constitute a meaningful reduction;
provided, however, if this ruling does not apply, the cash payment for the
fractional shares may be taxed as a dividend payment. A stockholder's aggregate
tax basis in his or her shares of New Common Stock received from the Company
will be the same as his or her aggregate tax basis in the Old Common Stock
exchanged therefor, less any portion of such basis allocated to fractional
shares for which a cash payment was received. The holding period of the New
Common Stock received by such stockholder will include the period during which
the Old Common Stock surrendered in exchange therefor was held, provided all
such Common Stock was held as a capital asset on the date of the exchange.
ACCOUNTING EFFECTS OF THE REVERSE STOCK SPLIT
Following the Effective Date, the par value of the Company's Common Stock
will remain at $.01 per share. As a result, the Company's stated capital will
be reduced and capital in excess of par value (additional paid-in capital)
increased accordingly. Stockholders' equity will remain unchanged.
NO DISSENTERS' RIGHTS
Dissenting stockholders have no appraisal rights under Delaware law or
under the Company's Certificate of Incorporation or By-laws in connection with
the Reverse Stock Split.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding shares of Common
Stock of the Company is required to approve the Amendment to the Certificate of
Incorporation to effect the proposed reverse stock split.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL
OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION AS SET FORTH IN PROPOSAL 2.
19
<PAGE>
PROPOSAL 3
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Arthur Andersen LLP as
independent auditors for the fiscal year ending September 30, 1999, subject to
the ratification of the holders of the Company's common stock. If the holders
of the common stock do not ratify the selection of Arthur Andersen LLP, other
independent accountants will be considered and selected by the Board of
Directors. All proxies received in response to this solicitation will be voted
in favor of the ratification of the appointment of Arthur Andersen LLP as the
Company's independent accountants, unless other instructions are indicated
thereon. A representative of Arthur Andersen LLP will be present at the Annual
Meeting, will have an opportunity to make a statement if he or she desires to do
so, and will be available to respond to appropriate questions from stockholders.
Arthur Andersen LLP has served as the Company's independent auditors since
the fiscal year ended February 28, 1993.
All proxies received in response to this solicitation will be voted in
favor of the ratification of the appointment of the independent auditors, unless
other instructions are indicated thereon.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the shares of common stock of the
Company represented at the Annual Meeting either in person or by proxy, assuming
a quorum is present, is required to ratify the appointment of Arthur Andersen
LLP as independent auditors for the Company for the year ending September 30,
1999.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS
AS SET FORTH IN PROPOSAL 3.
PROPOSALS OF STOCKHOLDERS
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended, any stockholder wishing to have a proposal considered for inclusion in
the Company's proxy solicitation materials for the 2000 Annual Meeting of
Stockholders must set forth such proposal in writing and file it with the
Secretary of the Company no later than August 30, 1999. If such stockholder
fails to notify the Company of a proposal before November 30, 1998, such notice
will be considered untimely and management proxies may use their discretionary
voting authority with respect to any such proposal.
OTHER BUSINESS
At the date of this Proxy Statement, management knows of no other business
that may properly come before the Annual Meeting. However, if any other matters
properly come before the meeting, the persons named in the enclosed form of
proxy will vote the proxies received in response to this solicitation in
accordance with their best judgment on such matters.
FINANCIAL INFORMATION
The Company's Report to Shareholders for fiscal 1998 and the Company's
balance sheets as of September 30, 1996, 1997 and 1998 and related statements of
income, changes in stockholders' equity
20
<PAGE>
and cash flows for the periods ended September 30, 1997 and 1998, accompanies
these materials. IN ADDITION, THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY
STOCKHOLDER SOLICITED HEREBY, UPON WRITTEN REQUEST OF SUCH STOCKHOLDER, A COPY
OF ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1998.
REQUESTS SHOULD BE DIRECTED TO THE CHIEF FINANCIAL OFFICER, DESTRON FEARING
CORPORATION, 490 VILLAUME AVENUE, SOUTH ST. PAUL, MINNESOTA 55075.
