UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

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  o

 

Check the appropriate box:

 

 

 

 

Payment of Filing Fee (Check the appropriate box)

 

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INTRICON CORPORATION

1260 Red Fox Road

Arden Hills, Minnesota 55112

March 24, 2008

Dear Shareholder:

It is my great pleasure to invite you to attend the 2008 Annual Meeting of Shareholders (the “Annual Meeting”). The Annual Meeting will be held on Wednesday, April 23, 2008 at 11:30 a.m., local time, at our offices located at 1260 Red Fox Road, Arden Hills, Minnesota 55112.

At this year’s Annual Meeting our shareholders will vote on the election of one director to hold office for a term of three years and until his successor is duly elected and qualified, on the approval of an amendment to our Amended and Restated Articles of Incorporation, as amended, to increase the number of authorized shares of common stock from 10,000,000 shares to 20,000,000 shares and on the ratification of the appointment of Virchow, Krause & Company, LLP as IntriCon Corporation’s independent auditor for fiscal year 2008. The official notice of the Annual Meeting, together with the proxy statement and proxy card, are enclosed.

The vote of every shareholder is important. Therefore, whether or not you expect to attend the meeting in person, I urge you to sign and date the enclosed proxy card and return it promptly in the envelope provided for that purpose. You also have the option of voting by telephone. If you choose to vote by telephone you may call toll-free in the U.S. or Canada, 1-866-626-4508 on a touch-tone telephone. You also have the option of voting over the Internet. To do so, log on to www.votestock.com and follow the web site instructions. Once you have cast your vote, be sure to click on “Accept Vote.” If you vote by telephone or electronically over the Internet, you do not need to return your proxy card.

Thank you for your continued interest in IntriCon Corporation. I look forward to seeing you at the Annual Meeting.

Sincerely,

 

Mark S. Gorder

President and Chief Executive Officer

 

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INTRICON CORPORATION

1260 Red Fox Road

Arden Hills, Minnesota 55112

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To be held April 23, 2008

The 2008 Annual Meeting of Shareholders (the “Annual Meeting”) of IntriCon Corporation (the “Corporation”) will be held on Wednesday, April 23, 2008 at the Corporation’s offices located at 1260 Red Fox Road, Arden Hills, Minnesota, 55112 at 11:30 a.m., local time, for the following purposes:

The Board of Directors has fixed the close of business on March 19, 2008 as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting or any adjournment or postponement thereof. If the Annual Meeting is adjourned because of the absence of a quorum, those shareholders entitled to vote who attend the adjourned Annual Meeting, although constituting less than a quorum as provided herein, shall nevertheless constitute a quorum for the purpose of electing directors. If the Annual Meeting is adjourned for one or more periods aggregating at least 15 days because of the absence of a quorum, those shareholders entitled to vote who attend the reconvened Annual Meeting, if less than a quorum as determined under applicable law, shall nevertheless constitute a quorum for the purpose of acting upon any other matter set forth in this Notice of Annual Meeting.

All shareholders are cordially invited to attend the meeting, but whether or not you expect to attend the meeting in person, please mark, sign and date the enclosed proxy card and return it promptly in the envelope provided in order that your shares may be voted.

You also have the option of voting by telephone. If you choose to vote by telephone you may call toll-free in the U.S. or Canada, 1-866-626-4508 on a touch-tone telephone. You also have the option of voting over the Internet. To do so, log on to www.votestock.com and follow the web site instructions. Once you have cast your vote, be sure to click on “Accept Vote.” If you attend the meeting, you may revoke your proxy and vote in person. The deadline to vote telephonically or over the Internet is Tuesday, April 22, 2008, 11:59 p.m., eastern daylight time. If you vote by telephone or electronically over the Internet, you do not need to return your proxy card.

 

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If your shares are held in “street name” (that is, if your stock is registered in the name of your broker, bank, or other nominee), please contact your broker, bank or nominee to determine whether you will be able to vote by telephone or electronically through the Internet.

 

By Order of the Board of Directors

Michael J. McKenna

Chairman of the Board

 

March 24, 2008

Arden Hills, Minnesota

 

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INTRICON CORPORATION

1260 Red Fox Road

Arden Hills, Minnesota 55112

PROXY STATEMENT

This proxy statement and the enclosed proxy are being furnished to shareholders of IntriCon Corporation (the “Corporation”) in conjunction with the solicitation of proxies by the Board of Directors of the Corporation for use at the 2008 Annual Meeting of Shareholders (the “Annual Meeting”) to be held on Wednesday, April 23, 2008 at the Corporation’s offices located at 1260 Red Fox Road, Arden Hills, Minnesota 55112, at 11:30 a.m., local time, and any adjournment or postponement of the Annual Meeting. This Proxy Statement and accompanying form of proxy are first being sent or given to shareholders on or about March 24, 2008.

The Board of Directors has fixed the close of business on March 19, 2008 as the record date for determination of the shareholders entitled to notice of and to vote at the Annual Meeting. As of March 19, 2008, there were 5,303,406 shares of common stock, par value $1.00 per share (the “Common Shares”) of the Corporation outstanding, each of which is entitled to one vote on all matters to be presented at the Annual Meeting.

Proxies in the form enclosed, if properly executed and received in time for voting, and not revoked, will be voted as directed on the proxies. If no directions to the contrary are indicated, the persons named in the proxy will vote all of your Common Shares “for” the election of the nominee for director, “for” the approval of the amendment to the Amended and Restated Articles of Incorporation, as amended, to increase the number of authorized Common Shares from 10,000,000 to 20,000,000 and “for” the ratification of the appointment of Virchow, Krause & Company, LLP as the Corporation’s independent auditor for fiscal year 2008. With respect to any other matter that properly comes before the meeting, the proxy holders will vote the proxies in their discretion in accordance with their best judgment. Because the proxy is revocable, sending in a signed proxy will not affect a shareholder’s right to attend the Annual Meeting and vote in person. You also have the option of voting by telephone. If you choose to vote by telephone you may call toll-free in the U.S. or Canada, 1-866-626-4508 on a touch-tone telephone. You also have the option of voting over the Internet. To do so, log on to www.votestock.com and follow the web site instructions. Once you have cast your vote, be sure to click on “Accept Vote.” The deadline to vote telephonically or over the Internet is Tuesday, April 22, 2008, 11:59 p.m., eastern daylight time.

Any shareholder who submits a proxy may revoke it at any time before the proxy is voted at the Annual Meeting by delivering a later dated proxy or by giving written notice to the Secretary of the Corporation or attending the Annual Meeting in person and so requesting. If you vote by telephone or over the Internet, you may change your vote telephonically or over the Internet by following the procedures used to submit your initial vote. The last vote received chronologically will supersede any prior votes. Attendance at the Annual Meeting will not by itself revoke a previously granted proxy.

 

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The presence, in person or represented by proxy, of the holders of a majority of the outstanding Common Shares will constitute a quorum for the transaction of business at the Annual Meeting. All Common Shares present in person or represented by proxy (including “broker non-votes”) and entitled to vote at the Annual Meeting, no matter how they are voted or whether they abstain from voting, will be counted in determining the presence of a quorum. If the Annual Meeting is adjourned because of the absence of a quorum, those shareholders entitled to vote who attend the adjourned Annual Meeting, although constituting less than a quorum as provided herein, shall nevertheless constitute a quorum for the purpose of electing directors. If the Annual Meeting is adjourned for one or more periods aggregating at least 15 days because of the absence of a quorum, those shareholders entitled to vote who attend the reconvened Annual Meeting, if less than a quorum as determined under applicable law, shall nevertheless constitute a quorum for the purpose of acting upon any other matter set forth in the Notice of Annual Meeting.

