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
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
WATKINS-JOHNSON COMPANY
(Name of Registrant as Specified In Its Charter)
RICHARD G. BELL
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(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.
[ ] 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 number, or
the Form or Schedule and the date of its filing.
<PAGE>
<PAGE>
WATKINS-JOHNSON COMPANY
3333 HILLVIEW AVENUE
STANFORD RESEARCH PARK
PALO ALTO, CALIFORNIA 94304
DEAN A. WATKINS W. KEITH KENNEDY
CHAIRMAN OF THE BOARD PRESIDENT
H. RICHARD JOHNSON
VICE CHAIRMAN
MARCH 7, 1994
Dear Shareowner:
We, as well as all of the other officers and directors of Watkins-Johnson
Company, cordially invite you to attend the Company's Annual Meeting of
Shareowners, to be held at 10:00 o'clock in the morning on Saturday, April
9, 1994, at the main office of the Company, 3333 Hillview Avenue, Stanford
Research Park, Palo Alto, California 94304.
In addition to conducting the business of the meeting, we will report to
you on the progress of the Company and attempt to answer any questions
you may have.
Please plan to come, but whether you can or cannot, please complete and
return the enclosed proxy card--your participation is important.
Sincerely yours,
/s/ Dean A. Watkins
----------------------
Dean A. Watkins
/s/ H. Richard Johnson
--------------------------
H. Richard Johnson
/s/ W. Keith Kennedy
-------------------------
W. Keith Kennedy
<PAGE>
<PAGE>
WATKINS-JOHNSON COMPANY
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
SATURDAY, APRIL 9, 1994
10:00 A.M.
TO THE SHAREOWNERS:
The Annual Meeting of Shareowners of Watkins-Johnson Company will
be held at the Company's main office, 3333 Hillview Avenue, Stanford
Research Park, Palo Alto, California 94304 on Saturday, April 9, 1994, at
10:00 a.m. to take action upon the following matters:
1. The election of directors for the ensuing year.
2. The approval of the appointment of independent public
accountants for 1994.
3. The transaction of such other business as may properly come
before the meeting.
Only shareowners of record at the close of business on February 10, 1994
are entitled to notice of and to vote at this meeting and any adjournment or
postponement thereof.
By Order of the Board of
Directors
Carol H. Roosen, Secretary
Palo Alto, California
March 7, 1994
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING,
PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED
PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
<PAGE>
<PAGE>
PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors
of Watkins-Johnson Company, a California corporation (the "Company"), for
use at the Annual Meeting of Shareowners of the Company to be held at
10:00 a.m. on Saturday, April 9, 1994, and at any adjournment of the annual
meeting, to act upon the matters set forth in the accompanying notice. This
Proxy Statement and the form of proxy, together with the Company's 1993
Annual Report, were first mailed to shareowners on or about March 7, 1994.
VOTING SECURITIES
Only shareowners of record at the close of business on February 10, 1994
are entitled to notice of and to vote at the annual meeting. On that date, the
Company had outstanding 7,220,861 shares of common stock. Owners of
common stock are entitled to one vote for each share held. In the election of
directors, each shareowner has cumulative voting rights and is entitled to as
many votes as equal the number of shares held by such shareowner
multiplied by the number of directors to be elected, which votes may be cast
for a single candidate or distributed among any or all of the candidates.
However, no shareowner is entitled to cumulate votes unless the
shareowner, or any other shareowner, has given notice at the meeting
before the voting of such intention to cumulate votes.
SOLICITATION AND REVOCABILITY OF PROXIES
If the enclosed proxy card is properly signed and returned, the shares
represented thereby will be voted at the annual meeting in accordance with
the instructions specified thereon. If the proxy does not specify how the
shares represented thereby are to be voted, the proxy will be voted as
recommended by the Board of Directors. If the shares are held in trust
under the Company's employee stock ownership plans, the shares
represented will be voted by the Trustee, as directed by the participant,
pursuant to the plans. Any shareowner signing a proxy in the form
accompanying this proxy statement has the power to revoke it prior to or at
the annual meeting. A proxy may be revoked by a written notice delivered
to the Secretary of the Company stating that the proxy is revoked, by a
subsequent proxy signed by the person who signed the earlier proxy, or by
attendance at the annual meeting and voting in person.
The expense of soliciting proxies will be paid by the Company. Following
the original mailing of the proxies and soliciting materials, employees of the
Company may solicit proxies by mail, telephone, telegraph and personal
interviews. The Company will request brokers, custodians, nominees and
other record holders to forward copies of the proxies and soliciting materials
to persons for whom they hold shares of the Company's common stock and
to request authority for the exercise of proxies; in such cases the Company
will reimburse such holders for their reasonable expenses. Proxies will also
be solicited on behalf of management by the firm of D. F. King & Co., Inc.,
whose fee ($8,500) and out-of-pocket expenses will be paid by the Company.
VOTING RESULTS AT LAST ANNUAL MEETING
There were 6,690,237 shares present and voting or withholding authority
to vote at the Company's Annual Meeting of Shareowners held on April 3,
1993, for the purpose of electing directors, and for approval of the
appointment of independent public accountants. A majority vote was
required for each of these proposals. All nominees for director were elected
by 99% or more of the votes cast, and the appointment of Deloitte & Touche
as the Company's independent public accountants was approved by 99.6% of
the votes cast.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT
The following table sets forth information as of December 31, 1993 with
respect to the ownership of the Company's common stock by any person who
is known to the Company to be the beneficial owner of more than 5% of the
Company's common stock, by all directors, by the chief executive officer and
four other highly compensated officers, and by all directors and officers of
the Company as a group.
