UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
------------------------------
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)(1) and 0-11.
1 Title of each class of securities to which transaction applies:
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2 Aggregate number of securities to which transaction applies:
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3 Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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4 Proposed maximum aggregate value of transaction:
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5 Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1 Amount Previously Paid:
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2 Form, Schedule or Registration Statement No.:
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3 Filing Party:
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4 Date Filed:
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<PAGE>
PRELIMINARY PROXY STATEMENT
1998 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 19, 1998, 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,
William N. Mayer
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
April ____, 1998
PLEASE SIGN, DATE AND RETURN
THE ENCLOSED PROXY PROMPTLY
TO SAVE THE COMPANY THE EXPENSE
OF ADDITIONAL SOLICITATION.
<PAGE>
MODERN CONTROLS, INC.
7500 BOONE AVENUE NORTH
MINNEAPOLIS, MINNESOTA 55428
--------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 19, 1998
--------------------
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 19, 1998, at 4:00 p.m., local time, at
the Marriott Hotel--City Center, 30 South Seventh Street, Minneapolis, Minnesota
for the following purposes:
1. To elect seven directors to serve for the ensuing year or
until their successors are elected and qualified;
2. To consider and act upon a proposal to amend the Company's
Restated Articles of Incorporation to increase the authorized
number of shares of capital stock from 10,000,000 to
25,000,000 shares, consisting of 22,000,000 shares of common
stock, $.10 par value, and 3,000,000 shares undesignated as to
series.
3. To consider and act upon a proposal to adopt the Company's
1998 Stock Option Plan.
4. 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 20, 1998 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
Ronald A. Meyer
SECRETARY
Dated: April ____, 1998
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<PAGE>
MODERN CONTROLS, INC.
7500 Boone Avenue North
Minneapolis, Minnesota 55428
-------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
MAY 19, 1998
-------------------
INTRODUCTION
The Annual Meeting of Shareholders (the "Annual Meeting") of Modern
Controls, Inc. (the "Company") will be held on May 19, 1998, 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, $0.10 par value (the
"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
PROPOSALS SET FORTH IN THE NOTICE OF MEETING.
The Company expects that this proxy material will first be mailed to
shareholders on or about April ___, 1998.
<PAGE>
VOTING OF SHARES
Only holders of Common Stock of record at the close of business on
March 20, 1998 will be entitled to vote at the Annual Meeting. On March 20,
1998, the Company had ________ 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 (____________ 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.
<PAGE>
ELECTION OF DIRECTORS
PROPOSAL 1
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. Seven
directors were elected at the 1997 Annual Meeting, and as a result there will be
seven directors of the Company for the ensuing year. 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, 1998, by the persons who have been nominated by the Board to serve
as directors for the ensuing year.
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- --------------- --- ----------------------------------------- --------
William N. Mayer 67 Chairman of the Board and Chief Executive 1971
Officer of the Company
Dean B. Chenoweth 76 Executive Vice President of Advantek, Inc. 1980
J. Leonard Frame 73 President and Chief Executive Officer of 1983
Phoenix Solutions Co.
Paul L. Sjoquist 64 Director and Secretary, Palmatier, 1988
Sjoquist, Helget & Voigt, P.A.
Richard A. Proulx 64 Certified Public Accountant and 1981
Independent Consultant
Robert L. Demorest 52 President of the Company 1995
Thomas C. Thomas 38 Partner, Oppenheimer, Wolff & Donnelly LLP 1997
<PAGE>
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 retired in 1997 from the law firm of Palmatier, Sjoquist,
Helget & Voigt, P.A. where he had been a patent attorney for more than five
years. Mr. Sjoquist and Palmatier, Sjoquist, Helget & Voigt, P.A. have provided
and are 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.
Mr. Thomas has been an attorney in the law firm of Oppenheimer, Wolff &
Donnelly LLP for more than five years. Oppenheimer, Wolff & Donnelly LLP has
provided and is expected to continue to provide certain legal services to 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 1997. 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 1997 were Messrs. Proulx and
Chenoweth. 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 1997.
The members of the Compensation Committee during 1997 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"), the
1992 Stock Option Plan (the "1992 Plan") and the 1998 Stock Option Plan (the
"1998 Plan"), to be considered for approval at this Annual Meeting, and to act
on other matters relating to compensation as it deems appropriate. The
Compensation Committee met five times during 1997.
The members of the Nominating Committee appointed in connection with
the Annual Meeting were Messrs. Chenoweth and Thomas. 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 1997.
All of the Directors, with the exception of Mr. Chenoweth, attended 75%
or more of the aggregate meetings of the Board and all committees on which they
served.
<PAGE>
DIRECTOR COMPENSATION
DIRECTORS' FEES. Non-employee directors each received a retainer fee of
$550 per month during 1997 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, 1997, all of the Company's current non-employee
directors, with the exception of Mr. Thomas, 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, no options to purchase
shares of Common Stock were granted under the 1990 Director Plan.
<PAGE>
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, 1998 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.
SHARES OF COMMON STOCK
BENEFICIALLY OWNED (1)(2)
-----------------------------------
NAME AMOUNT PERCENT OF CLASS(3)
- ---- ------ -------------------
Fenimore Asset Management, Inc............. 1,229,411 (4) 19.1%
118 North Grand Street
P.O. Box 310
Cobleskill, New York 12043
William N. Mayer........................... 332,095 (5) 5.1%
Robert L. Demorest......................... 101,928 (6) 1.6%
Dean B. Chenoweth.......................... 45,250 (7) *
J. Leonard Frame........................... 9,316 (8) *
Paul L. Sjoquist .......................... 9,802 (7) *
Richard A. Proulx ......................... 13,125 (7) *
Thomas C. Thomas........................... 0 *
Ronald A. Meyer ........................... 108,285 (9) 1.7%
Daniel W. Mayer............................ 82,737 (10) 1.3%
All current directors and
executive officers
as a group (9 persons)..................... 702,538 (11) 10.7%
- ------------------------
*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.
<PAGE>
(3) Based on 6,445,522 shares of Common Stock outstanding as of February 20,
1998.
(4) Fenimore Asset Management, Inc. has reported in a Schedule 13G filed with
the Securities and Exchange Commission that, as of December 31, 1997, it
was the beneficial owner of all such shares, possessing shared voting and
investment power with respect to all such shares.
(5) Includes 37,500 shares that Mr. W.N. Mayer has the right to acquire within
60 days upon the exercise of stock options. Also includes 294,595 shares
owned beneficially by Mr. W.N. Mayer and his wife jointly as to which he
shares voting and investment power.
(6) Includes 18,500 shares that Mr. R.L. Demorest has the right to acquire
within 60 days upon the exercise of stock options. Also includes 60,357
shares owned beneficially by Mr. Demorest and his wife jointly as to which
he shares voting and investment power. Also includes 3,000 shares held in
trust for minor children.
(7) Includes 3,000 shares that such directors have the right to acquire within
60 days upon the exercise of stock options.
(8) Includes 3,000 shares that Mr. Frame has the right to acquire within 60
days upon the exercise of stock options. Also includes 4,816 shares owned
beneficially by Mr. Frame and his wife jointly as to which he shares voting
and investment power and 1,500 shares owned by his wife, as to which he
disclaims any beneficial interest.
(9) Includes 18,125 shares that Mr. Meyer has the right to acquire within 60
days upon the exercise of stock options. Also includes 90,160 shares owned
beneficially by certain trusts as to which he shares voting and investment
power.
(10) Includes 18,125 shares that Mr. D.W. Mayer has the right to acquire within
60 days upon the exercise of stock options.
(11) Includes an aggregate of 104,250 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 451,428 shares as to
which voting and investment power are shared or may be deemed to be shared
by certain directors and executive officers.
