SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. ______________)
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
WATKINS-JOHNSON COMPANY
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
WATKINS-JOHNSON COMPANY
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) or Schedule 14A
/ / $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 transactions applies:
- ----------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- ----------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
- ----------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- ----------------------------------------------------------------------------
(5) Total fee paid:
- ----------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- ----------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- ----------------------------------------------------------------------------
(3) Filing party:
- ----------------------------------------------------------------------------
(4) Date filed:
- ----------------------------------------------------------------------------
<PAGE>
WATKINS-JOHNSON COMPANY
3333 HILLVIEW AVENUE
STANFORD RESEARCH PARK
PALO ALTO, CALIFORNIA 94304
DEAN A. WATKINS W. KEITH KENNEDY, JR.
CHAIRMAN OF THE BOARD PRESIDENT
H. RICHARD JOHNSON
VICE CHAIRMAN
MARCH 8, 1996
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 13,
1996, 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, Jr.
------------------------
W. Keith Kennedy, Jr.
<PAGE>
WATKINS-JOHNSON COMPANY
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
SATURDAY, APRIL 13, 1996
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 13, 1996, 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 amendment and restatement of the 1989 Stock Option
Plan for Nonemployee Directors.
3. The approval of the appointment of independent public accountants for
1996.
4. The transaction of such other business as may properly come before the
meeting.
Only shareowners of record at the close of business on February 15, 1996 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 8, 1996
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>
WATKINS-JOHNSON COMPANY
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 13, 1996, 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 1995 Annual Report, were first
mailed to shareowners on or about March 8, 1996.
VOTING SECURITIES
Only shareowners of record at the close of business on February 15, 1996 are
entitled to notice of and to vote at the annual meeting. On that date, the
Company had outstanding 8,130,388 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 6,098,315 shares present and voting or withholding authority to
vote at the Company's Annual Meeting of Shareowners held on April 8, 1995, 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 98% or more of the votes
cast, and the appointment of Deloitte & Touche as the Company's independent
public accountants was approved by 99.7% of the votes cast.
1
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT
The following table sets forth information as of December 31, 1995 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
- ------------------------------------- ------------- ---------
None
DIRECTORS AND OFFICERS
Dean A. Watkins ..................... 254,940 3.1
H. Richard Johnson .................. 30,259 *
W. Keith Kennedy, Jr. ............... 163,021 (1) 2.0
John J. Hartmann .................... 3,700 (1) *
Raymond F. O'Brien .................. 2,000 *
William R. Graham ................... 10,530 (1) *
Gary M. Cusumano .................... 500 *
Robert L. Prestel ................... 300 *
Keith D. Gilbert .................... 43,008 (1) *
Richard G. Bell ..................... 17,924 (1) *
Scott G. Buchanan ................... 28,681 (1) *
James L. Schram ..................... 54,781 (1) *
All directors and officers as a group
(16 persons) ........................ 636,819 (1) 7.8
- ----------
* less than 1% of shares outstanding
(1) The amounts shown include shares covered by options exercisable within 60
days of December 31, 1995, as follows: W. Keith Kennedy, 113,968 shares;
John J. Hartmann, 3,100 shares; William R. Graham, 10,230 shares; Keith D.
Gilbert, 33,332 shares; Richard G. Bell, 16,033 shares; Scott G. Buchanan,
23,783 shares; James L. Schram, 52,332 shares; and all directors and
officers as a group, 275,427 shares. Also included are 676, 676, 1,891,
1,598, and 534 shares for Messrs. Kennedy, Gilbert, Bell, Buchanan and
Schram, respectively, which are allocated to their accounts, and 6,011
shares allocated to the accounts of all officers under the Company's
employee stock ownership plans as of December 31, 1995, according to the
plans' administrator. Dr. Watkins does not participate in the employee stock
ownership plans.
2
<PAGE>
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
At the annual meeting in 1996, there are eight nominees standing for
election, each to hold office until his or her successor is elected, or until
death, resignation or removal. All of the nominees are presently directors who
were elected by the shareholders. Pursuant to the Company's Bylaws, the number
of directors may not be less than seven nor more than eleven. The number
currently fixed by resolution is eight. 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 voted for such 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, 1995, 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, 73, 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 a former member of the White House Science Council.
- ----------------- H. RICHARD JOHNSON
| |
| | Vice Chairman of the Board, Watkins-Johnson Company.
| |
| | Director since 1957.
| |
| | Dr. Johnson, 69, 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.
3
<PAGE>
- ----------------- W. KEITH KENNEDY, JR.
| |
| | President and Chief Executive Officer, Watkins-Johnson
| | Company.
| |
| | Director since 1987.
| |
| | Dr. Kennedy, 52, 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 Board of Directors of the
Joint Venture Silicon Valley Network; a member of the
Norcal Council Executive Committee, American Electronics
Association; a member of the Executive Board of The Center
for Quality Management - West; and is a senior member of
the Institute of Electrical and Electronics Engineers.
- ----------------- JOHN J. HARTMANN
| |
| | Financial Consultant.
| |
| | Director since 1966.
| |
| | Mr. Hartmann, 77, is Chairman of both the Audit and
| | Nominating Committees 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.
- ----------------- RAYMOND F. O'BRIEN
| |
| | Business Consultant
| |
| | Director since 1986.
| |
| | Mr. O'Brien, 73, is Chairman of the Compensation Committee
| | of the Board of Directors of the Company. He retired as
| | Chairman of the Board of Consolidated Freightways, Inc. in
| | 1995 and was elected Chairman Emeritus. He is a Director of
| | Champion Road Machinery, Ltd., and a former Director of
- ----------------- Transamerica Corporation, 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.
4
<PAGE>
- ----------------- WILLIAM R. GRAHAM
| |
| | Senior Vice President, The Defense Group, Inc., Falls
| | Church, Virginia.
| |
| | Director since 1989.
| |
| | Dr. Graham, 58, is a member of the Audit and Compensation
| | Committees of the Board of Directors of the Company. He is
| | also a Director of ElectroSource, Inc., was formerly a
| | Director and President of C-COR Electronics, Inc., and has
- ----------------- served as a business and management consultant. 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.
- ----------------- GARY M.CUSUMANO
| |
| | President, The Newhall Land and Farming Company, Valencia,
| | California.
| |
| | Director since 1994.
| |
| | Mr. Cusumano, 52, is a member of the Compensation and
| | Nominating Committees of the Board of Directors of the
| | Company. He is a Director of the Newhall Land and Farming
| | Company and the Zero Corporation. He is Third Vice Chairman
- ----------------- of the California Chamber of Commerce Board of Directors
and Chairman of the Chamber's Economic and Job Development
Committee; Chairman of the Henry Mayo Newhall Memorial
Hospital Board of Directors; and a member of the Stanford
Sloan Alumni Advisory Board. He is past Vice Chairman of
the California Chamber's Water Resources Committee, a
former Regent of the University of California (1984-1986),
a former Chairman of the University of California Davis
Foundation, and former President of the University of
California Davis Alumni Association.