AMOUNT AND
NATURE OF
BENEFICIAL
BENEFICIAL OWNER OWNERSHIP PERCENT
---------------- ----------- --------
Litton Industries .......................... 474,300(1) 6.2
360 North Crescent Drive
Beverly Hills, California
90210-4867
FMR Corp. .................................. 396,400(2) 5.2
82 Devonshire Street
Boston, Massachusetts 02109-3614
DIRECTORS AND OFFICERS
Dean A. Watkins ........................... 271,560(3) 3.6
H. Richard Johnson ......................... 56,000(3) *
W. Keith Kennedy .......................... 191,579(3) 2.5
John J. Hartmann ........................... 8,210(3) *
Rita Ricardo-Campbell ...................... 9,600(3) *
Jack L. Shepard ............................ 8,510(3) *
Von R. Eshleman ............................ 8,610(3) *
Raymond F. O'Brien ......................... 9,610(3) *
William R. Graham .......................... 6,577(3) *
Keith D. Gilbert ........................... 108,774(3) 1.4
James L. Schram ............................ 47,880(3) *
All directors and officers as a group
(15 persons).............................. 784,374(3) 10.3
- ----------
* less than 1% of shares outstanding
(1) According to the Schedule 13G filed by such shareowner, Litton Industries
possessed sole power to vote or direct the vote and sole dispositive power
over all shares shown. Subsequent to December 31, 1993, Litton Industries
disposed of all shares shown. Of these shares, the Company purchased
427,700 in a market transaction, as reported on February 3, 1994. The
shares thereby purchased are now authorized, but unissued and the number of
shares outstanding as of the record date reflects this reduction.
(2) According to the Schedule 13G filed, FMR Corp. possessed sole voting power
over 103,500 shares and sole dispositive power over all shares shown.
(3) The amounts shown include shares covered by options exercisable within 60
days of December 31, 1993, as follows: 18,100 shares each, Dean A. Watkins
and H. Richard Johnson; 160,200 shares, W. Keith Kennedy; 7,610 shares
each, John J. Hartmann, Rita Ricardo-Campbell, Jack L. Shepard,
Von R. Eshleman and Raymond F. O'Brien; 6,277 shares, William R. Graham;
95,767 shares, Keith D. Gilbert; 46,833 shares, James L. Schram; and 435,527
shares, all directors and officers as a group. Also included are 567, 567,
and 429 shares for Messrs. Kennedy, Gilbert and Schram, respectively, which
are allocated to their accounts, and 5,164 shares allocated to the accounts
of all officers, except Drs. Watkins and Johnson, under the Company's
employee stock ownership plans as of December 31, 1993, according to the
plans' administrator.
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
At the annual meeting in 1994, there are nine nominees standing for
election, each to hold office until his or her successor is elected, or
until death, resignation or removal. Shares represented by the accompanying
proxy will be voted for the election of the nominees recommended by the Board
of Directors, who are named in the following table,
unless the proxy is marked in such a manner as to withhold authority so to
vote. The affirmative vote of a majority of the common stock voting at the
annual meeting is required to elect any director. The Company has no reason
to believe that the nominees will not be available for election to serve
their prescribed terms. However, if any nominee for any reason is unable to
serve or for good cause will not serve, the proxy may be substitute
nominee as the persons appointed in the proxy may in their discretion
determine.
The following sets forth certain information concerning the nominees as
of December 31, 1993, which is based on data furnished by them.
NOMINEES FOR ELECTION AS DIRECTORS
DEAN A. WATKINS
Chairman of the Board, Watkins-Johnson Company.
Director since 1957.
Dr. Watkins, 71, has been Chairman of the Board since
1967. He is a member of the Board of Regents, University
of California (Chairman, 1972-74); and the Board of
Overseers, Hoover Institution on War, Revolution and
Peace (Chairman, 1971-73 and 1985-86). He is a Fellow of
the Institute of Electrical and Electronics Engineers and of
the American Association for the Advancement of Science,
and a member of the National Academy of Engineering.
He is a former member of the Board of Directors,
California Chamber of Commerce (President, 1981), a
former Trustee of Stanford University, and former
member of the White House Science Council.
H. RICHARD JOHNSON
Vice Chairman of the Board, Watkins-Johnson Company.
Director since 1957.
Dr. Johnson, 67, was President and Chief Executive
Officer of the Company from 1973 through 1987, and
became Vice Chairman on December 31, 1987. He is a
member of the National Academy of Engineering and a
Fellow of the Institute of Electrical and Electronics
Engineers. He is past President of the Stanford Area
Council, Boy Scouts of America, and has served as a
Director of the National Association of Manufacturers, the
Santa Clara County Manufacturing Group and the Tech
Museum of Innovation.
W. KEITH KENNEDY
President and Chief Executive Officer, Watkins-Johnson
Company.
Director since 1987.
Dr. Kennedy, 50, has been President and Chief Executive
Officer of the Company since December 31, 1987. Dr.
Kennedy joined the Company in 1968, and was a Division
Manager, Group Vice President and Vice President of
Planning Coordination and Shareowner Relations prior to
becoming President. He is a member of the Executive
Board of the Stanford Area Council, Boy Scouts of
America, a member of the Norcal Council Executive
Committee, American Electronics Association, and is a
senior member of the Institute of Electrical and
Electronics Engineers.
JOHN J. HARTMANN
Financial Consultant.
Director since 1966.
Mr. Hartmann, 75, is Chairman of the Audit Committee of
the Board of Directors of the Company. He was a member
of the Board of Directors of the Company from 1958 to
1961. From 1967 to 1970 he was a general partner of J.
Barth & Company, investment bankers, and prior to that
was Chief Financial and Planning Officer of Kern County
Land Company. Since 1970, Mr. Hartmann has had
extensive experience as a director of and consultant to
developing companies involving widely-diverse fields of
activity. He has also been active as a board member and
executive in civic organizations, primarily in the areas of
youth activities and minority affairs.