<PAGE>
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 $100,000 in the fiscal year ended
December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS(#) COMPENSATION($)(2)
- --------------------------- ---- --------- ----------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
William N. Mayer 1997 $209,000 $117,986 (3) 0 $1,900
Chairman of the Board and 1996 209,000 126,748 0 1,800
Chief Executive Officer 1995 193,167 110,066 0 1,350
Robert L. Demorest 1997 $140,000 $50,593 7,000 $1,900
President 1996 131,000 55,612 9,000 1,800
1995 122,134 48,715 7,500 1,562
Ronald A. Meyer 1997 $123,432 $44,605 5,000 $1,900
Vice President--Finance 1996 117,783 50,001 7,500 1,800
and Administration, 1995 108,008 43,080 7,500 1,441
Treasurer and Secretary
Daniel W. Mayer 1997 $120,059 $43,386 5,000 $1,182
Executive Vice President 1996 114,569 48,636 7,500 1,145
1995 105,063 41,906 7,500 897
</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. Except as otherwise provided herein, all 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.
(3) Of such bonus, $10,000 was paid outside of the Company's Bonus Plan for Mr.
W.N. Mayer's work in research and development toward the creation of the
TRANSORPTION(R) process.
<PAGE>
OPTION GRANTS AND EXERCISES
The following tables summarize option grants and exercises during 1997
to or by the Named Executive Officers and the potential realizable value of the
options held by such persons at December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
NUMBER OF TOTAL OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE OR FOR OPTION TERM(2)
UNDERLYING EMPLOYEES BASE PRICE EXPIRATION ---------------------
NAME OPTIONS GRANTED(#)(1) IN FISCAL YEAR ($/Sh) DATE 5% 10%
- ---- --------------------- -------------- ------------ ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
William N. Mayer -- -- -- -- -- --
Robert L. Demorest 7,000 (3) 23% $11.625 11/17/07 $51,266 $129,386
Ronald A. Meyer 5,000 (3) 16% $11.625 11/17/07 $36,619 $92,419
Daniel W. Mayer 5,000 (3) 16% $11.625 11/17/07 $36,619 $92,419
</TABLE>
- ---------------------
(1) All the options granted to executives were granted under the 1992 Plan.
Options become exercisable under the plan so long as executives remain in
the employ of the Company or one of its subsidiaries. To the extent not
already exercisable, options granted under the 1992 Plan become immediately
exercisable in full upon certain changes in control of the Company,
provided that, upon such a change in control, the Compensation Committee
may determine that holders of options granted under the 1992 Plan will
receive cash in an amount equal to the excess of the fair market value of
such shares immediately prior to the effective date of such change in
control of the Company over the exercise price of such options. See
"Executive Compensation and Other Benefits -- Change in Control
Arrangements."
(2) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent upon the future
performance of the Company's Common Stock, overall market conditions and
the executive's continued employment with the Company. The amounts
represented in this table might not necessarily be achieved.
(3) These options were granted on November 18, 1997 (the "Date of Grant"). Of
these options, 5,000 shares were fully vested on the Date of Grant and all
remaining shares, if any, vest on the first anniversary of the Date of
Grant.
<PAGE>
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR-END(#) AT FISCAL YEAR-END($)(3)
ACQUIRED ON VALUE -------------------------- -------------------------
NAME EXERCISE(#)(1) REALIZED($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- -------------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William N. Mayer...... -- -- 37,500 0 $221,094 $0
Robert L Demorest..... 7,500 $26,563 18,500 12,500 $74,500 $48,500
Ronald A. Meyer....... 7,500 $26,563 18,125 9,375 $73,086 $44,258
Daniel W. Mayer....... 7,500 $35,625 18,125 9,375 $73,086 $44,258
</TABLE>
- --------------------
(1) The exercise price of options granted under the Company's 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."
(2) The "Value Realized" is calculated as the excess of the market value of the
Common Stock on the date of exercise or December 31, 1997, as the case may
be, over the exercise price. The market price of the Common Stock as of
December 31, 1997 was calculated as the average of the high and low sales
prices as quoted on the Nasdaq National Market System. The exercise price
of outstanding options range from $4.417 to $11.625 per share.
(3) Value calculated as the excess of the market value of the Common Stock at
December 31, 1997 ($10.5625), calculated as the average of the high and low
sales prices as quoted on the Nasdaq National Market System, over the
exercise price per share. Options are in-the-money if the market price of
the shares exceeds the option exercise price.
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 1997 were J. Leonard Frame and Paul L. Sjoquist. A more
complete
<PAGE>
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 was increased from
$209,000 to $223,630 on January 1, 1998. Mr. Robert Demorest's salary was
increased from $140,000 to $149,800 on January 1, 1998.
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 1997 profit goals were set in 1996 for the years 1997, 1998 and 1999. Mr.
W.N. Mayer's and Mr. R.L. Demorest's bonuses for 1997 were $107,986 and $50,593,
respectively. In addition, Mr. William N. Mayer was granted a bonus of $10,000
related to his work in research and development toward the creation of the
TRANSORPTION(R) process. The Company believes that Mr.
<PAGE>
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 7,000 shares during 1997. Mr. W.N.
Mayer was not granted any additional options during fiscal 1997 because the
Compensation Committee believes his current level of outstanding options is
adequate.
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
<PAGE>
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, 1992 (for the five-year comparison) and on December 31, 1987
(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. Core Industries, Inc., Gelman Sciences, Inc., Andros, Inc. and
Triconek Corp. were purchased by other entities in 1997, 1997, 1996 and 1995,
respectively, and are no longer included in the Company's Peer Group Index.
FIVE-YEAR COMPARISON
Company S&P 500 Peer Group*
Year Plot Points Plot Points Plot Points
---- ----------- ----------- -----------
1992 100.00 100.00 100.00
1993 73.42 110.08 119.44
1994 52.61 111.53 134.84
1995 91.86 153.44 213.64
1996 90.71 188.67 187.89
1997 145.43 251.63 284.23
TEN-YEAR COMPARISON
Company S&P 500 Peer Group*
Year Plot Points Plot Points Plot Points
---- ----------- ----------- -----------
1987 100.00 100.00 100.00
1988 238.51 116.61 123.93
1989 259.99 153.56 145.54
1990 368.47 148.79 108.76
1991 754.69 194.12 130.27
1992 554.44 208.91 136.70
1993 407.07 229.97 163.28
1994 291.68 233.00 184.33
1995 509.31 320.56 292.04
1996 502.91 394.16 256.85
1997 806.34 525.67 388.54
* BEI Medical Systems Co., CEM Corp., Daniel Industries, 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., TSI
Inc.-MN, Unit Instruments, Inc.
<PAGE>
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.
<PAGE>
PROPOSAL TO AMEND THE RESTATED ARTICLES OF INCORPORATION
TO INCREASE THE AUTHORIZED CAPITAL STOCK OF THE COMPANY
PROPOSAL NO. 2
INTRODUCTION
At present, the Restated Articles of Incorporation of the Company
authorize the issuance of shares of Common Stock, $0.10 par value. As of
February 20, 1998, 6,445,522 shares of the Company's authorized shares of Common
Stock were issued and outstanding and 3,554,478 shares were authorized but
unissued. Of the 3,554,478 shares of Common Stock that were authorized and
unissued, 211,968 shares are reserved for issuance pursuant to outstanding
options of the Company. Accordingly, as of February 20, 1998, there were
3,342,510 shares of Common Stock available for issuance or sale by the Company
other than those issuable as described above.
The Board of Directors has unanimously proposed that the Company's
Restated Articles of Incorporation be amended to increase the authorized number
of shares of capital stock from 10,000,000 to 25,000,000 shares, of which
22,000,000 shares will be designated as common stock, $0.10 par value, and
3,000,000 undesignated as to series (the "Undesignated Stock") and that this
amendment should be presented to the Company's shareholders at the Annual
Meeting. If this amendment is approved by the shareholders, 15,342,510 shares of
Common Stock and 3,000,000 shares of Undesignated Stock will be authorized for
issuance and unreserved immediately after the Annual Meeting. At the Annual
Meeting, the shareholders of the Company are being asked to approve this
amendment.