- ----------------- ROBERT L. PRESTEL
| |
| | Business and Management Consultant.
| |
| | Director since 1994.
| |
| | Mr. Prestel, 59, is a member of the Audit and Nominating
| | Committees of the Board of Directors of the Company. He
| | retired as Deputy Director of the National Security Agency
| | in February 1994 after serving the Agency since 1962.
| | During his career he was Director of Education and Training
- ----------------- from 1981 to 1983, and Deputy Director for Research and
Engineering from 1985 to 1990. He is the recipient of the
President's Distinguished Executive Award in 1988; the
Department of Defense's highest civilian award, the
Distinguished Civilian Service Medal in 1988; and the
National Intelligence Distinguished Service Medal in 1991.
In 1994 he was named as a "Reinvention Hero" by President
Clinton for instilling quality management into the National
Security Agency and for being a quality mentor throughout
government service. He is a consultant to INTEC Inc. and a
member of the Board of Trustees for the Institute of
Defense Analysis; and formerly was a consultant for the
Joint Advisory Committee of the Massachusetts Institute of
Technology Lincoln Laboratories. He teaches mathematics
part-time at the University of Maryland.
5
<PAGE>
FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board of Directors met eight times during 1995. Standing committees of
the Board include an Audit Committee, which met two times during 1995, a
Compensation Committee, which met two times during 1995, and a Nominating
Committee, which was formed by the directors in May 1995.
During the past year, the Audit Committee consisted of Directors Hartmann,
Prestel 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 consisted of Directors O'Brien, Graham and
Cusumano. 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.
The Nominating Committee consisted of Directors Hartmann, Cusumano and
Prestel. The Committee's primary function is to direct the search for qualified
candidates to fill Board vacancies that may occur and to recommend them to the
full Board.
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 served during 1995.
DIRECTOR COMPENSATION
Except for the Company's founders, Drs. Dean A. Watkins and H. Richard
Johnson, directors who are not employees of the Company each receive an annual
fee of $21,600 and a fee of $300 for each Board or Committee meeting attended.
In April 1994, Drs. Watkins and Johnson retired as employees of the Company and
the Board approved execution of certain consulting agreements with them, as
founders; the agreements specify an annual fee payable to Dr. Watkins in the
amount of $265,000, and an annual fee of $125,000 payable to Dr. Johnson, in
addition to the regular director's fees.
Directors who are not employees, except for Drs. Watkins and Johnson, 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
by the shareowners, 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, begin to
vest and 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.
Vested 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, 1995, there were 51,937 shares
subject to outstanding options, and there
6
<PAGE>
were 88,909 shares available for future grants. At December 31, 1995, Director
Graham held exercisable in-the-money options in the amount of 10,230 shares and
Director Hartmann held exercisable in-the- money options of 3,100 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, 1995, which was $43.75 per
share.
As set forth in Proposal 2, shareowners are being asked to approve certain
amendments to the Plan, as described in that Proposal.
EXECUTIVE COMPENSATION
<TABLE>
The following tables set forth all annual and long-term compensation,
including stock option awards, paid or to be paid to the Company's chief
executive officer, and the five other most highly compensated executive officers
during the fiscal years indicated.
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------------- -------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
COMPENSATION AWARD(S) OPTIONS/ COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(2) ($)(3) ($)(4) SARS (#)(4) SATION($)(5)
- --------------------------- ------ ---------- ---------- -------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
W. KEITH KENNEDY ...........1995 $440,000 $ 87,431 -0- -0- 110,000 $ 87,685
President & Chief 1994 440,000 213,579 -0- -0- 100,000 210,120
Executive Officer 1993 440,000 104,248 -0- -0- 80,000 399,535
DEAN A. WATKINS ............1995 292,000 -0- -0- -0- -0- -0-
Chairman of the 1994 285,750 2,872 -0- -0- -0- 4,415
Board 1993 290,000 4,056 -0- -0- -0- 5,200
KEITH D. GILBERT(6) ........1995 267,800 9,636 -0- -0- 20,000 6,000
Executive Vice 1994 267,800 50,021 -0- -0- 30,000 54,439
President 1993 266,400 22,822 -0- -0- 30,000 83,708
RICHARD G. BELL ............1995 199,000 26,478 -0- -0- 20,000 25,510
Vice President & 1994 188,300 41,535 -0- -0- 15,000 44,122
General Counsel 1993 181,400 21,054 -0- -0- 15,000 79,759
SCOTT G. BUCHANAN ..........1995 197,700 34,260 -0- -0- 20,000 33,172
Vice President & Chief 1994 180,200 39,333 -0- -0- 25,000 42,110
Financial Officer 1993 147,500 13,292 -0- -0- 15,000 49,474
JAMES L. SCHRAM(7) .........1995 264,300 33,817 -0- -0- 40,000 6,000
Former Executive 1994 215,220 142,648 -0- -0- 30,000 131,259
Vice President 1993 192,600 50,458 -0- -0- 30,000 196,976
</TABLE>
(SEE FOOTNOTES ON NEXT PAGE)
7
<PAGE>
FOOTNOTES TO SUMMARY COMPENSATION TABLE
(1) Represents total base salary earned by the 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. Dr.
Watkins does not participate in either of the aforementioned plans.
(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 matching contributions to the 401(k) portion of the
Employees' Investment Plan in 1995, and Company contributions to the
Employees' Profit Sharing Investment Plan for 1994 and 1993, and also
includes Company contributions to the Employee Stock Ownership Plan for all
named officers. Additionally includes the unvested, deferred portion of the
Top Management Incentive Bonus Plan in the year awarded for all named
officers. Amounts shown for 1995 consist of the following: 401(k) matching
contributions of $4,500 each for Messrs. Kennedy, Gilbert, Bell, Buchanan
and Schram; ESOP contributions of $1,500 each to Messrs. Kennedy, Gilbert,
Bell, Buchanan and Schram, respectively; and the unvested, deferred Top
Management Incentive Bonus Plan awards of $81,685, $19,510, and $27,172 for
Messrs. Kennedy, Bell and Buchanan, respectively. In 1995, the method for
calculation of the bonus was changed to a formula based on certain
measurement factors that include profit from operations, firm orders and
return on controllable assets (ROCA). Fifty percent of the dollar value so
awarded is deferred to appreciate or depreciate based on the ROCA for each
participant's organization. This deferred bonus amount vests after two years
from the award date and is then valued based on the ROCA measurement for the
participant's organization at that time. Previously, awards were granted in
the form of bonus units that were 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. For 1994, the bonus units so determined vested
at 50% each year on the anniversary date of award, and become fully vested
after two years. For 1993, the deferred bonus units vested at 25% each year
on the award anniversary date, and become fully vested after four years. All
unvested bonus dollars or units are subject to a risk of forfeiture if the
executive leaves the Company prior to the vesting dates. Dr. Watkins does
not participate in the ESOP or the Top Management Incentive Bonus Plan.
(6) From January 1995 until November 1995, Mr. Gilbert served as a consultant
for the Company, reporting to the President and Chief Executive Officer. He
was reappointed as executive vice president by the Board of Directors in
November 1995.
(7) In November 1995, Mr. Schram resigned as executive vice president of the
Company. He continued his employment as a consultant until February 1996.
Upon termination of his employment, Mr. Schram was entitled to receive the
remaining compensation due under his employment agreement, as well as
certain accrued bonus amounts.