Each Common Share is entitled to one vote on each matter that may be brought before the Annual Meeting. The election of the director will be determined by a plurality vote and the nominee receiving the highest number of “for” votes will be elected. Approval of the proposal to amend the Amended and Restated Articles of Incorporation, as amended, to increase the number of authorized Common Shares will require the affirmative vote of a majority of the outstanding Common Shares. Under our Amended and Restated Articles of Incorporation, as amended, and the Pennsylvania Business Corporation Law, an abstention, withholding of authority to vote or “broker non-vote” will have the same legal effect as an “against” vote on this proposal. Approval of any other proposal, including ratification of the appointment of Virchow, Krause & Company, LLP as the Corporation’s independent auditor for fiscal year 2008, will require the affirmative vote of a majority of the shares entitled to vote and present in person or represented by proxy at the Annual Meeting. Under our Bylaws and the Pennsylvania Business Corporation Law, an abstention or withholding of authority to vote will have the same legal effect as an “against” vote and will be counted in determining whether the proposal has received the required shareholder vote; however, a broker non-vote will have no effect on whether the proposal has received the required shareholder vote.

The cost of this solicitation will be borne by the Corporation. In addition to solicitation by mail, proxies may be solicited in person or by telephone, telegraph or teletype by officers, directors or employees of the Corporation, without additional compensation. Upon request, the Corporation will pay the reasonable expenses incurred by record holders of the Corporation’s Common Shares who are brokers, dealers, banks or voting trustees, or their nominees, for mailing proxy materials to the beneficial owners of the shares they hold of record.

 

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PROPOSAL 1

ELECTION OF DIRECTORS

The Board of Directors currently consists of five members divided into three classes.

The Board of Directors, based upon the recommendation of the Nominating and Corporate Governance Committee, has nominated Robert N. Masucci for election as a director at the Annual Meeting to serve until the 2011 annual meeting of shareholders and until his successor has been duly elected and qualified. Mr. Masucci is a current director of the Corporation and previously has been elected as a director by the Corporation’s shareholders. Mr. Masucci has indicated his willingness to continue serving as a director. The Board of Directors knows of no reason why Mr. Masucci would be unable to serve as a director. If Mr. Masucci is for any reason be unable to serve, then the proxies will be voted for the election of such substitute nominee as the Board of Directors may designate, unless the Board of Directors reduces the number of directors on the board.

Assuming a quorum is present, the nominee receiving the highest number of “for” votes will be elected. For such purposes, an abstention, the withholding of authority to vote or “broker non-vote” will not be counted in determining whether the nominee has received the required shareholder vote. The Board of Directors recommends that the shareholders vote “for” the election of Mr. Masucci as a director for the ensuing term.

The following table sets forth certain information concerning the nominees and the persons whose terms as directors will continue after the Annual Meeting, including their ages and principal occupations during the past five years:

 

 

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Messrs. Giordano and Masucci are first cousins.

Independence of the Board of Directors

Under our corporate governance guidelines, the Board, with the assistance of legal counsel and the Nominating and Corporate Governance Committee, uses the current standards for “independence” established by The Nasdaq Stock Market, LLC, referred to in the remainder of this proxy statement as “Nasdaq,” to determine director independence. The Board of Directors has determined that the following directors, constituting a majority of the members of the Board, are independent as defined in the corporate governance rules of the Nasdaq Stock Market, LLC: Messrs. Giordano, Masucci, McKenna and Seamon.

The independence standards of Nasdaq are composed of objective standards and subjective standards. Under the objective standards, a director will not be deemed independent if he directly or indirectly receives payments for services (other than as a director) in excess of certain thresholds or if certain described relationships exist. Under the subjective independence standard, a director will not be deemed independent if he has a material relationship with the Corporation that, in the view of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Under the Nasdaq rules, an independent director must satisfy both the objective and the subjective standards.

 

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In evaluating the independence of Mr. Seamon, the Board considered that Mr. Seamon was a senior managing director in the corporate finance practice of FTI Consulting, Inc., which provided consulting services to the Corporation in 2005, but did not provide any services in 2006 and 2007. The Board determined that Mr. Seamon was independent under the objective Nasdaq standards because: (i) no payments were made to Mr. Seamon directly in exchange for the services provided to the Corporation by FTI Consulting, Inc. and (ii) the amounts paid to FTI Consulting, Inc. did not exceed the thresholds contained in the Nasdaq standards. The Board also determined that Mr. Seamon was independent under the subjective Nasdaq standard for the reasons discussed above and because: (i) the last payment made by the Corporation to FTI Consulting, Inc. was in 2005 and the Corporation did not use FTI Consulting in 2006 and 2007, and (ii) Mr. Seamon was no longer an employee of FTI Consulting.

In evaluating the independence of Mr. McKenna, the Board considered that a partner of the law firm retained by the Corporation since 2002 is the son-in-law of Mr. McKenna. See “Certain Relationships and Related Party Transactions.” The Board determined that Mr. McKenna was independent under the objective Nasdaq standards because: (i) no payments were made to Mr. McKenna or his son-in-law directly in exchange for the services provided to the Corporation by the law firm and (ii) the amounts paid to the law firm did not exceed the thresholds contained in the Nasdaq standards. The Board also determined that Mr. McKenna was independent under the subjective Nasdaq standard for the reasons discussed above and because Mr. McKenna’s son-in-law was not personally involved in the law firm’s legal representation of the Corporation.

Communication with the Board

Shareholders may communicate with the Board of Directors, including any individual director, by sending a letter to the Board of Directors, c/o Corporate Secretary, IntriCon Corporation, 1260 Red Fox Road, Arden Hills, Minnesota 55112. The Corporate Secretary has the authority to disregard any inappropriate communications or to take other appropriate actions with respect to any such inappropriate communications. If deemed an appropriate communication, the Corporate Secretary will submit your correspondence to the Chairman of the Board or to any specific director to whom the correspondence is directed.

Meetings of the Board and Committees

The Corporation’s Board of Directors held eleven meetings in 2007. During 2007, all directors of the Corporation attended at least 75% of the total number of meetings of the Board of Directors of the Corporation and all committees of which they were members.

Attendance at Annual Meeting of Shareholders

The Board of Directors has adopted a policy that all of the directors should attend the annual meeting of shareholders, absent exceptional cause. All of the directors attended the 2007 annual meeting of shareholders.

 

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Code of Ethics

The Corporation has adopted a code of ethics that applies to its directors, officers and employees, including its chief executive officer, chief financial officer, controller and persons performing similar functions. Copies of the Corporation’s code of ethics are available without charge upon written request directed to Cari Sather, Director of Human Resources, IntriCon Corporation, 1260 Red Fox Road, Arden Hills, MN 55112. A copy of the code of ethics is also available on the Corporation’s website: www.intricon.com. The Corporation intends to satisfy the disclosure requirement under Item 5.05 of SEC Form 8-K regarding any future amendments to a provision of its code of ethics by posting such information on the Corporation’s website: www.intricon.com.

Director Compensation for 2007

The following table sets forth information concerning the compensation earned during the year ended December 31, 2007 by each of our directors that was not also an employee.

 

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For 2007, the Chairman of the Board received an annual retainer of $49,000. The Chairman of the Audit Committee received an annual retainer of $34,000. Each non-employee member of the Board, other than the Chairman of the Board and the Chairman of the Audit Committee, received an annual retainer of $24,000. Each of the annual retainers was paid on a quarterly basis. In addition, each non-employee member of the Board received $1,000 for each Board meeting attended in person and $500 for each telephonic meeting of the Board attended, and $1,000 for each committee meeting attended in person and $500 for each telephonic meeting of the committee attended of which such non-employee member of the Board is a member; however, no fee was payable for telephonic board and committee meetings that last less than 30 minutes.

 

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Directors are eligible to receive awards under the 2006 Equity Incentive Plan, referred to as the “Plan.” Following the approval of the Plan by our shareholders at our annual meeting in April 2006, the Compensation Committee approved the automatic grant of options to purchase 5,000 Common Shares under the Plan at the fair market value of the Common Shares on the date of the grant to each person who was re-elected or continued as a non-employee director at the annual meeting and each subsequent annual meeting of shareholders thereafter. Accordingly, following the 2007 annual meeting, each of Messrs. Giordano, Masucci, McKenna and Seamon was granted an option to purchase 5,000 Common Shares at an exercise price of $6.59 per share, the fair market value on the date of the grant. Effective for the 2008 Annual Meeting, assuming that they are re-elected or continue as a director, as the case may be, Mr. McKenna, in his capacity as chairman of the board, will receive an option to purchase 12,000 Common Shares, and each of the other non-employee directors will receive an option to purchase 10,000 Common Shares, in each case at an exercise price equal to the fair market value of the Common Shares on the date of the 2008 Annual Meeting. All director options vest in three equal, annual installments beginning one year after the date of grant, except that the options will become immediately exercisable upon a “change in control” as defined in the Plan or the death or disability of the recipient, and expire ten years after the date of grant, unless terminated earlier by the terms of the option.

