<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.142-12
W. R. GRACE & CO.
- -----------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
W. R. GRACE & CO.
- -----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
1) Title of each class of securities to which transaction applies:
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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:*
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4) Proposed maximum aggregate value of transaction:
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* Set forth the amount on which the filing fee is calculated and state how
it was determined.
[ ] 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>
GRACE LOGO
NOTICE OF ANNUAL MEETING
The Annual Meeting of Shareholders of W. R. Grace & Co. will be held at
the Boca Raton Marriott-Boca Center, 5150 Town Center Circle, Boca Raton,
Florida, at 10:00 a.m. on Friday, May 9, 1997. At the Annual Meeting,
shareholders will vote on the following matters:
(1) the election of four directors for a term expiring in 2000;
(2) the selection of Price Waterhouse LLP as independent certified public
accountants of the Company and its consolidated subsidiaries for 1997;
(3) the approval of the Company's 1996 Stock Incentive Plan;
(4) the approval of the Company's Long-Term Incentive Program;
(5) the approval of the Company's Annual Incentive Compensation Program;
(6) the approval of the Company's 1997 Stock Plan for Nonemployee
Directors; and
(7) any other business that properly comes before the Annual Meeting.
The Board of Directors has fixed the close of business on March 11, 1997
as the record date for the determination of shareholders entitled to notice
of and to vote at the Annual Meeting.
/s/ Robert B. Lamm
ROBERT B. LAMM
Secretary
April 7, 1997
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Election of Directors ............................................. 1
Board Committees and Meetings .................................... 1
Nominees ......................................................... 3
Directors Continuing in Office ................................... 4
Compensation ..................................................... 7
Summary Compensation Table ...................................... 7
Stock Options ................................................... 9
LTIP............................................................. 10
Pension Arrangements............................................. 11
Employment Agreements............................................ 13
Severance Agreements............................................. 14
Executive Salary Protection Plan................................. 14
Resignations of Executive Officers............................... 15
Directors' Compensation and Consulting Arrangements.............. 15
Compensation Committee Interlocks and Insider Participation ..... 17
Performance Comparison........................................... 17
Report of the Compensation Committee on Executive Compensation .. 18
Relationships and Transactions with Management and Others ........ 23
Commercial Transactions........................................... 23
Loans to Officers................................................. 23
Legal Proceedings; Indemnification................................ 23
Security Ownership of Management and Others ........................ 25
Management Security Ownership ..................................... 25
Other Security Ownership .......................................... 25
Ownership and Transactions Reports ................................ 25
Selection of Independent Certified Public Accountants ............. 26
Approval of 1996 Stock Incentive Plan .............................. 26
Stock Options...................................................... 26
Stock Awards....................................................... 27
Limitations ....................................................... 27
Change in Control Provisions....................................... 27
Tax Treatment of Stock Incentives.................................. 27
Accounting Treatment of Stock Incentives........................... 28
General............................................................ 28
Approval of Long-Term Incentive Program ............................ 29
1995-1997 and 1996-1998 Performance Periods ....................... 29
1995-1997 Performance Period ..................................... 30
1996-1998 Performance Period ..................................... 31
Proposed Amendments ............................................... 31
Tax Treatment of Performance Units................................. 32
Accounting Treatment of Performance Units ......................... 32
General............................................................ 32
Approval of Annual Incentive Compensation Program .................. 33
Tax Treatment of Awards ........................................... 34
Accounting Treatment of Awards .................................... 34
General............................................................ 34
Approval of 1997 Stock Plan for Nonemployee Directors ............ 34
Limitations ....................................................... 35
Tax Treatment of Directors' Compensation .......................... 35
Accounting Treatment of Directors' Compensation ................... 35
General............................................................ 35
Other Matters ...................................................... 36
Other Business .................................................... 36
Proxy and Voting Procedures ....................................... 36
Votes Required .................................................... 36
Solicitation Procedures............................................ 37
Proposals for 1998 Annual Meeting.................................. 37
Exhibit A--1996 Stock Incentive Plan
Exhibit B--1997 Stock Plan for Nonemployee Directors
</TABLE>
<PAGE>
PROXY STATEMENT
The Annual Meeting of Shareholders of W. R. Grace & Co. will be held on
May 9, 1997. The Company is furnishing this Proxy Statement in connection
with the solicitation of proxies to be used at the Annual Meeting and any
adjournments. The Company's mailing address is One Town Center Road, Boca
Raton, Florida 33486-1010. This Proxy Statement and the enclosed proxy are
first being sent to shareholders on April 7, 1997.
Only shareholders of record at the close of business on March 11, 1997 are
entitled to vote at the Annual Meeting and any adjournments. At that record
date, 74,101,870 shares of the Company's Common Stock were outstanding. The
Common Stock is the Company's only class of voting securities. See "Other
Matters" for additional information concerning the voting of proxies.
As used in this Proxy Statement, the term "Company" refers to W. R. Grace
& Co., a Delaware corporation, or to subsidiaries or predecessors of W. R.
Grace & Co., and the term "Common Stock" refers to the Company's Common
Stock.
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for the division of
the Board of Directors into three classes, each to serve for a three-year
term. The term of the Class II Directors expires at the 1997 Annual Meeting;
accordingly, the shareholders will vote on the election of four Class II
Directors to serve for a term expiring in 2000. The names and biographies of
the nominees are set forth on pages 3 and 4, and the names and biographies of
the directors continuing in office are set forth on pages 4 to 6.
The Board of Directors has designated the nominees (on the recommendation
of the Nominating Committee), and it is anticipated that all nominees will be
candidates when the election is held. However, if for any reason any nominee
is not a candidate at that time, proxies will be voted for any substitute
nominee designated by the Company (except where a proxy withholds authority
with respect to the election of directors).
BOARD COMMITTEES AND MEETINGS
To facilitate independent director review, and to make the most effective
use of the directors' time and capabilities, the Board of Directors has
established the committees described below. None of the members of these
committees is an executive or former executive of the Company (other than Mr.
Holmes, who served as acting president and chief executive officer of the
Company for a two-month period in 1995) or serves as a consultant to the
Company (other than Ms. Kamsky, a member of the Committee on Corporate
Responsibility, whose consulting agreement expires in May 1997; see
"Compensation -- Directors' Compensation and Consulting Arrangements").
The Audit Committee is responsible for reviewing the financial information
the Company provides to shareholders and others, the Company's internal
controls, and its auditing, accounting and financial reporting processes
generally. The Committee's specific responsibilities include (1) recommending
to the Board the selection of independent certified public accountants to
audit the annual financial statements of the Company and its consolidated
subsidiaries, (2) reviewing the annual financial statements and (3) meeting
with the Company's senior financial officers, internal auditors and
independent certified public accountants to review the scope and results of
the audit and other matters regarding the Company's accounting, financial
reporting and internal control systems. The current members of the Committee
are Messrs. Brown, Cheng, Eckmann (Chair) and Vanderslice and Drs. Fox and
Frick. The Committee met four times during 1996.
The Compensation, Employee Benefits and Stock Incentive Committee
("Compensation Committee") makes recommendations to the Board with respect to
the salary and annual and long-term incentive compensation of certain
officers and other high-level employees, as well as the Company's benefit
plans, programs and arrangements generally. The Compensation Committee also
administers the Company's stock incentive plans, determining the recipients
and terms of stock incentives. The current members of the Compensation
Committee are Messrs. Akers, Eckmann, Holmes (Chair), Murphy, Phipps and
Vanderslice. In 1996, the Compensation Committee met nine times.
1
<PAGE>
The Nominating Committee recommends to the Board candidates for nomination
as directors of the Company. The current members of the Committee are Messrs.
Akers, Holmes and Phipps (Chair) and Drs. Fox and Frick. The Committee met
three times in 1996. The Committee will consider candidates recommended by
shareholders; recommendations should be sent to the Chair of the Nominating
Committee, c/o Robert B. Lamm, Secretary, W. R. Grace & Co., One Town Center
Road, Boca Raton, Florida 33486-1010.
The Company's employment policy prohibits discrimination and encourages
diversity. Consistent with this policy, the Board (including the Nominating
Committee) recognizes that its composition should reflect the global nature
of the Company's operations and the diversity of its workforce. The Board
also believes that diversity makes good business sense. At the same time,
however, the Board believes that the critical factor in selecting a director
should be a candidate's qualifications and abilities, without regard to race,
religion, gender or other status. The Board believes that it made progress
toward achieving diversity in 1996 and early 1997; however, it believes that
diversity must continue to be encouraged at all levels to assure that the
Company provides a truly diverse workplace and to enhance its ability to
attract, retain and motivate a diverse group of employees and Board members.
Consequently, the Board intends to achieve greater diversity as vacancies and
other opportunities occur.
The Committee on Corporate Responsibility advises management on the
Company's role in the public sector and its responsibility with respect to
matters of public policy. The Committee met twice in 1996. Its members are
Messrs. Brown, Cheng, Eckmann and Murphy, Dr. Frick (Chair) and Ms. Kamsky.
The Board of Directors held 10 meetings in 1996. Each current director
attended 75% or more of the 1996 meetings of the Board and the Board
committees on which he or she served in 1996, other than Ms. Kamsky and Mr.
Phipps.
2
<PAGE>
NOMINEES
NOMINEES FOR ELECTION AS CLASS II DIRECTORS -- TERM EXPIRING IN 2000
PHOTO JOHN F. AKERS
Director since January 1997
Age: 62
Mr. Akers served as chairman of the board and chief
executive officer of International Business Machines
Corporation from 1985 until his retirement in 1993,
completing a 33-year career with IBM. He is a director
of Hallmark Cards, Inc., Lehman Brothers Holdings,
Inc., The New York Times Company, PepsiCo, Inc. and
Springs Industries, Inc. He also serves on the U.S.
advisory board of Zurich Insurance Company and on the
advisory board of Directorship. A graduate of Yale
University with a B.S. in industrial administration,
Mr. Akers formerly served on the boards of trustees of
the California Institute of Technology and the
Metropolitan Museum of Art, as chairman of the board of
governors of United Way of America, and as a member of
President Bush's Education Policy Advisory Committee.
PHOTO CHRISTOPHER CHENG
Director since March 1997
Age: 48
Mr. Cheng is chairman and managing director of the Wing
Tai Group of Companies, a garment manufacturer based in
Hong Kong; he also serves as chairman of USI Holdings
Ltd., a diverse holding company listed on the Hong Kong
Stock Exchange with interests in garment manufacturing,
property development, hospitality and
telecommunications. Mr. Cheng received a bachelor's
degree in business administration from the University
of Notre Dame and an M.B.A. from Columbia University.
He is a director of The New World Infrastructure
Limited (a company listed on the Hong Kong Stock
Exchange) and of The Gieves Group PLC (listed on the
London Stock Exchange), and he is active in numerous
civic and educational organizations, including the Hong
Kong Trade Development Council, the Hong Kong
University of Science and Technology, and the Council
for International Affairs of Notre Dame. He is also an
Officer of the Order of the British Empire.
PHOTO VIRGINIA A. KAMSKY
Director since 1990
Age: 43
Ms. Kamsky is the founder, chairman and co-chief
executive officer of Kamsky Associates Inc., an
advisory, consultancy and investment firm specializing
in The People's Republic of China. She graduated from
Princeton University with an honors degree in East
Asian studies (with a concentration in Chinese and
Japanese language studies) and served as a lending
officer with The Chase Manhattan Bank in Tokyo, Beijing
and New York City before forming Kamsky Associates in
1980. Ms. Kamsky is a member of the Council on Foreign
Relations, a founding director of the Council's Hong
Kong Committee, and a trustee of Princeton-in-Asia. She
previously served on Princeton's Board of Trustees,
including its Executive and Investment Committees. She
is also a director of the National Committee on United
States-China Relations and a member of the advisory
committee of Americares.
3
<PAGE>
JOHN E. PHIPPS
Director since 1975
Age: 64
Mr. Phipps is a private investor. He is a general partner
of Phipps Ventures and a director of The Bessemer Group,
Bessemer Securities Corporation, Bessemer Trust Company,
Bessemer Trust Company of Florida and Bessemer Trust
Company, N.A.
DIRECTORS CONTINUING IN OFFICE
CLASS III DIRECTORS--TERM EXPIRING IN 1998
PHOTO HAROLD A. ECKMANN
Director since 1976
Age: 75
Mr. Eckmann retired in 1985 as chairman and chief
executive officer of Atlantic Mutual Insurance Company
and Centennial Insurance Company--The Atlantic
Companies. He was educated at the United States
Merchant Marine Academy and the University of
California. Mr. Eckmann joined The Atlantic Companies
in 1949 and became president in 1970 and chairman and
chief executive officer in 1976.
PHOTO JAMES W. FRICK
Director since 1984
Age: 72
Dr. Frick is president of James W. Frick Associates, a
consulting firm to private colleges and universities.
He is also vice president emeritus of the University of
Notre Dame, having served the University in various
capacities from 1951 to 1987, including as a member of
its board of trustees. Dr. Frick holds three degrees
from Notre Dame. He is president emeritus of the
Community Foundation of St. Joseph County, Indiana, a
former director of Society Bank of South Bend and
Society National Bank, Indiana, and a former member of
the board of trustees of Converse College. He also
served as a member of the board of the Department of
Financial Institutions of the State of Indiana.
PHOTO THOMAS A. HOLMES
Director since 1989
Age: 73
Mr. Holmes served as acting president and chief
executive officer of the Company from March to May
1995. He was chairman, president and chief executive
officer of Ingersoll-Rand Company until his retirement
in 1988, having spent his entire business career with
Ingersoll-Rand. He is a graduate of the University of
Missouri--Rolla. Mr. Holmes is a director of Newmont
Gold Co. and Newmont Mining Corp.
4
<PAGE>
PHOTO JOHN J. MURPHY
Director since March 1997
Age: 65
Mr. Murphy retired in 1996 as chairman of the board of
Dresser Industries, Inc., a supplier of products and
technical services to the energy industry. He joined
Dresser as an engineer in 1952 and spent his entire
career with Dresser, serving as its chief executive
officer from 1983 to 1995. Mr. Murphy is a director of
CARBO Ceramics, Inc., Kerr-McGee Corporation,
NationsBank Corporation and PepsiCo, Inc.; a former
trustee of Southern Methodist University and St.
Bonaventure University; a former member of the board of
the U.S.-Russia Business Council; and a member of The
Business Council. He received a bachelor's degree in
mechanical engineering from Rochester Institute of
Technology, a masters of business administration from
Southern Methodist University and an honorary doctorate
of commercial science from St. Bonaventure University.
CLASS I DIRECTORS--TERM EXPIRING IN 1999
PHOTO HANK BROWN
Director since March 1997
Age: 57
Mr. Brown is the Director of the Center for Public
Policy at the University of Denver, having served as a
United States Congressman from 1981 until 1991 and as a
United States Senator from 1991 until January 1997. A
1961 graduate of the University of Colorado, he served
in the United States Navy from 1962 until 1966, and he
subsequently received a law degree from the University
of Colorado and a master of laws from George Washington
University; he is also a certified public accountant.
From 1969 to 1980, Mr. Brown held a number of
professional and executive positions with Monfort of
Colorado, Inc., a meat processing and livestock feeding
company.
PHOTO ALBERT J. COSTELLO
Director since 1995
Age: 61
Mr. Costello is the Company's chairman, president and
chief executive officer, positions he has held since
May 1995. Before joining the Company, he served as
chairman of the board and chief executive officer of
American Cyanamid Company from April 1993 to December
1994. Mr. Costello received a B.S. in chemistry from
Fordham University and an M.S. in chemistry from New
York University. He joined American Cyanamid in 1957 as
a chemist and held various research, marketing and
management positions in the United States, Mexico and
Spain. In 1982, he was named group vice president in
charge of American Cyanamid's global agricultural
business; in 1983 he became an executive vice president
with responsibility for global agricultural and
chemical products businesses; and from 1991 through
March 1993 he was American Cyanamid's president. Mr.
Costello is a director of Becton, Dickinson and
Company, FMC Corporation and the Chemical Manufacturers
Association; a trustee of Fordham and the American
Enterprise Institute for Public Policy Research; and a
member of the Business Roundtable.
5
<PAGE>
PHOTO MARYE ANNE FOX
Director since January 1996
Age: 49
Dr. Fox is vice president for research, and the
Waggoner Regents chair in chemistry, of the University
of Texas, positions she has held since 1994 and 1992,
respectively; she has been on the faculty of the
University since 1976. Dr. Fox received a B.S. in
chemistry from Notre Dame College, an M.S. in organic
chemistry from Cleveland State University and a Ph.D.
in organic chemistry from Dartmouth College; she also
holds an honorary doctoral degree from Notre Dame. Dr.
Fox has served as vice chair of the National Science
Board and has received numerous honors and awards from
a wide variety of educational and professional
organizations. She currently serves on the Texas
Science and Technology Council; she has also served on
several editorial boards and has authored approximately
300 publications, including three books and more than
20 book chapters.
PHOTO THOMAS A. VANDERSLICE
Director since March 1996
Age: 65
Mr. Vanderslice began his career with General Electric
Company, where he spent 23 years in various technical,
management and executive positions, including executive
vice president and sector executive of General
Electric's power systems business. He subsequently
served as president and chief operating officer of GTE
Corporation, as chairman and chief executive officer of
Apollo Computer, and, from 1989 to June 1995, as
chairman and chief executive officer of M/A-COM, Inc.,
a designer and manufacturer of radio frequency and
microwave components, devices and subsystems for
commercial and defense applications. Mr. Vanderslice
received a B.S. in chemistry and philosophy from Boston
College and a Ph.D. in chemistry and physics from
Catholic University; he holds several patents and has
written numerous technical articles. He is a director
of Texaco Inc., a trustee of Boston College, and
chairman of the Massachusetts High Technology Council.
He is also a member of the National Academy of
Engineering, the American Chemical Society and the
American Institute of Physics.
See "Compensation," "Relationships and Transactions with Management and
Others" and "Security Ownership of Management and Others" for additional
information.