RITA RICARDO-CAMPBELL
Senior Fellow (Economist), Hoover Institution, Stanford
University.
Director since 1974.
Dr. Campbell, 73, is a member of the Audit Committee of
the Board of Directors of the Company. She is a member
of the President's Committee on the National Medal of
Science, a member of the Harvard University Advisory
Council to the Graduate Schools, and a Vice President and
Director of the Mont Pelerin Society. She was a Director
of The Gillette Company from 1978 to 1990 and a member
of the President's Economic Policy Advisory Board from
1981 to 1989. She is a former member of the Samaritan
Medical Management Board, the Board of Directors,
Independent Colleges of Northern California, Inc., and was
a member of the Simmons College Corporation from 1974
to 1980. She also was a member of the National Council on
the Humanities, a member of the 1974-75 Advisory Council
on Social Security and a former member of the U.S.
National Advisory Drug Committee to the Food and Drug
Administration.
JACK L. SHEPARD
Chairman and Chief Executive Officer of Athletic Training
Equipment Company (ATEC), Menlo Park, California.
Director since 1979.
Mr. Shepard, 62, is Chairman of the Compensation
Committee of the Board of Directors of the Company. He
is President of S&S Management Consultants. He is a
former Director of thirteen mutual funds in the Strong
Group, and a former Director of International Shellfish
Enterprises, Granger Associates and Tab Products
Company.
VON R. ESHLEMAN
Professor of Electrical Engineering, Emeritus, Stanford
University.
Director since 1980.
Dr. Eshleman, 69, is a member of the Audit Committee of
the Board of Directors of the Company. Before becoming
emeritus, he was Director of the Center for Radar
Astronomy of the Electrical Engineering Department of
Stanford University. He is a former member of the Lunar
and Planetary Missions Board of the National Aeronautics
and Space Administration, and of Cornell University's
Arecibo Advisory Board. He is a member of the National
Academy of Engineering and a Fellow of the Institute of
Electrical and Electronics Engineers.
RAYMOND F. O'BRIEN
Chairman of the Board, Consolidated Freightways, Inc.,
Palo Alto, California.
Director since 1986.
Mr. O'Brien, 71, is a member of the Compensation
Committee of the Board of Directors of the Company. He
is a Director of Champion Road Machinery, Ltd., and a
Director of Transamerica Corporation. He is a former
Director of Union Bank and the Mont La Salle Vineyards.
He is also a former member of the Executive Committee of
the American Trucking Association, a former Trustee of
the ATA Foundation and former Chairman of the Western
Highway Institute.
WILLIAM R. GRAHAM
Business and Management Consultant.
Director since 1989.
Dr. Graham, 56, is a member of the Audit and
Compensation Committees of the Board of Directors of the
Company. He was formerly Chairman and Chief Executive
Officer of Xsirius, Inc., and has served as a Director and
President of C-COR Electronics, Inc. He left government
service in 1989 after having been Science Advisor to the
President and Director of the Office of Science and
Technology Policy; Chairman of the Federal Coordinating
Council on Science, Engineering and Technology; and
Chairman of the Joint Telecommunications Resources
Board from 1986 to 1989. He is former Deputy Administrator
of the National Aeronautics and Space Administration, and
former Chairman of the President's General Advisory
Committee on Arms Control and Disarmament. In 1971 he was
a founder of R&D Associates, a defense technology company,
where he served until 1985.
FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board of Directors met eight times during 1993. Standing committees of
the board include an Audit Committee, which met two times during 1993,
and a Compensation Committee, which also met two times during 1993. In
addition, the Board has a standing committee composed of all outside
directors to monitor the Shareowner Purchase Rights Plan and other matters
related to shareowner protection. This committee met once in 1993. There is
no nominating committee.
The Audit Committee consists of Directors Hartmann,
Ricardo-Campbell, Eshleman and Graham. Among the Committee's functions
are making recommendations to the Board of Directors regarding the
continued engagement of independent auditors, reviewing with the
independent auditors and Company financial management the plans for and
results of the audit engagement, reviewing the adequacy of the Company's
system of internal accounting controls, and reviewing and approving audit
and nonaudit fees.
The Compensation Committee consists of Directors Shepard, O'Brien and
Graham. Directors Watkins and Johnson formerly served on the committee
as member and alternate, but resigned their positions on November 29,
1993, at which time Dr. Graham was appointed. Prior to November 29, 1993,
Dr. Johnson, as alternate, did not attend any committee meetings, and Dr.
Watkins did not participate in deliberations or vote on any matters relating
to his own compensation. The Committee's primary functions are to establish
and administer the policies that govern the Company's executive
compensation programs and to regularly evaluate these programs for their
effectiveness in relation to the Company's financial performance.
No incumbent director attended fewer than 75% of the aggregate of (1)
the total number of meetings of the Board of Directors and (2) the total
number of meetings held by all committees of the Board on which he or she
served during 1993.
<PAGE>
DIRECTOR COMPENSATION
Directors who are not employees of the Company each receive an annual
fee of $17,600 and a fee of $300 for each Board or Committee meeting
attended.
Directors who are not employees also participate in the 1989 Stock
Option Plan for Nonemployee Directors (the "1989 Director Plan"), which
was approved at the Company's 1989 Annual Shareowners' Meeting. The
1989 Director Plan, provides that each nonemployee director is automatically
granted options to purchase shares of the Company's common stock on the
last Monday in April of each fiscal year, in accordance with the following
schedule:
SCHEDULE OF OPTION GRANTS
1990-3700 Shares 1995-2520 Shares
1991-3430 Shares 1996-2330 Shares
1992-3180 Shares 1997-2160 Shares
1993-2940 Shares 1998-2000 Shares
1994-2720 Shares
The 1989 Director Plan also provides that new directors shall, upon
election, receive an automatic, one-time grant of options to purchase the
same number of shares of the Company's common stock as shall have been
granted to the other directors in the year immediately preceding the new
director's election.