 

Non-Employee Directors Stock Fee Election Program

In December 2006, the Board of Directors approved the Non-Employee Directors Stock Fee Election Program, referred to as the “Program,” as an award under the 2006 Equity Incentive Plan. The Program gives each non-employee director the right under the 2006 Equity Incentive Plan to elect to have some or all of his quarterly director fees paid in Common Shares rather than cash. The minimum amount that can be the subject of such election by a director is 25% of his quarterly director fees. The shares to be issued will be valued based on the last reported sale price of the Common Shares as reported on Nasdaq on the first business day of each calendar quarter when quarterly director fees are paid. The number of shares that will be issued for any such quarterly director fees with respect to which an election is in effect will be equal to the amount of the election divided by the applicable last sale price. No fractional shares will be issued and a director will receive cash in lieu of any fractional shares. That portion of the quarterly director fees for which no election is in effect will continue to be paid in cash. The shares so purchased will be deemed fully vested as of the quarterly payment date. In 2007, Mr. McKenna elected to have a total of $6,120 of his director fees paid in Common Shares and received 754 Common Shares.

Director Share Ownership Requirements

In April 2006, the Nominating and Corporate Governance Committee adopted a policy that all directors must purchase and own Common Shares with a purchase price equal to at least one-year’s annual director fees. All directors are in compliance with this policy.

Committees of the Board

The Board of Directors of the Corporation has established an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.

Audit Committee. The Board of Directors of the Corporation has appointed a standing Audit Committee consisting of Messrs. Giordano (Chairman), Masucci, and McKenna. The Board of Directors has determined that each member of the Audit Committee is independent, as defined in applicable Nasdaq corporate governance rules and SEC regulations. In addition, the Board of Directors has determined that Mr. Giordano qualifies as an audit committee financial expert, as defined in applicable SEC rules. The Audit Committee held ten meetings in 2007.

 

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The Audit Committee is governed by a written charter approved by the Board of Directors, a copy of which is available on our website at www.intricon.com. The principal duties of the Audit Committee are to monitor the integrity of the financial statements of the Corporation, the compliance by the Corporation with legal and regulatory requirements and the independence and performance of the Corporation’s independent auditors. The Audit Committee also approves all related party transactions and establishes procedures for (i) the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters, and (ii) the confidential, anonymous submissions by the Corporation’s employees of concerns regarding questionable accounting or auditing matters. In addition, the Committee selects the firm to be engaged as the Corporation’s independent public accountants, and approves the engagement of the independent public accountants for all non-audit activities permitted under the Sarbanes-Oxley Act of 2002. The report of the Audit Committee appears on page 35.

Compensation Committee. The Board of Directors of the Corporation has appointed a standing Compensation Committee currently consisting of Messrs. McKenna (Chairman), Seamon, and Masucci. The Board of Directors has determined that each member of the Compensation Committee is independent, as defined in applicable Nasdaq corporate governance rules. The Compensation Committee reviews and makes recommendations to the Board of Directors concerning officer compensation and officer and employee bonus programs and administers the 2006 Equity Incentive Plan, Corporation’s 2001 Stock Option Plan, Amended and Restated 1994 Stock Option Plan, Non-Employee Directors Stock Option Plan and Employee Stock Purchase Plan. The Compensation Committee met two times in 2007.

 

The Compensation Committee is governed by a written charter approved by the Board of Directors, a copy of which is available on our website at www.intricon.com. The principal duties of the Compensation Committee are to formulate, evaluate and approve the compensation of the Corporation’s executive officers, oversee all compensation programs involving the issuance of the Corporation’s stock and other equity securities of the Corporation, and review and discuss with the Corporation’s management the Compensation Discussion and Analysis and preparing the Committee’s report thereon for inclusion in the Corporation’s annual proxy statement in accordance with applicable rules and regulations. The report of the Compensation Committee appears on page 18.

A discussion of the Compensation Committee’s processes and procedures for the consideration and determination of executive and director compensation is included in “Compensation Discussion and Analysis.”

Nominating and Corporate Governance Committee. The Board of Directors of the Corporation has appointed a standing Nominating and Corporate Governance Committee currently consisting of Messrs. McKenna (Chairman), Giordano, Masucci and Seamon. The Board of Directors has determined that each member of the Nominating and Corporate Governance Committee is independent, as defined in applicable Nasdaq corporate governance rules. The Nominating and Corporate Governance Committee met three times in 2007.

The Nominating and Corporate Governance Committee is governed by a written charter approved by the Board of Directors, a copy of which is available on our website at www.intricon.com. The principal duties of the Nominating and Corporate Governance Committee are to identify individuals qualified to become members of the Board consistent with the criteria approved by the Committee, consider nominees made by shareholders in accordance with the Corporation’s bylaws, select, or recommend to the Board, the director nominees for each annual shareholders meeting, recommend to the Board directors to be appointed to each Committee of the Board, recommend to the Board whether to increase or decrease the size of the Board, develop and recommend to the Board corporate governance principles and oversee the evaluations of the Board and senior management.

 

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Director Nomination Process

Consideration of Director Candidates Recommended by Shareholders. The Nominating and Corporate Governance Committee will consider properly submitted shareholder recommendations for director candidates. A shareholder who wishes to recommend a prospective director nominee should send a signed and dated letter to the Chairman of the Nominating and Corporate Governance Committee, c/o Corporate Secretary, IntriCon Corporation, 1260 Red Fox Road, Arden Hills, Minnesota 55112 with the following information:

The deadline for submitting the letter recommending a prospective director nominee for the 2009 annual meeting of shareholders is November 24, 2008. All late or non-conforming recommendations will be rejected.

 

In addition, under the Corporation’s bylaws, shareholders are permitted to nominate directors to be elected at a meeting of shareholders by providing notice and the other required information specified in the bylaws. Although shareholders may nominate directors, such nominees will not appear in the Corporation’s proxy statement or in the proxy solicited by the Board of Directors. The Corporation’s amended and restated bylaws are available, at no cost, at the SEC’s website, www.sec.gov, as Exhibit 3.1 to the Corporation’s Current Report on Form 8-K filed October 12, 2007 or upon the shareholder’s written request directed to the Corporate Secretary at the address given above.

Director Qualifications. The Nominating and Corporate Governance Committee has the sole authority to select, or to recommend to the Board of Directors, the Board of Director nominees to be considered for election as a director. Nominees for director must be at least 21 years old. Nominees for director will be selected on the basis of outstanding achievement in their careers; broad experience; education; independence under applicable Nasdaq and SEC rules; financial expertise; integrity; financial integrity; ability to make independent, analytical inquiries; understanding of the business environment; and willingness to devote adequate time to Board and committee duties. The proposed nominee should have sufficient time to devote their energy and attention to the diligent performance of the director’s duties, including attendance at Board and committee meetings and review of the Corporation’s financial statements and reports, SEC filings and other materials. Finally, the proposed nominee should be free of conflicts of interest that could prevent such nominee from acting in the best interest of shareholders.

Additional special criteria apply to directors being considered to serve on a particular committee of the Board. For example, members of the Audit Committee must meet additional standards of independence and have the ability to read and understand the Corporation’s financial statements.

 

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Identifying and Evaluating Nominees for Director. The Nominating and Corporate Governance Committee assesses the appropriate size of the Board in accordance with the limits fixed by the Corporation’s charter and bylaws, whether any vacancies on the Board are expected and what incumbent directors will stand for re-election at the next meeting of shareholders. If vacancies are anticipated, or otherwise arise, the Nominating and Corporate Governance Committee considers candidates for director suggested by members of the Nominating and Corporate Governance Committee and other Board members as well as management, shareholders and other parties. The Nominating and Corporate Governance Committee also has the sole authority to retain a search firm to identify and evaluate director candidates. Except for incumbent directors standing for re-election as described below, there are no differences in the manner in which the Nominating and Corporate Governance Committee evaluates nominees for director, based on whether the nominee is recommended by a shareholder or any other party.