6
<PAGE>
COMPENSATION
Summary Compensation Table. The following Summary Compensation Table
contains information concerning the compensation of (1) Mr. Costello, the
Company's chief executive officer since May 1, 1995; (2) the other four most
highly compensated executive officers of the Company who were serving as such
at year-end 1996; and (3) Constantine L. Hampers and Donald H. Kohnken, who
resigned as executive officers on June 14, 1996 and September 30, 1996,
respectively, and whose compensation would have been reportable under clause
(2) but for the fact that they were not executive officers of the Company at
year-end 1996. Certain information has been omitted from the Summary
Compensation Table because it is not applicable or because it is not required
under the rules of the Securities and Exchange Commission ("SEC").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------
OTHER
NAME AND PRINCIPAL ANNUAL
POSITION YEAR SALARY BONUS COMPENSATION
- --------------------- --------- --------- --------- --------------
<S> <C> <C> <C> <C>
A. J. Costello 1996 $900,000 $582,075 $ 12,872
Chairman, President 1995(e) 600,000 900,000 106,599
and Chief Executive
Officer
R. H. Beber 1996 297,475 165,000 12,788
Executive Vice 1995 282,713 200,000 5,456
President and 1994 266,000 220,000 246
General Counsel
L. Ellberger 1996 283,083 150,000 57,219
Senior Vice President 1995(e) 173,162 125,000 28,977
and Chief Financial
Officer
J. R. Hyde 1996 272,600 130,000 5,194
Senior Vice President 1995 248,650 230,000 2,235
1994 206,667 240,000 731
F. Lempereur 1996 294,300 100,000 22,592
Senior Vice President 1995 290,725 100,000 3,323
1994 281,167 95,000 93
C. L. Hampers 1996 875,270 422,755 316,157(f)
Executive Vice 1995 821,068 720,000 210,915
President 1994 786,250 85,425
D. H. Kohnken 1996 295,425 148,000 66,496
Executive Vice 1995 371,725 394,000 9,576
President 1994 357,000 410,000 86
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------
AWARDS PAYOUTS
----------------------------- ----------
NO. OF SHARES ALL
RESTRICTED UNDERLYING OTHER
NAME AND PRINCIPAL STOCK OPTIONS LTIP COMPENSATION
POSITION AWARD(a) GRANTED(b) PAYOUTS(c) (d)
- --------------------- ------------ --------------- ---------- --------------
<S> <C> <C> <C> <C>
A. J. Costello 77,625 $ 799,116 $ 27,250
Chairman, President 465,750
and Chief Executive
Officer
R. H. Beber 16,767 927,518 33,380
Executive Vice 37,260 99,589 49,695
President and 37,260 28,099
General Counsel
L. Ellberger 12,576 178,369 38,102
Senior Vice President $92,438 111,780 2,094
and Chief Financial
Officer
J. R. Hyde 16,767 670,596 25,374
Senior Vice President 37,260 27,534 29,724
37,260 20,538
F. Lempereur 12,576 630,492 26,689
Senior Vice President 37,260 42,666 27,758
37,260 23,284
C. L. Hampers 2,425,992 91,790
Executive Vice 108,675 105,564
President 108,675 89,278
D. H. Kohnken 1,783,688 523,842
Executive Vice 93,150 153,716 55,657
President 77,625 36,200
</TABLE>
(Footnotes appear on following page)
7
<PAGE>
- ------------
(a) Other than the award to Mr. Ellberger, no restricted stock awards were
made during the 1994-1996 period. The dollar value of Mr. Ellberger's
1,500 restricted shares shown in the table has not been adjusted to
give effect to the September 1996 separation of the Company's health
care business. At December 31, 1996, the dollar value of these
restricted shares was $77,625, excluding the value of additional
securities received by Mr. Ellberger in respect of these restricted
shares in the September 1996 transaction (see note (d) below). The
restrictions on these shares are to terminate on May 14, 1998 (see
"Employment Agreements") or earlier, in the event of Mr. Ellberger's
death or disability or the termination of his employment without cause
(including following a change of control), subject to the forfeiture of
the shares in certain circumstances. Mr. Ellberger receives all
dividends paid on, and has the right to vote, these restricted shares.
(b) The share amounts shown in this column reflect adjustments made in
September 1996 in connection with the separation of the Company's
health care business.
(c) The amounts in this column for 1996 represent awards earned under the
Company's Long-Term Incentive Program ("LTIP") for the 1993-1995
Performance Period. The amounts in this column for 1995 represent the
third and final installment of awards earned under the LTIP for the
1990-1992 Performance Period; Dr. Hampers did not participate in the
LTIP for the 1990-1992 Performance Period. No payments were made under
the LTIP in 1994.
(d) The amounts in this column for 1996 consist of the following: (1) the
actuarially determined value of Company-paid premiums on "split-dollar"
life insurance, as follows: Mr. Beber -- $18,456; Mr. Hyde -- $10,296;
Mr. Lempereur -- $14,410; Dr. Hampers -- $52,849; and Mr. Kohnken --
$9,626; (2) life insurance premiums of $9,250 for Mr. Costello and
$3,447 for Mr. Ellberger (who do not currently participate in the
split-dollar life insurance program); (3) payments made to persons
whose personal and/or Company contributions to the Company's Salaried
Employees Savings and Investment Plan ("Savings Plan") would be subject
to limitations under federal income tax law, as follows: Mr. Costello
-- $13,500; Mr. Beber -- $10,424; Mr. Ellberger -- $521; Mr. Hyde --
$10,578; Mr. Lempereur -- $7,779; Dr. Hampers -- $38,941; and Mr.
Kohnken -- $16,183; (4) Company contributions to the Savings Plan of
$4,500 for each of Messrs. Costello, Beber, Hyde, Lempereur and Kohnken
and of $3,824 for Mr. Ellberger; (5) a severance payment of $493,533
made to Mr. Kohnken; and (6) $30,310 of additional securities issued to
Mr. Ellberger by entities other than the Company in September 1996 in
respect of the restricted shares awarded to him in 1995.
(e) Messrs. Costello and Ellberger joined the Company in May 1995.
(f) This amount includes the value of personal benefits received by Dr.
Hampers during 1996, including $57,750 attributable to his personal use
of corporate aircraft and $26,769 attributable to his personal use of a
chauffeur paid by the Company.
8
<PAGE>
Stock Options. The following table contains information concerning stock
options granted in 1996, including the potential realizable value of each
grant assuming that the market value of the Common Stock appreciates from the
date of grant to the expiration of the option at annualized rates of (a) 5%
and (b) 10%, in each case compounded annually over the term of the option.
For example, the option granted to Mr. Costello in 1996 would produce the
pretax gain of $6,365,009 shown in the table only if the market price of the
Common Stock rises to $133.45 per share by the time the option is exercised;
based on the number and market price of the shares outstanding at year-end
1996, such an increase in the price of the Common Stock would produce a
corresponding aggregate pretax gain of nearly $6.5 billion for the Company's
shareholders. The assumed rates of appreciation shown in the table have been
specified by the SEC for illustrative purposes only and are not intended to
predict future prices of the Company's Common Stock, which will depend upon
various factors, including market conditions and the Company's future
performance and prospects.
Options become exercisable at the time or times determined by the
Compensation Committee; the options shown below become exercisable in three
approximately equal annual installments beginning one year after the date of
grant or upon the earlier occurrence of a "change in control" of the Company
(see "Employment Agreements" and "Severance Agreements"). All of the options
shown below have purchase prices equal to the fair market value of the Common
Stock at the date of grant.
<TABLE>
<CAPTION>
1996 GRANTS*
--------------------------------------------------
NO. OF % OF TOTAL
SHARES OPTIONS
UNDERLYING GRANTED TO PURCHASE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED IN 1996 ($/SHARE) DATE
- ---- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
A. J. Costello ......... 77,625 7.7% 51.4493 3/5/06
R. H. Beber ............ 16,767 1.7 51.4493 3/5/06
L. Ellberger ........... 12,576 1.2 51.4493 3/5/06
J. R. Hyde ............. 16,767 1.7 51.4493 3/5/06
F. Lempereur ........... 12,576 1.2 51.4493 3/5/06
C. L. Hampers .......... -0- -- -- --
D. H. Kohnken .......... -0- -- -- --
All Shareholders ....... -- -- -- --
Named Executive
Officers' Percentage
of Realizable Value
Gained by All --
Shareholders........... -- -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION TERM
-----------------------------------
NAME 5% 10%
- -------------------------- ---------- -----------
<S> <C> <C>
A. J. Costello $2,511,650 $6,365,009
R. H. Beber 542,516 1,374,842
L. Ellberger ........... 406,912 1,031,193
J. R. Hyde ............. 542,516 1,374,842
F. Lempereur ........... 406,912 1,031,193
C. L. Hampers .......... -- --
D. H. Kohnken .......... -- --
All Shareholders ....... 2,554,571,529 6,473,787,377
Named Executive
Officers' Percentage
of Realizable Value
Gained by All
Shareholders........... 0.2% 0.2%
</TABLE>
- ------------
* The number of shares covered by each option and the purchase price of each
option reflect adjustments made in connection with the September 1996
separation of the Company's health care business.
9
<PAGE>
The following table contains information concerning stock options
exercised in 1996, including the "value realized" upon exercise (the
difference between the total purchase price of the options exercised and the
market value, at the date of exercise, of the shares acquired), and the value
of unexercised "in-the-money" options held at December 31, 1996 (the
difference between the aggregate purchase price of all such options held and
the market value of the shares covered by such options at December 31, 1996).
<TABLE>
<CAPTION>
OPTION EXERCISES IN 1996 AND OPTION VALUES AT 12/31/96*
------------------------------------------------------------------------------------
NUMBER OF VALUE OF
SHARES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
NO. OF SHARES 12/31/96 12/31/96
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ ----------------- ---------------
<S> <C> <C> <C> <C>
A. J. Costello -0- -0- 155,250/388,125 $2,796,690/5,616,720
R. H. Beber ... -0- -0- 252,749/16,767 7,091,485/5,042
L. Ellberger .. -0- -0- 62,100/62,256 741,176/596,723
J. R. Hyde ..... 3,105 $ 97,437 178,538/16,767 4,817,959/5,042
F. Lempereur .. -0- -0- 169,223/12,576 4,338,281/3,782
C. L. Hampers . 450,226 10,199,375 0/0 0/0
D. H. Kohnken . 45,375 1,869,507 458,411/0 11,872,282/0
</TABLE>
- ------------
* The number of shares covered by each option and the purchase price of each
option reflect adjustments made in connection with the September 1996
separation of the Company's health care business.
LTIP. Under the LTIP as in effect during 1996, executive officers and
other senior managers could be granted contingent "Performance Units" under
which awards could be earned based on (1) value contribution performance
(based on cash flow attributable to net operating profit after taxes of the
product line or the Company, less a charge based on average annual gross
assets), and/or (2) shareholder value performance (measured by appreciation
in the price of the Common Stock and dividends paid) as compared to that of
the companies in the Standard & Poor's Industrials Index, during a three-year
"Performance Period." A new three-year Performance Period commences each
year, and contingent Performance Units are granted for each such Performance
Period (however, the terms of such contingent Performance Units granted
subsequent to 1996 differ from those granted in 1996 and prior years, as
discussed under "Approval of Long-Term Incentive Program"). Performance Units
granted in 1996 to employees of product lines were weighted 67% on the value
contribution performance of their respective product lines or other units,
and 33% on shareholder value performance, during the Performance Period;
Performance Units granted to corporate employees were weighted 50% on the
basis of the Company's value contribution performance and 50% on the basis of
shareholder value performance during the Performance Period. The number of
Performance Units earned under the LTIP may be decreased by up to 20%, at the
discretion of the Compensation Committee, based upon individual performance.
Amounts, if any, earned under Performance Units are paid following the end
of each Performance Period. In keeping with the Company's compensation
philosophy of uniting executive interests with those of the shareholders (see
"Report of the Compensation Committee on Executive Compensation--Stock
Ownership Guidelines"), up to 100% of any such payments may be made in shares
of Common Stock issued under the Company's 1996 Stock Incentive Plan (see
"Approval of 1996 Stock Incentive Plan"); however, the Compensation Committee
has authority to reduce the portion of earned Performance Units payable in
Common Stock or to pay such Units entirely in cash. A participant may elect
to defer receipt of the cash and/or Common Stock otherwise payable in respect
of earned Performance Units. Cash amounts may be deferred under the Company's
deferred compensation program, earning interest equivalents computed at the
prime rate, compounded semiannually. Deferred Common Stock is held in a trust
established by the Company; dividends paid on the deferred Common Stock held
in the trust are reinvested in Common Stock, and participants have the right
to vote the Common Stock held in the trust. Deferred amounts are generally
payable to the participant following termination of employment.
10
<PAGE>
The following table shows the Performance Units granted during 1996 to the
executive officers named in the Summary Compensation Table. All of such
Performance Units relate to the 1996-1998 Performance Period. Half of the
Performance Units granted to Messrs. Hyde and Lempereur are weighted 50%/50%,
as discussed above, and the other half are weighted 67%/33%, as discussed
above; the Performance Units granted to the other recipients are all weighted
50%/50%.
<TABLE>
<CAPTION>
1996 AWARDS OF CONTINGENT PERFORMANCE UNITS UNDER LTIP(A)
-----------------------------------------------------------
MAXIMUM
NUMBER OF THRESHOLD TARGET NUMBER OF
NAME UNITS (b)(c) (c)(d) UNITS (e)
- ----------------- ---------------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
A. J. Costello ... 18,630 $0 or $242,190 $1,210,950 46,575
R. H. Beber ...... 3,726 0 or 48,425 242,190 9,315
L. Ellberger ..... 2,795 0 or 36,335 181,675 6,988
J. R. Hyde ....... 3,726 0 or 24,245 242,190 9,315
F. Lempereur ..... 2,795 0 or 11,635 181,675 6,988
C. L. Hampers .... -0- -- -- --
D. H. Kohnken .... 6,210 0 or 20,215 403,650 15,525
<FN>
- ------------
(a) The numbers of Performance Units reflect adjustments made in connection
with the September 1996 separation of the Company's health care
business.
(b) Refers to the minimum amount payable under the LTIP with respect to the
1996-1998 Performance Period. For Messrs. Costello, Beber, Ellberger
and Kohnken, no payment will be made unless the minimum targeted level
of value contribution or shareholder value performance is achieved by
the Company. For Messrs. Hyde and Lempereur, the "threshold" payments
will be made if the minimum targeted level of value contribution
performance is achieved by their respective product lines.
(c) The threshold and target payments shown in the table have been
calculated on the basis of a market price of $65 per share of Common
Stock at the end of the 1996-1998 Performance Period. The threshold
amounts for Messrs. Lempereur and Kohnken have been adjusted on a pro
rata basis to reflect their resignations.
(d) Refers to the amount payable with respect to the 1996-1998 Performance
Period if the targeted levels of both value contribution and
shareholder value performance are achieved.
(e) Refers to the maximum number of Performance Units that can be earned
with respect to the 1996-1998 Performance Period under the LTIP.
Employees to whom Performance Units are granted also receive grants of
stock options based on the number of Performance Units granted. Information
concerning options granted in 1996 to the executive officers named in the
Summary Compensation Table appears under "Stock Options."
Additional information concerning the LTIP is set forth under "Approval of
Long-Term Incentive Program."
Pension Arrangements. Salaried employees of designated units of the
Company who are 21 or older and who have one or more years of service are
eligible to participate in the Company's Retirement Plan for Salaried
Employees. Under this basic retirement plan, pension benefits are based upon
(1) the employee's average annual compensation for the 60 consecutive months
in which his or her compensation is highest during the last 180 months of
continuous participation and (2) the number of years of the employee's
credited service. For purposes of this basic retirement plan, compensation
generally includes nondeferred base salary and nondeferred annual incentive
compensation (bonus) awards; however, for 1996, federal income tax law
limited to $150,000 the annual compensation on which benefits under this plan
may be based.
11
<PAGE>
The Company also has a Supplemental Executive Retirement Plan under which
a covered employee will receive the full pension to which he or she would be
entitled in the absence of the above and other limitations imposed under
federal income tax law. In addition, this supplemental plan recognizes
deferred base salary, deferred annual incentive compensation awards and, in
some cases, periods of employment with the Company during which an employee
was ineligible to participate in the basic retirement plan. An employee will
generally be eligible to participate in the supplemental plan if he or she
has an annual base salary of at least $75,000 and is earning credited service
under the basic retirement plan.
The following table shows the annual pensions payable under the basic and
supplemental plans for different levels of compensation and years of credited
service. The amounts shown have been computed on the assumption that the
employee retired at age 65 on January 1, 1997, with benefits payable on a
straight life annuity basis. Such amounts are subject to (but do not reflect)
an offset of 1.25% of the employee's primary Social Security benefit at
retirement age for each year of credited service under the basic and
supplemental plans.
</TABLE>
<TABLE>
<CAPTION>
HIGHEST YEARS OF CREDITED SERVICE
AVERAGE ANNUAL -------------------------------------------------------------------
COMPENSATION 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- -------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 ... $ 15,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500
200,000 ... 30,000 45,000 60,000 75,000 90,000 105,000
300,000 ... 45,000 67,500 90,000 112,500 135,000 157,000
400,000 ... 60,000 90,000 120,000 150,000 180,000 210,000
500,000 ... 75,000 112,500 150,000 187,500 225,000 262,500
600,000 ... 90,000 135,000 180,000 225,000 270,000 315,000
700,000 ... 105,000 157,500 210,000 262,500 315,000 367,500
800,000 ... 120,000 180,000 240,000 300,000 360,000 420,000
900,000 ... 135,000 202,500 270,000 337,500 405,000 472,500
1,000,000 ... 150,000 225,000 300,000 375,000 450,000 525,000
1,100,000 ... 165,000 247,500 330,000 412,500 495,000 577,500
1,200,000 ... 180,000 270,000 360,000 450,000 540,000 630,000
1,300,000 ... 195,000 292,500 390,000 487,500 585,000 682,500
1,400,000 ... 210,000 315,000 420,000 525,000 630,000 735,000
1,500,000 ... 225,000 337,500 450,000 562,500 675,000 787,500
1,600,000 ... 240,000 360,000 480,000 590,000 720,000 840,000
1,700,000 ... 255,000 382,500 510,000 617,500 765,000 892,500
1,800,000 ... 270,000 405,000 540,000 645,000 810,000 945,000
1,900,000 ... 285,000 427,500 570,000 672,500 855,000 997,500
2,000,000 ... 300,000 450,000 600,000 700,000 900,000 1,050,000
2,100,000 ... 315,000 472,500 630,000 727,500 945,000 1,102,500
2,200,000 ... 330,000 495,000 660,000 755,000 990,000 1,155,000
</TABLE>
Messrs. Costello, Beber, Ellberger, Hyde, Lempereur and Kohnken had 1, 8,
1, 33, 5 and 27 years of credited service, respectively, under the basic and
supplemental retirement plans at year-end 1996 (September 30, 1996 in the
case of Mr. Kohnken). For purposes of those plans, the 1996 compensation of
such executive officers was as follows: Mr. Costello -- $1,800,000; Mr. Beber
- -- $497,475; Mr. Ellberger -- $408,083; Mr. Hyde -- $502,600; Mr. Lempereur
- -- $409,300; and Mr. Kohnken -- $689,425. Dr. Hampers was not covered by the
basic or supplemental plan. At year-end 1996, the accrued annual benefit
payable to Dr. Hampers at age 65 under the retirement plan of National
Medical Care Inc. ("NMC"), a former subsidiary of the Company (in which Dr.
Hampers was an inactive participant), was approximately $120,000. The Company
previously agreed to provide certain pension benefits to Mr. Ellberger and
Dr. Hampers (see "Employment Agreements" and "Resignations of Executive
Officers").
12
<PAGE>
Employment Agreements. The Company has an employment agreement with Mr.
Costello providing for his service as the Company's chairman, president and
chief executive officer through April 1998, subject to (1) earlier
termination in certain circumstances and (2) automatic one-year extensions
unless either party gives notice that the agreement is not to be extended.
The agreement also provides that Mr. Costello will stand for election as a
director during its term. Under the agreement, Mr. Costello is entitled to an
annual base salary of at least $900,000; an annual incentive compensation
award (bonus) of at least $900,000 for 1995 and awards thereafter based on
the performance of the Company, in accordance with its annual incentive
compensation program; participation in the LTIP on the same basis as other
senior executives; grants of stock options; and participation in all other
compensation and benefit plans and programs generally available to senior
executives of the Company. The agreement also provides for payments in the
case of Mr. Costello's disability or death, or the termination of his
employment with or without cause, including termination following a "change
in control" and termination by Mr. Costello for "good reason." For purposes
of the agreement, "change in control" means the acquisition of 20% or more of
the Common Stock, the failure of Company-nominated directors to constitute a
majority of any class of the Board of Directors, the occurrence of a
transaction in which the Company's shareholders immediately preceding such
transaction do not own more than 60% of the combined voting power of the
corporation resulting from such transaction, or the liquidation or
dissolution of the Company. In the event of the termination of Mr. Costello's
employment following a change in control, he will receive a multiple of the
sum of his annual base salary plus bonus, pro rata bonus and LTIP awards,
earned but unpaid compensation, and the balance of the LTIP awards for all
Performance Periods during which the change in control takes place. The
foregoing description of Mr. Costello's employment agreement does not purport
to be complete and is qualified in its entirety by reference to such
agreement, which has been filed with the SEC as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and by
reference to an amendment to such agreement, which has been filed with the
SEC as an exhibit to the Company's Current Report on Form 8-K filed on
October 10, 1996.
