SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
MODERN CONTROLS, INC.
- --------------------------------------------------------------------------------
(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 transactions 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:
1997 ANNUAL MEETING
MODERN CONTROLS, INC.
7500 BOONE AVENUE NORTH
MINNEAPOLIS, MINNESOTA 55428
TO THE SHAREHOLDERS OF MODERN CONTROLS, INC.:
You are cordially invited to attend our Annual Meeting of Shareholders to
be held on May 20, 1997, at 4:00 p.m., local time, at the Marriott Hotel -- City
Center, 30 South Seventh Street, Minneapolis, Minnesota.
The formal Notice of Meeting, Proxy Statement and form of proxy are
enclosed.
Whether or not you plan to attend the meeting, please date, sign and return
the enclosed proxy in the envelope provided as soon as possible so that your
vote will be recorded.
Very truly yours,
/S/ William N. Mayer
William N. Mayer
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
April 3, 1997
PLEASE SIGN, DATE AND RETURN
THE ENCLOSED PROXY PROMPTLY
TO SAVE THE COMPANY THE EXPENSE
OF ADDITIONAL SOLICITATION.
MODERN CONTROLS, INC.
7500 BOONE AVENUE NORTH
MINNEAPOLIS, MINNESOTA 55428
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 1997
TO THE SHAREHOLDERS OF MODERN CONTROLS, INC.:
Notice is hereby given that the Annual Meeting of Shareholders of Modern
Controls, Inc. will be held on May 20, 1997, at 4:00 p.m., local time, at the
Marriott Hotel -- City Center, 30 South Seventh Street, Minneapolis, Minnesota
for the following purposes:
a. To elect seven directors to serve for the ensuing year or until
their successors are elected and qualified;
b. To consider and act upon such other matters as may properly come
before the meeting or any adjournment thereof.
The close of business on March 21, 1997 has been fixed as the record date
for the determination of shareholders who are entitled to vote at the meeting or
any adjournments thereof.
By Order of the Board of Directors
/S/ Ronald A. Meyer
Ronald A. Meyer
SECRETARY
Dated: April 3, 1997
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. NO ADMISSION TICKET
OR OTHER CREDENTIALS WILL BE NECESSARY. IF YOU DO NOT PLAN TO ATTEND THE
MEETING, PLEASE BE SURE YOU ARE REPRESENTED AT THE MEETING BY MARKING, SIGNING,
DATING AND MAILING YOUR PROXY IN THE REPLY ENVELOPE PROVIDED.
MODERN CONTROLS, INC.
7500 Boone Avenue North
Minneapolis, Minnesota 55428
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
MAY 20, 1997
INTRODUCTION
The Annual Meeting of Shareholders (the "Annual Meeting") of Modern
Controls, Inc. (the "Company") will be held on May 20, 1997, at 4:00 p.m., local
time, at the Marriott Hotel -- City Center, 30 South Seventh Street,
Minneapolis, Minnesota, or at any adjournment or adjournments thereof, for the
purposes set forth in the Notice of Annual Meeting of Shareholders.
A proxy card is enclosed for your use. You are solicited on behalf of the
Board of Directors to SIGN AND RETURN THE PROXY CARD IN THE ACCOMPANYING
ENVELOPE. No postage is required if mailed within the United States. The cost of
soliciting proxies, including the preparation, assembly and mailing of the
proxies and soliciting material, as well as the cost of forwarding such material
to the beneficial owners of the Company's Common Stock, will be borne by the
Company. Directors, officers and regular employees of the Company may, without
compensation other than their regular compensation, solicit proxies by
telephone, telegraph or personal conversation. The Company may reimburse
brokerage firms and others for expenses in forwarding proxy materials to the
beneficial owners of Common Stock.
Any shareholder giving a proxy may revoke it at any time prior to its use
at the Annual Meeting either by giving written notice of such revocation to the
Secretary of the Company, by filing a duly executed proxy bearing a later date
with the Secretary of the Company, or by appearing at the Annual Meeting and
filing written notice of revocation with the Secretary of the Company prior to
use of the proxy. Proxies will be voted as specified by shareholders.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
PROPOSAL SET FORTH IN THE NOTICE OF MEETING.
The Company expects that this proxy material will first be mailed to
shareholders on or about April 3, 1997.