In the case of an incumbent director whose term of office expires, the Nominating and Corporate Governance Committee reviews such director’s service to the Corporation during the past term, including, but not limited to, the number of Board and committee meetings attended, as applicable, quality of participation and whether the candidate continues to meet the general qualifications for a director outlined above, including the director’s independence, as well as any special qualifications required for membership on any committees on which such director serves. When a member of the Nominating and Corporate Governance Committee is an incumbent director eligible to stand for re-election, such director will not participate in that portion of the Nominating and Corporate Governance Committee meeting at which such director’s potential nomination for election as a director is discussed by the Nominating and Corporate Governance Committee.

In the case of a new director candidate, the Nominating and Corporate Governance Committee will evaluate whether the nominee is independent, as independence is defined under applicable Nasdaq corporate governance rules, and whether the nominee meets the qualifications for director outlined above as well as any special qualifications applicable to membership on any committee on which the nominee may be appointed to serve if elected. In connection with such evaluation, the Nominating and Corporate Governance Committee determines whether the committee should interview the nominee, and if warranted, one or more members of the Nominating and Corporate Governance Committee interviews the nominee in person or by telephone.

 

Upon completing the evaluation, and the interview in case of a new candidate, the Nominating and Corporate Governance Committee makes a decision as to whether to nominate the director candidate for election at the shareholders meeting.

 

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SHARE OWNERSHIP OF CERTAIN BENEFICIAL

OWNERS, DIRECTORS AND CERTAIN OFFICERS

The following table sets forth certain information as of March 19, 2008, concerning beneficial ownership of the Common Shares by (i) persons or groups of persons shown by SEC records to own beneficially more than 5% of the Common Shares, (ii) directors and nominees, (iii) the executive officers named in the Summary Compensation Table included herein and (iv) all directors and executive officers as a group.

 

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* Less than 1%.

 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Background

The Compensation Committee of our Board of Directors administers our compensation program for executive officers. The objectives of our compensation program are to attract and retain talented and dedicated executive officers and to align a significant portion of their compensation with our business objectives and performance.

Elements of Executive Compensation

Our compensation program for executive officers consists of the following elements:

Base Salary. Base salary is designed to reward the performance of our executive officers in their daily fulfillment of their responsibilities to us. The Compensation Committee determines the base salary of each of our executive officers by evaluating their scope of responsibilities and experience, years of service with us, our performance and the performance of each of the executive officers during the past year, the executive’s future potential and competitive salary practices. We believe that our base salaries are competitive with other companies of our size.

Annual Cash Incentive Compensation. The Compensation Committee’s philosophy is that a significant portion of the total potential compensation of our executive officers should depend upon the degree of our financial and strategic success in a particular year. The Compensation Committee approved the 2007 Bonus Plan, which is not set forth in a written agreement. The 2007 Bonus Plan was designed to reward the achievement of annual financial goals that are aligned with shareholder interests. Under the 2007 Bonus Plan, each of the executive officers was eligible to receive a cash bonus based on our exceeding certain earnings per share target amounts for the fiscal year 2007, calculated after giving effect to any bonuses accrued under the 2007 Bonus Plan. Depending upon the earnings per share target amount, Mr. Gorder was eligible to receive a bonus up to 150% of his base salary and each of the other executive officers was eligible to receive a bonus up to 75% of their respective base salary.

In February 2008, the Compensation Committee adopted the 2008 Bonus Plan. For further information, see “2008 Bonus Plan.”

Long-Term Incentive Compensation in the Form of Stock Awards. In 2006, our Board of Directors and shareholders approved the 2006 Equity Incentive Plan. The 2006 Equity Incentive Plan is designed to:

 

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To achieve these purposes, the 2006 Equity Incentive Plan permits the Compensation Committee to make awards of stock options, stock appreciation rights, restricted stock or unrestricted stock, deferred stock, restricted stock units or performance awards for our Common Shares. For more information concerning the 2006 Equity Incentive Plan, see “2006 Equity Incentive Plan.”

Stock options are granted at the fair market value of our Common Shares on the date of grant. Stock options are granted based on various factors, including the executive’s ability to contribute to our long-term growth and profitability.

Employee Stock Purchase Plan. All of our fulltime employees, including our executive officers (other than Mr. Gorder), are entitled to participate in our Employee Stock Purchase Plan. Under this Plan, employees may purchase our Common Shares at a discount of up to 10% through payroll deductions.

Other Benefits. All of our fulltime employees, including our executive officers, are entitled to participate in our health insurance, life insurance and 401(k) plans. We also maintain a disability insurance policy on behalf of certain of the members of our senior management, including Messrs. Gorder, Binnix, Geraci and Gonsior, that is in addition to the disability benefits that we maintain for our salaried employees.

Additional Benefits Payable to the Chief Executive Officer. Mr. Gorder, our Chief Executive Officer, receives additional benefits under our employment agreement with him. Under this agreement, we maintain disability insurance for Mr. Gorder’s benefit. Additionally, under the employment agreement, we are required to reimburse Mr. Gorder for his country club membership fees. We are also required to provide Mr. Gorder with an automobile for use in connection with the performance of his duties under the employment agreement and reimburse him for all expenses reasonably incurred by him for the maintenance and operation, including fuel, of the automobile.

Processes and Procedures for the Determination of Executive Officer and Director Compensation

Scope of Authority of the Compensation Committee. The scope of the Compensation Committee’s authority and responsibilities is set forth in its charter, a copy of which is available on our website at www.intricon.com. The Compensation Committee’s authority includes the authority to:

 

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Delegation of Authority. As provided under the Compensation Committee’s charter, the Compensation Committee may delegate its authority to special subcommittees of the Compensation Committee as the Compensation Committee deems appropriate, consistent with applicable law and Nasdaq listing standards. Additionally, the 2006 Equity Incentive Plan permits the Compensation Committee, subject to criteria, limitations and instructions as the Compensation Committee determines, to delegate to an appropriate officer of the Corporation the authority to determine the individual participants under that Plan and amount and nature of the award to be issued to such participants; provided, that no awards may be made pursuant to such delegation to a participant who is subject to Section 16(b) of the Securities Exchange Act of 1934, as amended. To date, the Compensation Committee has not delegated its responsibilities except that in January 2008, the Compensation Committee delegated to the Chief Executive Officer and Chief Financial Officer the authority to grant up to 5,000 stock options under the 2006 Equity Incentive Plan to employees working in our Singapore facility.

Role of Management in Determining or Recommending Executive Compensation. Traditionally, the Compensation Committee reviews our executive compensation program in December and/or January of each year, although decisions in connection with new hires and promotions are made on an as-needed basis. Mr. Gorder, our President and Chief Executive Officer, makes recommendations concerning the amount of compensation to be awarded to our executive officers, including himself, but does not participate in the Compensation Committee’s deliberations or decisions. The Compensation Committee reviews the recommendations together with a “tally sheet” showing all items of executive compensation. After a presentation by Mr. Gorder, the Committee meets in executive session to discuss and consider the recommendations and makes a final determination.

Role of Compensation Consultants in Determining or Recommending Executive Compensation. Under its charter, the Compensation Committee has authority to retain, at the Corporation’s expense, such counsel, consultants, experts and other professionals as it deems necessary. To date, the Compensation Committee has not relied on consultants. Instead, from time to time, the Compensation Committee conducts an informal survey of area companies and review the compensation practices of the surveyed companies.

The Compensation Committee intends to retain a compensation consultant to review the Corporation’s compensation structure on a company-wide basis in 2008.

Determination of Executive Compensation

Base Salary. Typically, the Compensation Committee reviews and adjusts base salaries on an annual basis. In December 2006, the Compensation Committee increased the 2007 base salary of Mr. Gorder, our President and Chief Executive Officer, and each of the other executive officers by 4%. In December 2007, the Compensation Committee increased the 2008 base salary of each of our executive officers ranging from approximately 12% to 28%. Additionally, the Compensation Committee may increase base salary as a result of promotions. The following table shows the base salaries of our current executive officers as in effect at the end of each of 2006, 2007 and 2008. Mr. Gruenhagen, our Vice President of Corporate Quality and Regulatory Affairs, was named an executive officer in December, 2007 and therefore is not included in this discussion.