The Company has an employment agreement with Mr. Ellberger providing for
his service as the Company's senior vice president, strategic planning and
development, through May 14, 1998; at that time, the agreement will terminate
(except with respect to the retirement arrangements described below) and his
employment will be "at will." The agreement provides for an initial annual
base salary of $275,000; participation in the Company's annual incentive
compensation program, LTIP, and other compensation and benefit plans and
programs; the grant of stock options; and the grant of the restricted stock
award shown in the Summary Compensation Table. The agreement also provides
that if the Company should terminate Mr. Ellberger's employment without cause
during the term of the agreement (except in the event of a change in control
of the Company), he will receive 145% of his base salary for one year or, if
longer, the remaining term of the agreement. In addition, the agreement
provides that, in determining the benefits payable to Mr. Ellberger under the
Company's basic and supplemental retirement plans, his service with his prior
employer will be recognized as if it were continuous service with the Company
(except that his first year of service with the Company would be excluded),
with an offset for any retirement benefits payable from his prior employer's
retirement plans; however, this special pension arrangement will apply only
if Mr. Ellberger's employment by the Company ceases after the term of the
agreement (or during such term, if his employment is terminated without
cause, including termination without cause following a change in control of
the Company). The agreement also provides for standard relocation assistance
arrangements and for a Company-leased car. For purposes of the agreement,
"change in control" has the same meaning as in Mr. Costello's agreement,
described above. The foregoing description of Mr. Ellberger's employment
agreement does not purport to be complete and is qualified in its entirety by
reference to such agreement and related agreements, which have been filed as
exhibits to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
In 1992, the Company entered into an agreement with Mr. Lempereur relating
to his relocation from France to the United States. The agreement provided
that Mr. Lempereur would participate in the Company's U.S. compensation and
benefit plans and programs and that the Company would reimburse Mr. Lempereur
for the cost of trips between Florida and France for his family and would
provide Mr. Lempereur with a Company-leased car. The agreement also provided
for the loan referred to under "Relationships and Transactions with
Management and Others" and for arrangements relating to his
13
<PAGE>
return to France following the end of his assignment. This description of Mr.
Lempereur's agreement does not purport to be complete and is qualified in its
entirety by reference to the agreement, which has been filed as an exhibit to
the Company's Annual Report on Form 10-K for the year ended December 31,
1996.
Dr. Hampers previously had an employment agreement providing for his
employment as an executive vice president of the Company and head of its
health care business. Under the agreement, Dr. Hampers was initially entitled
to an annual base salary of at least $675,000, subject to increases of at
least 9% every 18 months, and to participate in the Company's annual
incentive compensation program. The agreement also provided for benefits
generally available to senior executives of the Company, as well as the use
of a corporate aircraft (and an option to purchase the aircraft at its fair
market value). Further, the agreement entitled Dr. Hampers to a supplementary
annual pension benefit equal to the amount by which (1) the lesser of (a)
$300,000 and (b) three times his actual annual pension benefit exceeded (2)
such actual pension benefit, subject to certain cost-of-living adjustments.
The agreement prohibited Dr. Hampers from engaging in certain competitive
activities during its term and for three years thereafter and provided for
the continuation of compensation for the term of the agreement in the event
his employment terminated other than for cause. The foregoing description of
Dr. Hampers' employment agreement does not purport to be complete and is
qualified in its entirety by reference to such agreement, which was filed
with the SEC as an exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991, and by reference to related agreements,
which were filed with the SEC as exhibits to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996 and its Registration
Statement on Form S-1 filed on August 2, 1996.
See "Resignations of Executive Officers" for information concerning the
resignations of Mr. Lempereur and Dr. Hampers, and "Relationships and
Transactions with Management and Others" for information concerning Dr.
Hampers' purchase of a corporate aircraft from the Company and litigation by
him against the Company and others arising out of his employment agreement.
Severance Agreements. The Company has severance agreements with all of its
executive and other officers (except for Mr. Costello, whose employment
agreement, discussed above, provides for severance arrangements). These
agreements generally provide that in the event of the involuntary termination
of the individual's employment without cause (including constructive
termination caused by a material reduction in his or her authority or
responsibility) following a change in control of the Company, he or she will
receive a severance payment equal to the greater of (1) 2.99 times his or her
average annual taxable compensation for the five years preceding the change
in control, plus certain additional benefits, subject to reduction in certain
cases to prevent the recipient from incurring liability for excise taxes and
the Company from incurring nondeductible compensation expense, or (2) three
times the individual's annual base salary plus bonus, plus a "gross-up"
payment to cover any excise tax obligations resulting from the severance
payment; in the event employment terminates after January 1, 1999 (following
a change in control), and in the case of officers elected in and subsequent
to May 1996, the severance payment would be made solely in accordance with
clause (2). For purposes of these severance agreements, the definition of
"change in control" is identical to the definition contained in Mr.
Costello's employment agreement (see "Employment Agreements"). This
description of the Company's severance agreements does not purport to be
complete and is qualified in its entirety by reference to the forms of such
agreements, which have been filed as exhibits to the Company's Registration
Statement on Form S-1 filed on August 2, 1996.
Executive Salary Protection Plan. The Company has had an Executive Salary
Protection Plan ("ESPP") for many years. All executive and other officers
participate in the ESPP, which provides that, in the event of a participant's
death or disability prior to age 70, the Company will continue to pay all or
a portion of base salary to the participant or a beneficiary for a period
based on the participant's age at the time of death or disability. Payments
under the ESPP may not exceed 100% of base salary for the first year and 50%
thereafter in the case of death (60% in the case of disability). This
description of the ESPP does not purport to be complete and is qualified in
its entirety by reference to the text of the ESPP, as amended, which has been
filed as an exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
14
<PAGE>
Resignations of Executive Officers. In connection with Mr. Lempereur's
resignation as an executive officer of the Company in February 1997, he
entered into an agreement with the Company providing that (1) he will remain
an employee, and continue to receive salary and participate in the Company's
benefit plans and programs, through November 1997, at which time he will be
entitled to receive severance pay for seven months; (2) he will be considered
for an annual incentive compensation award for 1996; (3) he will remain a
participant in the LTIP for the 1994-1996 Performance Period and, on a pro
rata basis, the 1995-1997 and 1996-1998 Performance Periods; (4) his unvested
stock options will become exercisable in full; and (5) his participation in
the Company's split-dollar life insurance program will terminate, although he
can elect to purchase the policy by reimbursing the Company for the premiums
paid on his behalf (approximately $490,000). The agreement also provides that
Mr. Lempereur will receive amounts due him under other Company plans and
programs in accordance with their terms; that he will receive outplacement
assistance and reimbursement for the expenses incurred in his relocation to
France, generally in accordance with standard Company practice; and that his
loan from the Company (see "Employment Agreements" and "Relationships and
Transactions with Management and Others") will be repaid upon the sale of his
Florida residence or, if earlier, December 31, 1997.
Dr. Hampers entered into an agreement with the Company in June 1996
providing for the termination of his employment agreement and his severance
agreement (see "Employment Agreements" and "Severance Agreements"). His
termination agreement also provided that (1) he would continue to receive
salary and certain benefits, as specified in his employment agreement,
through December 31, 1996 (including the use of a corporate aircraft and an
option to purchase the aircraft at its fair market value); (2) effective
January 1, 1997, he would be eligible to commence receiving the pension
benefit contemplated by his employment agreement; (3) he would be entitled to
participate in the Company's annual incentive compensation program for 1996
(however, no award was paid to him under such program for 1996); and (4) he
would remain a participant in the LTIP for the 1994-1996 Performance Period
and, on a pro rata basis, the 1995-1997 Performance Period.
In connection with Mr. Kohnken's resignation as an executive officer of
the Company on September 30, 1996, he entered into an agreement with the
Company providing that (1) he would receive the severance payment included in
"All Other Compensation" in the Summary Compensation Table above; (2) he
would be considered for an annual incentive compensation award for 1996; (3)
he would remain a participant in the LTIP, on a pro rata basis, for the
1994-1996, 1995-1997 and 1996-1998 Performance Periods; (4) certain
restrictions on shares and stock options granted to him in 1991 would be
removed, and any unvested options he held would become exercisable in full;
and (5) his participation in the Company's split-dollar life insurance
program would be terminated, although he could elect to purchase the policy
by reimbursing the Company for the premiums paid on his behalf (approximately
$323,000). The agreement also provided that he would receive amounts due him
under other Company plans and programs in accordance with their terms.
The foregoing descriptions of the agreements with Mr. Lempereur, Dr.
Hampers and Mr. Kohnken do not purport to be complete and are qualified in
their entirety by reference to such agreements, which have been filed with
the SEC as exhibits to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 (in the case of Mr. Lempereur), the Company's
Registration Statement on Form S-1 filed on August 2, 1996 (in the case of
Dr. Hampers), and its Current Report on Form 8-K filed on October 10, 1996
(in the case of Mr. Kohnken).
Directors' Compensation and Consulting Arrangements. Under the Company's
current compensation program for nonemployee directors, (1) each nonemployee
director receives an annual retainer of $24,000, payable in Common Stock; (2)
the Chairs of the Audit and Compensation Committees receive annual cash
retainers of $12,000, and the Chairs of the Nominating Committee and the
Committee on Corporate Responsibility receive annual cash retainers of
$2,000; and (3) each nonemployee director receives $2,000 in cash for each
Board meeting and $1,000 in cash for each committee meeting attended (except
that committee chairs receive $1,200 per committee meeting). In addition, the
Company has had a retirement plan under which a person retiring after more
than four years of service as a nonemployee director receives annual payments
of $24,000 for a period equal to the length of service as a nonemployee
director (but not more than 15 years). In the event of a director's death,
payments are made to the director's surviving spouse.
15
<PAGE>
Subject to shareholder approval of the 1997 Stock Plan for Nonemployee
Directors (see "Approval of 1997 Stock Plan for Nonemployee Directors"), a
new compensation program for nonemployee directors will be implemented
effective July 1, 1997. Under the new program, (1) each nonemployee director
will receive an annual retainer of $50,000, of which $35,000 will be in the
form of Common Stock and the balance will be in cash or Common Stock, at the
election of the director; (2) each committee chair will receive an additional
annual retainer of $3,000 in cash or Common Stock, at the election of the
director; and (3) each nonemployee director will receive $2,000 for each
Board meeting and $1,000 for each committee meeting attended (except that
committee chairs will receive $1,200 per committee meeting), in cash or
Common Stock, at the election of the director.
In addition, the current nonemployee directors' retirement plan will
terminate effective July 1, 1997. Previously retired directors will continue
to receive their remaining benefits under the plan. Benefits earned and
accrued with respect to current directors will be frozen, vested (to the
extent not previously vested) and converted to present value (as determined
by an independent actuarial consulting firm) based on a 7% discount rate and
certain other assumptions. The amount so determined will be deferred in cash
or in Common Stock (as described below), at the election of the director, and
will be paid following the director's termination from service.
Under both the current and new compensation programs, a nonemployee
director may defer payment of all or part of the fees received for attending
Board and committee meetings and/or the cash retainers (or cash portions of
the retainers) referred to above. The deferred cash (plus an interest
equivalent) will be payable to the director or his or her heirs or
beneficiaries in a lump sum or in quarterly installments over two to 20 years
following a date specified by the director (but in no event earlier than the
director's termination from service). The interest equivalent on deferred
cash is computed at the higher of (1) the prime rate plus two percentage
points or (2) 120% of the prime rate, in either case compounded semiannually.
This program provides for the payment of additional survivors' benefits in
certain circumstances. Following the effective date of the new compensation
program, the Common Stock portion of the annual retainer may be deferred and
held, and the balance of the annual retainer or other retainers and/or fees a
director elects to receive in the form of Common Stock will be deferred and
held, in a trust established by the Company. Dividends paid on the Common
Stock held in such trust will be reinvested in Common Stock, and directors
will have the right to direct the voting of the Common Stock held in such
trust; however, such Common Stock will not be delivered to a director until
his or her termination from service (or a subsequent date specified by the
director).
See "Approval of 1997 Stock Plan for Nonemployee Directors" for additional
information.
Nonemployee directors are reimbursed for expenses they incur in attending
Board and committee meetings, and the Company maintains business travel
accident insurance coverage for them. In addition, nonemployee directors
receive a fee of $1,000 per day for work performed at the Company's request.
The Company has a consulting agreement with Kamsky Associates Inc. (of
which Ms. Kamsky is chairman and co-chief executive officer) relating to the
Company's interests in The People's Republic of China. The agreement expires
on May 31, 1997 (and is not being renewed) and provides for monthly fees of
$25,000, plus additional payments based on the extent to which the Company
establishes certain business relationships in The People's Republic of China.
In 1996, the Company paid fees totaling $300,000 under this agreement. NMC
has had a consulting agreement with another company of which Ms. Kamsky is a
principal relating to business opportunities in nine other countries in the
Asia Pacific region. The agreement expires on May 31, 1997 and provides for
monthly fees of $10,000, plus additional payments based on the extent to
which NMC establishes certain business relationships in the relevant
countries. From January 1996 through September 1996 (when NMC separated from
the Company), NMC paid Ms. Kamsky's company consulting fees totaling $108,000
under its agreement. The foregoing description does not purport to be
complete and is qualified in its entirety by reference to the agreements
referred to above, which have been filed with the SEC as exhibits to the
Company's Annual Reports on Form 10-K for the years ended December 31, 1992
and 1994 and the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995.
16
<PAGE>
Compensation Committee Interlocks and Insider Participation. Prior to May
10, 1996, the Compensation Committee consisted of Messrs. Eckmann, Holmes and
Phipps, as well as Edward W. Duffy (who retired from the Board on that date)
and Peter S. Lynch (who resigned from the Board on that date). In addition,
Thomas L. Gossage, then chairman and chief executive officer of Hercules,
Incorporated ("Hercules"), was a member of the Compensation Committee until
his resignation from the Board in March 1996. On May 10, 1996, the
Compensation Committee was reconstituted to consist of Messrs. Eckmann,
Holmes, Phipps and Vanderslice; Mr. Akers joined the Compensation Committee
in January 1997 and Mr. Murphy in March 1997. As noted above, Mr. Holmes
served as acting president and chief executive officer of the Company for a
two-month period in 1995. During 1996, the Company purchased approximately
$428,000 of products from, and sold approximately $36,000 of products to,
Hercules.
Performance Comparison. The following graph and table compare the
cumulative total shareholder return on the Common Stock from December 31,
1991 through December 31, 1996 with the Standard & Poor's 500 Stock Index and
the Standard & Poor's Specialty Chemicals Index (both of which include the
Company), as well as the Standard & Poor's Industrials Index and the Standard
& Poor's Chemicals Index, using data supplied by the Compustat Services unit
of Standard & Poor's Corporation. In prior years, the Company has compared
its performance to both the Chemicals and Specialty Chemicals Indices in view
of its diversified nature. However, in view of the Company's strategic
restructuring program (which has resulted in the sale of noncore businesses
and concentration on its packaging and specialty chemicals businesses), the
Company has determined that the comparison to the Chemicals Index is no
longer appropriate and will not include that Index in future proxy
statements. In contrast, the Company has determined to include the
Industrials Index in the comparison, because it believes that Index is
reflective of broader market trends and because that Index is used in
determining "shareholder value performance" under the LTIP. The comparisons
reflected in the graph and table are not intended to forecast the future
performance of the Common Stock and may not be indicative of such future
performance. The graph and table assume an investment of $100 in the Common
Stock and each index on December 31, 1991, as well as the reinvestment of
dividends.
17
<PAGE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
GRAPHIC OMITTED
<TABLE>
<CAPTION>
DECEMBER 31, 1991 1992 1993 1994 1995 1996
- ------------------------------ ------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
W. R. Grace & Co. ............. $100 $105.83 $110.73 $108.85 $170.50 $215.46
S&P 500 Stock Index ........... 100 107.62 118.46 120.03 165.13 203.05
S&P Specialty Chemicals Index 100 105.94 120.79 105.45 138.60 142.16
S&P Industrials Index ......... 100 106.53 116.04 119.98 160.64 200.50
S&P Chemicals Index ........... 100 109.50 122.46 141.77 185.19 244.66
</TABLE>
Report of the Compensation Committee on Executive Compensation. The Board
of Directors approves most compensation actions with respect to the Company's
executive officers (including the chief executive officer), other officers
who report to the chief executive officer, and other executives whose annual
base salaries exceed $250,000; however, the Board acts on the recommendation
of the Compensation Committee, and actions under the Company's Stock
Incentive Plans and certain aspects of the LTIP are approved by the
Compensation Committee and reported to the Board. The Compensation Committee
is comprised of directors who are not, and have never been, employees of the
Company or any of its subsidiaries (other than Mr. Holmes, who served as the
Company's acting president and chief executive officer for a two-month period
in 1995) and who have no consulting arrangements or other significant
relationships with the Company.
This Report describes the Company's performance-based compensation
philosophy and executive compensation program, as approved by the
Compensation Committee. In particular, it discusses the compensation
decisions and recommendations made by the Compensation Committee in 1996
regarding Mr. Costello, the Company's chairman, president and chief executive
officer, and the other executive officers named in the Summary Compensation
Table (collectively referred to in this Report as the "executive officers").
Management and the Compensation Committee use the services of independent
executive compensation consulting firms for advice regarding the Company's
executive compensation program.
Executive Compensation Philosophy and Program Components
The Company's executive compensation program is structured to enable the
Company to compete effectively with other firms in attracting, motivating and
retaining executives of the caliber needed to
18
<PAGE>
ensure the Company's future growth and profitability. The components of this
program consist of base salary and, if warranted, annual incentive
compensation (both paid in cash) and long-term incentives (in the form of
cash, Common Stock or a combination of the two). These compensation
components are intended to (1) stimulate performance that benefits the
Company and its shareholders by increasing shareholder value, (2) reward such
performance with competitive levels of compensation, and (3) unite executive
and shareholder interests.
The Company measures the competitiveness of its executive officer
compensation relative to U.S.-based companies with annual sales of $3 billion
to $6 billion*. In 1995, the Compensation Committee adopted a philosophy that
annual compensation paid to executives (consisting of salary plus annual
incentive compensation) should approximate the 50th percentile, and that
long-term incentive opportunities should approximate the 60th percentile, of
those companies' practices when performance objectives are achieved, and that
executive compensation should be above those levels only when performance
objectives are exceeded and should be below those levels when performance
objectives are not achieved.
The following sections of this Report describe the compensation program
for executive officers in effect in 1996 and the manner in which the
Compensation Committee and the Board reached their determinations as to
performance-based compensation.