VOTING OF SHARES
Only holders of Common Stock of record at the close of business on March
21, 1997 will be entitled to vote at the Annual Meeting. On March 21, 1997, the
Company had 4,275,469 outstanding shares of Common Stock, each such share
entitling the holder thereof to one vote on each matter to be voted on at the
Annual Meeting.
The presence at the Annual Meeting, in person or by proxy, of the holders
of thirty-three and one-third percent (33-1/3%) of the outstanding shares of
Common Stock entitled to vote at the meeting (1,425,157 shares) is required for
a quorum for the transaction of business. In general, shares of Common Stock
represented by a properly signed and returned proxy card will be counted as
shares present and entitled to vote at the Annual Meeting for purposes of
determining a quorum, without regard to whether the card reflects abstentions
(or is left blank) or reflects a "broker non-vote" on a matter (i.e., a card
returned by a broker on behalf of its beneficial owner customer that is not
voted on a particular matter because voting instructions have not been received
and the broker has no discretionary authority to vote).
The election of a nominee for director and any other proposals that may
come before the Annual Meeting described in this Proxy Statement require the
approval of a majority of the shares present and entitled to vote in person or
by proxy on that matter (and at least a majority of the minimum number of votes
necessary for a quorum to transact business at the meeting). Shares represented
by a proxy card including any broker non-votes on a matter will be treated as
shares not entitled to vote on that matter, and thus will not be counted in
determining whether that matter has been approved. Shares represented by a proxy
card voted as abstaining on any of the other proposals will be treated as shares
present and entitled to vote that were not cast in favor of a particular matter,
and thus will be counted as votes against that matter.
ELECTION OF DIRECTORS
NOMINATION
The Third Restated Bylaws of the Company provide that the number of
directors shall be the number elected by the shareholders at the last annual
meeting of shareholders or the number set by resolution of the Board. The Board
has set the number of directors to be elected at the 1997 Annual Meeting at
seven. Mr. Howard L. Demorest has requested not to be considered for reelection
to the Board. In appreciation for his service to the Company, the Board grants
the highest commendations to Mr. Howard L. Demorest and thanks him for his over
31 years of service to the Company. The Board has nominated the seven
individuals below to serve as directors of the Company until the next annual
meeting of the shareholders or until their respective successors have been
elected and qualified. All of the nominees are members of the current Board.
The Board recommends a vote FOR the election of each of the nominees listed
below. In absence of other instructions, the proxies will be voted FOR the
election of the nominees named below. If prior to the meeting the Board should
learn that any nominee will be unable to serve by reason of death, incapacity or
other unexpected occurrence, the proxies that otherwise would have been voted
for such nominee will be voted for such substitute nominee as selected by the
Board. Alternatively, the proxies, at the Board's discretion, may be voted for
such fewer number of nominees as results from such death, incapacity or other
unexpected occurrence. The Board has no reason to believe that any of the
nominees will be unable to serve.
INFORMATION ABOUT NOMINEES
The following information has been furnished to the Company, as of February
20, 1997, by the persons who have been nominated by the Board to serve as
directors for the ensuing year.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- --------------- --- -------------------- -----
<S> <C> <C> <C>
William N. Mayer 66 Chairman of the Board and Chief Executive Officer of the 1971
Company
Dean B. Chenoweth 75 Vice President of Engineering of Advantek, Inc. 1980
J. Leonard Frame 72 President and Chief Executive Officer of Phoenix Solutions 1983
Co.
Wallace W. Lindemann, Ph.D. 71 Retired Director of the Center for Microelectronic and 1987
Information Sciences and Professor of Electrical
Engineering, University of Minnesota
Paul L. Sjoquist 63 Director and Secretary, Palmatier, Sjoquist, Helget & 1988
Voigt, P.A.
Richard A. Proulx 63 Certified Public Accountant and Independent Consultant 1991
Robert L. Demorest 51 President of the Company 1995
</TABLE>
OTHER INFORMATION ABOUT NOMINEES
Except as indicated below, there has been no change in principal
occupations or employment during the last five years for the directors or
nominees for election as directors.
Mr. Sjoquist has been a patent attorney in the law firm of Palmatier,
Sjoquist, Helget & Voigt, P.A. for more than five years. Palmatier, Sjoquist,
Helget & Voigt, P.A. has provided and is expected to continue to provide certain
legal services to the Company.