 

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Annual Cash Incentive Compensation. In December 2007, the Compensation Committee determined that because the minimum target under the 2007 Bonus Plan had been met, Mr. Gorder, our President and Chief Executive Officer would be entitled to a bonus equal to 20% of his base compensation and the other executive officers, other than Mr. Gruenhagen, would be entitled to a bonus equal to 10% of their 2007 base compensation.

Long-Term Incentive Compensation in the Form of Stock Awards. The Compensation Committee generally makes awards on an annual basis but also makes awards in connection with new hires and promotions.

In December, 2007, the Compensation Committee awarded stock options to the Corporation’s executive officers under the 2006 Equity Incentive Plan to purchase Common Shares at an exercise price of $14.70 per share, the fair market value of the Common Shares on the date of grant. In January, 2008, the Compensation Committee awarded stock options to certain of the Corporation’s other key employees under the 2006 Equity Incentive Plan to purchase Common Shares at exercise prices of $11.33 per share and $10.60 per share.

Generally, the options will become exercisable in three equal, annual installments beginning one year from the date of grant or earlier upon the death, disability or retirement of the recipient or our change of control (as defined in the 2006 Equity Incentive Plan).

For information concerning stock options granted to our executive officers for 2007, see “Grants of Plan Based Awards in 2007.”

Employment Agreements and Change in Control Arrangements

In October, 2007, we entered into employment agreements with Mark S. Gorder, our President and Chief Executive Officer, and the executive officers named in our Summary Compensation Table.

 

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The employment agreement with Mr. Gorder was based on his prior employment agreement and incorporated the provisions of the change in control agreement that was then in effect. The employment agreements with the other executive officers also contain a similar change in control provision. Among other things, each employment agreement provides for a fixed employment term, subject to annual renewals, the executive’s base salary and the executive’s right to participate in our bonus plans, equity plans and other employee benefits. In addition, in the event that (i) there occurs a “change in control” (as defined in the agreements) or sale of our assets accounting for 90% of more of our sales and (ii) the executive’s employment is involuntarily terminated within one year afterwards, the executive will be entitled to payment of his base salary for one year (two years for Mr. Gorder) in a lump sum and continuation of his medical benefits for a period of one year.

The change in control provisions that we use contain a “double trigger” requirement, meaning that for an executive to receive a payment under the change of control provision, there must be both a change of control, as defined in the applicable agreement, and an involuntary termination of the executive’s employment. The double trigger requirement was chosen to prevent us from having to pay substantial payments in connection with a change in control where an executive had not suffered any adverse employment consequences. However, all stock options will vest and become immediately exercisable upon a change of control, regardless of whether the executive is involuntarily terminated.

We believe that employment agreements and change in control protections are important to attract and retain talented executive officers and to protect our executive officers from a termination or significant change in responsibilities arising after a change in control. For more information, see “Employment Agreements” and “Potential Payments Upon Termination of Employment or Change in Control.”

Accounting and Tax Considerations

Under our prior stock options plans, the Compensation Committee was limited to issuing stock options. The Compensation Committee is evaluating making awards using the other types of awards permitted under the 2006 Equity Incentive Plan in light of Statement of Financial Accounting Standards No. 123, Share-Based Payment (revised 2004), commonly referred to as FAS 123(R). This accounting standard, which we adopted as of January 1, 2006, requires us to record as compensation expense the grant date fair value of a stock option over the life of the option. Prior to the adoption of FAS 123(R), no compensation expense was required to be recorded in connection with stock options granted at fair market value. The Compensation Committee intends to consider the compensation expense of option and other equity grants when making future awards; however, given that, traditionally, the Compensation Committee has not made large grants of option awards to our executive officers and employees, we do not expect that the compensation expense associated with option grants will have a material effect on our reported earnings.

Generally, Section 162(m) of the Internal Revenue Code of 1986, referred to as the “Internal Revenue Code,” and the Internal Revenue Service, referred to as the “IRS,” regulations adopted under that section, which are referred to collectively as “Section 162(m),” deny a deduction to any publicly held corporation, such as the Corporation, for certain compensation exceeding $1,000,000 paid during each calendar year to each of the chief executive officer and the four other highest paid executive officers, excluding, among other things, certain qualified performance-based compensation. Our policy is to maximize the tax deductibility of compensation paid to our most highly compensated executives under Section 162(m). For example, our 2006 Equity Incentive Plan is intended to satisfy certain of the requirements for an exemption for “qualified performance-based compensation” under Section 162(m). We do not believe that Section 162(m) will have a material adverse effect on us in 2008.

 

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Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis section appearing above with our management. Based on this review and these discussions, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in our annual report on Form 10-K for the fiscal year ended December 31, 2007 and in this proxy statement.

The Compensation Committee

Michael J. McKenna (Chairman)

Robert M. Masucci

Philip N. Seamon

The information contained in this Compensation Committee Report is not “soliciting material” and has not been “filed” with the Securities and Exchange Commission. This Compensation Committee Report will not be incorporated by reference into any of our future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934.

 

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Summary Compensation Table

The following table summarizes compensation earned during 2006 and 2007 by our chief executive officer, chief financial officer and each of our executive officers, other than Mr. Gruenhagen who did not become an executive officer until December, 2007. We refer to these individuals throughout this proxy statement as the “Named Officers.”

 

____________________________

 

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Grants of Plan-Based Awards In 2007

The following table summarizes non-equity incentive plan awards and option awards that we made in 2007 to our Named Officers. For information concerning awards made under the 2008 Bonus Plan, see “2008 Bonus Plan.”

 

____________________________

 

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Employment Agreements

In October, 2007, we entered into employment agreements with Mark S. Gorder, our President and Chief Executive Officer, and the following executive officers of the Corporation: Scott Longval, our Chief Financial Officer; Steven M. Binnix, our Vice President and General Manager of RTI Electronics; Christopher D. Conger, our Vice President, Research and Development; Michael P. Geraci, our Vice President, Sales and Marketing; and Dennis L. Gonsior, our Vice President, Global Operations.

The employment agreements contain the following material terms:

For a discussion of the provisions relating to the termination of the employment of the executive officer under certain circumstances, see “Potential Payments Upon Termination of Employment or Change in Control.”

 

2008 Bonus Plan

In February 2008, the Compensation Committee adopted the 2008 Bonus Plan, which is not set forth in a written agreement. Pursuant to the 2008 Bonus Plan, each of the executive officers is eligible to receive a cash bonus based on (i) our exceeding certain earnings per share target amounts for the fiscal year 2008 and (ii) our achievement of certain strategic objectives. Each component of the 2008 Bonus Plan accounts for one-half of the target bonus payable. Depending upon the earnings per share target amount and the achievement of the strategic objectives, Mr. Gorder is eligible to receive a bonus of up to 110% of his 2008 base salary and each of the other executive officers are eligible to receive a bonus of up to 55% of their respective 2008 base salary.

Earnings per share amounts will be based on the Corporation’s reported earnings per share and, accordingly, will be net of any bonuses payable. In the event that the Corporation’s earnings per share amounts are between the thresholds indicated, the bonus percentage would be calculated based on a mathematical interpolation. The Compensation Committee retains the right to adjust the earnings per share target amounts as a result of extraordinary corporate events such as an acquisition, equity or debt financing or similar event.

 

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The following table shows the potential amounts payable to the current Named Officers under the 2008 Bonus Plan:

____________________________

Equity Plans

The following descriptions summarize our equity plans pursuant to which eligible employees, including the Named Officers, and directors receive equity based awards. Our 2006 Equity Incentive Plan, which was adopted by our shareholders at the 2006 annual meeting of shareholders, replaced our 2001 Stock Option Plan (described below) and the Amended and Restated Non-Employee Director Stock Option Plan, referred to collectively as the “Old Plans.” No additional grants may be made under the Old Plans. Outstanding grants under the Old Plans continue to be governed by their terms and the terms of the Old Plans.

2006 Equity Incentive Plan

At the 2006 annual meeting of shareholders of the Corporation, shareholders approved the 2006 Equity Incentive Plan.

The 2006 Equity Incentive Plan permits grants of incentive stock options, options not intended to qualify as incentive stock options, stock appreciation rights, restricted and unrestricted stock awards, restricted stock units, deferred stock units, performance awards, supplemental cash awards and combinations of the foregoing.