Base Salary
During 1996, salaries of Company executives based in the United States
were generally eligible for review at intervals of not less than 12 months
from the date of the last increase. Salary increases for executive officers
in 1996 were based on (1) individual performance (as evaluated by the
Compensation Committee in its discretion) and (2) salaries paid to executives
in comparable positions in other companies. To assure comparability with
other companies, as well as consistency and uniformity within the Company,
executive officers' positions, as well as all other management positions,
have been assigned to grades with salary ranges based on the median salaries
paid to individuals who hold comparable positions in companies with annual
sales of $3 billion to $6 billion. Individual salaries are set with reference
to the salary ranges based on individual performance, the time since the last
increase, the amount budgeted for salary increases and discretionary factors.
Such factors may include leadership; overall strategic positioning;
reorientation of long-term goals; corporate/product line strategy;
shareholder value creation; environmental, health and safety achievements;
social policy matters; and the development of the Company's human resources,
including diversity initiatives.
Annual Incentive Compensation
For 1996, incentive compensation pools were generated for product lines,
and for the Company overall, based on the extent to which budgeted 1996
pretax income was achieved. Awards to individual executives were allocated
from these formula-based pools.
The factors that the Compensation Committee took into consideration in
proposing individual awards for the executive officers (excluding Mr.
Costello, whose compensation is discussed below) were that (1) the 1996
results of the Company reflected (a) a 3.2% increase in sales and revenues
over 1995 ($3.25 billion in 1996 versus $3.15 billion in 1995, excluding
sales and revenues of the divested water treatment business from both
periods), (b) an improvement of $42.9 million (or 13.7%) in pretax income
from continuing operations over 1995 (excluding the water treatment business
and special items from both years) and (c) a 12.6% increase in earnings per
share from continuing operations (excluding the water treatment business and
special items from both years) and (2) the Company reduced annual costs by
more than $100 million. In addition, in determining Mr. Hyde's award, the
Compensation Committee took into consideration that the 1996 pretax and
pre-interest income of the Company's Grace Davison business exceeded its 1995
pretax and pre-interest income by 14.5%, and in determining Mr. Lempereur's
award, the Compensation Committee considered his key role in achieving the
global integration of the
- ------------
* These companies are not identical to those included in the indices
reflected in the above performance graph (although a number of them are
included in one or more of such indices), because the firms with which
the Company compares itself with respect to executive compensation and
competition for executive talent are not necessarily the same as those
with which it competes for sales or shareholders' investments.
19
<PAGE>
Company's Grace Container and Grace Packaging businesses. Dr. Hampers did not
receive an annual incentive compensation award for 1996; instead, he
participated in a special incentive program related to the disposition of the
Company's health care business.
Based on these factors, the Board, on the recommendation of the
Compensation Committee, approved awards for the executive officers ranging
from 10.0% to 75.9% of their year-end 1996 annual base salaries.
In order to relate awards under the Company's annual incentive
compensation program more closely to business and individual performance, and
to align the program with those of comparable companies, a targeted award,
expressed as a percentage of base salary, was established for each salary
grade in 1996. Actual awards were allocated from the incentive pools
established for each product line and for the Company, based upon the extent
to which targeted pretax earnings were achieved. Individual awards may range
from zero to 200% of the targeted award, based on business and/or individual
performance. Beginning in 1997, the incentive pool for executives employed in
corporate functions is based upon the extent to which targeted earnings per
share are achieved; incentive pools for executives employed in product line
functions continue to be based on the achievement of pretax income targets,
consistent with the Company's targeted earnings per share.
In 1996, on the recommendation of the Compensation Committee, the Board of
Directors also adopted, and the shareholders approved, a separate annual
incentive compensation program in which the chairman, president and chief
executive officer would participate, along with other executive officers
whose compensation may exceed $1 million in any year. Under this program, the
Board, on the recommendation of the Compensation Committee, will, by the end
of the first calendar quarter of each year, approve the participants in the
program, the amount of incentive compensation that may be earned at various
levels of performance, the maximum amount that may be earned by each
executive officer (expressed as a percentage of salary in effect at the
beginning of the year), and the criteria by which performance will be
measured. The performance criteria will be selected each year by the
Compensation Committee from one or more of the following: earnings, earnings
per share, rate of return on assets or capital employed, cash flow, or net
worth of the Company or one or more of its units.
Long-Term Incentives
The Company's long-term incentives consist of annual grants of (1) stock
options and (2) Performance Units under the LTIP. Under the LTIP as in effect
through the 1996-1998 Performance Period, such grants provide opportunities
for rewards based on performance versus pre-established targets with respect
to value contribution (after-tax cash flow less a capital charge) and
shareholder value creation (i.e., the performance of the Common Stock as
compared to other companies). As discussed elsewhere in this Proxy Statement,
the LTIP has been modified so that, effective with the 1997-1999 Performance
Period, Performance Units will be earned based solely on shareholder value
performance.
In 1996, the executive officers and certain other key individuals were
granted Performance Units for the 1996-1998 Performance Period, as well as
stock options. The number of Performance Units and the number of options
granted were based on the salary grades of the recipients' positions.
Through the 1996-1998 Performance Period, Performance Units granted to
executives employed in product line functions have been weighted 67% on the
value contribution performance of their respective product lines, and 33% on
the Company's shareholder value performance; Performance Units granted to
executives employed in corporate functions have been weighted 50% on the
basis of the Company's value contribution performance and 50% on the basis of
the Company's shareholder value performance. This weighting was intended to
reflect the respective responsibilities of the Company's product line and
corporate managers. However, half of the Performance Units granted to Messrs.
Hyde and Lempereur in 1996 were weighted 67%/33%, and the other half were
weighted 50%/50%, reflecting their responsibilities as both product line
managers (with regard to the Company's Grace Davison business, in the case of
Mr. Hyde, and Grace Container, in the case of Mr. Lempereur) and corporate
managers (as senior vice presidents with policy-making responsibilities on a
Company-wide basis). The Compensation Committee
20
<PAGE>
determined these weightings and approved the targeted levels of product line
and Company performance based on its assessment of the extent to which the
approved weighting and targeted levels would act as challenging -but
realizable -incentives for senior managers.
Mr. Kohnken retired on September 30, 1996. He was granted Performance
Units for the 1996-1998 Performance Period because, at the time the grant was
made in 1996, he was a key executive of the Company, and it was deemed
important to maintain his focus on its long-term strategic and business
objectives. Dr. Hampers, who resigned as an executive officer on June 14,
1996 and whose employment terminated on December 31, 1996, was not granted
any Performance Units with respect to the 1996-1998 Performance Period. As
provided under the LTIP, payments of earned Performance Units are made on a
pro rata basis in cases when an executive retires or his/her employment
terminates not for cause before the end of the Performance Period.
Payments under the Performance Units earned for the 1994-1996 Performance
Period were made in March 1997. Any payments earned with respect to the
1995-1997 and 1996-1998 Performance Periods are scheduled to be made in 1998
and 1999, respectively.
The LTIP targets long-term incentive opportunities (Performance Units and
stock options) at the 60th percentile of opportunities provided by other
companies with annual sales of $3 to $6 billion. Payments above that level
would result only if performance targets were exceeded and/or if the price of
the Company's stock increased significantly.
Beginning in 1996, all stock options granted to executive and other
officers become exercisable in installments over a three-year term beginning
one year after the date of grant (rather than being exercisable in full on
the date of grant, as was the case in previous years), and the number of
options granted to an individual is based on the salary grade to which
his/her position is assigned.
Under a proposed amendment to the LTIP discussed elsewhere in this Proxy
Statement, the maximum number of Performance Units a recipient may earn for
any Performance Period would be the lesser of 2.5 times the number granted or
75,000 Units, subject to adjustment for stock splits and similar events. The
number of Performance Units and stock options granted will reflect the price
of the Common Stock at the time of grant in accordance with the Company's
philosophy of targeting long-term incentive opportunities at the 60th
percentile of grants made by $3 billion to $6 billion companies.
Compensation of the Chief Executive Officer
Mr. Costello's 1996 base salary of $900,000 was determined in accordance
with his employment agreement in 1995 and was not increased in 1996.
Mr. Costello's annual incentive compensation award for 1996 was $582,075,
determined according to the formula approved by the Compensation Committee in
1996. As specified in his employment agreement, upon the commencement of his
employment he was granted 34,582 Performance Units with respect to the
1995-1997 Performance Period under the LTIP and stock options covering
465,750 shares of Common Stock*; these options become exercisable in three
annual installments beginning in May 1996. He was also granted 8,694 and
21,658 Performance Units with regard to the 1993-1995 and 1994-1996
Performance Periods, respectively. The size of these grants was determined
based on (1) the number of Performance Units and stock options granted to the
Company's previous chief executive officer and (2) the need to attract to the
Company an experienced chief executive officer from the chemical industry.
With respect to the 1996-1998 Performance Period, Mr. Costello was granted
18,630 Performance Units, based on the salary grade established for his
position.
- ------------
* The numbers of Performance Units and options granted to Mr. Costello, as
discussed in this paragraph, reflect adjustments made in September 1996
in connection with the separation of the Company's health care business,
as discussed elsewhere in this Proxy Statement.
21
<PAGE>
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code prohibits the Company from
deducting annual compensation in excess of $1 million paid to the executive
officers named in the Summary Compensation Table of the Proxy Statement,
unless such compensation is performance-based and satisfies certain other
conditions.
It is the Committee's view that, with the exception of base salaries and
any discretionary annual incentive compensation payments or
non-performance-based payments provided for under Mr. Costello's employment
agreement, amounts awarded under the Company's executive compensation program
qualify as performance-based compensation and are therefore expected to be
fully deductible.
Stock Ownership Guidelines
To further strengthen the link between executive and shareholder
interests, the Board of Directors, on the recommendation of the Compensation
Committee, adopted a policy in 1995 requiring executive and other officers
and certain other executives of the Company to meet the following targets
with respect to ownership of Common Stock by 2000:
<TABLE>
<CAPTION>
POSITION VALUE OF STOCK
- --------- --------------
<S> <C>
Chief Executive Officer ................................................... 4.0 times salary
Executive Vice Presidents and members of the Executive Committee ......... 3.0 times salary
Senior Vice Presidents (other than members of the Executive Committee) ... 2.0 times salary
Vice Presidents ........................................................... 1.0 times salary
Other executives who participate in the LTIP .............................. 0.5 times salary
</TABLE>
COMPENSATION, EMPLOYEE BENEFITS AND
STOCK INCENTIVE COMMITTEE
Thomas A. Holmes, Chair
John F. Akers*
Harold A. Eckmann
John J. Murphy*
John E. Phipps
Thomas A. Vanderslice*
- ------------
* Messrs. Akers, Murphy and Vanderslice joined the Compensation Committee
in January 1997, March 1997 and May 1996, respectively.
22
<PAGE>
RELATIONSHIPS AND TRANSACTIONS WITH MANAGEMENT AND OTHERS
The following are descriptions of certain relationships and transactions
between the Company and its directors and executive officers and/or
businesses with which they are affiliated. Information regarding certain
consulting arrangements appears under "Compensation -- Directors'
Compensation and Consulting Arrangements."
Commercial Transactions. Mr. Costello is a director of Becton, Dickinson
and Company ("Becton Dickinson") and FMC Corporation ("FMC"). During 1996,
various units of the Company purchased approximately $3.3 million of
materials and/or products from, and sold approximately $556,000 of materials
and/or products to, units of Becton Dickinson. In addition, during 1996
various units of the Company purchased approximately $3.1 million of
materials and/or products from, and sold approximately $171,000 of materials
and/or products to, FMC.
Thomas L. Gossage was a director of the Company from July 1995 to March
1996, during which time he was chairman and chief executive officer of
Hercules. During 1996, the Company purchased approximately $428,000 of
products from, and sold approximately $36,000 of products to, Hercules.
The foregoing transactions were in the ordinary course of business and
were on terms believed to be similar to those with unaffiliated parties.
Under his employment agreement and the terms of his resignation (see
"Employment Agreements" and "Resignations of Executive Officers" under the
heading "Compensation"), Dr. Hampers was previously granted an option to
purchase, for its fair market value, a Gulfstream IV aircraft owned by the
Company. In August 1996, Dr. Hampers purchased the aircraft for $19 million.
This price was based upon independent parties' estimates of the fair market
value of the aircraft.
Loans to Officers. The Company previously made a $350,000 interest-free
loan to Mr. Lempereur in connection with his relocation to Florida. See
"Employment Agreements" and "Resignations of Executive Officers" under the
heading "Compensation" for additional information.
Legal Proceedings; Indemnification. W. R. Grace & Co., a New York
corporation that is a predecessor of the Company and that was
subsequently renamed Fresenius National Medical Care Holdings, Inc. ("Grace
New York"), and former members of the Grace New York Board of Directors (as
well as J. P. Bolduc, who resigned as president and chief executive officer
and a director of Grace New York in March 1995), are defendants in a case
entitled Weiser, et al. v. Grace, et al. pending in New York State Supreme
Court, New York County. The consolidated amended complaint in this lawsuit,
which purports to be a derivative action (i.e., an action brought on behalf
of Grace New York), alleges, among other things, that the individual
defendants breached their fiduciary duties to Grace New York (1) by providing
J. Peter Grace, Jr. (the chairman and a director of Grace New York until his
death in April 1995) with certain compensation arrangements upon his
voluntary retirement as Grace New York's chief executive officer in 1992 and
(2) by approving Mr. Bolduc's severance arrangements, and that Messrs. Grace
and Bolduc breached their fiduciary duties by accepting such benefits and
payments. The lawsuit seeks unspecified damages, the cancellation of all
allegedly improper agreements, the cancellation of the retirement plan for
nonemployee directors, the return of all remuneration paid to the directors
who are defendants while they were in breach of their fiduciary duties to
Grace New York, attorneys' and experts' fees and costs, and such other relief
as the Court deems proper.
Grace New York and certain of its former officers and directors are
defendants in a lawsuit entitled Murphy, et al. v. W. R. Grace & Co., et al.,
which is pending in the U.S. District Court for the Southern District of New
York. The first amended class action complaint in this lawsuit, which
purports to be a class action on behalf of all persons and entities who
purchased Grace New York's publicly traded securities during the period from
March 13, 1995 through October 17, 1995, generally alleges that the
defendants concealed information, and issued misleading public statements and
reports, concerning NMC's financial position and business prospects, a
proposed spin-off of NMC and the matters that are the subject of
investigations of NMC by the Office of the Inspector General of the U.S.
Department of Health and Human Services, in violation of federal securities
laws. The lawsuit seeks unspecified damages, attorneys' and experts' fees and
costs, and such other relief as the Court deems proper.
23
<PAGE>
Grace New York, certain of its former directors and Mr. Bolduc are also
defendants in a purported derivative action pending in the U.S. District
Court for the Southern District of New York (Bennett v. Bolduc, et al.),
alleging that such individuals breached their fiduciary duties by failing to
properly supervise the activities of NMC in the conduct of its business. The
Bennett action seeks unspecified damages, attorneys' and experts' fees and
costs, and such other relief as the Court deems proper.
Grace New York was previously notified that the SEC had issued a formal
order of investigation with respect to Grace New York's prior disclosures
regarding benefits and retirement arrangements provided to J. Peter Grace,
Jr. and certain matters relating to J. Peter Grace III, a son of J. Peter
Grace, Jr. The Company is cooperating with the investigation. The outcome of
this investigation and its impact, if any, on the Company cannot be predicted
at this time.
In April 1996, Grace New York received a formal order of investigation
issued by the SEC directing an investigation into, among other things,
whether Grace New York violated the federal securities laws by filing
periodic reports with the SEC that contained false and misleading financial
information. Pursuant to this formal order of investigation, the Company and
others have received subpoenas from the Southeast Regional Office of the SEC
requiring the production of documents relating principally to reserves (net
of applicable taxes) established by Grace New York and NMC during the period
from January 1, 1990 to the date of the subpoena. The Company believes that
all financial statements filed by Grace New York with the SEC during that
period, and the financial statements of NMC included in its Form 10
Registration Statement filed with the SEC in September 1995 (all of which
financial statements, other than unaudited quarterly financial statements,
were covered by unqualified opinions issued by Price Waterhouse LLP,
independent certified public accountants), have been fairly stated, in all
material respects, in conformity with generally accepted accounting
principles. The Company is cooperating with the investigation. The outcome of
this investigation and its impact, if any, on the Company cannot be predicted
at this time.
Under the terms of the Distribution Agreement ("Distribution Agreement")
entered into in connection with the NMC transaction referred to above, the
Company remains financially responsible for any liabilities incurred by Grace
New York and others as a result of the above lawsuits and investigations,
including the fees and disbursements of counsel for Grace New York and,
subject to certain conditions, counsel for the individual defendants in the
lawsuits and certain individuals involved in the investigations (which
individuals include certain current and former directors and officers of the
Company). Grace New York previously entered into indemnification agreements
with certain of these individuals providing that Grace New York would advance
their legal fees and expenses, subject to reimbursement in accordance with
applicable law; under the terms of the Distribution Agreement, such
indemnification agreements remain the obligation of the Company, which has
also entered into similar agreements with certain of such individuals. This
discussion of the Distribution Agreement and such indemnification agreements
does not purport to be complete and is qualified in its entirety by reference
to the Distribution Agreement, which was filed as an exhibit to the Joint
Proxy Statement-Prospectus of Grace New York dated August 2, 1996, and to
such indemnification agreements, the forms of which have been filed as
exhibits to the Company's Registration Statement on Form S-1 filed on August
2, 1996 and to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
Dr. Hampers has instituted a lawsuit against the Company, Grace New York
and NMC alleging that he is entitled to certain additional retirement
benefits under his employment agreement and the terms of his resignation (see
"Employment Agreements" and "Resignations of Executive Officers" under
"Compensation" for additional information). Grace New York has assumed the
defense of this action on behalf of the Company.
24
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
MANAGEMENT SECURITY OWNERSHIP
The following table sets forth the Common Stock beneficially owned at
January 31, 1997 by each current director and nominee, by each of the
executive officers named in the Summary Compensation Table set forth under
"Election of Directors -- Compensation" (other than those who resigned in
1996 and early 1997), and by such directors and executive officers as a
group. The table includes shares owned by (1) those persons and their
spouses, minor children and certain relatives, (2) trusts and custodianships
for their benefit and (3) trusts and other entities as to which the persons
have the power to direct the voting or investment of securities (including
shares as to which the persons disclaim beneficial ownership). The table also
includes shares in accounts under the Savings Plan and shares covered by
currently exercisable stock options; it does not reflect shares covered by
unexercisable stock options. The Common Stock owned by directors and
executive officers as a group (excluding option shares) at January 31, 1997
represents less than 1% of the Common Stock outstanding at March 11, 1997.
<TABLE>
<CAPTION>
AMOUNT/NATURE
OF OWNERSHIP
---------------
<S> <C>
J. F. Akers ................. 1,000
R. H. Beber ................. 7,595
258,338(O)
H. Brown .................... 1,000
C. Cheng .................... 0
A. J. Costello .............. 32,710*
181,125(O)
H. A. Eckmann ............... 3,259
L. Ellberger ................ 1,583*
66,292(O)
M. A. Fox ................... 425
J. W. Frick ................. 2,830
T. A. Holmes ................ 3,990
J. R. Hyde .................. 8,995
184,127(O)
V. A. Kamsky ................ 2,500
J. J. Murphy ................ 0
J. E. Phipps ................ 11,490
17,450(T,S)
T. A. Vanderslice ........... 1,300
Various directors, executive
officers and others, as
Trustees ................... 2,696 (T,S)
Directors and executive 94,789*
officers as a group ........