PURPOSE AND EFFECTS OF THE PROPOSED AMENDMENT
The Board of Directors believes that it is necessary and desirable to
increase the number of shares of Common Stock the Company is authorized to issue
and add Undesignated Stock to give the Board additional flexibility to declare
stock splits or dividends, adopt additional future employee benefit plans and
make acquisitions through the use of stock. The Board of Directors has no
immediate plans, understandings or agreements or commitments to issue additional
shares of Common Stock or Undesignated Stock for any of these purposes, except
as permitted or required by outstanding options and additional options which may
be granted from time to time under the 1990 Director Plan and the 1998 Plan. The
flexibility inherent in having the authority to issue shares of Common Stock or
Undesignated Stock will, in the opinion of the Board of Directors, be
advantageous to the Company in any negotiations involving the issuance of such
stock. If the shareholders failed to approve the proposed amendment and
authorization of the additional shares of Common Stock or Undesignated Stock
were deferred until a specific need existed, the time and expense required in
connection with obtaining the necessary shareholder action for each proposed
issuance could deprive the Company of flexibility that the Board of Directors
believes will result in the most efficient use of such shares. If this proposed
amendment is adopted, no additional action or authorization by the Company's
shareholders will be necessary prior to the issuance of such additional shares,
unless required by applicable law or regulation, or unless deemed desirable or
advisable by the Board of Directors. Furthermore, the Board of Directors will be
empowered, without further shareholder action, to establish, and to designate
the names of, classes or series of the Undesignated Stock and to set the terms
of such shares (including terms with respect to redemption, sinking fund,
dividend, liquidation, conversion and voting rights and preferences).
If adopted, the proposal will not, by itself, have any effect on the
rights of holders of presently issued and outstanding shares of Common Stock.
Under the Company's Restated Articles of Incorporation, the shareholders of the
Company do not have preemptive rights with respect to the Common
<PAGE>
Stock. Thus, should the Board of Directors elect to issue additional shares of
Common Stock or Undesignated Stock, existing shareholders would not have any
preferential rights to purchase such additional shares of Common Stock or
Undesignated Stock.
Although the Board of Directors is proposing this amendment to the
Company's Restated Articles of Incorporation for the reasons stated above, the
amendment could, under certain circumstances, discourage or make more difficult
an attempt by a person or organization to gain control of the Company by tender
offer or proxy contest, or to consummate a merger or consolidation with the
Company after acquiring control, and to remove incumbent management, even if
such transactions were favorable to the shareholders of the Company. Issuance of
shares of Common Stock or Undesignated Stock in a private placement to a person
sympathetic to management and opposed to any attempt to gain control of the
Company could make a change in control of the Company more difficult.
Accordingly, this proposal to amend the Company's Restated Articles of
Incorporation may be deemed (under certain circumstances which may or may not
occur) to be an anti-takeover measure. However, the proposal is not being
presented as an anti-takeover measure.
PROPOSED RESOLUTION
A resolution in substantially the following form will be submitted to
the shareholders at the Annual Meeting:
RESOLVED, That Article II of the Company's Restated Articles of
Incorporation is amended in its entirety to read as follows:
The aggregate number of shares of stock which the Corporation
shall have authority to issue is Twenty Five Million (25,000,000)
shares, consisting of Twenty-Two Million (22,000,000) shares of common
stock, $0.10 par value per share (the "Common Stock"), and Three
Million (3,000,000) shares undesignated as to series (the "Undesignated
Stock"). The Board of Directors is authorized to establish, from the
authorized shares of Undesignated Stock, one or more classes or series
of shares, to designate each such class and series, and to fix the
rights and preferences of each such class and series. Without limiting
the authority of the Board of Directors granted hereby, each such class
or series of Undesignated Stock shall have such voting powers (full or
limited or no voting powers), such preferences and relative,
participating, optional or other special rights, and such
qualifications, limitations or restrictions as shall be stated and
expressed in the resolution or resolutions providing for the issue of
such class or series of Undesignated Stock as may be adopted from time
to time by the Board of Directors prior to the issuance of any shares
thereof. Except as provided in the resolution or resolutions of the
Board of Directors creating any series of Undesignated Stock, the
shares of Common Stock shall have the exclusive right to vote for the
election and removal of directors and for all other purposes; no
shareholder of the Corporation shall have any preemptive rights; and no
shareholder shall be entitled to any cumulative voting rights. Each
holder of Common Stock shall be entitled to one vote for each share
held.
<PAGE>
RESOLVED FURTHER, That the appropriate officers of the Company are
authorized and directed to make, execute, acknowledge and file such
certificates and documents as may be required by law with respect to
the foregoing resolutions.
BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors recommends a vote FOR approval of this
amendment. The affirmative vote of the holders of a majority of shares of Common
Stock of the Company present in person or by proxy at the Annual Meeting is
necessary for approval. Unless a contrary choice is specified, proxies solicited
by the Board of Directors will be voted FOR the approval of this amendment.
<PAGE>
PROPOSAL TO ADOPT THE 1998 STOCK OPTION PLAN
PROPOSAL NO. 3
INTRODUCTION
On February 10, 1998, the Board of Directors of the Company adopted the
1998 Stock Option Plan (the "1998 Plan"), which is being submitted to the
Company's shareholders for their approval at this Annual Meeting.
Although the 1992 Plan will continue to exist until its stated
termination date, no further grants may be made under the 1992 Plan, and any
shares of the Company's Common Stock available for issuance under the 1992 Plan
that either are not issued or are issued but subsequently are forfeited, will
become shares available for issuance under the 1998 Plan. Of the 300,000 shares
of Common Stock reserved for issuance pursuant to the 1992 Plan, 58,023 shares
remained available for grants under the 1992 Plan as of February 20, 1998.
The purpose of the 1998 Plan is to advance the interests of the Company
and its shareholders by enabling the Company and its subsidiaries to attract and
retain persons of ability to perform services for the Company and its
subsidiaries by providing an incentive to such individuals through equity
participation in the Company and by rewarding such individuals who contribute to
the achievement by the Company of its economic objectives. The Board of
Directors has reserved a maximum of 400,000 shares of Common Stock for issuance
under the 1998 Plan, in addition to those shares contributed to the 1998 Plan
from the 1992 Plan.
The major features of the 1998 Plan are summarized below, which summary
is qualified in its entirety by reference to the actual text of the 1998 Plan, a
copy of which may be obtained from the Company.
SUMMARY OF THE 1998 STOCK OPTION PLAN
GENERAL. The 1998 Plan provides for awards to eligible recipients of:
(i) options to purchase Common Stock that qualify as "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") ("Incentive Options"); and (ii) options to purchase Common
Stock that do not qualify as Incentive Options ("Non-Statutory Options,"
together with Incentive Options are referred to as "Options").
The 1998 Plan is administered by a committee of the Board of Directors
(the "Committee") consisting of two or more members of the Board who are
"non-employee directors" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Committee selects the
participants to be granted Options under the 1998 Plan (the "Participants"),
determines the nature and extent of the Options granted to the Participants
(including the number of shares of Common Stock subject to each Option, the
exercise price and the manner in which Options will become exercisable), the
time or times when Options will be granted, the duration of each Option and the
restrictions and other conditions to which the Options may be subject. The
Company intends that the 1998 Plan will be administered by the Compensation
Committee of the Board of Directors. Eligible recipients of Options under the
1998 Plan include all employees of the Company or any subsidiary and any
non-employee directors, consultants and independent contractors of the Company
or any subsidiary.
<PAGE>
The 1998 Plan will terminate on February 10, 2008, unless sooner
terminated by action of the Board of Directors. No Options will be granted after
termination of the 1998 Plan. Currently, a maximum of 400,000 shares of Common
Stock are reserved for issuance under the 1998 Plan, not including those shares
contributed to the 1998 Plan from the 1992 Plan. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, divestiture or extraordinary dividend (including a spin-off) or any
other change in the corporate structure or shares of the Company, appropriate
adjustments will be made to the number and kind of shares reserved under the
1998 Plan and under outstanding Options. The Board of Directors may suspend or
terminate the 1998 Plan or any portion thereof at any time, and may amend the
1998 Plan in any respect without stockholder approval, unless stockholder
approval is then required by the Code or the rules of any stock exchange, Nasdaq
or similar regulatory body. Except pursuant to testamentary will or the laws of
descent and distribution or as otherwise expressly permitted by the 1998 Plan,
unless approved by the Committee, no right or interest of any Participant in an
Option prior to the exercise or vesting of such Option will be assignable or
transferable, or subjected to any lien, during the lifetime of the Participant,
provided that a Participant may designate a beneficiary to receive an Option
upon such Participant's death.