Options under the 1989 Director Plan provide for the purchase of shares
at not less than the fair market value of the stock on the grant date, become
exercisable after two years from grant at a rate of 33-1/3% per year, and
remain exercisable for a period of ten years from the date of grant. Options
expire one year after the optionee's service as a director ends.
The aggregate number of shares which may be issued under the Plan is
200,000 shares of common stock, and as of December 31, 1993, there were
103,500 shares subject to outstanding options, and there were 96,500 shares
available for future grants. At December 31, 1993, five of the six
non-employee directors held exercisable in-the-money options in the amount
of 3,610 shares each; Director Graham held exercisable in-the-money options
of 6,277 shares. The term "in-the-money" means that the grant price of the
options was less than the market price of the Company's stock on December
31, 1993, which was $19.875 per share.
<PAGE>
<TABLE>
EXECUTIVE COMPENSATION
The following tables set forth all annual and long-term compensation,
including stock option awards, paid or to be paid to the Company's chief
executive officer and the four other most highly compensated executive
officers during the fiscal years indicated.
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------------------------- --------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
COMPENSATION AWARDS(S) OPTIONS/ COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(2) ($)(3) ($)(4) SARS (#)(4) SATION($)(5)
- --------------------------- ---- ----------- ----------- ------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
W. KEITH KENNEDY............... 1993 $440,000 $104,248 -0- -0- 80,000 $399,535
President & Chief 1992 440,000 36,145 -0- -0- 80,000 136,733
Executive Officer 1991 440,000 -0- --- -0- 50,000 --
DEAN A. WATKINS................ 1993 290,000 4,056 -0- -0- -0- 5,200
Chairman of the Board 1992 290,000 1,946 -0- -0- -0- 2,280
1991 290,000 -0- --- -0- -0- --
H. R. JOHNSON.................. 1993 290,000 4,060 -0- -0- -0- 5,200
Vice Chairman 1992 290,000 2,003 -0- -0- -0- 2,280
of the Board................... 1991 290,000 -0- --- -0- -0- --
KEITH D. GILBERT............... 1993 266,400 22,822 -0- -0- 30,000 83,708
Group Vice President 1992 261,000 18,275 -0- -0- 40,000 70,310
1991 261,000 -0- --- -0- 20,000 --
JAMES L. SCHRAM................ 1993 192,600 50,458 -0- -0- 30,000 196,976
Group Vice President........... 1992 175,000 17,676 -0- -0- 40,000 69,302
1991 159,300 -0- --- -0- 9,000 --
- ----------
(1) Represents total base salary earned by the five named officers, including
amounts earned but deferred at the officer's election.
(2) Represents the vested portion of the Top Management Incentive Bonus
Plan in the year awarded, and the bonus from the Employees' Cash
Profit Sharing Bonus Plan, in which all employees of the Company
participate based on a fixed percentage of pretax profits allocated over
the salary base. Drs. Watkins and Johnson do not participate in the Top
Management Incentive Bonus Plan.
(3) The aggregate amount of perquisites and other personal benefits,
securities or property, given to each named officer valued on the basis of
aggregate incremental cost to the Company, was less than either $50,000
or 10% of the total of annual salary and bonus for that officer during
each of these years.
(4) Represents incentive stock option awards; although the Company's 1991
Stock Option and Incentive Plan permits grants of restricted stock and
stock appreciation rights, no such grants have been made.
(5) Represents Company contributions to the Employees' Profit Sharing
Investment Plan for all named officers, and to the Employee Stock
Ownership Plan for Messrs. Kennedy, Gilbert and Schram; also includes
the unvested, deferred portion of the Top Management Incentive Bonus
Plan in the year awarded for Messrs. Kennedy, Gilbert and Schram.
Amounts shown for 1993 consist of the following: Profit sharing
contributions of $5,200, $5,200, $4,246, $5,200 and $5,200 to Messrs.
Kennedy, Gilbert, Schram, Watkins and Johnson; ESOP contributions of
$2,358, $2,358, and $1,926 to Messrs. Kennedy, Gilbert and Schram; and
the unvested, deferred Top Management Incentive Bonus Plan awards of
$391,977, $76,150 and $190,804 for Messrs. Kennedy, Gilbert and
Schram, respectively. These awards are granted in the form of "bonus
units." The bonus units are determined by dividing the dollar value of
the award by the December 31 book value per share, based on the
Company's consolidated balance sheet. The bonus units so determined
vest at 25% each year on the anniversary date of award, and are fully
vested after four years. The unvested bonus units are subject to a risk of
forfeiture if the executive leaves the Company prior to the vesting dates.
Vested bonus units are valued as of December 31 of the fourth year
based on the increase or decrease in the Company's book value from the
date the bonus units are granted. Drs. Watkins and Johnson do not
participate in the ESOP or the Top Management Incentive Bonus Plan.
</TABLE>
<PAGE>
<TABLE>
1993 OPTION/SAR GRANTS TABLE
The following table sets forth incentive stock options granted to Messrs.