20,146 (T,S)
864,802(O)
</TABLE>
- ------------
* Excludes shares beneficially owned by certain executive officers in
respect of LTIP awards earned for the 1994-1996 Performance Period
(payable in March 1997), as follows: Mr. Costello -- 30,917 shares;
Mr. Ellberger -- 14,406 shares; and directors and executive officers
as a group -- 55,278 shares.
(O) Shares covered by stock options exercisable on or within 60 days
after January 31, 1997.
(T) Shares owned by trusts and other entities as to which the person has
the power to direct voting and/or investment.
(S) Shares as to which the person shares voting and/or investment power
with others.
OTHER SECURITY OWNERSHIP
The Company has been advised that at December 31, 1996, Lincoln Capital
Management Company (200 South Wacker Drive, Suite 2100, Chicago, Illinois
60606) held 7,221,900 shares of Common Stock, or approximately 9.7% of the
Common Stock outstanding on March 11, 1997.
OWNERSHIP AND TRANSACTIONS REPORTS
Under Section 16 of the Securities Exchange Act of 1934, the Company's
directors, certain of its officers, and beneficial owners of more than 10% of
the outstanding Common Stock are required to file reports with the SEC and
the New York Stock Exchange concerning their ownership of and transactions in
Common Stock; such persons are also required to furnish the Company with
copies of such reports. Based solely upon the reports and related information
furnished to the Company, the Company believes that all such filing
requirements were complied with in a timely manner during and with respect to
1996.
25
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SELECTION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
On the recommendation of the Audit Committee, the Board of Directors has
selected Price Waterhouse LLP ("Price Waterhouse") to be the independent
certified public accountants of the Company and its consolidated subsidiaries
for 1997. Although the submission of this matter for shareholder ratification
at the Annual Meeting is not required by law or the Company's By-laws, the
Board is nevertheless doing so to determine the shareholders' views. If the
selection is not ratified, the Board will reconsider its selection of
independent certified public accountants.
Price Waterhouse has acted as independent certified public accountants of
the Company and its consolidated subsidiaries since 1906. Its fees and
expenses for the 1996 audit are expected to be approximately $2.5 million. In
addition, during 1996 Price Waterhouse performed special audits and reviews
in connection with acquisitions and divestments, consulted with the Company
on various matters and performed other services for the Company (including
audits of the financial statements of certain employee benefit plans and
certain units of the Company) for fees and expenses totaling approximately
$10.3 million (excluding fees and expenses for services relating to the
Company that were performed and/or paid for by third parties). A
representative of Price Waterhouse will attend the Annual Meeting, will be
available to answer questions and will have an opportunity to make a
statement if he wishes to do so. Members of the Audit Committee are also
expected to attend.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE SELECTION
OF PRICE WATERHOUSE.
APPROVAL OF 1996 STOCK INCENTIVE PLAN
The Company's 1996 Stock Incentive Plan ("1996 Plan") is designed to
enable the Company to attract, motivate and retain key employees, to link
their incentives directly to the performance of the Common Stock, and to
unite their interests with those of the shareholders. The terms of the 1996
Plan are substantially similar to those of the Company's prior stock
incentive plans.
The 1996 Plan is administered by the Compensation Committee (although the
Board of Directors may exercise the powers of the Compensation Committee
under certain circumstances). Under the 1996 Plan, stock incentives may be
granted to key employees, including directors who are employees. Stock
incentives under the 1996 Plan may be granted in the form of stock options,
stock awards or a combination of the two, for such consideration and upon
such other terms as the Compensation Committee may determine.
STOCK OPTIONS
The 1996 Plan permits the Company to grant to key employees options to
purchase Common Stock at a purchase price equal to not less than 100% of the
fair market value of the Common Stock on the date the option is granted. The
maximum term of an option is ten years and one month from the date of grant.
The purchase price and any withholding tax that may be due on the exercise of
an option may be paid in cash, in shares of Common Stock (subject to certain
conditions), or a combination of the two. Each option is exercisable at the
time or times determined by the Compensation Committee (or the Board of
Directors). In general, unless otherwise specifically provided, an option
terminates three months after the optionee ceases to be an employee, except
that it terminates (1) immediately, if the employee resigns without the
consent of the Compensation Committee (or the Board of Directors) or if his
or her employment is terminated for cause, or (2) three years after death,
incapacity or retirement.
The 1996 Plan authorizes the grant of Incentive Stock Options ("ISOs"),
which are accorded special tax treatment under Section 422 of the Internal
Revenue Code of 1986, as amended ("Code"), as discussed below, as well as
nonstatutory options.
The 1996 Plan authorizes the Company to cancel an option to the extent it
is exercisable and either (1) pay the holder of the option cash equal to the
excess, if any, of the fair market value of the shares covered by the option
over their purchase price on the date of cancellation, (2) transfer to the
holder Common Stock with a fair market value equal to such excess, or (3) pay
such excess partly in cash and
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partly in Common Stock; this right to cancel an option is referred to as a
"stock appreciation right" or "SAR." However, the Company does not intend to
grant SARs in the future.
Under the 1996 Plan, an outstanding option may be amended by the
Compensation Committee, provided that the holder of the option agrees to any
amendment that would adversely affect the option and that the option as so
amended is consistent with the 1996 Plan. The 1996 Plan does not preclude the
surrender of an outstanding option and the grant of a new option with a lower
purchase price. However, the Company does not intend to engage in such
transactions.
The foregoing outlines certain provisions of the 1996 Plan relating to
stock options; documentation relating to individual stock options may contain
other permitted terms.
STOCK AWARDS
A stock award is an issuance of shares of Common Stock (including in
payment of Performance Units earned under the LTIP) or an undertaking to
issue such shares in the future (other than an option). Shares subject to a
stock award are valued at not less than 100% of their fair market value on
the date the award is granted, whether or not they are subject to
restrictions. If the shares subject to a stock award are not issued at the
time of grant, payments may be made, in cash or in shares of Common Stock, in
amounts not exceeding the dividends that would have been paid if the shares
awarded had been issued at the time of grant. It is anticipated that stock
awards will in some cases be (1) made contingent upon the attainment of one
or more specified performance objectives and/or (2) subject to restrictions
on the sale or other disposition of the stock awards.
The foregoing outlines certain features of stock awards required or
permitted under the 1996 Plan; documentation relating to individual stock
awards may contain other permitted terms.
LIMITATIONS
Up to 7,000,000 shares of Common Stock (subject to adjustment for stock
splits, recapitalizations and similar events) may be issued pursuant to stock
incentives under the 1996 Plan. These shares of Common Stock would represent
approximately 9.4% of the Common Stock outstanding at March 11, 1997. Shares
not issued pursuant to stock incentives because of their termination or other
reasons, and shares issued pursuant to stock incentives that are subsequently
reacquired by the Company or a subsidiary from the recipient or his/her
estate, will again be available for grants under the 1996 Plan. In addition,
(1) stock options granted to any one person may not represent more than 10%
of the total number of shares issuable pursuant to the 1996 Plan; (2) stock
incentives granted to any one person may not represent more than 15% of such
total number of shares; and (3) no more than 3% of such shares may be subject
to stock awards that are neither contingent upon the attainment of
performance objectives nor subject to restrictions on sale or other
disposition. In addition, the 1996 Plan imposes certain limitations upon the
grant of ISOs.
Options are not assignable or transferable except as may be provided in
the relevant option agreement and except by will or the laws of descent and
distribution and, in the case of nonstatutory options, pursuant to a
qualified domestic relations order (as defined in the Code).
CHANGE IN CONTROL PROVISIONS
Upon a change in control of the Company (as defined in the 1996 Plan), all
stock options will vest and become fully exercisable, and all stock awards
will vest and become free of all restrictions. In addition, option holders
will have the right, subject to certain restrictions, to elect, within the
60-day period following a change in control, to receive, in cancellation of
their options, a cash payment equal to (1) the difference between the change
in control price (as defined in the 1996 Plan) and the purchase price per
share under their options times (2) the number of shares as to which they are
exercising this right.
TAX TREATMENT OF STOCK INCENTIVES
General. Under the present provisions of the Code, the federal income tax
treatment of stock incentives under the 1996 Plan is as follows. Generally,
holders are not taxed upon the receipt of options,
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but recognize ordinary income upon the exercise of nonstatutory stock options
in an amount equal to the difference between the fair market value of the
stock acquired and the purchase price paid for such stock. Holders of ISOs do
not recognize ordinary income as a result of the exercise of such options if
certain holding period requirements are met. Holders of stock awards are
generally taxed when stock is delivered and vested or when cash is paid
pursuant to such awards. The Company will generally be permitted a tax
deduction equal to the amount of ordinary income recognized by the holder of
a stock incentive at the time the holder recognizes such income. However,
this deduction may be limited with respect to a stock incentive granted to an
individual who is the chief executive officer or one of the four other most
highly compensated executive officers of the Company in any year if the
option or award fails to comply with the requirements for "qualified
performance-based compensation" under the Code. Moreover, the acceleration of
vesting of options and stock awards as a result of a change in control could
result in "excess parachute payments," which could also reduce or eliminate
the Company's deduction.
The foregoing discussion is provided as general information only and is
not intended to be and does not constitute specific tax advice. In addition,
it does not address the impact of state and local taxes or securities laws
restrictions.
Withholding. The Company has a right to withhold any sums required by
federal, state or local tax laws with respect to the exercise of any option
or SAR or the vesting of any stock award, or to require payment of such
amounts before shares are delivered under a stock option or award.
ACCOUNTING TREATMENT OF STOCK INCENTIVES
No expense is incurred when an option not containing an SAR is granted or
exercised, so long as the purchase price equals the fair market value of the
Common Stock on the date of grant. The Company's tax deduction described
above in the case of nonstatutory options is reported as an adjustment to
shareholders' equity. Stock awards result in compensation expense based on
the fair market value of the shares covered by the awards, the timing and
recording of which depend on the terms of the individual award.
GENERAL
Authorized but unissued shares of Common Stock, as well as shares held by
the Company or a subsidiary, may be used for purposes of the 1996 Plan.
The 1996 Plan permits certain variations from the terms described above in
the case of grants of stock incentives to non-U.S. employees and the
assumption of, or the grant of options in substitution for, options held by
employees of acquired companies. The 1996 Plan may be amended or terminated
by the Board of Directors upon the recommendation of the Compensation
Committee without shareholder approval, except as specified in the 1996 Plan,
and except that no amendment or termination may adversely affect any stock
incentive granted under the 1996 Plan without the consent of the holder. No
preemptive rights are applicable to the shares covered by the 1996 Plan. Any
cash proceeds received by the Company in connection with stock incentives
granted under the 1996 Plan are expected to be used for general corporate
purposes.
It is not possible to state which key employees will be granted stock
incentives under the 1996 Plan, or the value or number of shares subject to
any particular stock incentive, since these matters will be determined by the
Compensation Committee in the future based on an individual's ability to
contribute to the profitability, growth and success of the Company. However,
in March 1997, options were granted covering a total of 657,650 shares of
Common Stock (including an option covering 42,300 shares granted to Mr.
Costello and options covering 8,100 shares granted to each of Messrs. Beber,
Ellberger and Hyde), and it is anticipated that stock incentives will be
granted under the 1996 Plan in the future to key employees in executive,
operating, administrative, professional and technical positions on a basis
generally comparable to the March 1997 grants. At March 11, 1997, there were
6 executive officers, 11 other officers and 778 other current and former
employees holding options and/or shares under the Company's stock incentive
plans; however, no shares are available for grants under the Company's stock
incentive plans other than the 1996 Plan.
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The 1996 Plan is being submitted for shareholder approval in connection
with provisions of the Code that may limit the Company's ability to deduct
compensation in excess of $1 million per year paid to any executive officer
named in the Summary Compensation Table; such limitation may not apply to
certain performance-based compensation arrangements (such as the 1996 Plan)
approved by shareholders. If the 1996 Plan is not approved by the
shareholders (see "Other Matters -- Votes Required"), the Company will
reconsider the alternatives available with respect to stock incentives and
other forms of long-term, performance-based compensation.
The text of the 1996 Plan is set forth in Exhibit A to this Proxy
Statement, and the foregoing summary is qualified in its entirety by
reference to the text of the 1996 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 1996 PLAN.
APPROVAL OF LONG-TERM INCENTIVE PROGRAM
As described above (see "Election of Directors -- Compensation --LTIP"),
the LTIP provides for the grant to executive officers and other senior
managers of contingent "Performance Units" under which awards may be earned
based on performance during a three-year "Performance Period;" a new
three-year Performance Period commences each year, and contingent Performance
Units are granted for each Performance Period. The number of Performance
Units that may be earned by a participant in the LTIP is subject to a
reduction of up to 20%, at the discretion of the Compensation Committee,
based on individual performance, which could include, among other things, the
participant's performance with respect to strategic matters (such as research
and development, acquisitions, business alliances and the like), as well as
environmental and social matters. Amounts, if any, earned under Performance
Units are paid following the end of each Performance Period. In keeping with
the Company's compensation philosophy of uniting executive interests with
those of the shareholders, the LTIP provides that, at the discretion of the
Compensation Committee, up to 100% of any such payments may be made in shares
of Common Stock (which would be issued under the 1996 Plan). Payments of
earned Performance Units are not treated as compensation for purposes of the
Company's basic and supplemental retirement plans or other employee benefit
plans.
A participant may elect, prior to the end of the Performance Period, to
defer receipt of the cash and/or Common Stock otherwise payable in respect of
earned Performance Units. Cash amounts may be deferred under the Company's
deferred compensation program, earning interest equivalents computed at the
prime rate, compounded semiannually. Deferred Common Stock is held in a trust
established by the Company; dividends paid on the deferred Common Stock held
in the trust are reinvested in Common Stock, and participants have the right
to direct the voting of the Common Stock held in the trust. Deferred amounts
are generally payable to the participant following termination of employment.
Performance Units are forfeited in the case of (1) voluntary resignation
prior to age 55 or voluntary retirement prior to age 62, in either case
without the consent of the Compensation Committee, during the Performance
Period and (2) termination for cause. In other cases of termination of
employment during the Performance Period, the participant generally receives
a pro rata number of the Performance Units earned; similarly, Performance
Units are granted on a pro rata basis to any person who begins participating
in the LTIP after the beginning of a Performance Period.
Employees to whom Performance Units are granted also receive grants of
stock options based on the number of Performance Units granted (see "Election
of Directors -- Compensation -- Stock Options").
1995-1997 AND 1996-1998 PERFORMANCE PERIODS
Under the LTIP as in effect for the 1995-1997 and 1996-1998 Performance
Periods, awards may be earned based on (1) the achievement of "Value
Contribution Performance" by the participant's product line (or, in the case
of corporate participants, the Company), and/or (2) "Shareholder Value
Performance" (measured by appreciation in the price of the Common Stock and
dividends paid) as compared to that of the companies in the Standard & Poor's
Industrials Index. Performance Units granted to employees of product lines
have been weighted 67% on the Value Contribution Performance of their product
lines, and
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33% on Shareholder Value Performance, during the Performance Period, and
Performance Units granted to corporate employees have been weighted 50% on
the basis of the Company's Value Contribution Performance and 50% on the
basis of Shareholder Value Performance during the Performance Period.
(However, in the case of certain executive officers, half of the Performance
Units granted have been weighted 50%/50%, and the other half 67%/33%, in
recognition of such officers' responsibilities as both product line managers
and corporate managers.)
1995-1997 Performance Period. The following is a summary of the manner in
which Performance Units may be earned with respect to Value Contribution
Performance and Shareholder Value Performance for the 1995-1997 Performance
Period.
Under the LTIP as in effect for the 1995-1997 Performance Period, Value
Contribution Performance is based on the extent to which the dollar return on
assets of the participant's product line or other unit (or, in the case of
corporate participants, the Company) exceeds a specified dollar target based
on the cost of capital. If the product line (or the Company) does not exceed
the targeted dollar return on assets during each year of the Performance
Period (cumulated over the entire three-year Performance Period), the portion
of the relevant participants' Performance Units relating to nominal Value
Contribution Performance ("Value Contribution Component") will not be earned;
as indicated above, the Value Contribution Component is 67% of each
contingent Performance Unit for product line employees and 50% for corporate
employees. If the product line (or the Company) exceeds the targeted dollar
return on assets during each year of the Performance Period (cumulated over
the entire three-year Performance Period), a payout pool will be established
in an amount equal to 1% of the excess (such excess being referred to as the
"Value Contribution"). In addition, if the prior year's Value Contribution
was below the targeted dollar return on assets, the payout pool will be
increased (or decreased) by an amount equal to 2% of the amount by which the
Value Contribution for each year during the Performance Period is greater (or
less) than the Value Contribution for the preceding year, cumulated over the
entire three-year Performance Period. If the prior year's Value Contribution
was above the targeted dollar return on assets, the payout pool will be
increased by an amount equal to 2% of the amount by which the Value
Contribution for each year during the Performance Period is greater than the
Value Contribution for the preceding year, cumulated over the entire
three-year Performance Period. The number of earned Performance Units will be
determined by (1) dividing the amount of the payout pool by the closing price
of the Common Stock on the last trading day of the year prior to the
beginning of the Performance Period, (2) multiplying the quotient by the
amount of the Value Contribution Component (67% for product line employees
and 50% for corporate employees), and (3) applying a factor, determined by
the Compensation Committee in accordance with a formula related to the
Company's 1995-1997 business plan, to calculate the number of Performance
Units earned by the participants in each product line (or corporate
participants, in the case of the Company) as compared to the number of
targeted Performance Units granted to such participants.
As discussed above, the portion of each Performance Unit relating to the
Company's Shareholder Value Performance ("Shareholder Value Component")
amounts to 33% for product line employees and 50% for corporate employees. If
the Company's Shareholder Value Performance during the Performance Period
ranks below the 50th percentile of all companies comprising the Standard &
Poor's Industrials Index at both the beginning and the end of the Performance
Period, the Shareholder Value Component will not be earned, and the
participant will receive no payment with respect thereto. If the Company's
Shareholder Value Performance ranks at the 50th percentile of such companies,
the participant will earn 33% of the Shareholder Value Component. For each
one-tenth of a percentile by which the Company's Shareholder Value
Performance ranks above the 50th percentile level, the participant will earn
an additional 0.44% of the Shareholder Value Component, up to 100% of the
Shareholder Value Component if the Company's Shareholder Value Performance
ranks at the 65th percentile of such companies. Further, the participant will
earn an additional 1.2% of the Shareholder Value Component for each one-tenth
of a percentile above the 65th percentile.
Under the LTIP as in effect for the 1995-1997 Performance Period, the
number of Performance Units that may be earned by any participant is limited
to 10 times the targeted number of Performance Units or, if less, 250,000
Performance Units (subject to adjustment for stock splits, recapitalizations
and similar events).
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1996-1998 Performance Period. The following is a summary of the manner in
which Performance Units may be earned with respect to Value Contribution
Performance and Shareholder Value Performance for purposes of the 1996-1998
Performance Period.