Mr. Robert L. Demorest has been the President of the Company since January
1995. Prior to that time, Mr. Demorest had been Executive Vice President and
Secretary of the Company.
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
The business and affairs of the Company are managed by the Board, which met
four times during 1996. Committees established by the Board of Directors include
the Audit Committee, the Compensation Committee and the Nominating Committee.
The members of the Audit Committee during 1996 were Messrs. H.L. Demorest,
Proulx and Chenoweth. Mr. H.L. Demorest is not standing for re-election this
year. The function of the Audit Committee is to review Company financial
statements, oversee the financial reporting and disclosures prepared by
management, make recommendations regarding the Company's financial controls, and
confer with the Company's outside auditors. The Audit Committee met two times
during 1996.
The members of the Compensation Committee during 1996 were Messrs. Frame
and Sjoquist. The function of the Compensation Committee is to set the
compensation for those officers who are also directors, and set the terms of,
and grants of awards under, the Company's Incentive Compensation Plan (the
"Bonus Plan"), the Employee Stock Option Plan (the "Non-Statutory Plan") and the
1992 Stock Option Plan (the "1992 Plan") and to act on other matters relating to
compensation as it deems appropriate. The Compensation Committee met four times
during 1996.
The members of the Nominating Committee appointed in connection with the
Annual Meeting were Messrs. Chenoweth and Lindemann. The function of the
Nominating Committee is to select nominees for the Board of Directors. The
Nominating Committee will consider director nominations by shareholders.
Shareholders who wish to make recommendations may submit names in writing to the
Company by the deadline for shareholder proposals, together with biographical
information, the address and the telephone number of the proposed nominee. The
Nominating Committee met once during 1996.
All of the Directors attended 75% or more of the aggregate meetings of the
Board and all committees on which they served.
DIRECTOR COMPENSATION
DIRECTORS' FEES. Non-employee directors each received a retainer fee of
$550 per month during 1996 without regard to the number of Board or committee
meetings held or attended by such director.
DIRECTOR RETIREMENT PLAN. On March 23, 1988, the Board adopted a retirement
plan for non-employee directors of the Company (the "Retirement Plan"). Pursuant
to the Retirement Plan, all non-employee directors who have served on the Board
of Directors of the Company for at least five years will, upon retirement,
receive an amount equal to the annual retainer fee such director would have been
entitled to receive during the fiscal year in which such director's retirement
occurs, provided that such payment will not be made to a director who, following
retirement, continues to serve the Company in a consulting capacity. The amount
to be received will be payable in four installments at the end of each of the
four fiscal quarters following retirement. As of December 31, 1996, all of the
Company's current non-employee directors were eligible to receive payments
pursuant to the Retirement Plan upon their retirement from the Board.
1990 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. On November 13, 1990, the
Board adopted the 1990 Non-Employee Director Stock Option Plan (the "1990
Director Plan"). Pursuant to the 1990 Director Plan, an initial grant of an
option to purchase 1,000 shares of Common Stock at an exercise price per share
equal to 100% of the fair market value of one share of Common Stock on the date
of grant was made to all non-employee directors who were directors on November
13, 1990, the date the 1990 Director Plan was adopted. The 1990 Director Plan
provides that each non-employee director who is a director of the Company on
November 1 of each second year thereafter will automatically receive an
additional option to purchase 1,000 shares of Common Stock at an exercise price
per share equal to 100% of the fair market value of a share of Common Stock as
of the date of grant. Each option granted under the 1990 Director Plan is
exercisable commencing on the first anniversary of the date of grant, and
remains exercisable until the fifth anniversary of the date of grant. To
exercise an option, the director must have continuously served as a director of
the Company for the entire year preceding the date on which the option first
becomes exercisable. Once the option becomes exercisable, it will remain
exercisable for the remainder of its term, whether or not such director remains
a director of the Company. During the last fiscal year, Messrs. H.L. Demorest,
Chenoweth, Frame, Lindemann, Sjoquist and Proulx each were granted an option to
purchase 1,000 shares of Common Stock under the 1990 Director Plan.