8
<PAGE>
1995 OPTION/SAR GRANTS TABLE
<TABLE>
The following table sets forth incentive stock options granted to the named
officers during 1995 under the Company's 1991 Stock Option and Incentive Plan.
No stock appreciation rights (SARs) were granted in 1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS/SARS AT ASSUMED ANNUAL RATES
UNDERLYING GRANTED TO EXERCISE OR OF STOCK PRICE APPRECIATION
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION FOR OPTION TERM(3)
NAME GRANTED (#)(1) FISCAL YEAR ($/SH)(2) DATE 5%($) 10%($)
-------------- -------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
W. Keith Kennedy ........110,000 16.6% $36.75 02/27/2005 $ 2,542,000 $ 6,443,000
Dean A. Watkins ......... -0-
Keith D. Gilbert ........ 20,000 3.0% 45.50 11/27/2005 572,000 1,450,000
Richard G. Bell ......... 20,000 3.0% 36.75 02/27/2005 462,000 1,171,000
Scott G. Buchanan ....... 20,000 3.0% 36.75 02/27/2005 462,000 1,171,000
James L. Schram ......... 40,000 6.0% 36.75 02/27/2005 924,000 2,343,000
All Optionees(4) ........662,250 100.0% 36.75 -- 15,333,000 38,697,000
All Shareholders(5) .... -- -- -- -- 177,953,000 449,119,000
All Optionees' Gain as a
percentage of All
Shareholders' Gain ..... 8.6% 8.6%
<FN>
- ----------
(1) Options granted in 1995 were incentive stock options up to the maximum
allowed for each officer under Internal Revenue Code 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 $59.90 and $95.18, respectively, for all named
officers except Mr. Gilbert. Mr. Gilbert's 5% and 10% assumed annual rate of
stock price appreciation would result from per share prices of $74.17 and
$117.85, 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 1995, and the potential
realizable value is based on the $36.75 per share price of the options
granted to the named executive officers on February 27, 1995, and a ten-year
option term (the term of all options granted in fiscal year 1995).
(5) For "All Shareholders," the potential realizable value is based on a
ten-year appreciation of the 7,686,115 shares outstanding on February 27,
1995 and on the $36.75 per share price of the options granted to the named
executive officers on that date.
</FN>
</TABLE>
9
<PAGE>
1995 OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth stock options exercised by any of the named
executive officers during 1995, and the number and value of all unexercised
options at year end. The value of "in-the-money" options refers to options
having an exercise price which is less than the market price of Watkins-Johnson
stock on December 31, 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END(#) AT FY-END($)(2)
--------------- ---------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE
- ------------------------------ ---------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
W. Keith Kennedy ............. 77,001 $2,166,379 27,301/ $ 418,000/
290,000 5,426,700
Dean A. Watkins ............. -0- -0- -0- / -0- /
-0- -0-
Keith D. Gilbert ............. 96,466 1,852,275 -0- / -0- /
83,334 1,699,187
Richard G. Bell ............. 19,665 538,291 1,033/ 32,410/
50,002 934,440
Scott G. Buchanan............. 13,400 382,370 3,784/ 91,575/
61,666 1,199,561
James L. Schram .............. 24,999 769,378 27,333/ 753,739/
103,335 1,821,929
- ----------
(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 12/31/95, which
was $43.75 per share less the exercise price.
</TABLE>
EXECUTIVE EMPLOYEE AGREEMENTS
In 1995, the Company executed five-year employment agreements with Messrs.
Kennedy 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 and Schram were renewed in
1995 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.
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
10
<PAGE>
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. During the past year, the Committee was composed of
three outside directors, Raymond F. O'Brien, Chairman, William R.
Graham and Gary M. Cusumano.
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 1995 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
1995, the Committee considered the Company's financial performance in 1994,
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 recognize and act upon the changing requirements of the workplace.
Adjustments to executive base salaries in 1995 were also based on a qualitative
analysis of each position's current responsibilities and expected contribution
to the Company's continuing advance into new areas of business.
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
shareowners. 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
11
<PAGE>
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.
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, return on controllable assets (ROCA), and obtaining 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 50% of the award, is paid in cash during the first quarter of the
year after it is earned. The second increment, the remaining 50% of the award,
is deferred. In 1995, the procedure used for retention of this deferred portion
was changed to allow the dollar value so awarded to appreciate or depreciate
based on the ROCA for each participant's organization. The deferred amount vests
after two years from the award date and is then valued based on the ROCA
measurement for the participant's organization at that time. Thus, executives'
interests are more closely aligned with those of our shareowners. Previously,
the remaining 50% of the award was deferred in the form of bonus units, which
were valued based on the Company's net book value at year end, and which vested
over a two-year period at 50% annually as of each December 31 following the
award date. If the executive leaves the Company during the deferral period, any
unvested dollars or units are forfeited. Both the 50% vested portion of the
award and the 50% deferred amount earned in 1995 by the named officers are shown
under the Summary Compensation Table on page 7.
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 a profit-sharing plan 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 annual
pretax profits to all employees who have been employed for more than 90 days
during the prior fiscal year. Before 1994, the pretax profit amount was
calculated on consolidated, companywide profits allocated by fixed percentage
over all employees' base pay. In order to more fairly compensate employees
individually, the 6% profit amount for 1994 and beyond is based on each business
unit's annual pretax profit, thereby giving employees a better understanding of
and reward for the achievements made within their own work areas. In 1995, the
Company modified the Employees' Profit Sharing and Investment Plan by
discontinuing its annual pretax profit sharing contributions, and adding a
Company matching contribution on employee 401(k) deferrals. The plan was renamed
the Watkins-Johnson Employees' Investment Plan, and participants' accounts
automatically became 100% vested without regard to length of service. The Plan,
as continued, is an ERISA-based plan and participants' accounts are distributed
upon retirement, or earlier termination from the Company. There are no specific
performance criteria relating to these plans.
Top Management Deferred Compensation Plan. In 1994, the Board approved
implementation of a non-qualified deferred compensation plan for the Company's
executives. Under the plan, participants may elect to defer up to 15% of their
base salary which will earn the prime rate in effect at the beginning of each
quarter. The election to defer must be made prior to the year during which the
compensation is
12
<PAGE>
earned and cannot be revoked once the elected year begins. Funds so deferred
will be distributed in a lump sum only upon the earlier of retirement,
termination, death, disability, hardship, or change in executive status.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The same policies and programs described above were followed by the Committee
in determining the 1995 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 1994 and its continued profitability due to constant
monitoring of costs and elimination of nonvalue- added activities. 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. He has continued his
strong leadership of the Company during a period of unprecedented growth and
transition, and 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 remained 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 1995.
Apart from salary, the Committee granted Dr. Kennedy a stock option for
110,000 shares at $36.75, 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 1995 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 just before 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 1995,
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 37%
of his base salary. However, 50% of the award, the long-term portion, is subject
to change based on future appreciation or depreciation of the Company's return
on controllable assets (ROCA).
During 1995, the Company under Dr. Kennedy's management has continued to
successfully implement its strategies, and increased its development of new
markets. These efforts have again led to a significant increase in shareowner
value, with an increase in the stock price in 1995 of 47%, following the
increase of 50% at the end of 1994.