As discussed above, for the 1995-1997 and 1996-1998 Performance Periods,
the Value Contribution Component is 67% of each contingent Performance Unit
for product line employees and 50% for corporate employees. At the beginning
of the 1996-1998 Performance Period, the Compensation Committee established,
for each product line (except as noted below) and the Company, (1) a "Target"
based on forecasted cash flow attributable to annual net operating profit
after taxes of the product line (or the Company), less a charge based on its
average annual gross assets, aggregated for each of the three years during
the Performance Period; (2) a "Performance Threshold" and an "Interim
Performance Target," each of which represents a percentage (but less than
100%) of the Target; and (3) three "Performance Levels," each of which
represents a percentage (in excess of 100%) of the Target. The Value
Contribution Component will not be earned (and the participant will receive
no payment with respect thereto) if the product line (or the Company) does
not achieve the Performance Threshold; if the Performance Threshold is
achieved, a portion of the Value Contribution Component will be earned. If
the Interim Performance Target is achieved, a greater portion of the Value
Contribution Component (but less than 100%) will be earned. If the Target is
achieved, 100% of the Value Contribution Component will be earned, and if any
of the three Performance Levels is achieved, more than 100% of the Value
Contribution Component will be earned (subject to a maximum of 250% of the
Value Contribution Component, as discussed below). The Targets and the
percentages of the Value Contribution Component that may be earned at the
Performance Thresholds, the Interim Performance Targets and the Performance
Levels vary among the product lines and the Company, based on factors
affecting their respective strategies, operations and objectives. In
addition, the performance objectives established with respect to one small
product line (subsequently classified as a discontinued operation) differ
from those described above.
As discussed above, for the 1995-1997 and 1996-1998 Performance Periods,
the Shareholder Value Component amounts to 33% for product line employees and
50% for corporate employees. If the Company's Shareholder Value Performance
during the 1996-1998 Performance Period ranks below the 40th percentile of
all companies comprising the Standard & Poor's Industrials Index at both the
beginning and the end of the Performance Period, the Shareholder Value
Component will not be earned, and the participant will receive no payment
with respect thereto. If the Company's Shareholder Value Performance ranks at
the 40th percentile of such companies, the participant will earn 40% of the
Shareholder Value Component. For each one-tenth of a percentile by which the
Company's Shareholder Value Performance ranks above the 40th percentile
level, the participant will earn an additional 0.6% of the Shareholder Value
Component, up to 100% of the Shareholder Value Component if the Company's
Shareholder Value Performance ranks at the 50th percentile of such companies.
Further, the participant will earn an additional increment of the Shareholder
Value Component for each one-tenth of a percentile above such 50th percentile
(subject to a maximum of 250% of the Shareholder Value Component, as
discussed below).
Under the LTIP as in effect for the 1996-1998 Performance Period, the
number of Performance Units that may be earned by any participant is limited
to 2.5 times the targeted number of Performance Units or, if less, 30,000
Performance Units (subject to adjustment for stock splits, recapitalizations
and similar events).
The LTIP as in effect for the 1995-1997 and 1996-1998 Performance Periods
is intended to relate to the Company's ongoing businesses; consequently,
Performance Units are expected to be earned based on the Company's core
businesses. However, adjustments have been made and may be made (by or under
the authority of the Compensation Committee) in the case of certain
divestments of business units, transfers of business units from one product
line to another, and gains or losses resulting from unbudgeted events.
PROPOSED AMENDMENTS
The Board of Directors (on the recommendation of the Compensation
Committee) has determined to amend the LTIP in two principal respects
(subject to shareholder approval at the Annual Meeting).
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First, beginning with the 1997-1999 Performance Period, Performance Units
would be earned solely on the basis of Shareholder Value Performance,
generally as described in the third paragraph under "1996-1998 Performance
Period" above; thus, Performance Units will no longer have a Value
Contribution Component and will be earned based solely on appreciation in the
price of and dividends paid on the Common Stock as compared to the companies
in the Standard & Poor's Industrials Index. Second, the number of Performance
Units that may be earned by any participant would be limited to 2.5 times the
targeted number of Performance Units or, if less, 75,000 units (subject to
adjustment for stock splits, recapitalizations and similar events). In
addition, the value of earned Performance Units would be based on the average
closing prices of the Common Stock for the last 10 trading days of the
Performance Period, rather than the average of the high and low sale prices
of the Common Stock on the last day of the Performance Period.
TAX TREATMENT OF PERFORMANCE UNITS
Under the present provisions of the Code, a participant who receives
payment with respect to earned Performance Units will realize taxable
compensation equal to the amount of such payment. To the extent that such
payment is made in shares of Common Stock as described above, the recipient's
taxable compensation will equal the fair market value of the shares so
delivered, and the participant's tax basis for such shares will be the amount
of such taxable compensation. If such shares are subsequently sold, the
participant will realize a capital gain (or loss) equal to the amount by
which the proceeds of the sale exceed (or are less than) his or her basis for
such shares, which will be long-term capital gain (or loss) if the shares
have been held for more than one year at the time of sale. To the extent that
the receipt of cash or Common Stock payable under the LTIP is deferred, the
Company has been advised that, subject to the satisfaction of certain
requirements, a participant will not be taxable on the amount deferred at the
time of the election to defer or at the date on which the amount would
otherwise have been received.
Subject to provisions of the Code that may limit the Company's ability to
deduct compensation in excess of $1 million per year paid to any executive
officer named in the Summary Compensation Table, the Company will generally
be entitled to a tax deduction equal to the amount of the taxable
compensation recognized by a participant in the LTIP at the time such income
is recognized.
The foregoing discussion is provided as general information only and is
not intended to be and does not constitute specific tax advice. In addition,
it does not address the impact of state and local taxes or securities laws
restrictions.
ACCOUNTING TREATMENT OF PERFORMANCE UNITS
The payment of Performance Units will result in compensation expense over
each three-year Performance Period.
GENERAL
The LTIP is administered by the Compensation Committee, which is
responsible for approving (1) the performance measurements and objectives for
each Performance Unit; (2) the terms of future Performance Periods; (3) the
persons to whom Performance Units are granted; and (4) the number of
Performance Units granted to each such person. In addition, the Compensation
Committee is responsible for determining any adjustments of the components of
any Performance Unit for the 1995-1997 and 1996-1998 Performance Periods, as
discussed above. The Compensation Committee has determined that certain
information concerning the Company's strategic objectives and the calculation
of awards under the LTIP (e.g., the Targets, the Performance Thresholds, the
Interim Performance Targets and the Performance Levels referred to above)
constitutes confidential business information, the disclosure of which in
this Proxy Statement would have an adverse effect on the Company.
It is not possible to state which employees will be granted Performance
Units under the LTIP in the future, the terms of such Performance Units or
the amounts that may be earned under such Units, since these matters will be
determined by the Compensation Committee in the future based on an
individual's ability to contribute to the Company's growth and profitability.
However, in March 1997, a total of 119,300
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contingent Performance Units was granted for the 1997-1999 Performance Period
to 6 executive officers (including a grant of 14,100 Performance Units to Mr.
Costello and grants of 2,700 Performance Units to each of Messrs. Beber,
Ellberger and Hyde), 10 other officers and 131 other employees worldwide,
and, subject to the above considerations, the Company expects that contingent
Performance Units will continue to be granted to high-level managers in
executive, operating, administrative, professional and technical positions on
a basis generally comparable to the March 1997 grants. (See "Election of
Directors -- Compensation -- LTIP" for information regarding Performance
Units granted to the executive officers named in the Summary Compensation
Table with respect to the 1996-1998 Performance Period.)
The LTIP is being submitted for shareholder approval in connection with
provisions of the Code that may limit the Company's ability to deduct
compensation in excess of $1 million per year paid to any executive officer
named in the Summary Compensation Table; such limitation may not apply to
certain performance-based compensation arrangements (such as the LTIP)
approved by shareholders. If the LTIP is not approved by the shareholders
(see "Other Matters -- Votes Required"), the Company will reconsider the
alternatives available with respect to long-term, performance-based
compensation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE LTIP.
APPROVAL OF ANNUAL INCENTIVE COMPENSATION PROGRAM
Under the Company's annual incentive compensation program ("Program"),
annual incentive compensation awards, or bonuses ("Awards"), have been paid
to executive and other officers, senior managers and other employees for many
years. In recent years, the Program has been modified to increase the extent
to which Awards are based on performance rather than discretionary factors.
(See "Election of Directors -- Compensation -- Report of the Compensation
Committee on Executive Compensation" for additional information.)
In 1995 and 1996, the Board of Directors (on the recommendation of the
Compensation Committee) adopted, and the Company's shareholders approved,
modifications to the Program, primarily to comply with provisions of the Code
that may limit the Company's ability to deduct for U.S. federal income tax
purposes compensation in excess of $1 million per year paid to any executive
officer named in the Summary Compensation Table. As modified, the Program had
two components. The first component ("Formula Component") was strictly
formula-driven and applied to the chief executive officer and to other
executive officers whose annual compensation approached $1 million. Under the
second component ("Discretionary Component"), Awards would be based on
discretionary factors in addition to the pools referred to above. Awards
could be made to the chief executive officer and other executive officers
under the Discretionary Component, as well as the Formula Component; however,
Awards under the Discretionary Component would not qualify as
"performance-based" under the Code provisions referred to above and would
consequently not be deductible by the Company if the total of salary and
other non-performance-based compensation paid to any such individual should
exceed $1 million in any calendar year.
In early 1997, the Board of Directors (on the recommendation of the
Compensation Committee) approved the further amendment of the Program
(subject to shareholder approval at the Annual Meeting) by eliminating the
Discretionary Component described above (primarily because no Awards have
been granted or are expected to be granted under the Discretionary
Component). Under the Program as amended, the Compensation Committee would,
during the first quarter of each year, specify (1) the executive officers to
participate in the Program that year; (2) the amount of the Award that could
be earned by each participant at various levels of performance; (3) the
maximum amount of the Award that could be earned for that year by each
participant (which may not exceed 130% of the annual base salary of the chief
executive officer in effect at the beginning of the year); and (4) the
performance criteria under which Awards may be earned by each participant,
using one or more of the following: pretax or after-tax earnings from
continuing operations, earnings per share, rate of return on assets or
capital employed, cash flow, or net worth, of the Company and/or one or more
of its product lines or other units. For purposes of evaluating performance
based on these criteria, the Compensation Committee could employ such
comparisons as results versus budget; current year results versus results for
one or more prior
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years; results relative to those achieved by comparable companies; or results
versus a standard or target designated by the Compensation Committee; or a
combination of the foregoing.
TAX TREATMENT OF AWARDS
Under the present provisions of the Code, a recipient of an Award will
realize taxable compensation equal to the amount of the Award.
Subject to the provisions of the Code that may limit the Company's ability
to deduct compensation in excess of $1 million per year paid to any executive
officer named in the Summary Compensation Table, the Company will generally
be entitled to a tax deduction equal to the amount of the taxable
compensation paid to the recipient of an Award.
ACCOUNTING TREATMENT OF AWARDS
The payment of Awards will result in compensation expense.
GENERAL
The Program is administered by the Compensation Committee, which is
responsible for, among other things, approving (1) the performance
measurements and objectives under the Program, (2) the persons to whom Awards
are given and (3) the amounts of Awards. The Compensation Committee has
determined that certain information concerning the calculation of Awards
under the Program (e.g., the performance criteria on which Awards are based)
constitutes confidential business information, the disclosure of which in
this Proxy Statement would have an adverse effect on the Company.
It is not possible to state which employees will receive Awards in the
future or the amounts of such Awards, since these matters will be determined
in the future by the Board of Directors (on the recommendation of the
Compensation Committee). However, the Company expects that Awards will
continue to be made to executive and other officers, senior managers and
other employees, including employees in executive, operating, administrative,
professional and technical positions. Under the Program as in effect with
respect to 1996, Awards totaling approximately $16.5 million were paid to a
total of 11 current and former executive officers, 17 other current and
former officers, and approximately 1,000 other current and former employees
worldwide. (See the Summary Compensation Table for information regarding
Awards made to the executive officers named in the Table.)
As noted above, the Program is being submitted for shareholder approval in
connection with provisions of the Code that may limit the Company's ability
to deduct compensation in excess of $1 million per year paid to any executive
officer named in the Summary Compensation Table; such limitation may not
apply to certain performance-based compensation arrangements (such as the
Program) approved by shareholders. If the Program is not approved by the
shareholders (see "Other Matters -- Votes Required" below), the Company will
reconsider the alternatives available with respect to annual incentive
compensation.
------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROGRAM.
APPROVAL OF 1997 STOCK PLAN FOR NONEMPLOYEE DIRECTORS
As noted under "Election of Directors -- Compensation -- Directors'
Compensation and Consulting Arrangements," a new compensation program for
nonemployee directors will be implemented effective July 1, 1997 (subject to
shareholder approval of the 1997 Stock Plan for Nonemployee Directors). Under
the new program, (1) each nonemployee director will receive an annual
retainer of $50,000, of which $35,000 will be in the form of Common Stock and
the balance will be in cash or Common Stock, at the election of the director;
(2) each committee chair will receive an additional annual retainer of $3,000
in cash or Common Stock, at the election of the director; and (3) each
nonemployee director will receive $2,000 for each Board meeting and $1,000
for each committee meeting attended (except that committee chairs will
receive $1,200 per committee meeting), in cash or Common Stock, at the
election of the
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director. In addition, the current nonemployee directors' retirement plan
will terminate effective July 1, 1997. Benefits earned and accrued with
respect to current directors will be frozen, vested (to the extent not
previously vested) and converted to present value. The amount so determined
will be deferred in cash or in Common Stock, at the election of the director,
and will be paid following the director's termination from service (see
"Election of Directors -- Compensation -- Directors' Compensation and
Consulting Arrangements").
The new directors' compensation program is designed to enable the Company
to attract and retain the most highly qualified directors, to link their
compensation to the performance of the Common Stock, and to unite their
interests with those of the shareholders. The Common Stock used for purposes
of the new program, as well as for purposes of the final annual retainer
under the current directors' compensation program, will be issued or
delivered under the Company's 1997 Stock Plan for Nonemployee Directors
("Directors' Stock Plan").
The Directors' Stock Plan provides for the issuance or delivery of Common
Stock in respect of the retainers and fees described above, as well as
benefits earned and accrued under the current nonemployee directors'
retirement plan (which is to be terminated), all on the terms authorized by
the Board of Directors from time to time. Thus, the Board would continue to
have the ability to change the nature and extent of compensation provided to
nonemployee directors.
As defined in the Directors' Stock Plan, a nonemployee director is an
individual not employed by the Company or any subsidiary.
LIMITATIONS
Up to 200,000 shares of Common Stock (subject to adjustment for stock
splits, recapitalizations and similar events) may be issued or delivered
pursuant to the Directors' Stock Plan.
TAX TREATMENT OF DIRECTORS' COMPENSATION
Under the present provisions of the Code, a nonemployee director will
realize taxable compensation equal to the cash and the fair market value of
the Common Stock received in payment of the retainers and fees described
above. Such nonemployee director's tax basis for such Common Stock will be
the amount of such taxable compensation received in the form of Common Stock.
If such Common Stock is subsequently sold, the nonemployee director will
realize a capital gain (or loss) equal to the amount by which the proceeds of
the sale exceed (or are less than) his or her basis for such Common Stock,
which will be long-term capital gain (or loss) if the shares have been held
for more than one year at the time of sale. To the extent that the receipt of
cash or Common Stock is deferred, the Company has been advised that, subject
to the satisfaction of certain requirements, a director will not be taxable
on the amount deferred at the time of the election to defer or at the date on
which the amount would otherwise have been received.
The Company will generally be entitled to a tax deduction in an amount
equal to the amount of taxable compensation recognized by the nonemployee
director at the time such compensation is recognized.
The foregoing discussion is provided as general information only and is
not intended to be and does not constitute specific tax advice. In addition,
it does not address the impact of state and local taxes or securities laws
restrictions.
ACCOUNTING TREATMENT OF DIRECTORS' COMPENSATION
The payment of directors' fees and retainers will result in compensation
expense.
GENERAL
Authorized but unissued shares of Common Stock, as well as shares held by
the Company or a subsidiary, may be used for purposes of the Directors' Stock
Plan. In addition, subject to certain
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conditions, the Company may remit to an independent agent (including the
trustee of the trust referred to above) cash in an amount equal to the
retainers and/or fees payable from time to time under the new directors'
compensation program, which independent agent shall use such cash to purchase
the appropriate amount of Common Stock in open market transactions.
The Directors' Stock Plan may be amended or terminated by the Board upon
the recommendation of the Compensation Committee without shareholder
approval, except as specified in the Directors' Stock Plan.
The Directors' Stock Plan is being submitted for shareholder approval to
comply with rules of the New York Stock Exchange. The Directors' Stock Plan
will not become effective unless it is approved by the shareholders (see
"Other Matters -- Votes Required"). If the Directors' Stock Plan is not
approved by the shareholders, the Company will reconsider the alternatives
available with respect to the compensation of nonemployee directors.
The text of the Directors' Stock Plan is set forth in Exhibit B to this
Proxy Statement, and the foregoing summary is qualified in its entirety by
reference to the text of the Directors' Stock Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE DIRECTORS'
STOCK PLAN.
OTHER MATTERS
OTHER BUSINESS
The Company does not know of any other business that will be presented for
consideration at the Annual Meeting. However, if any other business should
come before the Annual Meeting, the persons named in the enclosed proxy (or
their substitutes) will have discretion to act in accordance with their best
judgment.
PROXY AND VOTING PROCEDURES
The enclosed proxy covers the shares held of record by a shareholder at
the close of business on March 11, 1997. In addition, the proxy covers shares
held at that date in such shareholder's accounts under the Company's Dividend
Reinvestment Plan and/or the Savings Plan if such accounts carry the same
federal tax identification number as the shares held of record.
The proxy enables a shareholder to vote on the proposals covered by this
Proxy Statement. The shares represented by each valid proxy received in a
timely manner will be voted in accordance with the choices indicated on the
proxy. A proxy may be revoked by written notice to the Company prior to the
Annual Meeting, or at the Annual Meeting before it is voted.
The Company has adopted a policy that all proxies, ballots and other
voting materials that identify the votes of specific shareholders are to be
kept permanently confidential, except as required by law. The policy provides
that access to such materials is limited to the vote tabulators and the
independent inspectors of voting, who must certify compliance with such
policy.
VOTES REQUIRED
Under the Company's By-laws, the election of directors requires the
affirmative vote of a plurality of the votes cast on the election at the
Annual Meeting, and the approval of the other matters to be voted on at the
Annual Meeting requires the affirmative vote of a majority of the votes cast
on each matter at the Annual Meeting.
Under Delaware law and the Company's Certificate of Incorporation and
By-laws, abstentions and votes withheld, as well as "non-votes," are counted
in determining the number of shares represented at the Annual Meeting, but
are not voted for the election of directors (thereby having the effect of a
vote withheld with respect to such election), or for or against other
proposals submitted to the shareholders, and are not deemed "cast" by
shareholders (thereby having no effect on the vote with respect to such other
proposals).
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SOLICITATION PROCEDURES
Proxies will be solicited primarily by mail; however, employees of the
Company may also solicit proxies in person or otherwise. In addition, the
Company has retained D. F. King & Co., Inc. to solicit proxies by mail,
telephone and/or otherwise and will pay such firm a fee estimated at $13,000,
plus reasonable expenses, for these services. Certain holders of record (such
as brokers, custodians and nominees) are being requested to distribute proxy
materials to beneficial owners and to obtain such beneficial owners'
instructions concerning the voting of proxies. The Company will pay all costs
of the proxy solicitation, and will reimburse brokers and other persons for
the expenses they incur in sending proxy materials to beneficial owners and
compensate them for such services in accordance with the rules of the New
York Stock Exchange.