PRINCIPAL SHAREHOLDERS AND BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of February 20, 1997 unless
otherwise noted (a) by each shareholder who is known by the Company to own
beneficially more than 5% of the outstanding Common Stock, (b) by each director
and each executive officer named in the Summary Compensation Table and (c) by
all executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED(1)(2)
------------------------
PERCENT OF
NAME AMOUNT CLASS(3)
- ---- ------ --------
<S> <C> <C>
Fenimore Asset Management, Inc. 835,384 (4) 19.5%
118 North Grand Street
P.O. Box 310
Cobleskill, New York 12043
William N. Mayer 224,397 (5) 5.2%
Howard L. Demorest 53,641 (6) 1.3%
Dean B. Chenoweth 29,167 (6) *
J. Leonard Frame 5,750 (7) *
Wallace W. Lindemann 6,654 (8) *
Paul L. Sjoquist 5,535 (6) *
Richard A. Proulx 7,750 (6) *
Robert L. Demorest 72,190 (9) 1.7%
Ronald A. Meyer 78,878(10) 1.8%
Daniel W. Mayer 60,804(11) 1.4%
All current directors and executive officers as a group (10 persons) 544,766(12) 12.5%
</TABLE>
- ----------------------------------
* Less than 1%.
(1) Shares not outstanding but deemed beneficially owned by virtue of the right
of a person or member of a group to acquire them within 60 days are treated
as outstanding only when determining the amount and percent owned by such
person or group.
(2) Unless otherwise noted, all of the shares shown are held by individuals or
entities possessing sole voting and investment power with respect to such
shares.
(3) Based on 4,275,469 shares of Common Stock outstanding as of February 20,
1997.
(4) Fenimore Asset Management, Inc. has reported in a Schedule 13G filed with
the Securities and Exchange Commission that, as of December 31, 1996, it
was the beneficial owner of all such shares, possessing shared voting and
investment power with respect to all such shares.
(5) Includes 28,000 shares that Mr. W.N. Mayer has the right to acquire within
60 days upon the exercise of stock options. Also includes 196,397 shares
owned beneficially by Mr. W.N. Mayer and his wife jointly as to which he
shares voting and investment power.
(6) Includes 2,000 shares that such directors have the right to acquire within
60 days upon the exercise of stock options.
(7) Includes 2,000 shares that Mr. Frame has the right to acquire within 60
days upon the exercise of stock options. Also includes 2,750 shares owned
beneficially by Mr. Frame and his wife jointly as to which he shares voting
and investment power and 1,000 shares owned by his wife, as to which he
disclaims any beneficial interest.
(8) Includes 2,000 shares that Dr. Lindemann has the right to acquire within 60
days upon the exercise of stock options. Also includes 4,654 shares owned
beneficially by Wallace W. and Mary D. Lindemann Revocable Family Trust as
to which Dr. Lindemann shares voting and investment power.
(9) Includes 20,250 shares that Mr. R.L. Demorest has the right to acquire
within 60 days upon the exercise of stock options. Also includes 42,265
shares owned beneficially by Mr. Demorest and his wife jointly as to which
he shares voting and investment power.
(10) Includes 20,250 shares that Mr. Meyer has the right to acquire within 60
days upon the exercise of stock options. Also includes 8,823 shares owned
beneficially by Mr. Meyer and his wife jointly as to which he shares voting
and investment power.
(11) Includes 19,750 shares that Mr. D.W. Mayer has the right to acquire within
60 days upon the exercise of stock options.
(12) Includes an aggregate of 100,250 shares that certain directors and
executive officers have the right to acquire within 60 days upon the
exercise of stock options. Includes an aggregate of 255,889 shares as to
which voting and investment power are shared or may be deemed to be shared
by certain directors and executive officers.