Kennedy, Gilbert and Schram during 1993 under the Company's 1991 Stock
Option and Incentive Plan. Drs. Watkins and Johnson do not currently
participate in the stock option plan. No stock appreciation rights (SARs)
were granted in 1993.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS/SARS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(3)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH)(2) DATE 5%($) 10%($)
---- ------------- ------------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
W. Keith Kennedy ................. 80,000 18.5% $12.375 2/22/2003 $ 624,000 $ 1,574,000
Dean A. Watkins .................. -0-
H. R. Johnson ..................... -0-
Keith D. Gilbert .................. 30,000 6.9% 12.375 2/22/2003 234,000 590,000
James L. Schram.................... 30,000 6.9% 12.375 2/22/2003 234,000 590,000
All Optionees(4) ..................432,000 100.0% 12.375 -- 3,368,000 8,500,000
All Shareholders(5)................ -- -- -- -- 58,900,000 148,651,000
All Optionees' Gain as a percentage
of All Shareholders' Gain ....... 5.7% 5.7%
- ----------
(1) Options granted in 1993 were incentive stock options up to the maximum
allowed for each officer under Internal Revenue Code No. 422. The
remaining awards were nonqualified stock options. Both incentive and
nonqualified options are exercisable after 2 years from the grant date at
a rate of 33-1/3% per year, with full vesting occurring after the 4th
anniversary date; however, all options become immediately exercisable in
the event of a change in control of the Company. The options were
granted for a term of 10 years, subject to earlier termination in certain
events related to termination of employment.
(2) Exercise or base price is the fair market value of the underlying shares
on the date of grant. Options may be exercised with cash or by delivery
of already-owned shares of Watkins-Johnson Company common stock.
(3) The 5% and 10% assumed annual rate of stock price appreciation would
result from per share prices of $20.16 and $32.10, respectively. Said
assumed rates are not intended to represent a forecast of possible future
appreciation of the Company's common stock or total shareholder return.
(4) For "All Optionees," the number of options granted is the total of all
options granted to Company employees in fiscal year 1993, and the
potential realizable value is based on the $12.375 per share price of the
options granted to the named executive officers on February 22, 1993
and a ten-year option term (the term of all options granted in fiscal year
1993).
(5) For "All Shareholders," the potential realizable value is based on a
ten-year appreciation of the 7,554,865 shares outstanding on February
22, 1993 and the $12.375 per share price of the options granted to the
named executive officers on that date.
</TABLE>
<PAGE>
<TABLE>
1993 OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth stock options exercised by any of the
named executive officers during 1993, and the number and value of all
unexercised options at year end. The value of "in-the-money" options refers
to options having an exercise price which is less than the market price of
Watkins-Johnson stock on December 31, 1993.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END(#) AT FY-END($)(2)
------------- ----------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE
---- --------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
W. Keith Kennedy ..... 28,200 $149,467 100,000/ $ 62,100/
210,200 1,572,000
Dean A. Watkins ....... -0- -0- 16,867/ 7,093/
1,233 3,545
H. R. Johnson ........... -0- -0- 16,867/ 7,093/
1,233 3,545
Keith D. Gilbert ......... 1,000 5,625 69,100/ 69,500/
90,000 687,500
James L. Schram ....... -0- -0- 27,833/ 31,832/
78,667 660,670
- ----------
(1) Based on the market price of the underlying shares at exercise date less
the exercise price.
(2) Based on the market price of the Company's common stock at 12/31/93,
which was $19.875 per share, less the exercise price.
</TABLE>
EXECUTIVE EMPLOYEE AGREEMENTS
The Company has executed five-year employment agreements with
Messrs. Kennedy, Gilbert and Schram which, in addition to providing for a
base salary, contain the following terms: The agreement may be terminated
for cause, in which case compensation ceases as of the date of notice. If the
agreement is terminated without cause, compensation for the remainder of
the term plus six months severance becomes immediately payable. The
employee may not thereafter, for a period of two years, engage in
competition with the Company. In the event of a change in control, as
defined in the agreement, the employee may cancel the agreement for
breach, upon 30 days' written notice, and immediately collect the
compensation due for the remainder of the term. Although the term of the
agreement is five years, each agreement is renewed each year in order to
reflect the officer's current salary and, in effect, extend the agreement term
for an additional year. The agreements for Messrs. Kennedy, Gilbert and
Schram were renewed in 1993 for five years each after their respective base
salaries were determined using the financial performance criteria and factors
set forth under the compensation programs and policies described for the
chief executive and other officers in the Compensation Committee report.
Effective June 1, 1993, Drs. Watkins and Johnson were no longer covered
by five-year employment agreements.
The Company maintains three-year severance agreements with other
executives which provide that if after a change in control, the employee is
terminated other than for good cause, as defined in the agreement, or
suffers a substantial alteration in the terms of employment and terminates
his or her own employment because of such alteration, the Company is
obligated to pay the terminated employee 299.999% of the employee's yearly
base salary compensation. The employee also has the right to terminate
employment after 90 days and within 120 days of the change in control and
receive from the Company one-half of the amount described above.
REPORT OF THE BOARD OF DIRECTORS' COMPENSATION COMMITTEE
COMPENSATION PROGRAM AND POLICIES
The Compensation Committee is responsible for establishing and
administering the policies which govern base salaries, short- and long-term
incentive compensation and stock ownership programs for the Chief
Executive Officer and other executive officers. At December 31, 1993, the
Committee was composed of three outside directors, Jack L. Shepard,
Chairman, Raymond F. O'Brien and William R. Graham. Prior to that, on
November 29, 1993, Drs. Watkins and Johnson, member and alternate
member of the Committee, respectively, resigned their positions and Dr.
Graham was appointed by the board to serve in Dr. Watkins' place. Dr.
Johnson's assignment as alternate member was to attend committee
meetings whenever Dr. Watkins was unable to be present. During their
term of service, Dr. Johnson did not attend any of the committee meetings.
During his service as a member of the committee, Dr. Watkins did not
participate in deliberations or vote on any matters related to his own
compensation.