OPTIONS. The exercise price for Non-Statutory Options may be not less
than 85% of the fair market value of the Common Stock on the date the
Non-Statutory Options are granted. Incentive Options may not be granted with an
exercise price that is less than 100% of the fair market value of the Common
Stock on the date the Incentive Options are granted, except that Incentive
Options granted to persons owning stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any subsidiary
may not be granted with an exercise price that is less than 110% of the fair
market value on the date of grant. In determining the fair market value of the
Company's Common Stock, the Committee will use the average of the high and low
sale prices of the Common Stock as reported on the Nasdaq National Market as of
the date of grant, or, if no shares were traded on such day, as of the next
preceding day on which there was such a trade.
Payment of an option exercise price will be made entirely in cash;
provided, however, that the Committee, in its sole discretion and upon terms and
conditions established by the Committee, may allow such payments to be made, in
whole or in part, by tender of a broker exercise notice, a promissory note or
previously acquired shares of Common Stock, having an aggregate fair market
value on the date of exercise equal to the payment required, or a combination of
such methods.
Options will become exercisable at such times and in such installments
as determined by the Committee and may be exercised in whole or in part from
time to time thereafter, subject to the terms and conditions set forth in the
1998 Plan; provided, however, that no Incentive Option may be exercisable after
10 years from its date of grant (five years from the date of grant if, at the
time the Incentive Option is granted, the Participant owns, directly or
indirectly, more than 10% of the total combined voting power of all classes of
stock of the Company). To the extent that any Incentive Option granted under the
1998 Plan ceases for any reason to qualify as an "incentive stock option" for
purposes of the federal tax laws, such Option will continue to be outstanding
for purposes of the 1998 Plan as a Non-Statutory Option.
EFFECT OF TERMINATION OF EMPLOYMENT. If a Participant's employment or
other service with the Company and all subsidiaries is terminated by reason of
death, disability or retirement, all Options held by the Participant will remain
exercisable to the extent exercisable as of such termination for a period of one
year (but in no event after the expiration date of any such Option). Unless
otherwise provided by the Committee, in its sole discretion, if a Participant's
employment is terminated for a reason other than death, disability or
retirement, all rights of the Participant under the 1998 Plan and any agreements
evidencing an Option will immediately terminate without notice of any kind, and
no Options held by the Participant will
<PAGE>
thereafter be exercisable, provided, however, that in the event the termination
is for a reason other than "cause" (as defined in the 1998 Plan), all Options
then held by the Participant will become exercisable and remain exercisable for
a period of three months after the termination (but in no event after the
expiration date of any such Option).
CHANGE IN CONTROL OF THE COMPANY. Unless otherwise provided by the
Committee either in an agreement evidencing an Option or at any time after the
grant of an Option, in the event of a "Change in Control" of the Company (as
defined below), all outstanding Options will become immediately exercisable in
full and will remain exercisable for the remainder of their terms regardless of
whether the Participant remains in the employ or service of the Company. In
addition, in the event of such a Change in Control, the Committee, in its sole
discretion, may provide that some or all Participants holding outstanding
Options will receive for each share of Common Stock subject to such Options cash
in an amount equal to the excess of the fair market value of such shares
immediately prior to the effective date of a Change in Control over the exercise
price per share of such Options.
For purposes of the 1998 Plan, a "Change in Control" of the Company
means (i) the sale, lease, exchange or other transfer of substantially all of
the assets of the Company, (ii) the approval by the Company's shareholders of a
plan or proposal for the liquidation or dissolution of the Company, (iii) any
person becoming, after the effective date of the 1998 Plan, the beneficial owner
of (A) 25% or more, but not 50% or more, of the combined voting power of the
Company's outstanding securities ordinarily having the right to vote at election
of directors, unless the transaction resulting in such ownership was approved in
advance by the Continuity Directors (defined as the directors in office as of
the effective date of the 1998 Plan or any persons who subsequently become
directors and whose election or nomination was approved by at least a majority
of Continuity Directors), or (B) 50% or more of the combined voting power of the
Company's outstanding securities ordinarily having the right to vote at election
of directors (regardless of any approval by the Continuity Directors); (iv) a
merger or consolidation to which the Company is a party if the Company's
shareholders immediately prior to the merger or consolidation beneficially own,
immediately after the merger or consolidation, securities of the surviving
corporation representing (A) more than 50%, but less than 75%, of the combined
voting power of the surviving corporation's then outstanding securities having
the right to vote at elections of directors, unless the transaction was approved
in advance by the Continuity Directors, or (B) 50% or less of the combined
voting power of the surviving corporation's then outstanding securities
(regardless of any approval by the Continuity Directors), (v) the Continuity
Directors cease for any reason to constitute at least a majority of the Board;
or (vi) any other 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 Exchange Act.
FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based
on current statutes, regulations and interpretations. The description does not
include foreign, state or local income tax consequences. In addition, the
description is not intended to address specific tax consequences applicable to
directors, officers or greater than 10% stockholders of the Company or to any
individual Participant who receives an Option.
INCENTIVE OPTIONS. There will not be any federal income tax
consequences to either the Participant or the Company as a result of the grant
to an employee of an Incentive Option under the 1998 Plan. The exercise by a
Participant of an Incentive Option also will not result in any federal income
tax consequences to the Company or the Participant, except that (i) an amount
equal to the excess of the fair market value of the shares acquired upon
exercise of the Incentive Option, determined at the time of exercise, over the
amount paid for the shares by the Participant will be includable in the
Participant's alternative minimum
<PAGE>
taxable income for purposes of the alternative minimum tax, and (ii) the
Participant may be subject to an additional excise tax if any amounts are
treated as excess parachute payments (see explanation below). Special rules will
apply if previously acquired shares of Common Stock are permitted to be tendered
in payment of an Option exercise price.
If the Participant disposes of the Incentive Option shares acquired
upon exercise of the Incentive Option, the federal income tax consequences will
depend upon how long the Participant has held the shares. If the Participant
does not dispose of the shares within two years after the Incentive Option was
granted, nor within one year after the Participant exercised the Incentive
Option and the shares were transferred to the Participant, then the Participant
will recognize a capital gain or loss. The amount of the capital gain or loss
will be equal to the difference between (i) the amount the Participant realized
on disposition of the shares, and (ii) the option price at which the Participant
acquired the shares. Whether the gain (or loss) constitutes long or short term
capital gain (or loss) will depend upon the length of time the Participant held
the stock prior to its disposition. Participants should consult their tax
advisors to determine whether any specific gain (or loss) constitutes long or
short term capital gain (or loss). The Company is not entitled to any
compensation expense deduction under these circumstances.
If the Participant does not satisfy both of the above holding period
requirements (a "disqualifying disposition"), then the Participant will be
required to report as ordinary income, in the year the Participant disposes of
the shares, the amount by which the lesser of (i) the fair market value of the
shares at the time of exercise of the Incentive Option, or (ii) the amount
realized on the disposition of the shares, exceeds the option price for the
shares. The Company will be entitled to a compensation expense deduction in an
amount equal to the ordinary income includable in the taxable income of the
Participant. This compensation income may be subject to withholding. The
remainder of the gain recognized on the disposition, if any, or any loss
recognized on the disposition, will be treated as long-term or short-term
capital gain or loss, depending on the holding period.
NON-STATUTORY OPTIONS. Neither the Participant nor the Company incurs
any federal income tax consequences as a result of the grant of a Non-Statutory
Option. Upon exercise of a Non-Statutory Option, a Participant will recognize
ordinary income, subject to withholding, on the date of exercise in an amount
equal to the difference between (i) the fair market value of the shares
purchased, determined on the date of exercise, and (ii) the consideration paid
for the shares. The Participant may be subject to an additional excise tax if
any amounts are treated as excess parachute payments (see explanation below).