EXECUTIVE COMPENSATION AND OTHER BENEFITS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the cash and non-cash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company and the three other most highly compensated executive
officers of the Company whose salary and bonus exceeded $100,000 in the last
fiscal year (the "Named Executive Officers"). Other than Messrs. W.N. Mayer,
R.L. Demorest, R.A. Meyer and D.W. Mayer, no other executive officer of the
Company had salary and bonus which exceeded $100,000 in the fiscal year ended
December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
SECURITIES ALL OTHER
ANNUAL COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS ($)(2)
- --------------------------- ---- --------- ----------- ------- ------
<S> <C> <C> <C> <C> <C>
William N. Mayer 1996 $209,000 $126,748 0 $1,800
Chairman of the Board and 1995 193,167 110,066 0 1,350
Chief Executive Officer 1994 190,000 90,136 25,000 1,350
Robert L. Demorest 1996 $131,000 $ 55,612 6,000 $1,800
President 1995 122,134 48,715 5,000 1,562
1994 109,823 36,470 0 1,153
Ronald A. Meyer 1996 $117,783 $ 50,001 5,000 $1,800
Vice President -- Finance 1995 108,008 43,080 5,000 1,441
and Administration, 1994 102,350 33,988 0 1,074
Treasurer and Secretary
Daniel W. Mayer 1996 $114,569 $ 48,636 5,000 $1,145
Executive Vice President 1995 105,063 41,906 5,000 897
1994 97,750 32,461 0 840
</TABLE>
(1) Cash bonuses for services rendered have been included as compensation for
the year earned, even though such bonuses were actually paid in the
following year. Such bonuses were payable pursuant to the Company's Bonus
Plan. The Bonus Plan is based upon the achievement by the Company of
certain established profit goals and is described below under the heading
"Compensation Committee Report on Executive Compensation."
(2) "All Other Compensation" includes Company contributions to its Salary
Reduction Plan. Under the Salary Reduction Plan, participants may
voluntarily request that the Company reduce his or her pre-tax compensation
by up to 12% (subject to certain special limitations) and contribute such
amounts ("Basic Contributions") to a trust. Each year, the Company
contributes an amount equal to 20% of the first 6% of each participant's
Basic Contributions for that year.
OPTION GRANTS AND EXERCISES
The following tables summarize option grants and exercises during 1996 to
or by the Named Executive Officers and the potential realizable value of the
options held by such persons at December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------- ANNUAL
PERCENT OF RATES OF STOCK PRICE
NUMBER OF TOTAL OPTIONS APPRECIATION
SECURITIES GRANTED TO EXERCISE OR FOR OPTION TERM(2)
UNDERLYING OPTIONS EMPLOYEES BASE PRICE EXPIRATION ------------------
NAME GRANTED(#)(1) IN FISCAL YEAR ($/SH) DATE 5% 10%
- ---- ------------- -------------- ------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
William N. Mayer -- -- -- -- -- --
Robert L. Demorest 6,000(3) 20% $10.1875 10/08/06 $38,509 $97,189
Ronald A. Meyer 5,000(3) 17% $10.1875 10/08/06 $32,091 $80,991
Daniel W. Mayer 5,000(3) 17% $10.1875 10/08/06 $32,091 $80,991
</TABLE>
(1) All the options granted to executives were granted under the 1992 Plan.
Options become exercisable under the plan so long as executives remain in
the employ of the Company or one of its subsidiaries. To the extent not
already exercisable, options granted under the 1992 Plan become immediately
exercisable in full upon certain changes in control of the Company,
provided that, upon such a change in control, the Compensation Committee
may determine that holders of options granted under the 1992 Plan will
receive cash in an amount equal to the excess of the fair market value of
such shares immediately prior to the effective date of such change in
control of the Company over the exercise price of such options. See
"Executive Compensation and Other Benefits -- Change in Control
Arrangements."
(2) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent upon the future
performance of the Company's Common Stock, overall market conditions and
the executive's continued employment with the Company. The amounts
represented in this table might not necessarily be achieved.
(3) These options were granted on October 9, 1996 and vest according to the
following schedule: 25% on the first anniversary of the date of grant and
25% on each anniversary date thereafter, until fully vested.
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END(#)(1) AT FISCAL YEAR-END($)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William N. Mayer 28,000 0 $81,250 $ 0
Robert L. Demorest 19,000 11,000 15,781 17,719
Ronald A. Meyer 19,000 10,000 15,781 17,657
Daniel W. Mayer 18,500 10,000 15,781 17,657
</TABLE>
(1) The exercise price of options granted under the Company's Restated 1982
Incentive Stock Option Plan, the Non-Statutory Plan or the 1992 Plan may be
paid in cash or in shares of the Company's Common Stock valued at fair
market value on the date of exercise. In addition, the exercise price of
options granted under the Non-Statutory Plan or the 1992 Plan may be paid
pursuant to a cashless exercise procedure under which the executive
provides irrevocable instructions to a brokerage firm to sell the purchased
shares and to remit to the Company, out of the sale proceeds, an amount
equal to the exercise price plus all applicable withholding taxes. Under
the 1992 Plan, the Compensation Committee also has the discretion to grant
a supplemental cash bonus to an optionee in connection with the grant or
exercise of an option or both the grant and exercise of an option. See
"Executive Compensation and Other Benefits -- Change in Control
Arrangements."