PROPOSALS FOR 1998 ANNUAL MEETING
Any shareholder wishing to submit a proposal for inclusion in the Proxy
Statement for the 1998 Annual Meeting pursuant to the shareholder proposal
rules of the SEC should submit the proposal in writing to Robert B. Lamm,
Secretary, W. R. Grace & Co., One Town Center Road, Boca Raton, Florida
33486-1010. The Company must receive a proposal by December 8, 1997 in order
to consider it for inclusion in the 1998 Proxy Statement.
In addition, the Company's By-laws require that shareholders give advance
notice and furnish certain information to the Company in order to bring a
matter of business before an annual meeting or to nominate a person for
election as a director. Any communications relating to those By-law
provisions should be directed to Mr. Lamm at the above address.
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EXHIBIT A
W. R. GRACE & CO.
1996 STOCK INCENTIVE PLAN
1. Purposes. The purposes of this Plan are (a) to enable Key Persons to
have incentives related to Common Stock, (b) to encourage Key Persons to
increase their interest in the growth and prosperity of the Company and to
stimulate and sustain constructive and imaginative thinking by Key Persons,
(c) to further the identity of interests of Key Persons with the interests of
the Company's stockholders, and (d) to induce the service or continued
service of Key Persons and to enable the Company to compete with other
organizations offering similar or other incentives in obtaining and retaining
the services of the most highly qualified individuals.
2. Definitions. When used in this Plan, the following terms shall have the
meanings set forth in this section 2.
Board of Directors: The Board of Directors of the Company.
cessation of service (or words of similar import): When a person ceases to
be an employee of the Company or a Subsidiary. For purposes of this
definition, if an entity that was a Subsidiary ceases to be a Subsidiary,
persons who immediately thereafter remain employees of that entity (and are
not employees of the Company or an entity that is a Subsidiary) shall be
deemed to have ceased service.
Change in Control: Shall be deemed to have occurred if (a) the Company
determines that any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company, has become the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of 20% or more of the outstanding
Common Stock of the Company; (b) individuals who are "Continuing Directors"
(as defined below) cease to constitute a majority of any class of the Board
of Directors; (c) there occurs a reorganization, merger, consolidation or
other corporate transaction involving the Company (a "Corporate
Transaction"), in each case, with respect to which the stockholders of the
Company immediately prior to such Corporate Transaction do not, immediately
after the Corporate Transaction, own more than 60% of the combined voting
power of the corporation resulting from such Corporate Transaction; or (d)
the stockholders of the Company approve a complete liquidation or dissolution
of the Company. Notwithstanding any other provision of this Plan, the
distribution of all of the shares of Common Stock of the Company to the
shareholders of W. R. Grace & Co., a New York corporation, shall not be
deemed a Change in Control.
Change in Control Price: The higher of (a) the highest reported sales
price, regular way, as reported in The Wall Street Journal or another
newspaper of general circulation, of a share of Common Stock in any
transaction reported on the New York Stock Exchange Composite Tape or other
national exchange on which such shares are listed or on NASDAQ during the
60-day period prior to and including the date of a Change in Control or (b)
if the Change in Control is the result of a tender or exchange offer or a
Corporate Transaction, the highest price per share of Common Stock paid in
such tender or exchange offer or Corporate Transaction; provided, however,
that in the case of Incentive Stock Options, the Change in Control Price
shall be in all cases the Fair Market Value of the Common Stock on the date
such Incentive Stock Option is exercised. To the extent that the
consideration paid in any Corporate Transaction or other transaction
described above consists in whole or in part of securities or other noncash
consideration, the value of such securities or other noncash consideration
shall be determined in the sole discretion of the Board of Directors.
Code: The Internal Revenue Code of 1986, as amended.
Committee: The Compensation, Employee Benefits and Stock Incentive
Committee of the Board of Directors of the Company or any other committee
designated by the Board of Directors to administer stock incentive and stock
option plans of the Company and the Subsidiaries generally or this Plan
specifically.
Common Stock: The common stock of the Company, par value $.01 per share,
or such other class of shares or other securities or property as may be
applicable pursuant to the provisions of section 8.
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Company: W. R. Grace & Co., a Delaware corporation.
Corporate Transaction: The meaning set forth in the definition of "Change
in Control" above.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exercise Period: The meaning set forth in section 14(b) of this Plan.
Fair Market Value: (a) The mean between the high and low sales prices of a
share of Common Stock in New York Stock Exchange composite transactions on
the applicable date, as reported in The Wall Street Journal or another
newspaper of general circulation, or, if no sales of shares of Common Stock
were reported for such date, for the next preceding date for which such sales
were so reported, or (b) the fair market value of a share of Common Stock
determined in accordance with any other reasonable method approved by the
Committee.
Incentive Stock Option: A stock option that states that it is an incentive
stock option and that is intended to meet the requirements of Section 422 of
the Code and the regulations thereunder applicable to incentive stock
options, as in effect from time to time.
issuance (or words of similar import): The issuance of authorized but
unissued Common Stock or the transfer of issued Common Stock held by the
Company or a Subsidiary.
Key Person: An employee of the Company or a Subsidiary who, in the opinion
of the Committee, has contributed or can contribute significantly to the
growth and successful operations of the Company or one or more Subsidiaries.
The grant of a Stock Incentive to an employee shall be deemed a determination
by the Committee that such person is a Key Person.
Nonstatutory Stock Option: An Option that is not an Incentive Stock
Option.
Option: An option granted under this Plan to purchase shares of Common
Stock.
Option Agreement: An agreement setting forth the terms of an Option.
Plan: The 1996 Stock Incentive Plan of the Company herein set forth, as
the same may from time to time be amended.
service: Service to the Company or a Subsidiary as an employee. "To serve"
has a correlative meaning.
Spread: The meaning set forth in section 14(b) of this Plan.
Stock Award: An issuance of shares of Common Stock or an undertaking
(other than an Option) to issue such shares in the future.
Stock Incentive: A stock incentive granted under this Plan in one of the
forms provided for in section 3.
Subsidiary: A corporation (or other form of business association) of which
shares (or other ownership interests) having 50% or more of the voting power
regularly entitled to vote for directors (or equivalent management rights)
are owned, directly or indirectly, by the Company, or any other entity
designated as such by the Board of Directors; provided, however, that in the
case of an Incentive Stock Option, the term "Subsidiary" shall mean a
Subsidiary (as defined by the preceding clause) that is also a "subsidiary
corporation" as defined in Section 424(f) of the Code and the regulations
thereunder, as in effect from time to time.
3. Grants of Stock Incentives. (a) Subject to the provisions of this Plan,
the Committee may at any time and from time to time grant Stock Incentives
under this Plan to, and only to, Key Persons.
(b) The Committee may grant a Stock Incentive to be effective at a
specified future date or upon the future occurrence of a specified event. For
the purposes of this Plan, any such Stock Incentive shall be deemed granted
on the date it becomes effective. An agreement or other commitment to grant a
Stock Incentive that is to be effective in the future shall not be deemed the
grant of a Stock Incentive until the date on which such Stock Incentive
becomes effective.
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(c) A Stock Incentive may be granted in the form of:
(i) a Stock Award, or
(ii) an Option, or
(iii) a combination of a Stock Award and an Option.
4. Stock Subject to this Plan. (a) Subject to the provisions of paragraph
(c) of this section 4 and the provisions of section 8, the maximum number of
shares of Common Stock that may be issued pursuant to Stock Incentives
granted under this Plan shall not exceed seven million (7,000,000).
(b) Authorized but unissued shares of Common Stock and issued shares of
Common Stock held by the Company or a Subsidiary, whether acquired
specifically for use under this Plan or otherwise, may be used for purposes
of this Plan.
(c) If any shares of Common Stock subject to a Stock Incentive shall not
be issued and shall cease to be issuable because of the termination, in whole
or in part, of such Stock Incentive or for any other reason, or if any such
shares shall, after issuance, be reacquired by the Company or a Subsidiary
from the recipient of such Stock Incentive, or from the estate of such
recipient, for any reason, such shares shall no longer be charged against the
limitation provided for in paragraph (a) of this section 4 and may again be
made subject to Stock Incentives.
(d) Of the total number of shares specified in paragraph (a) of this
section 4 (subject to adjustment as specified therein), during the term of
this Plan as defined in section 9, (i) no more than 10% may be subject to
Options granted to any one Key Person and (ii) no more than 15% may be
subject to Stock Incentives granted to any one Key Person.
5. Stock Awards. Except as otherwise provided in section 12, Stock
Incentives in the form of Stock Awards shall be subject to the following
provisions:
(a) For purposes of this Plan, all shares of Common Stock subject to a
Stock Award shall be valued at not less than 100% of the Fair Market Value of
such shares on the date such Stock Award is granted, regardless of whether or
when such shares are issued pursuant to such Stock Award and whether or not
such shares are subject to restrictions affecting their value.
(b) Shares of Common Stock subject to a Stock Award may be issued to a Key
Person at the time the Stock Award is granted, or at any time subsequent
thereto, or in installments from time to time. In the event that any such
issuance shall not be made at the time the Stock Award is granted, the Stock
Award may provide for the payment to such Key Person, either in cash or
shares of Common Stock, of amounts not exceeding the dividends that would
have been payable to such Key Person in respect of the number of shares of
Common Stock subject to such Stock Award (as adjusted under section 8) if
such shares had been issued to such Key Person at the time such Stock Award
was granted. Any Stock Award may provide that the value of any shares of
Common Stock subject to such Stock Award may be paid in cash, on each date on
which shares would otherwise have been issued, in an amount equal to the Fair
Market Value on such date of the shares that would otherwise have been
issued.
(c) The material terms of each Stock Award shall be determined by the
Committee. Each Stock Award shall be evidenced by a written instrument
consistent with this Plan. It is intended that a Stock Award would be (i)
made contingent upon the attainment of one or more specified performance
objectives and/or (ii) subject to restrictions on the sale or other
disposition of the Stock Award or the shares subject thereto for a period of
three or more years; provided, however, that (x) a Stock Award may include
restrictions and limitations in addition to those provided for herein and (y)
of the total number of shares specified in paragraph (a) of section 4
(subject to adjustment as specified therein), up to 3% may be subject to
Stock Awards not subject to clause (i) or clause (ii) of this sentence.
(d) A Stock Award shall be granted for such lawful consideration as may be
provided for therein.
6. Options. Except as otherwise provided in section 12, Stock Incentives
in the form of Options shall be subject to the following provisions:
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(a) The purchase price per share of Common Stock shall be not less than
100% of the Fair Market Value of a share of Common Stock on the date the
Option is granted. The purchase price and any withholding tax that may be due
on the exercise of an Option may be paid in cash, or, if so provided in the
Option Agreement, (i) in shares of Common Stock (including shares issued
pursuant to the Option being exercised and shares issued pursuant to a Stock
Award granted subject to restrictions as provided for in paragraph (c) of
section 5), or (ii) in a combination of cash and such shares; provided,
however, that no shares of Common Stock delivered in payment of the purchase
price may be "immature shares," as determined in accordance with generally
accepted accounting principles in effect at the time. Any shares of Common
Stock delivered to the Company in payment of the purchase price or
withholding tax shall be valued at their Fair Market Value on the date of
exercise. No certificate for shares of Common Stock shall be issued upon the
exercise of an Option until the purchase price for such shares has been paid
in full.
(b) If so provided in the Option Agreement, the Company shall, upon the
request of the holder of the Option and at any time and from time to time,
cancel all or a portion of the Option then subject to exercise and either (i)
pay the holder an amount of money equal to the excess, if any, of the Fair
Market Value, at such time or times, of the shares subject to the portion of
the Option so canceled over the purchase price for such shares, or (ii) issue
shares of Common Stock to the holder with a Fair Market Value, at such time
or times, equal to such excess, or (iii) pay such excess by a combination of
money and shares.
(c) Each Option may be exercisable in full at the time of grant, or may
become exercisable in one or more installments and at such time or times or
upon the occurrence of such events, as may be specified in the Option
Agreement, as determined by the Committee. Unless otherwise provided in the
Option Agreement, an Option, to the extent it is or becomes exercisable, may
be exercised at any time in whole or in part until the expiration or
termination of such Option.
(d) Each Option shall be exercisable during the life of the holder only by
him and, after his death, only by his estate or by a person who acquires the
right to exercise the Option by will or the laws of descent and distribution.
An Option, to the extent that it shall not have been exercised or canceled,
shall terminate as follows after the holder ceases to serve: (i) if the
holder shall voluntarily cease to serve without the consent of the Committee
or shall have his service terminated for cause, the Option shall terminate
immediately upon cessation of service; (ii) if the holder shall cease to
serve by reason of death, incapacity or retirement under a retirement plan of
the Company or a Subsidiary, the Option shall terminate three years after the
date on which he ceased to serve; and (iii) except as provided in the next
sentence, in all other cases the Option shall terminate three months after
the date on which the holder ceased to serve unless the Committee shall
approve a longer period (which approval may be given before or after
cessation of service) not to exceed three years. If the holder shall die or
become incapacitated during the three-month period (or such longer period as
the Committee may approve) referred to in the preceding clause (iii), the
Option shall terminate three years after the date on which he ceased to
serve. A leave of absence for military or governmental service or other
purposes shall not, if approved by the Committee (which approval may be given
before or after the leave of absence commences), be deemed a cessation of
service within the meaning of this paragraph (d). Notwithstanding the
foregoing provisions of this paragraph (d) or any other provision of this
Plan, no Option shall be exercisable after expiration of a period of ten
years and one month from the date the Option is granted. Where a Nonstatutory
Option is granted for a term of less than ten years and one month, the
Committee may, at any time prior to the expiration of the Option, extend its
term for a period ending not later than ten years and one month from the date
the Option was granted. Such an extension shall not be deemed the grant of a
new Option under this Plan.
(e) No Option nor any right thereunder may be assigned or transferred
except by will or the laws of descent and distribution and except, in the
case of a Nonstatutory Option, pursuant to a qualified domestic relations
order (as defined in the Code), unless otherwise provided in the Option
Agreement.
(f) An Option may, but need not, be an Incentive Stock Option. All shares
of Common Stock that may be made subject to Stock Incentives under this Plan
may be made subject to Incentive Stock Options;
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provided, however, that (i) no Incentive Stock Option may be granted more
than ten years after the effective date of this Plan, as provided in section
9; and (ii) the aggregate Fair Market Value (determined as of the time an
Incentive Stock Option is granted) of the shares subject to each installment
becoming exercisable for the first time in any calendar year under Incentive
Stock Options granted on or after January 1, 1987 (under all plans, including
this Plan, of his employer corporation and its parent and subsidiary
corporations) to the Key Person to whom such Incentive Stock Option is
granted shall not exceed $100,000.
(g) The material terms of each Option shall be determined by the
Committee. Each Option shall be evidenced by a written instrument consistent
with this Plan, and shall specify whether the Option is an Incentive Stock
Option or a Nonstatutory Option. An Option may include restrictions and
limitations in addition to those provided for in this Plan.
(h) Options shall be granted for such lawful consideration as may be
provided for in the Option.
7. Combination of Stock Awards and Options. Stock Incentives authorized by
paragraph (c)(iii) of section 3 in the form of combinations of Stock Awards
and Options shall be subject to the following provisions: (a) A Stock
Incentive may be a combination of any form of Stock Award and any form of
Option; provided, however, that the terms and conditions of such Stock
Incentive pertaining to a Stock Award are consistent with section 5 and the
terms and conditions of such Stock Incentive pertaining to an Option are
consistent with section 6.
(b) Such combination Stock Incentive shall be subject to such other terms
and conditions as may be specified therein, including without limitation a
provision terminating in whole or in part a portion thereof upon the exercise
in whole or in part of another portion thereof.
(c) The material terms of each combination Stock Incentive shall be
determined by the Committee. Each combination Stock Incentive shall be
evidenced by a written instrument consistent with this Plan.
8. Adjustment Provisions. (a) In the event that any reclassification,
split-up or consolidation of the Common Stock shall be effected, or the
outstanding shares of Common Stock are, in connection with a merger or
consolidation of the Company or a sale by the Company of all or a part of its
assets, exchanged for a different number or class of shares of stock or other
securities or property of the Company or for shares of the stock or other
securities or property of any other corporation or person, or a record date
for determination of holders of Common Stock entitled to receive a dividend
payable in Common Stock shall occur, (i) the number, kind and class of shares
or other securities or property that may be issued pursuant to Stock
Incentives thereafter granted, (ii) the number, kind and class of shares or
other securities or property that have not been issued under outstanding
Stock Incentives, (iii) the purchase price to be paid per share or other unit
under outstanding Stock Incentives, and (iv) the price to be paid per share
or other unit by the Company or a Subsidiary for shares or other securities
or property issued pursuant to Stock Incentives that are subject to a right
of the Company or a Subsidiary to re-acquire such shares or other securities
or property, shall in each case be equitably adjusted as determined by the
Committee.
(b) In the event that there shall occur any spin-off or other distribution
of assets of the Company to its shareholders (including without limitation an
extraordinary dividend), (i) the number, kind and class of shares or other
securities or property that may be issued pursuant to Stock Incentives
thereafter granted, (ii) the number, kind and class of shares or other
securities or property that have not been issued under outstanding Stock
Incentives, (iii) the purchase price to be paid per share or other unit under
outstanding Stock Incentives, and (iv) the price to be paid per share or
other unit by the Company or a Subsidiary for shares or other securities or
property issued pursuant to Stock Incentives that are subject to a right of
the Company or a Subsidiary to re-acquire such shares or other securities or
property, shall in each case be equitably adjusted as determined by the
Committee.
9. Term. This Plan shall be deemed adopted and shall become effective on
the date as of which it is approved by W. R. Grace & Co., a New York
corporation, as sole shareholder of the Company. No Stock Incentives shall be
granted under this Plan after the tenth anniversary of such date.
10. Administration. (a) This Plan shall be administered by the Committee.
No director shall be designated as or continue to be a member of the
Committee unless he shall at the time of designation and
A-5
<PAGE>
at all times during service as a member of the Committee be an "outside
director" within the meaning of Section 162(m) of the Code. The Committee
shall have full authority to act in the matter of selection of Key Persons
and in granting Stock Incentives to them and such other authority as is
granted to the Committee by this Plan. Notwithstanding any other provision of
this Plan, the Board of Directors may exercise any and all powers of the
Committee with respect to this Plan, except to the extent that the possession
or exercise of any power by the Board of Directors would cause any Stock
Incentive to become subject to, or to lose an exemption from, Section 162(m)
of the Code or Section 16(b) of the Exchange Act.
(b) The Committee may establish such rules and regulations, not
inconsistent with the provisions of this Plan, as it deems necessary to
determine eligibility to be granted Stock Incentives under this Plan and for
the proper administration of this Plan, and may amend or revoke any rule or
regulation so established. The Committee may make such determinations and
interpretations under or in connection with this Plan as it deems necessary
or advisable. All such rules, regulations, determinations and interpretations
shall be binding and conclusive upon the Company, its Subsidiaries, its
shareholders and its directors, officers and employees, and upon their
respective legal representatives, beneficiaries, successors and assigns, and
upon all other persons claiming under or through any of them.
(c) Members of the Board of Directors and members of the Committee acting
under this Plan shall be fully protected in relying in good faith upon the
advice of counsel and shall incur no liability in the performance of their
duties, except as otherwise provided by applicable law.
11. General Provisions. (a) Nothing in this Plan or in any instrument
executed pursuant hereto shall confer upon any person any right to continue
in the service of the Company or a Subsidiary, or shall affect the right of
the Company or of a Subsidiary to terminate the service of any person with or
without cause.