Special rules will apply if previously acquired shares of Common Stock are
permitted to be tendered in payment of an Option exercise price.
At the time of a subsequent sale or disposition of any shares of Common
Stock obtained upon exercise of a Non-Statutory Option, any gain or loss will be
a capital gain or loss. Whether the gain (or loss) constitutes long or short
term capital gain (or loss) will depend upon the length of time the Participant
held the stock prior to its disposition. Participants should consult their tax
advisors to determine whether any specific gain (or loss) constitutes long or
short term capital gain (or loss).
In general, the Company will be entitled to a compensation expense
deduction in connection with the exercise of a Non-Statutory Option for any
amounts includable in the taxable income of the Participant as ordinary income,
provided the Company complies with any applicable withholding requirements.
EXCISE TAX ON PARACHUTE PAYMENTS. The Code also imposes a 20% excise
tax on the recipient of "excess parachute payments," as defined in the Code and
denies tax deductibility to the Company on excess parachute payments. Generally,
parachute payments are payments in the nature of compensation to employees of a
company who are officers, stockholders, or highly compensated individuals, which
<PAGE>
payments are contingent upon a change in ownership or effective control of the
company, or in the ownership of a substantial portion of the assets of the
company. For example, acceleration of the exercisability of Options upon a
change in control of the Company may constitute parachute payments, and in
certain cases, "excess parachute payments."
SECTION 162(m). Under Section 162(m) of the Code, the deductibility of
certain compensation paid to the chief executive officer and each of the four
other most highly compensated executives of publicly held companies is limited
to $1,000,000. Compensation for this purpose generally includes any items of
compensation expense described above in connection with Options under the 1998
Plan. However, certain types of compensation are excepted from this limit,
including compensation that qualifies as "performance-based compensation." Under
Section 162(m), any compensation expense resulting from the exercise of Options
under the 1998 Plan with exercise prices equal to (or greater than) the fair
market value of the Common Stock on the date of grant should qualify as
"performance-based compensation" excepted from the limit of Section 162(m).
However, compensation expense in connection with any other Options under the
1998 Plan will be subject to this limit.
OPTIONS UNDER THE 1998 PLAN
As of the date of this Proxy Statement, the Compensation Committee has
not approved any Options under the 1998 Plan. Neither the number or types of
future Options to be received by or allocated to particular Participants or
groups of Participants is presently determinable nor can the Company determine
the number or types of Options that would have been received by or allocated to
particular Participants or groups of Participants for the most recent completed
fiscal year if the 1998 Plan had been in effect during such period.
BOARD OF DIRECTORS RECOMMENDATION
The Board of Directors recommends that the shareholders vote FOR
approval and ratification of the 1998 Plan. The affirmative vote of the holders
of a majority of the shares of Common Stock present and entitled to vote in
person or by proxy on this matter at the Annual Meeting is necessary for
approval. Unless a contrary choice is specified, proxies solicited by the Board
of Directors will be voted FOR approval of the 1998 Plan.
<PAGE>
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, 1997, 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, except that Messrs. Howard L. Demorest (a former
director of the Company) and Robert L. Demorest each filed a late Form 5 for a
gift of shares from Mr. H.L. Demorest to a trust for Mr.
R.L. Demorest's children.
SHAREHOLDER PROPOSALS FOR 1999 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 ___, 1998.
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, 1997 TO
EACH PERSON WHO WAS A SHAREHOLDER OF THE COMPANY AS OF MARCH 20, 1998, 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
Ronald A. Meyer
SECRETARY
Minneapolis, Minnesota
April ____, 1998
<PAGE>
MODERN CONTROLS, INC.
1998 STOCK OPTION PLAN
1. Purpose of Plan.
The purpose of the Modern Controls, Inc. 1998 Stock Option Plan (the
"Plan") is to advance the interests of Modern Controls, Inc. (the "Company") and
its shareholders by enabling the Company and its Subsidiaries to attract and
retain persons of ability to perform services for the Company and its
Subsidiaries by providing an incentive to such individuals through equity
participation in the Company and by rewarding such individuals who contribute to
the achievement by the Company of its economic objectives.
2. Definitions.
The following terms will have the meanings set forth below, unless the
context clearly otherwise requires:
2.1 "Board" means the Board of Directors of the Company.
2.2 "Broker Exercise Notice" means a written notice pursuant to which a
Participant, upon exercise of an Option, irrevocably instructs a broker or
dealer to sell a sufficient number of shares or loan a sufficient amount of
money to pay all or a portion of the exercise price of the Option and/or any
related withholding tax obligations and remit such sums to the Company and
directs the Company to deliver stock certificates to be issued upon such
exercise directly to such broker or dealer.
2.3 "Change in Control" means an event described in Section 9.1 of the
Plan.
2.4 "Code" means the Internal Revenue Code of 1986, as amended.
2.5 "Committee" means the group of individuals administering the Plan,
as provided in Section 3 of the Plan.
2.6 "Common Stock" means the common stock of the Company, $0.10 par
value, or the number and kind of shares of stock or other securities into which
such common stock may be changed in accordance with Section 4.3 of the Plan.
2.7 "Disability" means the disability of the Participant such as would
entitle the Participant to receive disability income benefits pursuant to the
long-term disability plan of the Company or Subsidiary then covering the
Participant or, if no such plan exists or is applicable to the Participant, the
permanent and total disability of the Participant within the meaning of Section
22(e)(3) of the Code.
2.8 "Eligible Recipients" means all employees of the Company or any
Subsidiary and any non-employee directors, consultants and independent
contractors of the Company or any Subsidiary.
<PAGE>
2.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.10 "Fair Market Value" means, with respect to the Common Stock, as of
any date (or, if no shares were traded or quoted on such date, as of the next
preceding date on which there was such a trade or quote) (a) the mean between
the reported high and low sale prices of the Common Stock if the Common Stock is
listed, admitted to unlisted trading privileges or reported on any foreign or
national securities exchange or on the Nasdaq National Market or an equivalent
foreign market on which sale prices are reported; (b) if the Common Stock is not
so listed, admitted to unlisted trading privileges or reported, the closing bid
price as reported by the Nasdaq SmallCap Market, OTC Bulletin Board or the
National Quotation Bureau, Inc. or other comparable service; or (c) if the
Common Stock is not so listed or reported, such price as the Committee
determines in good faith in the exercise of its reasonable discretion.
2.11 "Incentive Stock Option" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that
qualifies as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.12 "Non-Statutory Stock Option" means a right to purchase Common
Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that
does not qualify as an Incentive Stock Option.
2.13 "Option" means an Incentive Stock Option or a Non-Statutory Stock
Option.
2.14 "Participant" means an Eligible Recipient who receives one or more
Options under the Plan.
2.15 "Previously Acquired Shares" means shares of Common Stock that are
already owned by the Participant or, with respect to any Option, that are to be
issued upon the exercise of such Option.
2.16 "Retirement" means termination of employment or service pursuant
to and in accordance with the regular (or, if approved by the Board for purposes
of the Plan, early) retirement/pension plan or practice of the Company or
Subsidiary then covering the Participant, provided that if the Participant is
not covered by any such plan or practice, the Participant will be deemed to be
covered by the Company's plan or practice for purposes of this determination.
2.17 "Securities Act" means the Securities Act of 1933, as amended.
2.18 "Subsidiary" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a significant
equity interest, as determined by the Committee.
2.19 "Tax Date" means the date any withholding tax obligation arises
under the Code or other applicable tax statute for a Participant with respect to
an Option.