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Composed entirely of outside directors, the Compensation Committee of the
Board of Directors meets two to four times per year and is responsible for
establishing the compensation for executive officers who are also directors of
the Company (Messrs. W.N. Mayer and R.L. Demorest) and for administering the
Company's compensation and stock option plans in which these individuals and
other key employees participate. Mr. W.N. Mayer, the Company's Chief Executive
Officer, establishes the compensation of all other executive officers who are
not also directors of the Company. The members of the Compensation Committee of
the Company during 1996 were J. Leonard Frame and Paul L. Sjoquist. A more
complete description of the functions of the Compensation Committee is set forth
under the caption "Election of Directors -- Information About the Board and its
Committees."
COMPENSATION PHILOSOPHY AND OBJECTIVES. The Company's executive
compensation philosophy is to link executive compensation directly to earnings
performance and therefore to increases in shareholder value. The objectives of
the Company's executive compensation program are to:
* Reward the achievement of desired Company earnings and individual
performance goals.
* Provide compensation that is competitive with other companies of comparable
size and performance that enables the Company to attract and retain key
executives.
* Link compensation to the performance of the Company's Common Stock thereby
aligning the interests of executives with those of the Company's
shareholders.
The Company's executive compensation program provides a level of
compensation that is competitive for companies of comparable profitability,
complexity and size. In determining compensation levels, competitive
compensation data, including compensation data for some of the companies
included in the Peer Group Index used in the Stock Performance Graph as well as
other companies, is collected by management, analyzed and presented to the
Compensation Committee for review. The Compensation Committee ultimately
determines the proper level of compensation which may be greater or less than
competitive levels in this survey data based upon factors such as annual and
long-term Company performance and individual performance. The compensation of
executives other than Messrs. W.N. Mayer and R.L. Demorest is established by Mr.
W.N. Mayer using a similar philosophy.
EXECUTIVE COMPENSATION PROGRAM COMPONENTS. The Company's executive
compensation program consists of base salary, annual incentive compensation in
the form of cash bonuses and long-term incentive compensation in the form of
stock options. The Compensation Committee uses its discretion to establish
executive compensation at levels which, in its judgment, are warranted by
external and internal factors, as well as an executive's individual
circumstances. As a result, actual compensation levels may be greater or less
than the compensation levels at the companies used in the comparative analysis
based upon annual and long-term Company performance as well as individual
performance. The particular elements of the compensation program are discussed
more fully below.
BASE SALARY. Base salary levels of executives are determined by taking into
account an executive's level of responsibility, prior experience, competitive
market data, the skills and experiences required by the position and the
individual performance. Mr. W.N. Mayer's base salary is $209,000 and was not
increased for fiscal 1997. Mr. R.L. Demorest's salary was increased from
$131,000 to $140,000 on January 1, 1997.
ANNUAL INCENTIVE COMPENSATION. Annual cash bonuses are paid under the
Company's Bonus Plan to the executives and are designed to provide a direct
financial incentive to executives to achieve the Company's annual profit goals
measured by net income before income taxes and incentives. The annual incentive
targets range from 35% to 50% of base salary if the Company's profit goals are
achieved (the "Incentive Target"). To the extent the Company's profits are less
than or greater than established goals, the annual incentive is proportionally
reduced or increased but may not exceed 150% of the Incentive Target. The Bonus
Plan's 1996 profit goals were set in 1993 for the years 1994, 1995 and 1996. Mr.
W.N. Mayer's and Mr. R.L. Demorest's bonuses for 1996 were $126,748 and $55,612,
respectively. The Company believes that Mr. W.N. Mayer and Mr. R.L. Demorest and
the other executives performed well under the circumstances as shown below in
the Stock Performance Graph.