 

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The 2006 Equity Incentive Plan is administered by the Compensation Committee of the Board of Directors. The Compensation Committee determines the type of awards to be granted under the 2006 Equity Incentive Plan; selects award recipients and determines the extent of their participation; determines the method or formula for establishing the fair market value of the Common Shares for various purposes under the 2006 Equity Incentive Plan; and establishes all other terms, conditions, restrictions and limitations applicable to awards and the Common Shares issued pursuant to awards, including, but not limited to, those relating to a participant’s retirement, death, disability, leave of absence or termination of employment. The Compensation Committee may accelerate or defer the vesting or payment of awards, cancel or modify outstanding awards, waive any conditions or restrictions imposed with respect to awards or the Common Shares issued pursuant to awards and make any and all other interpretations and determinations which it deems necessary with respect to the administration of the 2006 Equity Incentive Plan, other than a reduction of the exercise price of an option after the grant date and subject to the provisions of Section 162(m) of the Internal Revenue Code with respect to “covered employees,” as defined in Section 162(m) of the Internal Revenue Code, except that the Committee may not, without the consent of the holder of an award or unless specifically authorized by the terms of the plan or an award, take any action with respect to such award if such action would adversely affect the rights of such holder.

The maximum total number of shares for which awards may be granted under the 2006 Equity Incentive Plan is 698,500 Common Shares, subject to appropriate adjustment in a manner determined by the Board of Directors to reflect changes in the Corporation’s capitalization; however, such authorized share reserve will be increased from time to time by a number of shares equal to the number of Common Shares that are issuable pursuant to option grants outstanding under the Old Plans as of April 26, 2006 that, but for the termination and/or suspension of the Old Plans, would otherwise have reverted to the share reserve of the Old Plans pursuant to the terms thereof as a result of the expiration, termination, cancellation or forfeiture of such options.

As of March 19, 2008:

2001 Stock Option Plan

The 2001 Stock Option Plan provided for the grant of incentive stock options (as defined in Section 422 of the Internal Revenue Code) and non-qualified stock options for officers and other key employees of the Corporation.

The Compensation Committee administers the 2001 Stock Option Plan. Stock options are generally subject to vesting, which means the optionee earns the right to exercise an increasing number of the shares underlying the option over a specific period of time only if he or she continues to provide services to the Corporation over that period. Non-qualified stock options granted under the 2001 Stock Option Plan must have a per share exercise price of at least the fair market value of the Common Shares on the date of grant. Incentive stock options granted under the 2001 Stock Option Plan must have a per share exercise price of at least 100% of the fair market value of the Common Shares on the date of grant, and not less than 110% of the fair market value in the case of incentive stock options granted to an employee who holds more than 10% of the total voting power of all classes of the Corporation’s stock or any parent or subsidiary’s stock. Payment of the exercise price or purchase price with respect to any award may be made in cash or other consideration as determined by the Compensation Committee. The term of an option cannot be longer than 10 years from the date of grant or five years from the date of grant of an incentive stock option in the case of a greater than 10% shareholder.

 

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Outstanding Equity Awards At Fiscal Year-End

The following table summarizes stock option awards held by our Named Officers at the end of 2007.

 

____________________________

 

 

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Option Exercises and Stock Vested During 2007

The following table sets forth information regarding the exercise of options by our Named Officers during 2007. There were no stock awards outstanding during 2007.

____________________________

 

Potential Payments Upon Termination of Employment or Change in Control

Our employment agreements with the executive officers named in the Summary Compensation Table provide the following material terms in the event of the termination of the employment of the executive under certain circumstances:

 

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In the event that we give a notice of non-renewal of the term of the agreement to the executive and, within 12 months after the date of the non-renewal notice, the executive’s employment is terminated by us for any reason other than cause or the death or disability of executive, then the executive will be entitled to the severance benefits described above with respect to a termination without cause except that the severance period shall be reduced by the number of days between the date of the non-renewal notice and the termination of executive’s employment.

As defined in the employment agreements:

“Asset Sale” means the sale of our assets (including the stock or assets of our subsidiaries) to which 90% or more of our consolidated sales volume is attributable.

“Cause” means the following, provided that, in the case of circumstances described in the fourth through sixth clauses below, we must have first given written notice to executive, and executive must have failed to remedy the circumstances as determined in the sole discretion of the Board of Directors within 30 days after such notice:

 

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“Change of control” of means an “asset sale” or a “change in majority stock ownership.”

“Change in majority stock ownership” means the acquisition by any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, referred to as the “Exchange Act”), including any affiliate or associate as defined in Rule 12b-2 under the Exchange Act of such person, or any group of persons acting in concert, other than us, any trustee or other fiduciary holding securities under an employee benefit plan of ours, or any corporation or other entity owned, directly or indirectly, by our shareholders in substantially the same proportion as their ownership of capital stock of us, of “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% or more of the combined voting power of our then outstanding securities.

“Involuntarily terminated” means:

Provided, however, that with respect to any termination by executive pursuant to the foregoing, executive shall have first provided notice to us of the existence of the condition proposed to be relied upon within 90 days of the initial existence of the condition, and shall have given us a period of 30 days during which we may remedy the condition and we shall have failed to do so during such period.

 

The change in control provisions that we use contain a “double trigger” requirement, meaning that for an executive to receive a payment under the change of control provision, there must be both a change of control, as defined in the applicable agreement, and an involuntary termination of the executive’s employment. The double trigger requirement was chosen to prevent us from having to pay substantial payments in connection with a change in control where an executive had not suffered any adverse employment consequences. However, all stock options will vest and become immediately exercisable upon a change of control, regardless of whether the executive is involuntarily terminated.

 

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Disability Benefits for Certain Named Officers. We provide all of our full-time salaried employees with short-term disability benefits for six months. We also maintain a disability insurance policy on behalf of certain members of our senior management, including Messrs. Gorder, Binnix, Geraci and Gonsior, that is in addition to the disability benefits that we maintain for our salaried employees. In the event that any of these executives became disabled, as provided in their respective policies, was unable to return to the performance of their duties after six months and was terminated as an employee effective as of December 31, 2007, they would be paid monthly benefits until age 65 as follows: Mr. Gorder - $8,370 per month; Mr. Binnix - $4,480 per month; Mr. Geraci - $6,450 per month; Mr. Gonsior - $5,860 per month; and Mr. Conger - $2,280 per month.

Equity Plans. Our Named Officers hold unvested stock options under our 2001 Stock Option Plan and our 2006 Equity Incentive Plan. Under the 2001 Stock Option Plan, upon the death, disability, retirement or change of control of us, the holder of an option generally can exercise only options that have vested as of the date of such event. In addition, that plan gives the Compensation Committee the authority to accelerate the vesting of any unvested options.

Under our 2006 Equity Incentive Plan, all unvested options will automatically accelerate and become vested upon the death, disability, retirement of the holder or upon a change of control of us, as defined in that Plan.

Under both the 2001 Stock Option Plan and 2006 Equity Incentive Plan, options held by an employee whose employment is terminated for cause, as defined in those plans, will terminate immediately. In addition, under both such plans, the voluntary resignation of employment by an employee will not result in the acceleration of unvested options.

 

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The following table shows the estimated amount of payments and benefits that would be provided by the Company (or its successor) to our Named Officers under the plans and agreements described above assuming that their employment was terminated as of December 31, 2007 for various reasons as described below:

 

__________________

 

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee during 2007 were: Messrs. McKenna (Chairman), Seamon, and Masucci. No person who served as a member of the Compensation Committee during 2007 was a current or former officer or employee of the Corporation or any subsidiary or engaged in certain transactions with Corporation or any subsidiary required to be disclosed by regulations of the SEC except as described below under “Certain Relationships and Related Party Transactions” with respect to Mr. McKenna. Additionally, there were no compensation committee “interlocks” during 2007, which generally means that no executive officer of the Corporation served as a director or member of the compensation committee of another entity, which had an executive officer serving as a director or member of the Compensation Committee of the Corporation.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Mr. Gorder, our president, chief executive officer and a director, is a general partner (with a one-third interest) of Arden Partners I, L.L.P., a Minnesota limited liability partnership, referred to as Arden, that owns and leases to our subsidiary, Resistance Technology, Inc., referred to as RTI, property under a lease entered into November 31, 1991, and amended and restated on November 1, 1996. The leased property is one of RTI’s two manufacturing facilities. In 2002, the lease was renewed with a term of October 31, 2011. Under the lease, RTI pays Arden a base monthly rent of approximately $30,667. In 2007, we paid Arden approximately $481,000 for rent, taxes and other charges. Mr. Gorder’s interest in such payment was approximately $160,000.