The Compensation Committee
Raymond F. O'Brien, Chairman
William R. Graham
Gary M. Cusumano
13
<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,
1990 in the Company's common stock, the Standard & Poor's 500 Composite Index,
and the Dow Jones Diversified Technology Index for a period of five years. The
Standard & Poors Composite Index was chosen as our broad equity market index
because of its wide distribution and recognition by shareholders. The Dow Jones
Diversified Technology Index was selected as having a representative industry
peer group of companies. The Dow Jones index includes 11 companies with at least
2 high-technology business segments.
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
Comparison of 5 Year Cumulative Total Return*
Among Watkins-Johnson, Dow Jones, S&P 500 Indexes
--------------------------------------------------
12/90 12/91 12/92 12/93 12/94 12/95
Watkins-Johnson Co. 100 81 111 153 240 357
Dow Jones Diversified 100 119 131 155 158 215
Technology Index
S&P 500 100 130 140 158 157 215
- -------------
* $100 invested on 12/31/90 in stock or index, including reinvestment of
dividends. Fiscal year ending December 31.
14
<PAGE>
PROPOSAL TO APPROVE THE
AMENDMENT AND RESTATEMENT OF THE
1989 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
EFFECTIVE AS OF JANUARY 29, 1996
(ITEM 2 ON PROXY CARD)
The shareowners of the Company are being asked to act upon a proposal to
approve the January 29, 1996 action of the Board of Directors of the Company
amending and restating the Watkins-Johnson Company 1989 Stock Option Plan for
Nonemployee Directors (the "1989 Plan") effective as of January 29, 1996. All
references herein to the 1989 Plan are to the Plan as amended and restated
effective as of January 29, 1996.
The amendment and restatement revises the 1989 Plan to accomplish the
following purposes:
o to add 150,000 shares to the 200,000 shares reserved for issuance
under the Plan (88,909 shares remained available for grant as of
December 31, 1995);
o to change the variable automatic grants to options covering a fixed
3,000 shares;
o to extend the term during which annual grants will be made to April
30, 2005 from April 30, 1999;
o to vest options after six months from the grant date; and
o to include protective language relating to compliance with the
Securities Exchange Act of 1934.
The Board of Directors has reviewed the 1989 Plan and the purposes of the
Plan from time to time. It was the determination of the Board after the current
review (with the interested directors not voting thereon) that the foregoing
changes were appropriate in order to implement the express purposes of the 1989
Plan under current circumstances.
The proposal requires ratification and approval by the affirmative vote of
the holders of a majority of the outstanding shares of common stock of the
Company present in person or by proxy at the Annual Meeting and entitled to vote
thereon.
The 1989 Plan, as amended and restated, is included herewith as Appendix A,
with all revisions marked. The summary of the 1989 Plan below is subject to, and
qualified by, the text of the Plan.
AUTOMATIC ANNUAL GRANTS
The 1989 Plan, as amended and restated, continues annual automatic grants of
options, but changes the grants from a variable to a fixed number to be granted
each year. Under the 1989 Plan, as amended and restated, each eligible director
will automatically be granted options to purchase 3,000 shares of the Company's
common stock on the last Monday in April of the fiscal years 1996 through and
including 2005.
ELIGIBLE DIRECTORS
Under the 1989 Plan, the automatic option grants shall only be made if the
director is not otherwise an employee of the Company or any subsidiary on the
date of the grant or for any part of the preceding fiscal year and the director
has served on the Board of Directors for the entire preceding fiscal year. In
addition, the 1989 Plan provides that new directors shall, upon election by the
shareowners, receive an automatic, one-time grant of options to purchase 3,000
shares of the Company's common stock. Except for the fixed 3,000 shares, these
provisions are all the same as in the 1989 Plan, as initially adopted.
VESTING OF OPTIONS
Options granted under the 1989 Plan are not exercisable during the first 6
months after the date of grant. Thereafter, the options are fully exercisable.
This is a change from the 1989 Plan, as initially adopted, under which options
were not exercisable during the first two years after the date of grant, and
thereafter were exercisable as follows: 1/3 during the third year after grant,
2/3 during the fourth year after the grant, and all during all years thereafter.
When an optionee ceases to be a director of the Company for any reason, only
options then exercisable may be exercised.
LIMITED RIGHTS
The 1989 Plan also continues to provide "limited rights" which are
exercisable by the director upon the happening of certain specified events
constituting a change in control of the Company. Upon exercise
15
<PAGE>
of the limited rights, the related stock option ceases to be exercisable and the
holder receives in cash from the Company an amount equal to the spread between
the exercise price of the option and the market price in effect on the date that
the rights are triggered.
STOCK AVAILABLE
The aggregate number of shares which may be issued under the Plan is 350,000
shares of common stock, unless an adjustment is required based on a subdivision
or consolidation of shares or the payment of a stock dividend or any other
increase or decrease in the number of issued and outstanding shares effected
without receipt of consideration by the Company.
PURPOSE
The Board of Directors believes that the success of the Company depends, in
large part, upon the ability of the Company to attract and retain as members of
its Board of Directors knowledgeable persons of broad business experience and
professional expertise who have no employment relationship with the Company. To
facilitate the Company's ability to attract and retain such experienced and
knowledgeable independent Directors, the Board of Directors adopted the 1989
Plan, which was ratified and approved by the shareowners of the Company on April
7, 1990. The 1989 Plan is intended to provide incentives for Nonemployee
Directors to work for the best interests of the Company and its shareowners.
The purpose of providing automatic option grants of a fixed amount, on
scheduled dates and subject to a fixed vesting schedule, rather than
establishing a committee to determine who should receive options and in what
quantity, is to assure that no action by the Board of Directors should either be
or appear to be a conflict of interest. Thus, under the 1989 Plan, the Board of
Directors has no control over the timing of grants or number of shares granted,
and there is no immediate benefit accruing from such grants because the options
are not immediately exercisable.
The 1989 Plan was amended, restated and continued by the Board of Directors
on January 29, 1996 in order to further the foregoing purposes.
ADDITIONAL TERMS
The options are not assignable or transferable except by will or by the laws
of descent and distribution. The option price shall be payable upon exercise in
cash or with shares of common stock of the Company already owned by the person
exercising the option.
TAX ASPECTS
The Company understands that under existing federal income tax laws, the tax
consequences of options under the 1989 Plan are as follows:
Generally, options under the 1989 Plan will be treated for tax purposes as
non-qualified options. A recipient will not have taxable income upon the grant
of the option. The optionee will recognize ordinary income upon exercise in an
amount equal to the appreciation value on the date of exercise. However, an
optionee who is subject to restrictions under section 16(b) of the Exchange Act
of 1934 in connection with the shares acquired on exercise will not recognize
any income upon such exercise until such restrictions, if any, no longer apply.
These optionees will recognize ordinary income at such later date in the amount
by which the fair market value of the shares then exceeds the option price. Any
gain or loss realized upon any later disposition of the shares generally will be
capital gain or loss.
