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>
1999 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 25, 1999, at 4:00 p.m., local time, at the Radisson Hotel
Metrodome, 615 Washington Avenue Southeast, 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 7, 1999
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 25, 1999
--------------------
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 25, 1999, at 4:00 p.m., local time, at the
Radisson Hotel Metrodome, 615 Washington Avenue Southeast, 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 change the Company's name
to MOCON, Inc.
3. 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 26, 1999 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 7, 1999
- --------------------------------------------------------------------------------
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 25, 1999
-------------------
INTRODUCTION
The Annual Meeting of Shareholders (the "Annual Meeting") of Modern
Controls, Inc. (the "Company") will be held on May 25, 1999, at 4:00 p.m., local
time, at the Radisson Hotel Metrodome, 615 Washington Avenue Southeast,
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 7, 1999.
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<PAGE>
VOTING OF SHARES
Only holders of Common Stock of record at the close of business on March
26, 1999 will be entitled to vote at the Annual Meeting. On March 26, 1999, the
Company had 6,288,170 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 (2,096,057 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.
2
<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 1998 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, 1999, 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 68 Chairman of the Board and Chief Executive 1971
Officer of the Company
Dean B. Chenoweth 77 Executive Vice President of Advantek, Inc. 1980
J. Leonard Frame 74 President and Chief Executive Officer of 1983
Phoenix Solutions Co.
Paul L. Sjoquist 65 Retired Director and Secretary, Palmatier, 1988
Sjoquist, Voigt & Christensen, P.A. and
Independent Consultant
Richard A. Proulx 65 Certified Public Accountant and Independent 1991
Consultant
Robert L. Demorest 53 President of the Company 1995
Thomas C. Thomas 39 Partner, Oppenheimer, Wolff & Donnelly LLP 1997
3
<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 has been an independent consultant since 1997, when he
retired from the law firm of Palmatier, Sjoquist, Voigt & Christensen, P.A.
where he had been a patent attorney for more than five years. Mr. Sjoquist and
Palmatier, Sjoquist, Voigt & Christensen, 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 1998. 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 1998 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 1998.
The members of the Compensation Committee during 1998 were Messrs. Frame
and Sjoquist. The function of the Compensation Committee is to set the
compensation for those officers who are also directors, and set the terms of,
and grants of awards under, the Company's Incentive Compensation Plan (the
"Bonus Plan"), the Employee Stock Option Plan (the "Non-Statutory Plan") and the
1998 Stock Option Plan (the "1998 Plan"), and to act on other matters relating
to compensation as it deems appropriate. The Compensation Committee met five
times during 1998.
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 1998.
All of the Directors attended 75% or more of the aggregate meetings of
the Board and all committees on which they served.
4
<PAGE>
DIRECTOR COMPENSATION
DIRECTORS' FEES. Non-employee directors each received a retainer fee of
$550 per month through October 1998 without regard to the number of Board or
committee meetings held or attended by such director. Effective November 1,
1998, such directors received a retainer fee of $600 per month 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, 1998, 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, Messrs. Chenoweth,
Frame, Proulx, Sjoquist and Thomas each were granted an option to purchase 1,000
shares of Common Stock under the 1990 Director Plan.
5
<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, 1999 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............ 1,100,656(4) 17.7%
118 North Grand Street
P.O. Box 310
Cobleskill, New York 12043
Royce & Associates, Inc................... 324,875(5) 5.2%
1414 Avenue of the Americas
New York, New York 10019
William N. Mayer.......................... 342,095(6) 5.5%
Robert L. Demorest........................ 111,683(7) 1.8%
Dean B. Chenoweth......................... 45,250(8) *
J. Leonard Frame.......................... 9,316(9) *
Paul L. Sjoquist ......................... 11,802(8) *
Richard A. Proulx ........................ 14,125(8) *
Thomas C. Thomas.......................... 0 *
Ronald A. Meyer .......................... 115,129(10) 1.8%
Daniel W. Mayer........................... 89,117(11) 1.4%
All current directors and
executive officers
as a group (9 persons).................... 738,517(12) 11.6%
- ----------------------------
*Less than 1%.