<PAGE>
3. Plan Administration.
3.1 The Committee. The Plan will be administered by the Board or by a
committee of the Board. So long as the Company has a class of its equity
securities registered under Section 12 of the Exchange Act, any committee
administering the Plan will consist solely of two or more members of the Board
who are "non-employee directors" within the meaning of Rule 16b-3 under the
Exchange Act. Such a committee, if established, will act by majority approval of
the members (but may also take action with the written consent of a majority of
the members of such committee), and a majority of the members of such a
committee will constitute a quorum. As used in the Plan, "Committee" will refer
to the Board or to such a committee, if established. To the extent consistent
with corporate law, the Committee may delegate to any officers of the Company
the duties, power and authority of the Committee under the Plan pursuant to such
conditions or limitations as the Committee may establish; provided, however,
that only the Committee may exercise such duties, power and authority with
respect to Eligible Recipients who are subject to Section 16 of the Exchange
Act. The Committee may exercise its duties, power and authority under the Plan
in its sole and absolute discretion without the consent of any Participant or
other party, unless the Plan specifically provides otherwise. Each
determination, interpretation or other action made or taken by the Committee
pursuant to the provisions of the Plan will be final, conclusive and binding for
all purposes and on all persons, including, without limitation, the Company, the
shareholders of the Company, the participants and their respective
successors-in-interest. No member of the Committee will be liable for any action
or determination made in good faith with respect to the Plan or any Option
granted under the Plan.
3.2 Authority of the Committee.
(a) In accordance with and subject to the provisions of the
Plan, the Committee will have the authority to determine all provisions
of Options as the Committee may deem necessary or desirable and as
consistent with the terms of the Plan, including, without limitation,
the following: (i) the Eligible Recipients to be selected as
Participants; (ii) the nature and extent of the Options to be made to
each Participant (including the number of shares of Common Stock to be
subject to each Option, the exercise price and the manner in which
Options will become exercisable) and the form of written agreement, if
any, evidencing such Option; (iii) the time or times when Options will
be granted; (iv) the duration of each Option; and (v) the restrictions
and other conditions to which the Options may be subject. In addition,
the Committee will have the authority under the Plan in its sole
discretion to pay the economic value of any Option in the form of cash,
Common Stock or any combination of both.
(b) The Committee will have the authority under the Plan to
amend or modify the terms of any outstanding Option in any manner,
including, without limitation, the authority to modify the number of
shares or other terms and conditions of an Option, extend the term of
an Option, accelerate the exercisability or otherwise terminate any
restrictions relating to an Option, accept the surrender of any
outstanding Option or, to the extent not previously exercised or
vested, authorize the grant of new Options in substitution for
surrendered Options; provided, however that the amended or modified
terms are permitted by the Plan as then in effect and that any
Participant adversely affected by such amended or modified
<PAGE>
terms has consented to such amendment or modification. No amendment or
modification to an Option, however, whether pursuant to this Section
3.2 or any other provisions of the Plan, will be deemed to be a
re-grant of such Option for purposes of this Plan.
(c) In the event of (i) any reorganization, merger,
consolidation, recapitalization, liquidation, reclassification, stock
dividend, stock split, combination of shares, rights offering,
extraordinary dividend or divestiture (including a spin-off) or any
other change in corporate structure or shares, (ii) any purchase,
acquisition, sale or disposition of a significant amount of assets or a
significant business, (iii) any change in accounting principles or
practices, or (iv) any other similar change, in each case with respect
to the Company or any other entity whose performance is relevant to the
grant or vesting of an Option, the Committee (or, if the Company is not
the surviving corporation in any such transaction, the board of
directors of the surviving corporation) may, without the consent of any
affected Participant, amend or modify the conditions to the
exercisability of any outstanding Option that is based in whole or in
part on the financial performance of the Company (or any Subsidiary or
division thereof) or such other entity so as equitably to reflect such
event, with the desired result that the criteria for evaluating such
financial performance of the Company or such other entity will be
substantially the same (in the sole discretion of the Committee or the
board of directors of the surviving corporation) following such event
as prior to such event; provided, however, that the amended or modified
terms are permitted by the Plan as then in effect.
4. Shares Available for Issuance.
4.1 Maximum Number of Shares Available. Subject to adjustment as
provided in Section 4.3 of the Plan, the maximum number of shares of Common
Stock that will be available for issuance under the Plan will be 400,000 shares
of Common Stock, plus any shares of Common Stock which, as of the date the Plan
is approved by the shareholders of the Company, are reserved for issuance under
the Company's 1992 Stock Option Plan and which are not thereafter issued or
which have been issued but are subsequently forfeited and which would otherwise
have been available for further issuance under such plan. Notwithstanding any
other provisions of the Plan to the contrary, no Participant in the Plan may be
granted any Options relating to more than 50,000 shares of Common Stock in the
aggregate in any fiscal year of the Company (subject to adjustment as provided
in Section 4.3 of the Plan); provided, however, that a Participant who is first
appointed or elected as an officer, hired as an employee or retained as a
consultant by the Company or who receives a promotion that results in an
increase in responsibilities or duties may be granted, during the fiscal year of
such appointment, election, hiring, retention or promotion, Options relating to
up to 100,000 shares of Common Stock (subject to adjustment as provided in
Section 4.3 of the Plan).
4.2 Accounting for Options. Shares of Common Stock that are issued
under the Plan or that are subject to outstanding Options will be applied to
reduce the maximum number of shares of Common Stock remaining available for
issuance under the Plan. Any shares of
<PAGE>
Common Stock that are subject to an Option that lapses, expires, is forfeited or
for any reason is terminated unexercised and any shares of Common Stock that are
subject to an Option that is settled or paid in cash or any form other than
shares of Common Stock will automatically again become available for issuance
under the Plan.
4.3 Adjustments to Shares and Options. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, divestiture or extraordinary dividend (including a spin-off) or any
other change in the corporate structure or shares of the Company, the Committee
(or, if the Company is not the surviving corporation in any such transaction,
the board of directors of the surviving corporation) will make appropriate
adjustment (which determination will be conclusive) as to the number and kind of
securities or other property (including cash) available for issuance or payment
under the Plan and, in order to prevent dilution or enlargement of the rights of
Participants, the number and kind of securities or other property (including
cash) subject to, and the exercise price of, outstanding Options.
5. Participation.
Participants in the Plan will be those Eligible Recipients who, in the
judgment of the Committee, have contributed, are contributing or are expected to
contribute to the achievement of economic objectives of the Company or its
Subsidiaries. Eligible Recipients may be granted from time to time one or more
Options as may be determined by the Committee in its sole discretion. Options
will be deemed to be granted as of the date specified in the grant resolution of
the Committee, which date will be the date of any related agreement with the
Participant.
6. Options.
6.1 Grant. An Eligible Recipient may be granted one or more Options
under the Plan, and such Options will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee in its sole discretion. The Committee may designate whether an Option
is to be considered an Incentive Stock Option or a Non-Statutory Stock Option.
To the extent that any Incentive Stock Option granted under the Plan ceases for
any reason to qualify as an "incentive stock option" for purposes of Section 422
of the Code, such Incentive Stock Option will continue to be outstanding for
purposes of the Plan but will thereafter be deemed to be a Non-Statutory Stock
Option.
6.2 Exercise Price. The per share price to be paid by a Participant
upon exercise of an Option will be determined by the Committee in its discretion
at the time of the Option grant; provided, however, that (a) such price will not
be less than 100% of the Fair Market Value of one share of Common Stock on the
date of grant with respect to an Incentive Stock Option (110% of the Fair Market
Value if, at the time the Incentive Stock Option is granted, the Participant
owns, directly or indirectly, more than 10% of the total combined voting power
of all classes of stock of the Company or any parent or subsidiary corporation
of the Company), and (b) such price will not be less than 85% of the Fair Market
Value of one share of Common Stock on the date of grant with respect to a
Non-Statutory Stock Option.
<PAGE>
6.3 Exercisability and Duration. An Option will become exercisable at
such times and in such installments as may be determined by the Committee in its
sole discretion at the time of grant; provided, however, that no Incentive Stock
Option may be exercisable after 10 years from its date of grant (five years from
its date of grant if, at the time the Incentive Stock Option is granted, the
Participant owns, directly or indirectly, more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary
corporation of the Company).
6.4 Payment of Exercise Price. The total purchase price of the shares
to be purchased upon exercise of an Option must be paid entirely in cash
(including check, bank draft or money order); provided, however, that the
Committee, in its sole discretion and upon terms and conditions established by
the Committee, may allow such payments to be made, in whole or in part, by
tender of a Broker Exercise Notice, Previously Acquired Shares, a promissory
note (on terms acceptable to the Committee in its sole discretion) or by a
combination of such methods.