The Company will be entitled to a tax deduction in connection with the
exercise of options. The tax deduction will be an amount equal to the ordinary
income included in gross income as compensation by the optionee and the
deduction will be allowable at the time the optionee includes such income. The
tax deduction may be dependent on the Company's timely compliance with
applicable tax information filing requirements.
ADMINISTRATION, AMENDMENT AND TERMINATION
The Plan is administered by the Board of Directors. The Board has the power
to construe the Plan, to determine all questions arising thereunder, and to
adopt and amend such rules and regulations for the administration of the Plan as
it may deem desirable.
16
<PAGE>
The Board of Directors may, to the extent permitted by law and exchange
listing requirements and to the extent not expressly limited by the provisions
of the Plan, suspend, discontinue, revise or amend the Plan in any respect. The
Plan specifies certain areas in which shareowner approval is required.
REGISTRATION UNDER SECURITIES ACT OF 1933
It is contemplated that shares of the Company's common stock issuable under
the 1989 Plan, as amended and restated, will be registered under the Securities
Act of 1933.
SHAREOWNER VOTE
In order to be adopted, this proposal requires the affirmative vote of the
holders of a majority of the outstanding shares present in person or by proxy
and entitled to vote at the annual meeting of shareowners.
The Board of Directors recommends that the shareowners vote "FOR" the
proposed amendment and restatement of the 1989 Stock Option Plan for Nonemployee
Directors.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(ITEM 3 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--1997 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 1997 Annual Meeting of Shareowners
of the Company must be received at the Company's offices on or before October
31, 1996, 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 8, 1996
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.
17
<PAGE>
APPENDIX A
NOTICE: ALL PROPOSED DELETED TEXT IS SHOWN WITH BRACKETS;
ALL PROPOSED NEW TEXT IS DOUBLE SPACED WITH HYPHENS.
WATKINS-JOHNSON COMPANY
1989 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
( AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 29, 1996)
ARTICLE I
GENERAL
1. PURPOSE
This 1989 Stock Option Plan for Nonemployee Directors (the "Plan") is
intended to attract and retain the services of experienced and knowledgeable
independent directors of Watkins-Johnson Company (the "Company"), for the
benefit of the Company and its shareowners and to provide additional incentive
for such directors to continue to work for the best interests of the Company and
its shareowners.
2. ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company (the
"Board"). The Board shall have the power to construe the Plan, to determine all
questions arising thereunder and to adopt and amend such rules and regulations
for the administration of the Plan as it may deem desirable.
The interpretation and construction by the Board of any provisions of the
Plan or of any option granted under it shall be final and shall be given the
maximum deference permitted by law. No member of the Board shall be liable for
any action or determination made in good faith with respect to the Plan or any
option granted under it.
3. ELIGIBILITY
[Each director of the Company who is not otherwise an employee of the Company
or any subsidiary on April 24, 1989, shall automatically be granted options to
purchase 4000 shares of the Company's Common Stock at the close of business on
April 24, 1989 (the "Initial Grants"). The Initial Grants are made subject to
approval of the Plan by the shareowners at the next annual meeting of
shareowners, or any adjournment thereof, in accordance with Section 6 of Article
I of the Plan. Thereafter, each director of the Company shall automatically be
granted options to purchase shares of the Company's Common Stock (subject to
adjustment as provided in Article III hereof) on the last Monday in April of
fiscal years 1990 through and including 1998 (the "Grant Dates") in accordance
with the schedule set forth below; provided, however that such automatic option
grants shall only be made if the director (i) is not otherwise an employee of
the Company or any subsidiary on the date of the grant, (ii) has not been an
employee of the Company or any subsidiary for all or any part of the preceding
fiscal year, (iii) has served on the Board of Directors for the entire preceding
fiscal year.]
[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]
A-1
<PAGE>
Each director of the Company who is not otherwise an employee of the Company
-----------------------------------------------------------------------------
or any subsidiary on the Grant Date (as defined below) shall automatically be
- --------------------------------------------------------------------------------
granted options to purchase 3,000 shares of the Company's common stock (subject
- --------------------------------------------------------------------------------
to adjustment as provided in Article III hereof) on the last Monday in April of
- --------------------------------------------------------------------------------
fiscal years 1996 through and including 2005 (the "Grant Dates"); provided,
- --------------------------------------------------------------------------------
however, that such automatic option grants shall only be made if the director
- --------------------------------------------------------------------------------
(i) is not otherwise an employee of the Company or any subsidiary on the Grant
- --------------------------------------------------------------------------------
Date, (ii) has not been an employee of the Company or any subsidiary for all or
- --------------------------------------------------------------------------------
any part of the preceding fiscal year, and (iii) has served on the Board of
- --------------------------------------------------------------------------------
Directors for the entire preceding fiscal year.
- -----------------------------------------------
In addition, on the date that any person is for the first time elected by the
shareowners of the Company to the Board of Directors (which shall include the
date that a director appointed by the Board of Directors is for the first time
elected by the shareowners of the Company to the Board), options to purchase
3,000 [the same number of] shares of the Company's common stock (subject to
- -----
adjustment as provided in Article III hereof) [as shall have been granted the
other directors in the year immediately preceding his or her election] shall
automatically be granted to such newly elected director; provided, however, that
such automatic option grant shall only be made if the director is not otherwise
an employee of the Company or any subsidiary on the date of such election and
has not been an employee for all or any part of the preceding fiscal year.
In the event that the number of shares of the Company's common stock subject
to future grant under the Plan is insufficient to make all automatic grants
required to be made on such date, then all nonemployee directors entitled to a
grant on such date shall ratably share in the number of options on shares of the
Company's common stock available for grant under the Plan.
4. SHARES OF STOCK SUBJECT TO THE PLAN
The shares that may be issued under the Plan shall be authorized and unissued
or reacquired shares of the Company's common stock (the "common stock"). The
aggregate number of shares which may be issued under the Plan shall not exceed
[200,000] 350,000 shares of common stock, unless an adjustment is required in
-------
accordance with Article III.
5. AMENDMENT OF THE PLAN
The Board of Directors may, insofar as permitted by law, from time to time,
suspend or discontinue the Plan or revise or amend it in any respect whatsoever,
except that no such amendment shall alter or impair or diminish any rights or
obligations under any option theretofore granted under the Plan without the
consent of the person to whom such option was granted. In addition, without
further shareowner approval, no such amendment shall increase the number of
shares subject to the Plan (except as authorized by Article III), increase the
number of shares for which an option may be granted to any optionee (except as
authorized by Article III), change the designation in Section 3 of Article I of
the class of persons eligible to receive options under the Plan, provide for the
grant of options having an option price per share less than fair market value
(as defined in Section 2 of this Article I) on the date of grant, extend the
term during which options may be exercised, extend the final date upon which
options under the Plan may be granted, or otherwise amend the Plan in a way that
would require shareowner approval under Rule 16b-3.
6. APPROVAL OF SHAREOWNERS
[The Plan is effective April 24, 1989, subject to approval by the affirmative
votes of the majority of the holders of a majority of the securities holders of
the Company present, or represented, and entitled to vote at the next annual
meeting of shareowners (with the shares held by the interested director or
directors not being entitled to vote thereon), or adjournment thereof, duly held
in accordance with California law.]