6
<PAGE>
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of a person or member of a group to acquire them within 60 days
are treated as outstanding only when determining the amount and percent
owned by such person or group.
(2) Unless otherwise noted, all of the shares shown are held by individuals
or entities possessing sole voting and investment power with respect to
such shares.
(3) Based on 6,288,170 shares of Common Stock outstanding as of February 20,
1999.
(4) Fenimore Asset Management, Inc. has reported in a Schedule 13G filed
with the Securities and Exchange Commission that, as of December 31,
1998, it was the beneficial owner of all such shares, possessing shared
voting and investment power with respect to all such shares.
(5) Royce & Associates, Inc. has reported in a Schedule 13G filed with the
Securities and Exchange Commission that, as of December 31, 1998, it was
the beneficial owner of all such shares, possessing sole voting and
investment power with respect to all such shares.
(6) Includes 47,500 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.
(7) Includes 27,500 shares that Mr. R.L. Demorest has the right to acquire
within 60 days upon the exercise of stock options. Also includes 61,112
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.
(8) Includes 3,000 shares that such directors have the right to acquire
within 60 days upon the exercise of stock options.
(9) 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.
(10) Includes 18,125 shares that Mr. Meyer has the right to acquire within 60
days upon the exercise of stock options. Also includes 97,004 shares
owned beneficially by certain trusts as to which he shares voting and
investment power.
(11) Includes 23,750 shares that Mr. D.W. Mayer has the right to acquire
within 60 days upon the exercise of stock options.
(12) Includes an aggregate of 128,875 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 459,027 shares as to
which voting and investment power are shared or may be deemed to be
shared by certain directors and executive officers.
7
<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 $100,000 in the fiscal year ended
December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS($)(1) OPTIONS (#) COMPENSATION ($)(2)
- --------------------------- ---- ---------- ----------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
William N. Mayer 1998 $223,630 $50,626 10,000 $1,900
Chairman of the Board and 1997 209,000 117,986(3) 0 1,900
Chief Executive Officer 1996 209,000 126,748 0 1,800
Robert L. Demorest 1998 $149,800 $23,738 8,500 $1,900
President 1997 140,000 50,593 7,000 1,900
1996 131,000 55,612 9,000 1,800
Ronald A. Meyer 1998 $131,694 $20,885 7,500 $1,900
Vice President--Finance 1997 123,432 44,605 5,000 1,900
and Administration, 1996 117,783 50,001 7,500 1,800
Treasurer and Secretary
Daniel W. Mayer 1998 $126,312 $20,031 7,500 $1,900
Executive Vice President 1997 120,059 43,386 5,000 1,182
1996 114,569 48,636 7,500 1,145
</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.
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<PAGE>
(3) Of such bonus, $10,000 was paid outside of the Company's Bonus Plan for
Mr. W.N. Mayer's work in research and development toward the creation of
the TRANSORPTION(R) process.
OPTION GRANTS AND EXERCISES
The following tables summarize option grants and exercises during 1998
to or by the Named Executive Officers and the potential realizable value of the
options held by such persons at December 31, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATES OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE OR FOR OPTION TERM(2)
UNDERLYING EMPLOYEES BASE PRICE EXPIRATION ---------------------
NAME OPTIONS GRANTED (#)(1) IN FISCAL YEAR ($/SH) DATE 5% 10%
- ---- ---------------------- -------------- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
William N. Mayer 10,000 (3) 7% $5.15625 9/30/08 $32,484 $81,984
Robert L. Demorest 8,500 (3) 6% $5.15625 9/30/08 $27,612 $69,687
Ronald A. Meyer 7,500 (3) 5% $5.15625 9/30/08 $24,363 $61,488
Daniel W. Mayer 7,500 (3) 5% $5.15625 9/30/08 $24,363 $61,488
</TABLE>
- -------------------------
(1) All the options granted to executives were granted under the 1998 Plan.