6.5 Manner of Exercise. An Option may be exercised by a Participant in
whole or in part from time to time, subject to the conditions contained in the
Plan and in the agreement evidencing such Option, by delivery in person, by
facsimile or electronic transmission or through the mail of written notice of
exercise to the Company (Attention: CFO) at its principal executive office in
Minneapolis, Minnesota and by paying in full the total exercise price for the
shares of Common Stock to be purchased in accordance with Section 6.4 of the
Plan.
6.6 Aggregate Limitation of Stock Subject to Incentive Stock Options.
To the extent that the aggregate Fair Market Value (determined as of the date an
Incentive Stock Option is granted) of the shares of Common Stock with respect to
which incentive stock options (within the meaning of Section 422 of the Code)
are exercisable for the first time by a Participant during any calendar year
(under the Plan and any other incentive stock option plans of the Company or any
subsidiary or parent corporation of the Company (within the meaning of the
Code)) exceeds $100,000 (or such other amount as may be prescribed by the Code
from time to time), such excess Options will be treated as Non-Statutory Stock
Options. The determination will be made by taking incentive stock options into
account in the order in which they were granted. If such excess only applies to
a portion of an Incentive Stock Option, the Committee, in its discretion, will
designate which shares will be treated as shares to be acquired upon exercise of
an Incentive Stock Option.
7. Effect of Termination of Employment or Other Service.
7.1 Termination Due to Death, Disability or Retirement. Unless
otherwise provided by the Committee in its sole discretion in the agreement
evidencing an Option, in the event a Participant's employment or other service
with the Company and all Subsidiaries is terminated by reason of death,
Disability or Retirement, all outstanding Options then held by the Participant
will remain exercisable, to the extent exercisable as of the date of such
termination, for a period of one year after such termination (but in no event
after the expiration date of any such Option).
<PAGE>
7.2 Termination for Reasons Other than Death, Disability or Retirement.
(a) Unless otherwise provided by the Committee in its sole
discretion in the agreement evidencing an Option, in the event a
Participant's employment or other service is terminated with the
Company and all Subsidiaries for any reason other than death,
Disability or Retirement, or a Participant is in the employ or service
of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the
Company (unless the Participant continues in the employ or service of
the Company or another Subsidiary), all rights of the Participant under
the Plan and any agreements evidencing an Option will immediately
terminate without notice of any kind, and no Options then held by the
Participant will thereafter be exercisable; provided, however, that if
such termination is due to any reason other than termination by the
Company or any Subsidiary for "cause," all outstanding Options then
held by such Participant will remain exercisable, to the extent
exercisable as of such termination, for a period of three months after
such termination (but in no event after the expiration date of any such
Option).
(b) For purposes of this Section 7.2, "cause" (as determined
by the Committee) will be as defined in any employment or other
agreement or policy applicable to the Participant or, if no such
agreement or policy exists, will mean (i) dishonesty, fraud,
misrepresentation, embezzlement or deliberate injury or attempted
injury, in each case related to the Company or any Subsidiary, (ii) any
unlawful or criminal activity of a serious nature, (iii) any
intentional and deliberate breach of a duty or duties that,
individually or in the aggregate, are material in relation to the
Participant's overall duties, or (iv) any material breach of any
employment, service, confidentiality or non-compete agreement entered
into with the Company or any Subsidiary.
7.3 Modification of Rights Upon Termination. Notwithstanding the other
provisions of this Section 7, upon a Participant's termination of employment or
other service with the Company and all Subsidiaries, the Committee may, in its
sole discretion (which may be exercised at any time on or after the date of
grant, including following such termination), cause Options (or any part
thereof) then held by such Participant to become or continue to become
exercisable and/or remain exercisable following such termination of employment
or service; provided, however, that no Option may remain exercisable beyond its
expiration date.
7.4 Exercise of Incentive Stock Options Following Termination. Any
Incentive Stock Option that remains unexercised more than one year following
termination of employment by reason of Disability or more than three months
following termination for any reason other than death or Disability will
thereafter be deemed to be a Non-Statutory Stock Option.
7.5 Date of Termination of Employment or Other Service. Unless the
Committee otherwise determines in its sole discretion, a Participant's
employment or other service will, for purposes of the Plan, be deemed to have
terminated on the date recorded on the personnel or other records of the Company
or the Subsidiary for which the Participant provides employment or other
service, as determined by the Committee in its sole discretion based upon such
records.
<PAGE>
8. Payment of Withholding Taxes.
8.1 General Rules. The Company is entitled to (a) withhold and deduct
from future wages of the Participant (or from other amounts that may be due and
owing to the Participant from the Company or a Subsidiary), or make other
arrangements for the collection of, all legally required amounts necessary to
satisfy any and all foreign, federal, state and local withholding and
employment-related tax requirements attributable to an Option, including,
without limitation, the grant or exercise of an Option or a disqualifying
disposition of stock received upon exercise of an Incentive Stock Option, or (b)
require the Participant promptly to remit the amount of such withholding to the
Company before taking any action, including issuing any shares of Common Stock,
with respect to an Option.
8.2 Special Rules. The Committee may, in its sole discretion and upon
terms and conditions established by the Committee, permit or require a
Participant to satisfy, in whole or in part, any withholding or
employment-related tax obligation described in Section 8.1 of the Plan by
electing to tender Previously Acquired Shares, a Broker Exercise Notice or a
promissory note (on terms acceptable to the Committee in its sole discretion),
or by a combination of such methods.
9. Change in Control.
9.1 Change in Control. For purposes of this Section 9, a "Change in
Control" of the Company will mean the following:
(a) the sale, lease, exchange or other transfer, directly or
indirectly, of substantially all of the assets of the Company (in one
transaction or in a series of related transactions) to a person or
entity that is not controlled by the Company;
(b) the approval by the shareholders of the Company of any
plan or proposal for the liquidation or dissolution of the Company;
(c) any person becomes after the effective date of the Plan
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of (i) 25% or more, but not 50% or more,
of the combined voting power of the Company's outstanding securities
ordinarily having the right to vote at elections of directors, unless
the transaction resulting in such ownership has been approved in
advance by the Continuity Directors (as defined in Section 9.2 below),
or (ii) 50% or more of the combined voting power of the Company's
outstanding securities ordinarily having the right to vote at elections
of directors (regardless of any approval by the Continuity Directors);
(d) a merger or consolidation to which the Company is a party
if the shareholders of the Company immediately prior to effective date
of such merger or consolidation have "beneficial ownership" (as defined
in Rule 13d-3 under the Exchange Act), immediately following the
effective date of such merger or consolidation, of securities of the
surviving corporation representing (i) more than 50%, but less than
75%,
<PAGE>
of the combined voting power of the surviving corporation's then
outstanding securities ordinarily having the right to vote at elections
of directors, unless such merger or consolidation has been approved in
advance by the Continuity Directors, or (ii) 50% or less of the
combined voting power of the surviving corporation's then outstanding
securities ordinarily having the right to vote at elections of
directors (regardless of any approval by the Continuity Directors);
(e) the Continuity Directors cease for any reason to
constitute at least a majority of the Board; or
(f) any other 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 Exchange Act, whether or not the Company is then subject to such
reporting requirement.
9.2 Continuity Directors. For purposes of this Section 9, "Continuity
Directors" of the Company will mean any individuals who are members of the Board
on the effective date of the Plan and any individual who subsequently becomes a
member of the Board whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the Continuity
Directors (either by specific vote or by approval of the Company's proxy
statement in which such individual is named as a nominee for director without
objection to such nomination).
9.3 Acceleration of Exercisability. Without limiting the authority of
the Committee under Sections 3.2 and 4.3 of the Plan, if a Change in Control of
the Company occurs, then, unless otherwise provided by the Committee in its sole
discretion either in the agreement evidencing an Option at the time of grant or
at any time after the grant of an Option, all outstanding Options will become
immediately exercisable in full and will remain exercisable for the remainder of
their terms, regardless of whether the Participant to whom such Options have
been granted remains in the employ or service of the Company or any Subsidiary.