This amendment and restatement of the Plan is effective January 29, 1996,
-----------------------------------------------------------------------------
subject to approval by the affirmative votes of the holders of a majority of the
- --------------------------------------------------------------------------------
securities of the Company present, or represented, and entitled to vote at the
- --------------------------------------------------------------------------------
next annual meeting of the shareowners (with the shares held by the interested
- --------------------------------------------------------------------------------
directors not being entitled to vote thereon), or adjournment thereof, duly held
- --------------------------------------------------------------------------------
in accordance with California law. No option granted hereunder may become
- --------------------------------------------------------------------------------
exercisable unless and until such approval is obtained.
- -------------------------------------------------------
A-2
<PAGE>
7. TERM OF PLAN
Options may be granted under the Plan until [April 30, 1999] April 30, 2005,
---------------
the date of termination of the Plan. Notwithstanding the foregoing, each option
granted under the Plan shall remain in effect until such option has been
satisfied by the issuance of shares or terminated in accordance with its terms
of the Plan.
8. RESTRICTIONS
All options granted under the Plan shall be subject to the requirement, if at
any time the Board shall determine, in its discretion, that the listing,
registration or qualification of the shares subject to options granted under the
Plan upon any securities exchange or under any state or federal law, or the
consent or approval of any government regulatory body, is necessary or desirable
as a condition of, or in connection with, the granting of such option or the
issuance, if any, or purchase of shares in connection therewith, such option may
not be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board.
9. NONASSIGNABILITY
No option shall be assignable or transferable by the grantee except by will
or by the laws of descent and distribution. During the lifetime of the optionee,
the option shall be exercisable only by him, and no other person shall acquire
any rights therein.
10. WITHHOLDING TAXES
Whenever shares of common stock are to be issued under the Plan, the Company
shall have the right to require the optionee to remit to the Company an amount
sufficient to satisfy federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for such shares.
11. DEFINITION OF "FAIR MARKET VALUE"
For the purposes of this Plan, the term "fair market value," when used in
reference to the date of grant of an option or the date of surrender of common
stock in payment for the purchase of shares pursuant to the exercise of an
option, as the case may be, shall be the closing price of the common stock on
the New York Stock Exchange on the day the valuation is to be made, or if no
sale of the Company's common stock shall have been made on said stock exchange
that day, on the next preceding day on which there was a sale of such stock.
ARTICLE II
STOCK OPTIONS
1. AWARD OF STOCK OPTIONS
Awards of stock options shall be made under the Plan under all the terms and
conditions herein. Each option granted under the Plan shall be evidenced by an
option agreement duly executed on behalf of the Company and by the director to
whom such option is granted, which option agreements may but need not be
identical and shall comply with and be subject to the terms and conditions of
the Plan. Any option agreement may contain such other terms, provisions and
conditions not inconsistent with the Plan as may be determined by the Board.
2. TERM OF OPTIONS AND EFFECT OF TERMINATION
Notwithstanding any other provision of the Plan, no option granted under the
Plan shall be exercisable after the expiration of ten years from the date of its
grant. In the event that any outstanding option under the Plan expires by reason
of lapse of time or otherwise is terminated for any reason, then the shares of
common stock subject to any such option which have not been issued pursuant to
the exercise of the option shall again become available in the pool of shares of
common stock for which options may be granted under the Plan.
A-3
<PAGE>
3. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be evidenced by agreements in such
form as the Board shall from time to time determine, which agreements shall
comply with the following terms and conditions.
A. Number of Shares
Each option agreement shall state the number of shares to which the
option pertains.
B. Option Price
Each option agreement shall state the option price per share which
shall be equal to 100% of the fair market value of a share of the common stock
on the date such option is granted.
C. Medium and Time of Payment
The option price shall be payable upon the exercise of an option in
the legal tender of the United States or in shares of the Company's common stock
valued at their fair market value on the date of such exercise or in a
combination of such legal tender and such shares. Upon receipt of payment, the
Company shall deliver to the optionee (or person entitled to exercise the
option) a certificate or certificates for the shares of common stock to which
the option pertains.
D. Exercise of Option
[Options granted under the Plan shall become exercisable as follows:]
[During Year After Grant % of Option Exercisable]
[1 0]
[2 0]
[3 33 1/3]
[4 66 2/3]
[5 years and after 100]
[The term "year of grant" refers to year periods following the grant, not
calendar years.]
Options granted under the Plan shall become exercisable only after six
---------------------------------------------------------------------------
months from the grant.
- ----------------------
To the extent that an option has become exercisable and subject to the
restrictions and limitations set forth in this Plan and in the option agreement,
it may be exercised in whole or in such lesser amount as may be authorized by
the option agreement; provided, however, that no option shall be exercised for
fewer than ten shares. If exercised in part, the unexercised portion of an
option shall continue to be held by the optionee and may thereafter be exercised
as herein provided.
E. Termination of Directorship Except by Death
In the event that an optionee shall cease to be a director of the
Company for any reason other than his or her death, his or her option shall be
exercisable, to the extent it was exercisable at the date he or she ceased to be
a director, for a period of one year after such date, and shall then terminate.
Such option may be exercised at any time within such period and prior to the
date on which the option expires by its terms.
F. Death of Optionee and Transfer of Option
If an optionee dies while a director of the Company, or within the
period after termination of such status during which he or she is permitted to
exercise an option in accordance with Subsection 3 E of this Article II, such
option may be exercised at any time within one year after the optionee's death,
but only to the extent the option was exercisable at the time of death. Such
option may be exercised at any time within such one-year period and prior to the
date on which the option expires by its terms. During such period, such option
may be exercised by any person or persons designated by the optionee on a
Beneficiary Designation Form adopted by the Board for such purpose, or, if there
is no effective Beneficiary Designation Form on file with the Board, by the
executors or
A-4
<PAGE>
administrators of the optionee's estate or by any person or persons who shall
have acquired the option directly from the optionee by his will or the
applicable law of descent and distribution.
G. Stock Appreciation Rights-Limited Rights
1. Options granted pursuant to this plan ("Related Stock
Options") shall include stock appreciation rights (referred to in
herein as "Limited Rights"). A Limited Right may be exercised only
during the sixty-day period beginning on an "Acceleration Date" (as
defined in paragraph H hereof); provided, however, that if the
Acceleration Date occurs within the six- month period following the
grant of the Related Stock Option, then the Limited Right will be
exercisable for a period of sixty days following expiration of such
six-month period. Each Limited Right shall be exercisable only if, and
to the extent that, the Related Stock Option is exercisable and the
holder of the option is at the Acceleration Date, subject to the
restrictions of Section 16 under the Securities Exchange Act of 1934.
(a) Upon the exercise of a Limited Right, such Related Stock
Option shall cease to be exercisable to the extent of the shares
of stock with respect to which such Limited Right is exercised,
but shall be considered to have been exercised to that extent for
purposes of determining the number of shares of stock available
for the grant of further options pursuant to this Plan. Upon the
exercise or termination of a Related Stock Option, the Limited
Right with respect to such Related Stock Option shall terminate
to the extent of the shares of stock with respect to which the
Related Stock Option was exercised or terminated.