Options become exercisable under the plan so long as executives remain
in the employ of the Company or one of its subsidiaries. To the extent
not already exercisable, options granted under the 1998 Plan become
immediately exercisable in full upon certain changes in control of the
Company, provided that, upon such a change in control, the Compensation
Committee may determine that holders of options granted under the 1998
Plan will receive cash in an amount equal to the excess of the fair
market value of such shares immediately prior to the effective date of
such change in control of the Company over the exercise price of such
options. See "Executive Compensation and Other Benefits -- Change in
Control Arrangements."
(2) These amounts represent certain assumed rates of appreciation only.
Actual gains, if any, on stock option exercises are dependent upon the
future performance of the Company's Common Stock, overall market
conditions and the executive's continued employment with the Company.
The amounts represented in this table might not necessarily be achieved.
(3) These options were granted on October 1, 1998 (the "Date of Grant") and
were fully vested on the Date of Grant.
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<PAGE>
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR-END (#) AT FISCAL YEAR-END ($)(3)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#)(1) REALIZED ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William N. Mayer...... -- -- 47,500 0 $40,625 $0
Robert L Demorest..... 7,500 $4,063 25,625 6,375 $12,547 $2,500
Ronald A. Meyer....... 13,125 $74,258 16,250 5,625 $4,453 $2,500
Daniel W. Mayer....... 7,500 $4,063 21,875 5,625 $11,953 $2,500
</TABLE>
- --------------------------
(1) The exercise price of options granted under the Company's Non-Statutory
Plan, 1992 Stock Option Plan ("the 1992 Plan") or the 1998 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, the 1992 Plan or the 1998
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 and the 1998 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, 1998, as the
case may be, over the exercise price. The market price of the Common
Stock as of December 31, 1998 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, 1998 ($5.75), 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 five 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 1998 were J. Leonard Frame and Paul L. Sjoquist.
10
<PAGE>
A more complete description of the functions of the Compensation Committee is
set forth under the caption "Election of Directors -- Information About the
Board and its Committees."
COMPENSATION PHILOSOPHY AND OBJECTIVES. The Company's executive
compensation philosophy is to link executive compensation directly to earnings
performance and therefore to increases in shareholder value. The objectives of
the Company's executive compensation program are to:
* Reward the achievement of desired Company earnings and
individual performance goals.
* Provide compensation that is competitive with other companies of
comparable size and performance that enables the Company to
attract and retain key executives.
* Link compensation to the performance of the Company's Common
Stock thereby aligning the interests of executives with those of
the Company's shareholders.
The Company's executive compensation program provides a level of
compensation that is competitive for companies of comparable profitability,
complexity and size. In determining compensation levels, competitive
compensation data, including compensation data for some of the companies
included in the Peer Group Index used in the Stock Performance Graph as well as
other companies, is collected by management, analyzed and presented to the
Compensation Committee for review. The Compensation Committee ultimately
determines the proper level of compensation which may be greater or less than
competitive levels in this survey data based upon factors such as annual and
long-term Company performance and individual performance. The compensation of
executives other than Messrs. W.N. Mayer and R.L. Demorest is established by Mr.
W.N. Mayer using a similar philosophy.
EXECUTIVE COMPENSATION PROGRAM COMPONENTS. The Company's executive
compensation program consists of base salary, annual incentive compensation in
the form of cash bonuses and long-term incentive compensation in the form of
stock options. The Compensation Committee uses its discretion to establish
executive compensation at levels which, in its judgment, are warranted by
external and internal factors, as well as an executive's individual
circumstances. As a result, actual compensation levels may be greater or less
than the compensation levels at the companies used in the comparative analysis
based upon annual and long-term Company performance as well as individual
performance. The particular elements of the compensation program are discussed
more fully below.
BASE SALARY. Base salary levels of executives are determined by taking
into account an executive's level of responsibility, prior experience,
competitive market data, the skills and experiences required by the position and
the individual performance. Mr. W.N. Mayer's base salary remained at $223,630 on
January 1, 1999. Mr. Robert Demorest's salary was increased from $149,800 to
$155,790 on January 1, 1999.
