<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.142-12
W. R. GRACE & CO.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
W. R. GRACE & CO.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[GRACE LOGO]
NOTICE OF ANNUAL MEETING
Notice is hereby given that the Annual Meeting of Shareholders of W. R.
Grace & Co. ("Company") will be held at the Boca Raton Marriott-Boca Center,
5150 Town Center Circle, Boca Raton, Florida, at 10:30 a.m. on Wednesday, May
10, 1995. The purpose of the Annual Meeting is to consider and act upon:
(1) the election of four directors for a term expiring in 1998;
(2) the ratification of the selection of Price Waterhouse LLP as
independent accountants of the Company and its consolidated
subsidiaries for 1995;
(3) the approval of the Company's Long-Term Incentive Program;
(4) the approval of the Company's Annual Incentive Compensation Program;
(5) resolutions proposed by shareholders; and
(6) any other business that properly comes before the Annual Meeting.
The Board of Directors has fixed the close of business on March 21, 1995 as
the record date for the determination of shareholders entitled to notice of and
to vote at the Annual Meeting.
ROBERT B. LAMM
SECRETARY
April 10, 1995
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Recent Corporate Governance Developments........................ 1
Election of Directors........................................... 2
Board Committees and Meetings................................. 2
Nominees...................................................... 3
Directors Continuing in Office................................ 5
Executive Compensation........................................ 8
Relationships and Transactions with Management and Others..... 24
Security Ownership of Management and Others..................... 26
Management Security Ownership................................. 26
Other Security Ownership...................................... 28
Ownership and Transactions Reports............................ 28
Selection of Independent Accountants............................ 28
Approval of Long-Term Incentive Program......................... 29
Approval of Annual Incentive Compensation Program............... 32
Shareholder Proposals........................................... 34
Other Matters................................................... 37
Other Business................................................ 37
Proxy and Voting Procedures................................... 38
Votes Required................................................ 38
Solicitation Procedures....................................... 38
Proposals for 1996 Annual Meeting............................. 38
</TABLE>
<PAGE>
PROXY STATEMENT
The Annual Meeting of Shareholders of W. R. Grace & Co. ("Company", which
may also refer to one or more subsidiaries of W. R. Grace & Co.) will be held on
May 10, 1995. The Company is furnishing this Proxy Statement in connection with
the solicitation of proxies to be used at the Annual Meeting and any
adjournments. The Company's mailing address is One Town Center Road, Boca Raton,
Florida 33486-1010. This Proxy Statement and the enclosed proxy are first being
sent to shareholders on April 10, 1995.
Only shareholders of record at the close of business on March 21, 1995 are
entitled to vote at the Annual Meeting and any adjournments. At that record
date, the following voting stocks of the Company were outstanding:
<TABLE>
<CAPTION>
VOTES PER
CLASS SHARES OUTSTANDING SHARE
- --------------------- ------------------ -------------
<S> <C> <C> <C> <C>
6% Preferred .................. 36,460 .................. 160
Class A Preferred .................. 16,356 .................. 16
Class B Preferred .................. 21,577 .................. 16
Common .................. 94,181,071 .................. 1
</TABLE>
See "Other Matters" below for additional information concerning the voting of
proxies.
RECENT CORPORATE GOVERNANCE DEVELOPMENTS
On March 2, 1995, the Company announced that J. P. Bolduc had resigned as
President and Chief Executive Officer of the Company. The circumstances
surrounding and arrangements made with respect to Mr. Bolduc's resignation are
discussed further below under "Election of Directors -- Executive Compensation
- -- Resignation of J. P. Bolduc." Shortly after the resignation of Mr. Bolduc,
the Board of Directors was approached by a number of the Company's institutional
shareholders, who requested that the Company make certain changes in its
corporate governance arrangements. The Board determined that it was in the
interests of the Company and its shareholders to reach an understanding
regarding corporate governance that these shareholders would support.