Watkins-Johnson's compensation program is designed to attract and
retain employees at all levels who will contribute to the long-range success
of the Company. At the executive level, the program is broadened to reward
key managers for achieving both short- and long-term strategic Company
goals, to link executive and shareholder interests through stock-based plans,
and to provide compensation packages that recognize individual contributions
as well as overall business results. Therefore, a significant portion of each
executive's total compensation is intended to be variable and is contingent
upon overall Company results, success of the executive's business unit, and
accomplishment of individual performance goals.
Each year, the Committee conducts a careful review and evaluation of
Watkins-Johnson's corporate performance, its executive compensation, and
its incentive programs compared with two broad-based surveys of
high-technology companies, as well as a smaller selection of geographically
related peer companies of similar size and organizational structure. These
surveys are used to ensure that the Company's compensation practices are
competitive in the markets in which it operates, and that its employees are
fairly paid. The first two surveys present comparative information on all
aspects of executive compensation used by high-technology companies
nationwide, while data from the selection of peer companies presents
compensation practices of companies that are closely aligned to
Watkins-Johnson in terms of size, revenues and product lines. Analysis of all
information combined enables the Company and the Committee to make
well-informed decisions.
The three principal components of the Company's executive
compensation program in 1993 were base salary, stock options, and a
combined short- and long-term incentive award. Following are discussions of
the Committee's philosophy and action in each area.
Base Salaries. Base salaries are designed primarily to attract and
retain individuals, and to be competitive in our marketplace. Based on the
information obtained from the salary surveys referenced above, base salary
levels are deemed competitive if they are between the 50th and 75th
percentiles of the marketplace for similar positions. The Company strives to
pay its executives within this range, with salaries falling at low, high or
medium-range depending on the following performance considerations. To
arrive at base salary adjustments for 1993, the Committee considered the
Company's financial performance in 1992, including the executive's business
unit performance against the annual profit plan. Three factors--achieving
planned profit, obtaining additional profitable orders, and developing new
business for the long term--were considered. These factors were not
assigned specific weights, but profit was considered most important, with
orders secondary. Other factors considered in arriving at base salary
adjustments related to the executive's individual performance and included
overall managerial effectiveness, success in promoting teamwork and an
ability to implement quality improvements. Adjustments to executive base
salaries in 1993 were also based on a qualitative analysis of each position's
current responsibilities and expected contribution after the Company's
extensive restructuring activities undertaken to bring about a return to
profitability during 1992.
Stock Options. Under the 1991 Stock Option and Incentive Plan, stock
options may be granted to executive officers and other key employees of the
Company. The purpose of the awards is to align the executives' interests
with those of our shareholders. The size of stock option grants is measured
by the same financial and individual performance criteria used to determine
base salaries, and by the individual's position and responsibilities in the
Company. In addition, some consideration is given to the amount and term
of options already held. All stock options awarded to date under this plan
have been granted with an exercise price equal to the fair market value of
the Company's stock on the date of grant, with current grants beginning to
vest after two years and becoming fully vested after four years. This is
designed to encourage the creation of shareholder value over the long term,
since no benefit is realized from the option grant unless the price of the
Company's stock rises over a period of years. Drs. Watkins and Johnson do
not currently participate in the 1991 Stock Option and Incentive Plan.
The Company does not have a policy that requires the Committee to
qualify stock options awarded to executive officers for deductibility under
Section 162(m) of the Internal Revenue Code of 1986, as amended. However,
consideration of the net cost to the Company is always a factor in making
compensation decisions.
Short- and Long-term Incentive Awards. The Top Management
Incentive Bonus Plan is designed to reward executives based on
achievement of certain predetermined goals, which include overall corporate
results, business unit performance, and certain qualitative factors such as
organizational and management development. These goals are
formula-based, and weighted so that 80% of the award is made on
performance against financial objectives of profitability and new business,
and 20% is based on qualitative goals relating to strategic planning,
development of staff, and positioning of the business unit for future growth.
The performance criteria were individually tailored to each executive and his
or her area of responsibility, and the awards could range from zero to a
multiple of an executive's base salary, based on progressively difficult levels
of achievement. In order to encourage attainment of the Company's
long-term goals for continued growth and profitability, the award is paid in
two increments. The first part, or 20% of the award, is paid in cash during
the first quarter of the year after it is earned. The second increment, or 80%
of the award, is deferred in the form of bonus units, which are valued based
on the Company's net book value at year end. The bonus units vest over a
four-year period at 25% annually as of each December 31 following the
award date. If the executive leaves the Company during this period, any
unvested amounts are forfeited. At the end of the fourth year the bonus
units are valued at the Company's then book value per share and are paid
out in February of the fifth year. Thus, executives' interests are aligned
with shareholders by allowing the bonus units to appreciate or depreciate
with the Company's book value. Both the 20% vested portion of the award
and the 80% deferred amount earned in 1993 by Messrs Kennedy, Gilbert
and Schram are shown under the Summary Compensation Table on page 7.
Drs. Watkins and Johnson do not participate in the Top Management
Incentive Bonus Plan.
Short- and Long-term Profit Sharing Plans. In order to encourage
employees' interest and alignment with the Company's business objectives
and performance goals, the Company has established two profit-sharing
plans under which it shares a portion of its profits with all eligible
employees, including executive officers. The Employees' Cash Profit Sharing
Bonus Plan distributes 6% of the Company's annual pretax profits to all
employees after they have been employed for one full fiscal year; and the
Employees' Profit Sharing and Investment Plan contributes 9% of annual
pretax profits to the trust accounts of employees, who are eligible to
participate after one year of service. Under the Profit Sharing and
Investment Plan, an ERISA-based plan, participants' accounts become fully
vested after seven years, and all vested amounts are distributed upon
retirement, or earlier termination from the Company. There are no specific
performance criteria relating to these plans. Annual contributions under
both plans are distributed by applying the designated percentage to each
participant's annual base salary.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The same policies and programs described above were followed by the
Committee in determining the 1993 compensation for Dr. Kennedy. As with
the other executive officers, base salary is set, stock option awards are
considered, and performance criteria are developed for the incentive bonus
plan in February each year, based on the Company's financial performance
and the CEO's individual contributions in the previous year.