 

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We use the law firm of Blank Rome LLP for legal services. A partner of that firm, David A. Dorey,  is the son-in-law of the Chairman of our Board of Directors, Mr. McKenna; however, the legal services are provided by other attorneys at that firm and not by Mr. Dorey. In 2007, we paid that firm approximately $466,000 for legal services and costs. The interest of Mr. Dorey in such amount is not determinable.

In March 2007, the Board of Directors adopted written policies and procedures regarding approval of transactions between the Corporation and any employee, officer, director and certain of their family members and other related persons required to be reported under Item 404 of SEC Regulation S-K. Under these policies, a majority of the disinterested members of the Audit Committee must approve any transaction between the Corporation and any related party that involve more than $25,000. If a majority of the members of the Audit Committee are interested in the proposed transaction, then the transaction must be approved by a majority of the disinterested members of the Board (excluding directors who are employees of the Company). The Chair of the Audit Committee has the delegated authority to pre-approve or ratify (as applicable) any related party transaction in which the aggregate amount involved is expected to be less than $120,000. In determining whether to approve or ratify a related party transaction, the Audit Committee will take into account, among other factors it deems appropriate, whether the related party transaction is on terms no less favorable to the Corporation than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related party’s interest in the transaction.

 

PROPOSAL 2

APPROVAL OF AN AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF

INCORPORATION, AS AMENDED, TO AUTHORIZE ADDITIONAL COMMON SHARES

Our Board of Directors has adopted, subject to shareholder approval, an amendment to our Amended and Restated Articles of Incorporation, as amended, to increase our authorized Common Shares from 10,000,000 to 20,000,000. If the shareholders do not approve the amendment, then the number of authorized Common Stock will remain at 10,000,000 shares.

The resolutions to be considered by the shareholders at the Annual Meeting are as follows:

RESOLVED, that the Directors of the Corporation have determined that it is in the best interest of the Corporation and its shareholders that the Corporation’s Amended and Restated Articles of Incorporation, as amended, be amended to increase the number of shares of Common Stock authorized for issuance thereunder to 20,000,000 shares;

 

FURTHER RESOLVED, that the first paragraph of Article FIFTH of the Amended and Restated Articles of Incorporation, as amended, of the Corporation be amended and restated to read in its entirety as follows:

 

“FIFTH. The aggregate number of shares that the Corporation shall have the authority to issue is 21,000,000 shares, divided into two classes, one class consisting of 1,000,000 Preferred Shares, each of which shall have the par value of $1, and the other class consisting of 20,000,000 Common Shares, each of which shall have the par value of $1.”

 

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FURTHER RESOLVED, that the foregoing amendment is adopted and approved and the proper officers of the Corporation are authorized and directed to submit such amendment to the shareholders for their approval at the 2008 Annual Meeting of Shareholders;

 

FURTHER RESOLVED, that the proper officers of the Corporation are hereby authorized and directed, after shareholder approval of the proposed amendment, to execute, under its corporate seal, Articles of Amendment to the Amended and Restated Articles of Incorporation, as amended, and to file such Articles of Amendment with the Pennsylvania Department of State; and

 

FURTHER RESOLVED, that the Board of Directors of the Corporation may, notwithstanding approval by the shareholders of the Corporation, at any time prior to the filing of the Articles of Amendment with the Pennsylvania Department of State, terminate the proposed amendment and all transactions contemplated by or incident thereto.

 

Reasons for the Amendment

Under the Corporation’s current Amended and Restated Articles of Incorporation, as amended, the Corporation is authorized to issue up to 1,000,000 Preferred Shares and up to 10,000,000 Common Shares.

The purpose of the proposed amendment is to provide sufficient shares for future financings, acquisitions, stock dividends, stock splits, benefit plans, recapitalizations and other corporate purposes. Although the Corporation evaluates such uses from time to time, the Corporation does not have any commitments or understandings that would require the issuance of these additional shares. Once authorized, the additional Common Shares may be issued by the Board of Directors without further approval by the shareholders, unless such approval is required by law or applicable Nasdaq requirements. Accordingly, the vote on this proposal may be the only opportunity for the shareholders to take action in connection with such financings, acquisitions, benefit plans, recapitalizations and other corporate actions.

As of March 19, 2008:

Therefore, of the 10,000,000 Common Shares authorized for issuance, about 3,435,394 Common Shares are currently unissued, unreserved and available for issuance.

Under Pennsylvania law, shareholders of the Corporation do not have preemptive rights with respect to the issuance of any shares of capital stock of the Corporation. Shareholder approval of this proposal is required under our Articles and Pennsylvania law. Assuming that Proposal 2 is approved by the shareholders at the Annual Meeting, the Corporation will be authorized to issue an additional 10,000,000 Common Shares. The amendment will have no immediate effect on the rights of existing shareholders.

 

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These additional Common Shares will provide the Company’s Board of Directors with as much flexibility as possible to issue additional shares, without further shareholder approval, for proper corporate purposes, including financings, acquisitions, stock dividends, stock splits, benefit plans, recapitalizations and other similar purposes. However, these additional shares may also be deemed to be “anti-takeover” or “anti-greenmail” in nature in that such shares may be used by the Board of Directors, if consistent with its fiduciary responsibilities, to deter, discourage or make more difficult the assumption of control of the Corporation by another company or person through a tender offer, merger, proxy contest or similar transaction or series of transactions.

In general, a shareholder may view a future takeover offer to be in his best interests if any such offer includes a premium over the market price of the Common Shares at that time. However, the overall effects of the foregoing provisions may be to discourage, make more costly or more difficult, or prevent a future takeover offer, prevent shareholders from receiving a premium for their securities in a takeover offer, and/or enhance the possibility that a future bidder for control of the Corporation will be required to act through arms-length negotiation with the Corporation’s Board of Directors. In addition, these provisions may have the effect of assisting the Corporation’s management to retain its position and place it in a better position to resist changes that the shareholders may want to make if dissatisfied with the conduct of the Corporation’s business.

The Board of Directors recommends that stockholders vote “for” the amendment to the Amended and Restated Articles of Incorporation, as amended, to increase the authorized Common Shares.

 

PROPOSAL 3

RATIFICATION OF APPOINTMENT OF AUDITOR

The Corporation’s independent registered public accounting firm for the fiscal year ended December 31, 2007 was the firm of Virchow, Krause & Corporation, LLP, referred to as “Virchow Krause.” Services provided to the Corporation and its subsidiaries by Virchow Krause in 2007 are described below under “Independent Registered Public Accounting Firm.” The Audit Committee of the Board of Directors has appointed Virchow Krause to serve as the independent registered public accounting firm for the year ending December 31, 2008. Shareholders will be asked to ratify this appointment. Although action by the shareholders on this matter is not required, the Audit Committee believes it is appropriate to seek shareholder ratification of the appointment of the independent registered public accounting firm to provide a forum for shareholders to express their views with regard to the Audit Committee’s appointment. If the shareholders do not ratify the appointment of Virchow Krause, the selection of independent registered public accounting firm may be reconsidered by the Audit Committee; provided however, the Audit Committee retains the right to continue to engage Virchow Krause. Notwithstanding the ratification of Virchow Krause as the Corporation’s independent registered public accounting firm for the year ending December 31, 2008, the Audit Committee retains the right to replace Virchow Krause at any time without shareholder approval. A representative of Virchow Krause is expected to be present at the annual meeting and to be available to respond to appropriate questions. The representative will have the opportunity to make a statement if he or she so desires.