Dated: December 29, 1998 BY ORDER OF THE BOARD OF DIRECTORS
/s/ Thomas J. Ahmann
Thomas J. Ahmann, SECRETARY
<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
DESTRON FEARING CORPORATION
Destron Fearing Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies as follows:
FIRST: The name of the Corporation is Destron Fearing Corporation.
SECOND: The Board of Directors of the Corporation adopted and approved the
following resolution to be submitted for the approval of the stockholders of the
Corporation at the Annual Meeting of Stockholders to be held on January 29,
1999:
RESOLVED, that Article V of the Certificate of Incorporation of the
Corporation is hereby amended to add a new paragraph 5.3 to read as
follows:
5.3 Upon the filing of this Certificate of Amendment to the Certificate
of Incorporation with the Secretary of State of the State of
Delaware (the "Effective Date"), every _______________ (__) issued
and outstanding shares of common stock, $.01 par value per share,
shall be automatically, without any action on the part of the
stockholders, consolidated and combined into one (1) share of common
stock, $.01 par value per share, subject to the treatment of
fractional interests as described below. Each holder of a
certificate or certificates which, immediately prior to the
Effective Date represented outstanding shares of common stock, $.01
par value per share, shall be entitled to receive a new certificate
or certificates for the number of shares of common stock, $.01 par
value per share, they own immediately on or after the Effective Date
by presenting their old certificate(s) to the Corporation's transfer
agent for cancellation and exchange. No scrip or fractional
certificates will be issued. Each holder of shares shall be
entitled to receive, in lieu of fractional shares, a cash payment
from the Corporation equal to the fair market value of such
fractional interest determined by reference to the last reported
sale price of the Common Stock on the Nasdaq SmallCap Market on the
last business day prior to the Effective Date or, if no such sale is
made on such day, the average of the closing bid and asked prices
for such day on the Nasdaq SmallCap Market.
THIRD: A majority of the issued and outstanding shares of common stock of
the Corporation were voted in favor of the amendment at the Annual Meeting of
Stockholders of the Corporation held on January 29, 1999.
FOURTH: This amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
subscribed by its President and Chief Executive Officer, this ____ day of
__________, 1999.
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Randolph K. Geissler, President and Chief
Executive Officer
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PROXY
DESTRON FEARING CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
JANUARY 29, 1999
The undersigned, revoking all prior proxies, hereby appoints Randolph K.
Geissler and Thomas J. Ahmann, and either of them, as proxy or proxies, with
full power of substitution and revocation, to vote all shares of common stock of
Destron Fearing Corporation (the "Company") of record in the name of the
undersigned at the close of business on December 23, 1998, at the Annual Meeting
of Stockholders (the "Annual Meeting") to be held on Friday, January 29, 1999,
or at any adjournment thereof, upon the following matters:
1. Election of the following directors: Randolph K. Geissler, David A.
Henderson, Kenneth D. Larson, Richard E. Jahnke, Stanley Goldberg, Douglas
M. Pihl, John R. Beattie, Gary S. Kohler, Thomas J. Patin.
/ / FOR ALL NOMINEES / / WITHHOLD FOR ALL NOMINEES
FOR ALL NOMINEES EXCEPT THE FOLLOWING:
(Mark no box and write the name(s) of the nominee(s) withheld in the space
provided below.)
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(Continued on reverse side)
2. Proposal to amend the Company's Certificate of Incorporation to effect up
to a one-for-five reverse stock split of the Company's outstanding shares
of common stock, par value $.01 per share.
/ / FOR / / AGAINST / / ABSTAIN
3. Ratification of appointment of Arthur Andersen LLP as independent auditors
for the fiscal year ending September 30, 1999.
/ / FOR / / AGAINST / / ABSTAIN
In their discretion, the Proxies are authorized to vote upon such matters
as may properly come before the Annual Meeting, or any adjournments thereof.
PLEASE MARK, DATE, SIGN, AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted FOR Proposals 1, 2 and 3. The Board of Directors recommends a vote FOR
Proposals 1, 2 and 3.
Please sign your name exactly as it appears below. In the case of shares
owned in joint tenancy or as tenants in common, all should sign. Fiduciaries
should indicate their title and authority.
Dated: , 1999.
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Signature(s)