(b) Upon the exercise of a Limited Right, the holder thereof
shall receive in cash from the Company whichever of the following
amounts is applicable:
(i) In the case of an exercise of Limited Rights by
reason of the occurrence of an Offer (as defined in
paragraph H hereof), an amount equal to the Offer Spread (as
defined in subparagraph (d) hereof); or
(ii) In the case of an exercise of Limited Rights by
reason of shareholder approval of an agreement described in
paragraph H, an amount equal to the Merger Spread (as
defined in subparagraph (f) hereof); or
(iii) In the case of an exercise of Limited Rights by
reason of shareholder approval of a plan of liquidation
described in paragraph H, an amount equal to the Liquidation
Spread (as defined in subparagraph (h) hereof); or
(iv) In the case of an exercise of Limited Rights by
reason of an acquisition of stock described in paragraph H,
an amount equal to the Acquisition Spread (as defined in
subparagraph (j) hereof); or
(v) In the case of an exercise of Limited Rights by
reason of the election of 50% or more of the directors
described in paragraph H, an amount equal to the Director
Spread (as defined in subparagraph (l) hereof).
(c) The term "Offer Price per Share" as used herein shall
mean, with respect to the exercise of any Limited Right by reason
of the occurrence of an Offer, the greater of (i) the highest
price per share of stock paid in any Offer, which Offer is in
effect at any time during the sixty-day period ending on the date
of which such Limited Right becomes exercisable, or (ii) the
highest Fair Market Value per Share of the Stock during such
sixty-day period. Any securities or property which are part of
all of the consideration paid for shares of stock in the Offer
shall be valued in determining the Offer Price per Share at the
higher of (A) the valuation placed on such securities or property
by the corporation, person or other entity making such Offer or
(B) the valuation placed on such securities or property by a
committee consisting of the outside directors (the "Committee").
(d) The term "Offer Spread" as used herein shall mean an
amount equal to the product
A-5
<PAGE>
computed by multiplying (i) the excess of (A) the Offer Price per
share over (B) the option price per share of stock at which the
related Stock Option is exercisable, by (ii) the number of shares
of stock with respect to which such Limited Right is being
exercised.
(e) The term " Merger Price per Share" as used herein shall
mean, with respect to the exercise of any Limited Right by reason
of shareholder approval of an agreement described in paragraph H,
the greater of (i) the fixed or formula price for the acquisition
of shares of stock specified in such agreement if such fixed or
formula price is determinable on the date on which such Limited
Right becomes exercisable, and (ii) the highest Fair Market Value
per Share of the Stock during the sixty-day period ending on the
date on which such Limited Right becomes exercisable. Any
securities or property which are part or all of the consideration
paid for shares of stock pursuant to such agreement shall be
valued in determining the Merger Price per Share at the higher of
(A) the valuation placed on such securities or property by the
corporation, person or other entity which is a party with the
Company to such an agreement or (B) the valuation placed on such
securities or property by the Committee.
(f) The term "Merger Spread" as used herein shall mean an
amount equal to the product computed by multiplying (i) the
excess of (A) the Merger Price per Share over (B) the option
price per share of stock at which the Related Stock Option is
exercisable by (ii) the number of shares of stock with respect to
which such Limited Right is being exercised.
(g) The term "Liquidation Price per Share" as used herein
shall mean, with respect to the exercise of any Limited Right by
reason of shareholder approval of a plan of liquidation described
in paragraph H, the greater of (i) the highest amount paid or to
be paid per share of stock of stock pursuant to the plan of
liquidation as determined by the Committee and (ii) the highest
Fair Market Value per Share of the Stock during the sixty-day
period ending on the date on which such Limited Right becomes
exercisable. Any securities or property which (A) are part or all
of the consideration paid for shares of stock pursuant to such
plan of liquidation or (B) are to be sold and the proceeds
distributed in liquidation shall be valued in determining the
Liquidation Price per Share at the higher of (i) the valuation
placed on such securities or property by the Company upon the
distribution of such securities or property in accordance with
the plan of liquidation, if known at the time of the exercise of
such Limited Right, or (ii) the valuation placed on such
securities or property by the Committee.
(h) The term "Liquidation Spread" as used herein shall mean
an amount equal to the product computed by multiplying (i) the
excess of (A) the Liquidation Price per Share over (B) the option
price per share of stock at which the Related Stock Option is
exercisable, by (ii) the number of shares of stock with respect
to which such Limited Right is being exercised.
(i) The term "Acquisition Price per Share" as used herein
shall mean, with respect to the exercise of any Limited Right by
reason of an acquisition of stock described in paragraph H, the
greater of (i) the highest price per share stated on the Schedule
13D, 14D-1 or similar schedule (or amendment thereto) filed by
the holder of 50% or more of the Company's voting power which
gives rise to the exercise of such Limited Right, or (ii) the
highest Fair Market Value per Share of the Stock during the
sixty-day period ending on the date the Limited Right is
exercised.
A-6
<PAGE>
(j) The term "Acquisition Spread" as used herein shall mean
an amount equal to the product computed by multiplying (i) the
excess of (A) the Acquisition Price per Share over (B) the option
price per share of stock at which the Related Stock Option is
exercisable, by (ii) the number of shares of stock with respect
to which such Limited Right is being exercised.
(k) The term "Director Price per Share" as used herein shall
mean, with respect to the exercise of any Limited Right by reason
of the election of 50% or more of the directors described in
paragraph H, the highest Fair Market Value per Share of the Stock
during the sixty-day period ending on the date the Limited Right
becomes exercisable.
(l) The term "Director Spread" as used herein shall mean an
amount equal to the product computed by multiplying (i) the
excess of (A) the Director Price per Share over (B) the option
price per share of stock at which the Related Stock Option is
exercisable, by (ii) the number of shares of stock with respect
to which such Limited Right is being exercised.
(m) The term "Fair Market Value per Share of the Stock" as
used herein shall mean, as of a particular date, (i) if the
shares of stock are then listed on a national securities
exchange, the definition provided in Article I hereof, or (ii) if
the shares of stock are not then listed on a national securities
exchange, the average of the closing "bid" and "asked" prices for
shares of stock in the over-the-counter market for the last
preceding date on which there was a sale of stock in such market.
H. Acceleration of Option Exercise
If while unexercised options remain outstanding under the Plan, (i) any
corporation (other than the Company), person or group (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Act")) makes a tender or exchange offer which, if consummated,
would make such corporation, person or group the beneficial owner (within the
meaning of Rule 13d-3, under the Act) of more than 30% of the Company's then
outstanding stock and, pursuant to such offer, purchases are made ("Offer");
(ii) the shareholders or directors of the Company approve a definitive
agreement to merge or consolidate with or into another corporation and the
Company is not the surviving corporation, or agree to sell or otherwise
dispose of all or substantially all of the Company's assets, or adopt a plan
of liquidation; (iii) the Company becomes aware that any person or group
(within the meaning of Section 13(d) and 14(d)(2) of the Act), has become the
beneficial owner (within the meaning of Rule 13d-3, under the Act) of more
than 20% of the Company's then outstanding stock; (iv) 50% or more of the
directors of the Company are elected to the Board of Directors during any
period of 24 months or less, such election being without the approval of at
least a majority of the members of the Board of Directors of the Company in
office immediately prior to such period; then on the date of the first
purchase of stock pursuant to such Offer, or the date of any such shareholder
approval or adoption, or the date on which the Company becomes aware of the
acquisition of such percentage of the Company's stock or on the date of the
election of such directors (any such date being referred to as an
"Acceleration Date"), each outstanding option shall be exercisable in full.