 

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Independent Registered Public Accounting Fee Information

Fees for professional services provided by Virchow Krause, the Corporation’s independent auditor, for the fiscal years ended December 31, 2007 and 2006 in each of the following categories were:

 

____________________________

Audit Fees. The audit fees for 2007 and 2006 include fees for professional services rendered for the audit of the Corporation’s annual financial statements and the review of the financial statements included in the Corporation’s Form 10-K Reports and the review of the financial statements included in the Corporation’s Form 10-Q Reports.

Audit-Related Fees. The audit-related fees for 2007 include fees for professional services rendered for audits of the Corporation’s employee benefit plan.

Tax Fees. The tax fees for 2007 and 2006 include fees for professional services rendered for tax compliance, tax advice and tax planning.

Auditor Independence

The Audit Committee has considered the nature of the above-listed services provided by Virchow, Krause & Company, LLP and determined that the provision of the services are compatible with maintaining its independence.

Pre-Approval Policy

The Audit Committee has established pre-approval policies and procedures pursuant to which the Audit Committee pre-approved the foregoing audit and permissible non-audit services provided by Virchow, Krause & Company, LLP in 2007.

 

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Audit Committee Report

The Audit Committee has prepared the following report on its activities with respect to the Corporation’s audited consolidated financial statements for the year ended December 31, 2007, which is referred to herein as the Corporation’s audited consolidated financial statements:

The Audit Committee

Nicholas A. Giordano, Chairman

Robert N. Masucci

Michael J. McKenna

The Board of Directors recommends that stockholders vote “for” ratification of the appointment of Virchow Krause as the Corporation’s independent auditor for 2008.

 

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation’s executive officers and directors and persons who own more than ten percent of a registered class of the Corporation’s equity securities (collectively, the “reporting persons”) to file reports of ownership and changes in ownership with the Securities and Exchange Commission and to furnish the Corporation with copies of these reports.

Based on the Corporation’s review of the copies of these reports received by it and written representations, if any, received from reporting persons with respect to the filing of reports of Forms 3, 4 and 5, the Corporation believes that all filings required to be made by the reporting persons for fiscal year 2007 (unless otherwise noted) were made on a timely basis except: Mr. McKenna reported late on two Forms 4 the acquisition of Common Shares; Mr. Masucci reported late on a Form 4 the purchase of Common Shares; and Messrs. Seamon, Masucci, Giordano and McKenna reported late on a Form 4 the grant of options to purchase Common Shares.

SHAREHOLDER PROPOSALS FOR 2009 ANNUAL MEETING

Under the Corporation’s bylaws, shareholder proposals with respect to the 2009 Annual Meeting of Shareholders, including nominations for directors, which have not been previously approved by the Board of Directors, must be submitted to the Secretary of the Corporation no later than November 24, 2008. Any such proposals must be in writing and sent either by personal delivery, nationally recognized express mail or United States mail, postage prepaid to Corporate Secretary, IntriCon Corporation, 1260 Red Fox Road, Arden Hills, Minnesota 55112. Each nomination or proposal must include the information required by the bylaws. All late or nonconforming nominations and proposals may be rejected by the officer presiding at the meeting.

Shareholder proposals for the 2009 Annual Meeting of Shareholders must be submitted to the Corporation by November 24, 2008 to receive consideration for inclusion in the Corporation’s Proxy Statement relating to the 2009 annual meeting of shareholders. Any such proposal must also comply with SEC proxy rules, including SEC Rule 14a-8, and any applicable requirements set forth in the bylaws.

In addition, shareholders are notified that the deadline for providing the Corporation timely notice of any shareholder proposal to be submitted outside of the Rule 14a-8 process for consideration at the Corporation’s 2009 Annual Meeting of Shareholders is November 24, 2008. As to all such matters which the Corporation does not have notice on or prior to November 24, 2008, discretionary authority shall be granted to the persons designated in the Corporation’s Proxy related to the 2009 annual meeting of shareholders to vote on such proposal.

ANNUAL REPORT TO SHAREHOLDERS

A copy of the Corporation’s 2007 Annual Report on Form 10-K for the year ended December 31, 2007 as filed with the SEC is being mailed to each shareholder with this Proxy Statement.

The Corporation files reports and other information with the Securities and Exchange Commission, referred to as the “SEC.” Copies of these documents may be obtained at the SEC’s public reference room in Washington, D.C. The Corporation’s SEC filings are also available on the SEC’s web site at http://www.sec.gov.

 

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EACH SHAREHOLDER CAN OBTAIN A COPY OF THE CORPORATION’S ANNUAL REPORT ON FORM 10-K, INCLUDING FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES FOR THE YEAR ENDED DECEMBER 31, 2007 AS FILED WITH THE SEC, WITHOUT CHARGE EXCEPT FOR EXHIBITS TO THE REPORT, BY SENDING A WRITTEN REQUEST TO: INTRICON CORPORATION, 1260 RED FOX ROAD, ARDEN HILLS, MINNESOTA 55112 ATTN: SCOTT LONGVAL.

OTHER MATTERS

The Corporation is not presently aware of any matters (other than procedural matters) that will be brought before the Meeting which are not reflected in the attached Notice of the Meeting. The enclosed proxy confers discretionary authority to vote with respect to any and all of the following matters that may come before the Meeting: (i) matters which the Corporation did not receive notice by November 26, 2007 were to be presented at the Meeting; (ii) approval of the minutes of a prior meeting of shareholders, if such approval does not amount to ratification of the action taken at the meeting; (iii) the election of any person to any office for which a bona fide nominee named in this Proxy Statement is unable to serve or for good cause will not serve; (iv) any proposal omitted from this Proxy Statement and the form of proxy pursuant to Rules 14a-8 or 14a-9 under the Securities Exchange Act of 1934; and (v) matters incident to the conduct of the Meeting. In connection with such matters, the persons named in the enclosed proxy will vote in accordance with their best judgment.

 

Scott Longval

Chief Financial Officer, Secretary,

and Treasurer

 

 

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INTRICON CORPORATION

ARDEN HILLS, MINNESOTA 55112

This Proxy is Solicited on Behalf of the Board of Directors

The undersigned, revoking all prior proxies, hereby appoints SCOTT LONGVAL and WARREN M. BECKER with full power of substitution, as proxies and hereby authorizes them to represent and to vote all the Common Shares of IntriCon Corporation held of record by the undersigned on March 19, 2008, at the annual meeting of shareholders to be held on April 23, 2008, or any postponement or adjournment thereof.

All proxy agents present and acting in person or by their substitutes (or, if only one is present and acting, then that one) may exercise all of the powers conferred by this proxy. Discretionary authority is conferred by this proxy with respect to certain matters, as described in IntriCon Corporation’s proxy statement.

 

 

THE SHARES REPRESENTED BY THIS PROXY, DULY EXECUTED, WILL BE VOTED AS INSTRUCTED ABOVE. IF INSTRUCTIONS ARE NOT GIVEN, THEY WILL BE VOTED FOR THE ELECTION OF THE DIRECTOR NOMINEE, FOR THE APPROVAL OF THE AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS AMENDED, OF INTRICON CORPORATION TO INCREASE THE NUMBER OF AUTHORIZED COMMON SHARES AND FOR THE RATIFICATION OF THE APPOINTMENT OF VIRCHOW, KRAUSE & COMPANY, LLP AS THE CORPORATION’S INDEPENDENT AUDITOR FOR FISCAL YEAR 2008. WITH RESPECT TO SUCH OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING AND ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF, SAID PROXY IS AUTHORIZED TO VOTE IN ACCORDANCE WITH ITS BEST JUDGMENT.

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By signing this proxy, you hereby acknowledge receipt of the 2007 Annual Report to Shareholders, Notice of the Corporation’s 2008 Annual Meeting of Shareholders and the Corporation’s Proxy Statement.

 

____________________________  Date ________, 2008

Signature

____________________________  Date ________, 2008

Signature (if joint account)

 

NOTE:  Please sign and date and return in the pre-paid envelope provided. Your signature should appear exactly as your name appears in the space to the left.

For joint accounts, any co-owner may sign. When signing as attorney, executor, administrator, or fiduciary, please give your full title as such.

 

PLEASE SEE REVERSE FOR PROXY VOTING IN INSTRUCTIONS

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YOUR VOTE IS IMPORTANT

VOTE TODAY IN ONE OF THREE WAYS:

 

 

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