The criteria for considering Dr. Kennedy's base salary included the
Company's overall performance in 1992 and its return to profitability as the
result of stringent cost-cutting measures. Company performance factors
included the percentage of profitability achieved against the annual profit
plan, new orders booked, and the successful execution of the corporate
strategic plan to prepare the Company for future growth and profitability.
There were no specific weights assigned to these factors, but profitability
was considered to be of primary importance. In addition, his leadership
during a difficult period of down-sizing and economic uncertainty set an
example for his staff and all Company employees. Nevertheless, after careful
study of chief executive officer salaries from the survey information
described under Compensation Programs and Policies, it was determined
that Dr. Kennedy's base salary was already at the high end of the range of
compared companies, and therefore, the Committee decided there should be
no increase in Dr. Kennedy's base salary for 1993.
Apart from salary, the Committee granted Dr. Kennedy a stock option
for 80,000 shares at $12.375, the market value of the Company's common
stock on the date of grant. The specific factors considered in determining the
size of the award for Dr. Kennedy were the same financial and individual
performance criteria used when considering his base salary, and the
responsibility of his position as chief executive officer. It was also noted
that the size was reasonable compared to awards made to chief executive
officers in the surveys described above, falling at mid-range in the surveys.
The criteria established for Dr. Kennedy's incentive bonus award are the
same as those set for other executive officers. The award is based on
achievement of predetermined goals, with 80% based on financial objectives
and 20% on certain qualitative goals. The Committee met at the beginning of
1993 to approve the formula-based goals for Dr. Kennedy and other
executive officers, and to establish his qualitative goals for the year. As
chief executive officer, his financial measurements related to overall
profitability and growth objectives for the whole Company, rather than
individual business units, and his qualitative goals were based on
development and execution of current and long-term strategies, development
of management, and strengthening the total organization. The Committee
then met at year-end to review the Company's financial results, and to
evaluate his performance against his qualitative objectives. As with the
other executive officers, the extent to which the formula factors are met,
based on progressively difficult levels of achievement relating to financial
returns and individual goals, determines the size of the award. Dr.
Kennedy's corporate financial performance goals for 1993, together with
achievement of his qualitative goals, were met at a level that resulted in an
award to Dr. Kennedy under the incentive bonus plan equal to 115% of his
base salary. However, 80% of the award, the long-term portion, is subject to
change based on future appreciation or depreciation of the Company's book
value.
During 1993, the Company under Dr. Kennedy's management has
continued to successfully implement its turnaround strategies even though
this is still a period of difficult industry and global economic conditions.
These efforts have led to a significant increase in shareholder value, with an
increase in the stock price of 40% at year end.
The Compensation Committee
Jack L. Shepard, Chairman
Raymond F. O'Brien
William R. Graham(1)
Dean A. Watkins(2)
H. Richard Johnson(3)
- -----------
(1) Member since November 29, 1993
(2) Member prior to November 29, 1993
(3) Alternate member prior to November 29, 1993
<PAGE>
<PAGE>
WATKINS-JOHNSON STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return
(change in stock price plus reinvestment of dividends) of $100 invested on
December 31, 1988 in the Company's common stock, the New York Stock
Exchange Market Value Index, the Standard & Poor's 500 Composite Index,
and the Dow Jones Diversified Technology Index for a period of five years.
In 1993, the Company used the New York Stock Exchange Market Value
Index as its broad equity market index; this year, the Company is replacing
the NYSE index with the Standard & Poor's Composite Index because of its
wider distribution and recognition by shareholders. Both indices are shown
in this transition year. The Dow Jones Diversified Technology Index was
selected as having a representative industry peer group of companies. The
Dow Jones index includes 12 companies with at least 2 high-technology
business segments.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN*
AMONG WATKINS-JOHNSON, DOW JONES, NYSE, S&P 500 INDEXES
DOW JONES NYSE
DIVERSIFIED MARKET
WATKINS-JOHNSON TECHNOLOGY VALUE S&P
COMPANY INDEX INDEX 500
--------------- ---------- ------ ---
1989........ 80 120 128 132
1990........ 55 127 122 128
1991........ 45 151 158 166
1992........ 61 166 166 179
1993........ 87 196 188 197
- -----------
* $100 invested on 12/31/88 in stock or index, including
reinvestment of dividends. Fiscal year ending December 31.
<PAGE>
<PAGE>
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(ITEM 2 ON PROXY CARD)
The Board of Directors has appointed the firm of Deloitte & Touche as
independent accountants of the Company for the current fiscal year, subject
to the approval of shareowners. The Board of Directors expects that a
representative of Deloitte & Touche will be present at the Annual Meeting
of Shareowners, will be given an opportunity to make a statement at the
meeting if desired, and will be available to respond to appropriate questions.
The vote required for approval of such appointment is a majority of the
shares present in person or by proxy at the meeting.
The Board recommends that shareowners vote "FOR" the appointment.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
intend to bring any other business before the meeting and, so far as is
known to the Board of Directors, no matters are to be brought before the
annual meeting except as specified in the notice of the annual meeting.