ARTICLE III
RECAPITALIZATIONS AND REORGANIZATIONS
The number of shares of common stock covered by the Plan, the number of
shares and price per share of each outstanding option, and the number of shares
subject to each grant provided for in Article I, Section 3 hereof shall be
proportionately adjusted for any increase or decrease in the number of issued
and outstanding shares of common stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend or any other increase
or decrease in the number of issued and outstanding shares of common stock
effected without receipt of consideration by the Company.
A-7
<PAGE>
If the Company shall be the surviving corporation in any merger or
consolidation, each outstanding option shall pertain to and apply to the
securities to which a holder of the same number of shares of common stock that
are subject to that option would have been entitled. A dissolution or
liquidation of the Company, or a merger or consolidation in which the Company is
not the surviving corporation, shall cause each outstanding option to terminate,
unless the agreement of merger or consolidation shall otherwise provide;
provided that, in the event such dissolution, liquidation, merger or
consolidation will cause outstanding options to terminate, each optionee shall
have the right immediately prior to such dissolution, liquidation, merger or
consolidation to exercise his option in whole or in part without regard to any
limitations on the exercisability of such option other than (i) the expiration
date of the option, (ii) the limitation set forth in Section 9 of Article I, and
(iii) the ten share limitation set forth in Section 3 D of Article II.
To the extent that the foregoing adjustments relate to stock or securities of
the Company, such adjustments shall be made by the Board, whose determination in
that respect shall be final, binding, and conclusive, and shall be given the
maximum deference permitted by law.
The grant of an option pursuant to the Plan shall not affect in any way the
right of power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
ARTICLE IV
MISCELLANEOUS PROVISIONS
1. RIGHTS AS A SHAREOWNER
An optionee or a transferee of an option shall have no rights as a shareowner
with respect to any shares covered by an option until the date of the receipt of
payment (including any amounts required by the Company pursuant to Section 10 of
Article I) by the Company. No adjustments shall be made as to any option for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record data is prior to
such date, except as provided in Article III.
2. OTHER PROVISIONS
The option agreements authorized under the Plan shall contain such other
provisions, including, without limitation, restrictions upon the exercise of the
option or restrictions required by any applicable securities laws, as the Board
shall deem advisable.
3. APPLICATION OF FUNDS
The proceeds received by the Company from the sale of common stock pursuant
to the exercise of options will be used for general corporate purposes.
4. NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the optionee to
exercise such option.
5. SECURITIES EXCHANGE ACT OF 1934
- ----------------------------------
All transactions under the Plan are intended to comply with all applicable
-----------------------------------------------------------------------------
conditions of Section 16 of the Securities Exchange Act of 1934 and Rule 16b-3
- --------------------------------------------------------------------------------
promulgated thereunder, and any future section, regulation or rule amending or
- --------------------------------------------------------------------------------
supplementing such provisions. To the extent that any provision of this Plan, or
- --------------------------------------------------------------------------------
any action taken under this Plan, fails to comply with such provisions, such
- --------------------------------------------------------------------------------
Plan provision or action shall be null and void to the fullest extent permitted
- --------------------------------------------------------------------------------
by law and deemed advisable by the Board.
- -----------------------------------------
A-8
<PAGE>
APPENDIX-B
- --------------------------------------------------------------------------------
PROXY WATKINS-JOHNSON COMPANY PROXY
ANNUAL MEETING OF SHAREOWNERS--APRIL 13, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Dr. Dean A. Watkins, Mr. John J. Hartmann,
and Dr. William R. Graham 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 13,
1996, 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 PROPOSALS 2 AND 3.
(Continued, and to be signed on the other side)
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C>
Please mark
[ X ] your votes
as this
FOR AGAINST ABSTAIN
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES 2. The approval of the amendment and
FOR DIRECTOR LISTED BELOW AND FOR PROPOSALS 2 AND 3. restatement of the 1989 Stock [ ] [ ] [ ]
Option Plan for Nonemployee Directors.
1. Election of Directors
3. To approve the appointment of Deloitte
Nominees: Dean A. Watkins, H. Richard Johnson, WITHHOLD & Touche as independent accountants of [ ] [ ] [ ]
W. Keith Kennedy, John J. FOR FOR ALL the Company for the fiscal year 1996.
Hartmann, Raymond F. O'Brien, [ ] [ ]
William R. Graham, Gary M. 4. In their discretion, to vote upon
Cusumano, Robert L. Prestel any and all such other matters as may [ ] [ ] [ ]
properly come before the meeting or any
To withhold authority to vote for any individual nominee, adjournment or postponement thereof.
write that nominee's name in the space provided below.
Please sign exactly as name appears. When shares
- -------------------------------------------------------- are held by joint tenants, both should sign. When
I PLAN TO ATTEND THE MEETING [ ] signing as attorney, as executor, administrator,
trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate
name by president or other authorized officer.
If a partnership, please sign in partnership name
by authorized person.
Signature(s) Date
----------------------------------------------------------------- ----------------------------------------
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.
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PROXY DIRECTION TO TRUSTEE PROXY
WATKINS-JOHNSON COMPANY EMPLOYEE STOCK OWNERSHIP PLAN
WATKINS-JOHNSON EMPLOYEES' INVESTMENT PLAN
I hereby direct you as Trustee of the Watkins-Johnson Employee Stock
Ownership Plan and the Watkins-Johnson Employees' 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
13, 1996, 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.
(Continued, and to be signed on the other side)
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C>
Please mark
[ X ] your votes
as this
FOR AGAINST ABSTAIN
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES 2. The approval of the amendment and
FOR DIRECTOR LISTED BELOW AND FOR PROPOSALS 2 AND 3. restatement of the 1989 Stock [ ] [ ] [ ]
Option Plan for Nonemployee Directors.
1. Election of Directors
3. To approve the appointment of Deloitte
Nominees: Dean A. Watkins, H. Richard Johnson, WITHHOLD & Touche as independent accountants of [ ] [ ] [ ]
W. Keith Kennedy, John J. FOR FOR ALL the Company for the fiscal year 1996.
Hartmann, Raymond F. O'Brien, [ ] [ ]
William R. Graham, Gary M. 4. In their discretion, to vote upon
Cusumano, Robert L. Prestel any and all such other matters as may [ ] [ ] [ ]
properly come before the meeting or any
To withhold authority to vote for any individual nominee, adjournment or postponement thereof.
write that nominee's name in the space provided below.
Please sign exactly as name appears. When shares
- -------------------------------------------------------- are held by joint tenants, both should sign. When
I PLAN TO ATTEND THE MEETING [ ] signing as attorney, as executor, administrator,
trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate
name by president or other authorized officer.
If a partnership, please sign in partnership name
by authorized person.
Signature(s) Date
----------------------------------------------------------------- ----------------------------------------
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.
- --------------------------------------------------------------------------------
</TABLE>