9.4 Cash Payment. If a Change in Control of the Company occurs, then
the Committee, if approved by the Committee in its sole discretion either in an
agreement evidencing an Option at the time of grant or at any time after the
grant of an Option, and without the consent of any Participant effected thereby,
may determine that some or all Participants holding outstanding Options will
receive, with respect to some or all of the shares of Common Stock subject to
such Options, as of the effective date of any such Change in Control of the
Company, 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 per share of such Options.
9.5 Limitation on Change in Control Payments. Notwithstanding anything
in Section 9.3 or 9.4 of the Plan to the contrary, if, with respect to a
Participant, the acceleration of the exercisability of an Option as provided in
Section 9.3 or the payment of cash in exchange for all or part of an Option as
provided in Section 9.4 (which acceleration or payment could be deemed a
"payment" within the meaning of Section 280G(b)(2) of the Code), together with
any other "payments" that such Participant has the right to receive from the
Company or any
<PAGE>
corporation that is a member of an "affiliated group" (as defined in Section
1504(a) of the Code without regard to Section 1504(b) of the Code) of which the
Company is a member, would constitute a "parachute payment" (as defined in
Section 280G(b)(2) of the Code), then the "payments" to such Participant
pursuant to Section 9.3 or 9.4 of the Plan will be reduced to the largest amount
as will result in no portion of such "payments" being subject to the excise tax
imposed by Section 4999 of the Code; provided, however, that if a Participant is
subject to a separate agreement with the Company or a Subsidiary that expressly
addresses the potential application of Sections 280G or 4999 of the Code
(including, without limitation, that "payments" under such agreement or
otherwise will be reduced, that the Participant will have the discretion to
determine which "payments" will be reduced, that such "payments" will not be
reduced or that such "payments" will be "grossed up" for tax purposes), then
this Section 9.5 will not apply, and any "payments" to a Participant pursuant to
Section 9.3 or 9.4 of the Plan will be treated as "payments" arising under such
separate agreement.
10. Rights of Eligible Recipients and Participants; Transferability.
10.1 Employment or Service. Nothing in the Plan will interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment or service of any Eligible Recipient or Participant at any time, nor
confer upon any Eligible Recipient or Participant any right to continue in the
employ or service of the Company or any Subsidiary.
10.2 Rights as a Shareholder. As a holder of Options, a Participant
will have no rights as a shareholder unless and until such Options are exercised
for, or paid in the form of, shares of Common Stock and the Participant becomes
the holder of record of such shares. Except as otherwise provided in the Plan,
no adjustment will be made for dividends or distributions with respect to such
Options as to which there is a record date preceding the date the Participant
becomes the holder of record of such shares, except as the Committee may
determine in its discretion.
10.3 Restrictions on Transfer. Except pursuant to testamentary will or
the laws of descent and distribution or as otherwise expressly permitted by the
Plan, unless approved by the Committee in its sole discretion, no right or
interest of any Participant in an Option prior to the exercise of such Option
will be assignable or transferable, or subjected to any lien, during the
lifetime of the Participant, either voluntarily or involuntarily, directly or
indirectly, by operation of law or otherwise. A Participant will, however, be
entitled to designate a beneficiary to receive an Option upon such Participant's
death, and in the event of a Participant's death, payment of any amounts due
under the Plan will be made to, and exercise of Options (to the extent permitted
pursuant to Section 7 of the Plan) may be made by, the Participant's legal
representatives, heirs and legatees.
10.4 Breach of Confidentiality or Non-Compete Agreements.
Notwithstanding anything in the Plan to the contrary, in the event that a
Participant materially breaches the terms of any confidentiality or non-compete
agreement entered into with the Company or any Subsidiary, whether such breach
occurs before or after termination of such Participant's employment or other
service with the Company or any Subsidiary, the Committee in its sole
<PAGE>
discretion may immediately terminate all rights of the Participant under the
Plan and any agreements evidencing an Option then held by the Participant
without notice of any kind.
10.5 Non-Exclusivity of the Plan. Nothing contained in the Plan is
intended to modify or rescind any previously approved compensation plans or
programs of the Company or create any limitations on the power or authority of
the Board to adopt such additional or other compensation arrangements as the
Board may deem necessary or desirable.
11. Securities Law and Other Restrictions.
Notwithstanding any other provision of the Plan or any agreements
entered into pursuant to the Plan, the Company will not be required to issue any
shares of Common Stock under this Plan, and a Participant may not sell, assign,
transfer or otherwise dispose of shares of Common Stock issued pursuant to
Options granted under the Plan, unless (a) there is in effect with respect to
such shares a registration statement under the Securities Act and any applicable
state or foreign securities laws or an exemption from such registration under
the Securities Act and applicable state or foreign securities laws, and (b)
there has been obtained any other consent, approval or permit from any other
regulatory body which the Committee, in its sole discretion, deems necessary or
advisable. The Company may condition such issuance, sale or transfer upon the
receipt of any representations or agreements from the parties involved, and the
placement of any legends on certificates representing shares of Common Stock, as
may be deemed necessary or advisable by the Company in order to comply with such
securities law or other restrictions.
12. Plan Amendment, Modification and Termination.
The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the Board
may deem advisable in order that Options under the Plan will conform to any
change in applicable laws or regulations or in any other respect the Board may
deem to be in the best interests of the Company; provided, however, that no
amendments to the Plan will be effective without approval of the shareholders of
the Company if shareholder approval of the amendment is then required pursuant
to Section 422 of the Code or the rules of any stock exchange or Nasdaq or
similar regulatory body. No termination, suspension or amendment of the Plan may
adversely affect any outstanding Option without the consent of the affected
Participant; provided, however, that this sentence will not impair the right of
the Committee to take whatever action it deems appropriate under Sections 3.2,
4.3 and 9 of the Plan.
13. Effective Date and Duration of the Plan.
The Plan is effective as of February 10, 1998, the date it was adopted
by the Board. The Plan will terminate at midnight on February 10, 2008, and may
be terminated prior to such time to by Board action, and no Option will be
granted after such termination. Options outstanding upon termination of the Plan
may continue to be exercised in accordance with their terms.
<PAGE>
14. Miscellaneous.
14.1 Governing Law. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed exclusively in accordance
with the laws of the State of Minnesota, notwithstanding the conflicts of laws
principles of any jurisdictions.
14.2 Successors and Assigns. The Plan will be binding upon and inure to
the benefit of the successors and permitted assigns of the Company and the
Participants.
<PAGE>
MODERN CONTROLS, INC.
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 March 20, 1998, at the Annual Meeting of Shareholders to be
held on May 19, 1998, or any adjournment, thereof.
1. ELECTION OF DIRECTORS.
|_| FOR all nominees listed below |_| AGAINST all nominees listed
(except as marked to the contrary below
below)
William N. Mayer Dean B. Chenoweth J. Leonard Frame
Paul L. Sjoquist Richard A. Proulx Robert L. Demorest
Thomas C. Thomas
(INSTRUCTION: TO VOTE AGAINST ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE
NOMINEE'S NAME.)
2. TO CONSIDER AND ACT UPON A PROPOSAL TO AMEND THE COMPANY'S RESTATED
ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF SHARES
OF CAPITAL STOCK FROM 10,000,000 TO 25,000,000 SHARES, CONSISTING OF
22,000,000 SHARES OF COMMON STOCK, $0.10 PAR VALUE, AND 3,000,000
SHARES UNDESIGNATED AS TO SERIES.
|_| FOR |_| AGAINST |_| ABSTAIN
3. TO CONSIDER AND ACT UPON A PROPOSAL TO ADOPT THE COMPANY'S 1998 STOCK
OPTION PLAN.
|_| FOR |_| AGAINST |_| ABSTAIN
4. TO CONSIDER AND ACT UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING OR ANY ADJOURNMENT THEREOF.
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 PROPOSALS 2 AND 3 AND 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:___________________________, 1998
_______________________________________
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.