LONG-TERM INCENTIVE COMPENSATION. Stock options are used to enable key
executives to participate in a meaningful way in the success of the Company and
to link their interests directly with those of the shareholders. The number of
stock options granted to executives is based upon a number of factors, including
base salary level, the number of options previously granted and individual and
Company performance during the year. Based upon these factors, Mr. R.L. Demorest
was granted options to purchase a total of 6,000 shares during 1996. Mr. W.N.
Mayer was not granted any additional options during fiscal 1996.
SECTION 162(m). The Omnibus Reconciliation Act of 1993 added Section 162(m)
to the Internal Revenue Code of 1986, as amended (the "Code") limiting corporate
deductions to $1,000,000 for certain compensation paid to the chief executive
officer and each of the three other most highly compensated executives of
publicly held companies. The Company does not believe it will pay "compensation"
within the meaning of Section 162(m) to such executive officers in excess of
$1,000,000 in the foreseeable future. Therefore, the Company does not have a
policy at this time regarding qualifying compensation paid to its executive
officers for deductibility under Section 162(m), but will formulate a policy if
compensation levels ever approach $1,000,000.
CHIEF EXECUTIVE OFFICER COMPENSATION COMMITTEE
William N. Mayer J. Leonard Frame
Paul L. Sjoquist
STOCK PERFORMANCE GRAPH
The following line-graphs provide both a five-year and a ten-year
comparison of the cumulative returns for the Company, the S&P 500 Index and an
index of peer companies selected by the Company. The Peer Group Index consists
of companies that operate in similar industries and with similar market
capitalizations. The total cumulative return (change in the year-end stock price
plus reinvested dividends) for each of the periods is based on the investment of
$100 in the Company's Common Stock, the S&P 500 Index and the Peer Group Index
on December 31, 1991 (for the five-year comparison) and on December 31, 1986
(for the ten-year comparison). Total cumulative return for each company in the
Peer Group Index is weighted according to market capitalization at the beginning
of each year. Triconek Corp. was purchased by another entity in 1995 and is no
longer included in the Company's Peer Group Index.
FIVE-YEAR COMPARISON
YEAR S&P 500 MOCON PEER GROUP INDEX*
- ---- ------- ----- -----------------
1991 100.00 100.00 100.00
1992 107.62 73.47 104.93
1996 118.47 53.94 125.33
1994 120.03 38.65 141.5
1995 165.14 67.49 224.17
1996 203.05 66.64 197.16
TEN-YEAR COMPARISON
YEAR S&P 500 MOCON PEER GROUP INDEX*
- ---- ------- ------ -----------------
1986 100.00 100.00 100.00
1987 105.25 103.99 87.18
1988 122.73 248.02 108.04
1989 161.62 270.36 126.88
1990 156.60 383.17 94.82
1991 204.31 784.76 113.57
1992 219.88 576.58 119.17
1993 242.02 423.33 142.34
1994 245.24 303.31 160.70
1995 337.39 529.62 254.59
1996 414.86 522.96 223.92
*Andros Inc., BEI Electronics Inc., CEM Corp., Core Industries Inc., Daniel
Industries, Gelman Sciences Inc., Hurco Companies Inc., Input/Output Inc.,
Instron Corp., K-Tron International Inc., Medar Inc., Media Logic Inc., Moore
Products Co., MTS Systems Corp., Newport Corp., Triconex Corp., TSI Inc. - MN,
Unit Instruments, Inc.
CHANGE IN CONTROL ARRANGEMENTS
Under the Company's 1992 Plan, upon the occurrence of a "change in control"
all outstanding options granted under the 1992 Plan will become and remain
exercisable in full during their remaining terms regardless of whether the plan
participants thereafter remain employees of the Company or a subsidiary. The
acceleration of the exercisability of options under this Plan may be limited,
however, if the acceleration would be subject to an excise tax imposed upon
"excess parachute payments." Under the 1992 Plan, a "change in control" has
occurred if (a) substantially all of the Company's assets are sold or otherwise
disposed of or the shareholders approve a transaction in which the Company is
liquidated or dissolved; (b) a change in control of the Company of a nature that
would be required to be reported pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") has occurred; (c) any
person becomes the beneficial owner of 25% or more of the combined voting power
of the Company's capital stock; or (d) the Company is a party to a business
combination or proxy contest, as a consequence of which members of the Board in
office as of the effective date of the 1992 Plan constitute less than a majority
of the Board after such event (any person that becomes a director subsequent to
the effective date of the 1992 Plan whose election, or nomination for election
by the shareholders, was approved by at least a majority of the directors on the
effective date of the 1992 Plan, is considered a member of the board of
directors on the effective date of the 1992 Plan). In addition, the Compensation
Committee, without the consent of any affected participant, may determine that
some or all of the participants holding outstanding options will receive cash in
an amount equal to the excess of the fair market value immediately before the
effective date of the change in control over the exercise price per share of the
options.