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 1998 profit goals were set in 1996. Mr. W.N. Mayer's and Mr. R.L.
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Demorest's bonuses for 1998 were $50,626 and $23,738, respectively. The Company
believes that Mr. W.N. Mayer and Mr. R.L. Demorest and the other executives
performed well under the circumstances.
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. W.N. Mayer
and Mr. R.L. Demorest were granted options to purchase a total of 10,000 and
8,500 shares, respectively, during 1998.
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
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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, 1993 (for the five-year comparison) and on December 31, 1988
(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
------ ------------- ------------- -------------
1993 100.00 100.00 100.00
1994 71.65 101.32 112.90
1995 125.11 139.39 178.85
1996 123.54 171.40 157.31
1997 198.08 228.59 237.96
1998 106.50 293.92 124.52
TEN-YEAR COMPARISON
Company S&P 500 Peer Group*
Year Plot Points Plot Points Plot Points
------ ------------- ------------- -------------
1988 100.00 100.00 100.00
1989 109.01 131.69 117.44
1990 154.49 127.60 87.76
1991 316.42 166.47 105.12
1992 232.47 179.15 110.31
1993 170.68 197.21 131.75
1994 122.30 199.82 148.74
1995 213.54 274.90 235.64
1996 210.86 338.02 207.25
1997 338.06 450.80 313.51
1998 181.77 579.63 164.06
* 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.
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CHANGE IN CONTROL ARRANGEMENTS
For stock options granted under the Company's 1992 Stock Option Plan and
1998 Stock Option Plan, if a "change in control" of the Company occurs (as
defined in each of the plans), all outstanding options will become immediately
exercisable in full and will remain exercisable for the remainder of their terms
regardless of whether the plan participants remain employees of the Company or a
subsidiary. In addition, in the event of a change in control, the Compensation
Committee may determine that some or all participants holding outstanding
options will receive cash in an amount equal to the excess of the fair market
value immediately prior to the effective date of a 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.
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PROPOSAL TO AMEND THE RESTATED ARTICLES OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY TO MOCON, INC.
PROPOSAL NO. 2
INTRODUCTION
The Company will present for shareholder approval a change in the
Company's name from Modern Controls, Inc. to MOCON, Inc. Over the last several
years, the Company's products have increasingly become associated with the name
MOCON. MOCON is the Company's registered house trademark and it has been used as
a tradename for several years. The Company is referred to by a number of its
customers as MOCON and it has filed a certificate of assumed name with the
Minnesota Secretary of State to conduct business using the name MOCON, Inc. The
Company believes that changing the Company's name to MOCON, Inc. will complete
the process and more clearly identify the Company's corporate name with its
products. If approved by the shareholders at the Annual Meeting of Shareholders,
the change will become effective upon the filing of amendment to the Company's
Restated Articles of Incorporation with the Secretary of State of the State of
Minnesota immediately after the Annual Meeting of Shareholders.
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.
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, 1998, and
based on representations by such persons, all of the Company's executive
officers, directors and greater than 10% shareholders complied with all Section
16(a) filings requirements.
SHAREHOLDER PROPOSALS FOR 2000 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 8, 1999.
A shareholder who wishes to make a proposal at the next Annual Meeting
without including the proposal in the Company's proxy statement must notify the
Company by February 21, 2000. If a shareholder fails to provide notice by this
date, then the persons named as proxies in the proxies solicited by the Company
for the next Annual Meeting will have discretionary authority to vote on the
proposal.
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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, 1998 TO
EACH PERSON WHO WAS A SHAREHOLDER OF THE COMPANY AS OF MARCH 26, 1999, 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 7, 1999
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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 26, 1999, at the Annual Meeting of Shareholders to be held
on May 25, 1999, or any adjournment, thereof.
1. ELECTION OF DIRECTORS.
[ ] FOR all nominees listed below [ ] AGAINST all nominees listed below
(except as marked to the
contrary 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 CHANGE THE COMPANY'S NAME TO MOCON, INC.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. 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 PROPOSAL 2 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:____________________, 1999
__________________________________________
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.