However, as to any other business that may properly come before the
annual meeting, it is intended that proxies, in the form enclosed, will be
voted in respect thereof, in accordance with the judgment of the persons
voting such proxies.
SHAREOWNER PROPOSALS--1995 ANNUAL MEETING
Shareowners are entitled to present proposals for action at a forthcoming
shareowners' meeting if they comply with the requirements of the proxy
rules. Any proposals intended to be presented at the 1995 Annual Meeting of
Shareowners of the Company must be received at the Company's offices on
or before October 31, 1994, in order to be considered for inclusion in the
Company's proxy statement and form of proxy relating to such meeting.
Carol H. Roosen, Secretary
March 7, 1994
Palo Alto, California
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL
MEETING IN PERSON. WHETHER OR NOT YOU PLAN TO ATTEND
THE ANNUAL MEETING, YOU ARE REQUESTED TO SIGN AND
RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
PROXY
WATKINS-JOHNSON COMPANY
ANNUAL MEETING OF SHAREOWNERS--APRIL 9, 1994
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS.
The undersigned hereby appoints Dr. Dean A. Watkins, Dr. Rita
Ricardo-Campbell, and Mr. John J. Hartmann, as proxies of the
undersigned, each with full power of substitution, to attend the Annual
Meeting of Shareowners of Watkins-Johnson Company to be held at the
main office of the Company, 3333 Hillview Avenue, Palo Alto, California
94304, at 10:00 o'clock in the morning on Saturday, April 9, 1994, and at any
adjournment or postponement thereof, and to vote the number of shares the
undersigned would be entitled to vote if personally present on any of the
following matters and with discretionary authority as to any and all other
matters that may properly come before the meeting.
THIS PROXY WILL BE VOTED AS SPECIFIED, OR IF NO CHOICE IS SPECIFIED, WILL
BE VOTED FOR THE NOMINEES FOR ELECTION AND FOR PROPOSAL NO. 2.
COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENT/ADDRESS BOX ON REVERSE SIDE
(Continued and to be signed on other side)
<PAGE>
<PAGE>
- ----------
COMMON
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW AND
FOR PROPOSAL 2 AND 3.
WITHHELD
FOR FOR ALL
Item 1--ELECTION OF DIRECTORS
Nominees: Dean A. Watkins / / / /
H. Richard Johnson
W. Keith Kennedy
John J. Hartmann
Rita Ricardo-Campbell
Jack L. Shepard
Von R. Eshleman
Raymond F. O'Brien
William R. Graham
To withhold authority to vote for any individual nominee, write that nominee's
name in the space provided below.
- ----------------------------------
Item 2--To approve the appointment of Deloitte & Touche as independent
accountants of the Company for the fiscal year 1994.
FOR AGAINST ABSTAIN
/ / / / / /
Item 3--In their discretion, to vote upon any and all such other matters as
may properly come before the meeting or any adjournment or
postponement thereof.
SHAREOWNERS ARE URGED TO MARK, DATE, SIGN AND RETURN THIS PROXY IN THE ENVELOPE
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
I PLAN TO ATTEND MEETING / /
COMMENTS/ADDRESS CHANGE
Please mark this box if you / /
have written comments/address change
on the reverse side.
SIGNATURE(S) DATE
-------------------------------------- --------------
NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
PROXY
DIRECTION TO TRUSTEE
WATKINS-JOHNSON COMPANY EMPLOYEE STOCK OWNERSHIP PLAN
WATKINS-JOHNSON EMPLOYEES' PROFIT SHARING INVESTMENT PLAN
I hereby direct you as Trustee of the Watkins-Johnson Employee Stock
Ownership Plan and the Watkins-Johnson Employees' Profit Sharing Investment Plan
to vote the shares of Watkins-Johnson Company common stock credited to my
account under the aforementioned plans at the Annual Meeting of Shareowners of
Watkins-Johnson Company, to be held at the main office of the Company, 3333
Hillview Avenue, Palo Alto, California 94304, at 10:00 o'clock in the morning on
Saturday, April 9, 1994, and at any adjournment or postponement thereof.
I have filled in the appropriate boxes on the other side of this card, and I
authorize you to vote as indicated. Pursuant to the plans, in the absence of
any instructions from me as to any item, shares credited to my account shall
be voted by you, as Trustee, in the same proportion as shares are voted for
which instructions are received.
COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENT/ADDRESS BOX ON REVERSE SIDE
(Continued and to be signed on other side)
<PAGE>
<PAGE>
- ----------
COMMON
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW AND FOR
PROPOSAL 2 AND 3.
Item 1--ELECTION OF DIRECTORS
Nominees: Dean A. Watkins
H. Richard Johnson
W. Keith Kennedy
John J. Hartmann
Rita Ricardo-Campbell
Jack L. Shepard
Von R. Eshleman
Raymond F. O'Brien
William R. Graham
To withhold authority to vote for any individual nominee, write that nominee's
name in the space provided below.
- ----------
Item 2--To approve the appointment of Deloitte & Touche as independent
accountants of the Company for the fiscal year 1994.
FOR AGAINST ABSTAIN
/ / / / / /
Item 3--In their discretion, to vote upon any and all such other matters
as may properly come before the meeting or any adjournment or
postponement thereof.
SHAREOWNERS ARE URGED TO MARK, DATE, SIGN AND RETURN THIS PROXY IN THE ENVELOPE
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
I PLAN TO ATTEND MEETING / /
COMMENTS/ADDRESS CHANGE
Please mark this box if you / /
have written comments/address change
on the reverse side.
SIGNATURE(S) DATE
-------------------------------------- --------------
NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
In NOMINEES FOR ELECTION AS DIRECTORS Section, portraits are shown
next to each director.
The information in the Stock Performance Graph has been reformatted
as a table.