(b) No shares of Common Stock shall be issued pursuant to a Stock
Incentive unless and until all legal requirements applicable to the issuance
of such shares have, in the opinion of counsel to the Company, been complied
with. In connection with any such issuance, the person acquiring the shares
shall, if requested by the Company, give assurances, satisfactory to counsel
to the Company, in respect of such matters as the Company or a Subsidiary may
deem desirable to assure compliance with all applicable legal requirements.
(c) No person (individually or as a member of a group), and no beneficiary
or other person claiming under or through him, shall have any right, title or
interest in or to any shares of Common Stock allocated or reserved for the
purposes of this Plan or subject to any Stock Incentive except as to such
shares of Common Stock, if any, as shall have been issued to him.
(d) In the case of a grant of a Stock Incentive to a Key Person who is
employed by a Subsidiary, such grant may provide for the issuance of the
shares covered by the Stock Incentive to the Subsidiary, for such
consideration as may be provided, upon the condition or understanding that
the Subsidiary will transfer the shares to the Key Person in accordance with
the terms of the Stock Incentive.
(e) In the event the laws of a country in which the Company or a
Subsidiary has employees prescribe certain requirements for Stock Incentives
to qualify for advantageous tax treatment under the laws of that country
(including, without limitation, laws establishing options analogous to
Incentive Stock Options), the Committee, may, for the benefit of such
employees, amend, in whole or in part, this Plan and may include in such
amendment additional provisions for the purposes of qualifying the amended
plan and Stock Incentives granted thereunder under such laws; provided,
however, that (i) the terms and conditions of a Stock Incentive granted under
such amended plan may not be more favorable to the recipient than would be
permitted if such Stock Incentive had been granted under this Plan as herein
set forth, (ii) all shares allocated to or utilized for the purposes of such
amended plan shall be subject to the limitations of section 4, and (iii) the
provisions of the amended plan may restrict but may not extend or amplify the
provisions of sections 9 and 13.
(f) The Company or a Subsidiary may make such provisions as either may
deem appropriate for the withholding of any taxes that the Company or a
Subsidiary determines is required to be withheld in connection with any Stock
Incentive.
A-6
<PAGE>
(g) Nothing in this Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan,
practice or arrangement for the payment of compensation or benefits to
directors, officers or employees generally, or to any class or group of such
persons, that the Company or any Subsidiary now has or may hereafter put into
effect, including, without limitation, any incentive compensation,
retirement, pension, group insurance, stock purchase, stock bonus or stock
option plan.
12. Acquisitions. If the Company or any Subsidiary should merge or
consolidate with, or purchase stock or assets or otherwise acquire the whole
or part of the business of, another entity, the Company, upon the approval of
the Committee, (a) may assume, in whole or in part and with or without
modifications or conditions, any stock incentives granted by the acquired
entity to its directors, officers, employees or consultants in their
capacities as such, or (b) may grant new Stock Incentives in substitution
therefor. Any such assumed or substitute Stock Incentives may contain terms
and conditions inconsistent with the provisions of this Plan (including the
limitations set forth in paragraph (d) of section 4), including additional
benefits for the recipient; provided, however, that if such assumed or
substitute Stock Incentives are Incentive Stock Options, such terms and
conditions are permitted under the plan of the acquired entity. For the
purposes of any applicable plan provision involving time or a date, a
substitute Stock Incentive shall be deemed granted as of the date of grant of
the original stock incentive.
13. Amendments and Termination. (a) This Plan may be amended or
terminated by the Board of Directors upon the recommendation of the
Committee; provided, however, that, without the approval of the stockholders
of the Company, no amendment shall be made which (i) causes this Plan to
cease to comply with applicable law, (ii) permits any person who is not a Key
Person to be granted a Stock Incentive (except as otherwise provided in
section 12), (iii) amends the provisions of paragraph (d) of section 4,
paragraph (a) of section 5 or paragraph (a) or paragraph (f) of section 6 to
permit shares to be valued at, or to have a purchase price of, respectively,
less than the percentage of Fair Market Value specified therein, (iv) amends
section 9 to extend the date set forth therein, or (v) amends this section
13.
(b) No amendment or termination of this Plan shall adversely affect any
Stock Incentive theretofore granted, and no amendment of any Stock Incentive
granted pursuant to this Plan shall adversely affect such Stock Incentive,
without the consent of the holder thereof.
14. Change in Control Provisions. (a) Notwithstanding any other provision
of this Plan to the contrary, in the event of a Change in Control:
(i) Any Options outstanding as of the date on which such Change in
Control occurs, and which are not then exercisable and vested, shall
become fully exercisable and vested to the full extent of the original
grant; and
(ii) All restrictions and deferral limitations applicable to Stock
Incentives shall lapse, and Stock Incentives shall become free of all
restrictions and become fully vested and transferable to the full extent
of the original grant.
(b) Notwithstanding any other provision of this Plan, during the 60-day
period from and after a Change in Control (the "Exercise Period"), unless the
Committee shall determine otherwise at the time of grant, the holder of an
Option shall have the right, in lieu of the payment of the purchase price for
the shares of Common Stock being purchased under the Option, by giving notice
to the Company, to elect (within the Exercise Period) to surrender all or
part of the Option to the Company and to receive cash, within 30 days after
such notice, in an amount equal to the amount by which the Change in Control
Price per share of Common Stock on the date of such election shall exceed the
purchase price per share of Common Stock under the Option (the "Spread")
multiplied by the number of shares of Common Stock subject to the Option as
to which the right subject to this Section 14(b) shall have been exercised.
(c) Notwithstanding any other provision of this Plan, if any right granted
pursuant to this Plan to receive cash in respect of a Stock Incentive would
make a Change in Control transaction ineligible for pooling-of-interests
accounting that, but for the nature of such grant, would otherwise be
eligible for such accounting treatment, the Committee shall have the ability
to substitute for such cash Common Stock with a Fair Market Value equal to
the amount of such cash.
A-7
<PAGE>
EXHIBIT B
W. R. GRACE & CO.
1997 STOCK PLAN FOR NONEMPLOYEE DIRECTORS
1. Purposes: The purposes of this Plan are (a) to enable the Company to
attract and retain the most highly qualified individuals to serve as
Nonemployee Directors, (b) to link the compensation of Nonemployee Directors
to the performance of the Common Stock, and (c) to unite the interests of
Nonemployee Directors with those of the Company's shareholders.
2. Definitions: When used in this Plan, the following terms shall have the
meanings set forth in this section 2.
Board of Directors: The Board of Directors of the Company.
Common Stock: The common stock of the Company, par value $.01 per share,
or such other class of shares or other securities or property as may be
applicable pursuant to the provisions of section 7.
Company: W. R. Grace & Co., a Delaware corporation.
Fair Market Value: (a) The mean between the high and low sales prices of a
share of Common Stock in New York Stock Exchange composite transactions for
the applicable date, as reported in The Wall Street Journal or another
newspaper of general circulation, or, if no sales of shares of Common Stock
were reported for such date, for the next preceding date for which such sales
were so reported, or (b) the fair market value of a share of Common Stock
determined in accordance with any other reasonable method.
Fee: A fee for attendance by a Nonemployee Director at a meeting of the
Board of Directors or a committee thereof.
issuance (or words of similar import): (a) The issuance of authorized but
unissued Common Stock, (b) the transfer of issued Common Stock held by the
Company or a Subsidiary, or (c) the delivery of Common Stock purchased for
use under this Plan by an agent independent of the Company.
Nonemployee Director: An individual, not employed by the Company or a
Subsidiary, who is serving as a director of the Company.
Plan: The 1997 Stock Plan for Nonemployee Directors herein set forth, as
the same may from time to time be amended.
Retainer: An annual retainer for service as a Nonemployee Director or for
service as the chair of a committee of the Board of Directors.
service: Service to the Company as a Nonemployee Director. "To serve" has
a correlative meaning.
Service Period: A calendar year (or, in the case of 1997, the period from
July 1, 1997 to and including December 31, 1997) in respect of which a
Nonemployee Director is to receive a Retainer and/or Fees.
Subsidiary: A corporation (or other form of business association) of which
shares (or other ownership interests) having 50% or more of the voting power
regularly entitled to vote for directors (or equivalent management rights)
are owned, directly or indirectly, by the Company.
3. Eligibility and Participation: All Nonemployee Directors are eligible
to participate in the Plan. Each Nonemployee Director will participate as
described in section 5.
4. Stock Subject to this Plan:
(a) Subject to the provisions of paragraphs (b) and (c) of this section 4
and the provisions of section 7, the maximum number of shares of Common
Stock that may be issued under this Plan shall be 200,000 shares of Common
Stock.
(b) Authorized but unissued shares of Common Stock and issued shares of
Common Stock held by the Company or a Subsidiary, whether acquired
specifically for use under this Plan or otherwise, may be used for
purposes of this Plan. In addition, shares of outstanding Common Stock
purchased by an agent independent of the Company may be used under this
Plan, in which case such shares shall be deemed issued under this Plan for
purposes of paragraph (a) of this section 4.
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<PAGE>
(c) If any shares of Common Stock issued pursuant to this Plan shall,
after issuance, be reacquired by the Company or a Subsidiary from the
recipient of such Common Stock, or from the estate of such recipient, for
any reason, such shares shall no longer be charged against the limitation
provided for in paragraph (a) of this section 4 and may be issued pursuant
to this Plan.
5. Use of Common Stock Issued under this Plan: Shares of Common Stock may
be issued under this Plan in respect of (a) Fees, (b) Retainers (including
Retainers pursuant to the Company's 1996 Stock Retainer Plan for Nonemployee
Directors), and/or (c) benefits earned and accrued under the Company's
Retirement Plan for Outside Directors (which is being terminated effective
July 1, 1997), all on such terms as may be fixed by the Board of Directors
from time to time. All shares of Common Stock issued pursuant to this Plan
shall be valued at not less than 100% of the Fair Market Value of such shares
on the effective date of issuance of such shares, regardless of when such
shares are actually issued.
6. Payment and Deferral of Retainers, Fees and Accrued Retirement Plan
Benefits:
(a) Except as otherwise expressly set forth in this section 6, (i) a
portion of any Retainer or Fee shall be payable in shares of Common Stock,
with the balance being payable in cash, all in accordance with
determinations made by the Board of Directors from time to time, and (ii)
all payments shall be made as promptly as practicable following the
conclusion of each Service Period.
(b) Subject to and in conformity with such procedures as may be approved
by the Board of Directors from time to time, a Nonemployee Director may
elect to receive in shares of Common Stock all or any portion of any
Retainer or Fee that would otherwise be payable in cash.
(c) Not later than December 31 of the year immediately preceding the
Service Period (or, in the case of the Service Period from July 1, 1997 to
and including December 31, 1997, not later than June 30, 1997), a
Nonemployee Director may elect to defer all or any portion of the Common
Stock or the cash payable in respect of any Retainer or Fee, as the case
may be, for the next following Service Period. Such election shall be made
in writing and, once made, shall be irrevocable.
(d) (i) Any portion of a Retainer or Fee payable in cash and as to which
a deferral election is made shall be payable to the Nonemployee Director
or his or her heirs or beneficiaries in a lump sum or in installments (as
specified by the Nonemployee Director in accordance with arrangements
approved by the Board of Directors) following a date specified by the
Nonemployee Director, which date shall in no event be earlier than such
Nonemployee Director's termination from service. An interest equivalent on
any amount so deferred shall be computed at such rate or rates as may be
fixed by the Board of Directors from time to time.
(ii) Any portion of a Retainer or Fee payable in Common Stock and as to
which a deferral election is made shall be payable to the Nonemployee
Director or his or her heirs or beneficiaries in a lump sum or in
installments (as specified by the Nonemployee Director in accordance with
arrangements approved by the Board of Directors) following a date
specified by the Nonemployee Director, which date shall in no event be
earlier than such Nonemployee Director's termination from service. The
Common Stock shall be held in a trust established or to be established by
the Company. Dividends paid on such Common Stock will be reinvested in
Common Stock. The Nonemployee Director shall have the right to vote the
Common Stock held in such trust, as specified in the trust.
(e) (i) In the event that a Nonemployee Director has accrued benefits
under the Company's Retirement Plan for Outside Directors (which Plan is
being terminated effective July 1, 1997), such Nonemployee Director shall
be entitled to elect, pursuant to such terms as are established by the
Board of Directors, to receive the present value of such accrued benefits
in the form of deferred cash or deferred Common Stock, or a combination of
the two, as the Nonemployee Director shall determine in his sole
discretion.
(ii) Any portion of the present value of such accrued benefits payable in
cash on a deferred basis shall be payable to the Nonemployee Director or
his or her heirs or beneficiaries in a lump sum or in installments (as
specified by the Nonemployee Director in accordance with arrangements
approved by the Board of Directors) following a date specified by the
Nonemployee Director, which date shall in no event be earlier than such
Nonemployee Director's termination from service. An interest equivalent on
any amount so deferred shall be computed at such rate or rates as may be
fixed by the Board of Directors from time to time.
(iii) Any portion of the present value of such accrued benefits payable
in Common Stock on a deferred basis shall be payable to the Nonemployee
Director or his or her heirs or beneficiaries in a lump sum or in
installments (as specified by the Nonemployee Director in accordance with
arrangements approved by the Board of Directors) following a date
specified by the Nonemployee
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<PAGE>
Director, which date shall in no event be earlier than such Nonemployee
Director's termination from service. The Common Stock shall be held in a
trust established or to be established by the Company. Dividends paid on
such Common Stock will be reinvested in Common Stock. The Nonemployee
Director shall have the right to direct the voting of his or her portion
of the Common Stock held in such trust, as specified in the trust.
(f) The terms of this Plan are intended to insure that the electing
Nonemployee Director is not subject to income tax on any cash or Common
Stock (including any cash or Common Stock that has been deferred) until
such amounts are paid to the Nonemployee Director.
7. Adjustment Provisions:
(a) In the event that any reclassification, split-up or consolidation of
the Common Stock shall be effected, or the outstanding shares of Common
Stock are, in connection with a merger or consolidation of the Company or
a sale by the Company of all or a part of its assets, exchanged for a
different number or class of shares of stock or other securities or
property of the Company or for shares of the stock or other securities or
property of any other corporation or person, or a record date for
determination of holders of Common Stock entitled to receive a dividend
payable in Common Stock shall occur, the number, class and kind of shares
that have not been issued pursuant to this Plan shall be equitably
adjusted.
(b) In the event that any spin-off or other distribution of assets of the
Company to its shareholders (including without limitation an extraordinary
dividend) shall occur, the number, class and kind of shares that have not
been issued pursuant to this Plan shall be equitably adjusted.
8. Term: This Plan shall be deemed adopted and shall become effective on
July 1, 1997, subject to approval of this Plan by the shareholders of the
Company. No Common Stock shall be issued under this Plan with respect to any
period beginning after June 30, 2007.
9. General Provisions:
(a) Nothing in this Plan or in any instrument executed pursuant hereto
shall confer upon any person any right to continue to serve as a
Nonemployee Director or to receive Retainers or Fees.
(b) No shares of Common Stock shall be issued pursuant to this Plan
unless and until all legal requirements applicable to the issuance of such
shares have, in the opinion of counsel to the Company, been complied with.
In connection with any such issuance, the person or entity acquiring the
shares shall, if requested by the Company, give assurances, satisfactory
to counsel to the Company, in respect of such matters as the Company or a
Subsidiary may deem desirable to assure compliance with all applicable
legal requirements.
(c) No person, individually or as a member of a group, and no beneficiary
or other person claiming under or through him or her, shall have any
right, title or interest in or to any shares of Common Stock allocated or
reserved for the purposes of this Plan except as to such shares of Common
Stock, if any, as shall have been issued to him or her. No rights to
receive shares of Common Stock under this Plan shall be subject in any
manner to alienation, sale, transfer, assignment, pledge, encumbrance or
charge, except by will or the laws of descent and distribution. The only
rights that may exist under this Plan shall be limited to those of an
unsecured creditor of the Company.
(d) Nothing in this Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan,
practice or arrangement for the payment of compensation or benefits to
Nonemployee Directors that the Company now has or may hereafter put into
effect.
10. Amendments and Termination:
(a) This Plan may be terminated, suspended or amended at any time by the
Board of Directors upon the recommendation of its Compensation, Employee
Benefits and Stock Incentive Committee; provided, however, that no
amendment shall become effective without the approval of the shareholders
of the Company to the extent shareholder approval is required by
applicable law.
(b) No termination, suspension or amendment of this Plan shall adversely
affect any shares theretofore issued pursuant to this Plan.
B-3
<PAGE>
GRACE PROXY
For the Annual Meeting of Shareholders of W. R. Grace & Co., to be held at
10:00 a.m. on May 9, 1997, at the Boca Raton Marriott-Boca Center, 5150 Town
Center Circle, Boca Raton, Florida.
The undersigned hereby appoints Larry Ellberger, Mary Lou Kromer and Robert
B. Lamm as agents to act and vote on behalf of the undersigned at the Annual
Meeting of Shareholders of W. R. Grace & Co., to be held on May 9, 1997, and
any adjournments. As more fully described in the Proxy Statement for the
meeting, such agents (or their substitutes) are directed to vote as indicated
on the reverse side and are authorized to vote in their discretion upon any
other business that properly comes before the meeting.
This proxy is solicited by the Board of Directors.
Please mark, date and sign your proxy on the reverse side.
Please let us know
whether you plan to
attend the Annual
Meeting.
__ Yes, I plan to attend
the Annual Meeting.
__ No, I cannot attend.
Shareholder
Questions/Comments ----
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(SOLID TRIANGLE) FOLD AND DETACH HERE (SOLID TRIANGLE)
<PAGE>
PLEASE MARK
YOUR VOTES AS X
INDICATED IN
THIS EXAMPLE
THE DIRECTORS RECOMMEND A VOTE FOR PROPOSALS 1 THROUGH 6.
1. ELECTION OF DIRECTORS FOR
FOR ALL NOMINEES LISTED [ ]
BELOW (EXCEPT AS
MARKED TO THE
CONTRARY BELOW)
WITHHOLD AUTHORITY WITHHOLD
TO VOTE FOR ALL [ ]
NOMINEES LISTED
BELOW
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME BELOW.)
CLASS II (THREE-YEAR TERM): JOHN F. AKERS, CHRISTOPHER CHENG,
VIRGINIA A. KAMSKY, JOHN E. PHIPPS
IF NO CHOICE IS SPECIFIED, THE SHARES WILL BE VOTED FOR ALL OF THE
NOMINEES LISTED ABOVE AND FOR PROPOSALS 2, 3, 4, 5 AND 6.
PLEASE DATE AND SIGN AND RETURN PROMPTLY.
2. SELECTION OF PRICE WATERHOUSE LLP AS
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
3. APPROVAL OF 1996 STOCK INCENTIVE PLAN
4. APPROVAL OF LONG-TERM INCENTIVE PROGRAM
5. APPROVAL OF ANNUAL INCENTIVE COMPENSATION
PROGRAM
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
[ ] [ ] [ ]
[ ] [ ] [ ]
[ ] [ ] [ ]
[ ] [ ] [ ]
6. APPROVAL OF 1997 STOCK PLAN FOR
NONEMPLOYEE DIRECTORS
Date: Signature: Signature:
Please sign EXACTLY as name or names appear above. When signing on behalf of
a corporation, estate, trust or another shareholder, please give its full
name and state your full title or capacity or otherwise indicate that you are
authorized to sign.
(See reverse side for comments.)
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(SOLID TRIANGLE) FOLD AND DETACH HERE (SOLID TRIANGLE)