CONFIDENTIALITY AGREEMENT
The Company currently has a written agreement with William N. Mayer
prohibiting disclosure of confidential information to anyone outside of the
Company both during and subsequent to employment, prohibiting Mr. Mayer from
engaging in any competitive business activity for a period of two years after
termination of employment with the Company and requiring disclosure to the
Company of ideas, discoveries or inventions relating to or resulting from his
work for the Company and assignment to the Company of all proprietary rights to
such matters. In the event that Mr. Mayer is unable to obtain employment
consistent with his abilities and education as a result of this agreement, the
Company will be required to make payments to Mr. Mayer equal to his monthly base
salary at termination (exclusive of extra compensation, bonus or employee
benefits) for each month of such unemployment, up to a maximum of 24 months.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of the Company's Common Stock, to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Executive
officers, directors and greater than 10% shareholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports they
file. To the Company's knowledge, based on review of the copies of such reports
furnished to the Company during the period ended December 31, 1996, and based on
representations by such persons, all of the Company's executive officers,
directors and greater than 10% shareholders complied with all Section 16(a)
filings requirements.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Proposals of shareholders intended to be presented in the proxy materials
relating to the next Annual Meeting must be received by the Company at its
principal executive offices on or before December 4, 1997.
OTHER MATTERS
The management of the Company does not intend to present other items of
business and knows of no items of business that are likely to be brought before
the Annual Meeting except those described in this Proxy Statement. However, if
any other matters should properly come before the Annual Meeting, the persons
named in the enclosed proxy will have discretionary authority to vote such proxy
in accordance with their best judgment on such matters.
MISCELLANEOUS
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM
10-K (EXCLUSIVE OF EXHIBITS) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 TO EACH
PERSON WHO WAS A SHAREHOLDER OF THE COMPANY AS OF MARCH 21, 1997, UPON RECEIPT
FROM ANY SUCH PERSON OF A WRITTEN REQUEST FOR SUCH AN ANNUAL REPORT. SUCH
REQUEST SHOULD BE SENT TO: 7500 BOONE AVENUE NORTH, MINNEAPOLIS, MINNESOTA
55428; ATTN.: SHAREHOLDER INFORMATION.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Ronald A. Meyer
Ronald A. Meyer
SECRETARY
Minneapolis, Minnesota
April 3, 1997
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
The undersigned hereby appoints
William N. Mayer and Ronald A. Meyer,
and each of them, as Proxies, each
with full power to appoint his
substitute, and hereby authorizes each
of them to represent and to vote, as
designated below, all the shares of
Common Stock of Modern Controls, Inc.
held of record by the undersigned on
MODERN CONTROLS, INC. March 21, 1997, at the Annual Meeting
7500 BOONE AVENUE NORTH of Shareholders to be held on May 20,
MINNEAPOLIS, MINNESOTA 55428 PROXY 1997, or any adjournment, thereof.
1. Election of Directors:
[ ] FOR all nominees listed below (except as marked to the contrary below)
[ ] AGAINST all nominees listed below
WILLIAM N. MAYER DEAN B. CHENOWETH J. LEONARD FRAME
WALLACE W. LINDEMANN, PH.D. PAUL L. SJOQUIST RICHARD A. PROULX
ROBERT L.DEMOREST
(INSTRUCTION: TO VOTE AGAINST ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH
THE NOMINEE'S NAME.)
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL THE NOMINEES IN PROPOSAL 1
ABOVE.
(PLEASE SIGN ON REVERSE SIDE)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES NAMED IN PROPOSAL 1 ABOVE. Please sign exactly as name
appears below. When shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
_______________________________________________________________________________
Dated: , _________________________1997
______________________________________
Print Name of Shareholder(s)
______________________________________
Signature
______________________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