Accordingly, the Board entered into discussions with certain of these
shareholders. These discussions led to the following proposals being presented
to and adopted by the Board at its March 17, 1995 meeting:
1. The Board of Directors would reduce its size to 12 members prior to
the Company's 1995 Annual Meeting of Shareholders. Such reduction
would be accomplished by the resignation of certain directors and by
certain other directors not standing for re-election.
2. J. Peter Grace, Jr. would not stand for re-election to the Board of
Directors. Mr. Grace would no longer serve as Chairman, but would
become Honorary Chairman.
3. A Search Committee, consisting of Messrs. Holmes, Eckmann and Duffy
and Drs. Dacey and Frick, would undertake a bona fide full national
search to select as quickly as possible, from inside or outside the
Company, the best qualified candidate as the Company's permanent
Chief Executive Officer.
4. After the new Chief Executive Officer is elected, at least six new
independent directors would be selected to replace six of the twelve
directors in office following the 1995 Annual Meeting of
Shareholders.
5. Directors with nondirectorial relationships with the Company would
generally be the first to be replaced.
1
<PAGE>
6. The Board of Directors would adopt a By-law amendment, effective
following the Company's 1995 Annual Meeting of Shareholders, that
would preclude the nomination of candidates for election to the
Board of Directors who are, or who would become during such person's
term, over the age of 70.
7. Shareholders would be kept advised with respect to the process for
the selection of a new Chief Executive Officer and new director
candidates. The Nominating Committee and the Search Committee would
consist of independent directors.
8. The Company would adopt corporate governance principles similar to
the General Motors Corporation Principles of Corporate Governance as
promptly as practicable.
The Board next met on April 6, 1995, at which time the Board took certain
actions in furtherance of the proposals adopted at the March 17, 1995 meeting.
On April 6, 1995, the Board adopted corporate governance principles similar to
the General Motors Corporation Principles of Corporate Governance. In addition,
Messrs. Charles H. Erhart, Jr., William Wood Prince, Eben W. Pyne, D. Walter
Robbins, Jr. and David L. Yunich offered to resign from the Board, effective
immediately prior to the 1995 Annual Meeting of Shareholders, and Messrs. J.
Peter Grace, Jr., George P. Jenkins, Roger Milliken and John A. Puelicher, all
of whose terms as directors are to expire at the 1995 Annual Meeting of
Shareholders, offered to not stand for re-election to the Board at the 1995
Annual Meeting of Shareholders, and the Company accepted all of the foregoing
offers.
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for the division of the
Board of Directors into three classes, each class to serve for a three-year
term. The term of the Class III Directors expires at the 1995 Annual Meeting;
accordingly, the shareholders will vote on the election of four Class III
Directors to serve for a term expiring in 1998.
The names and biographies of the nominees are set forth on pages 3 and 4;
the names and biographies of the directors continuing in office are set forth on
pages 5 to 7. The nominees have been designated as such by the Board of
Directors (on the recommendation of the Nominating Committee), and it is
anticipated that all nominees will be candidates when the election is held.
However, if for any reason any nominee is not a candidate at that time, proxies
will be voted for any substitute nominee designated by the Company (except where
a proxy withholds authority with respect to the election of directors).
BOARD COMMITTEES AND MEETINGS
To facilitate independent director review, and to make the most effective
use of the directors' time and capabilities, the Board of Directors has
established various committees, including those described below. None of the
members of the following committees is an executive or former executive of the
Company or, except for Mr. Yunich (a member of the Committee on Corporate
Responsibility), a consultant to the Company.
The AUDIT COMMITTEE is responsible for reviewing the financial information
the Company provides to shareholders and others, the Company's systems of
internal controls, and its auditing, accounting and financial reporting process
generally. The Committee's specific responsibilities include (1) recommending to
the Board the selection of independent accountants to audit the annual financial
statements of the Company and its consolidated subsidiaries, (2) reviewing the
annual financial statements and (3) meeting with the Company's senior financial
officers, internal auditors and independent accountants to review the scope and
results of the audit and other matters regarding the Company's accounting,
financial reporting and internal
2
<PAGE>
control systems. The members of the Committee are Messrs. Eckmann (Chairman),
Duffy and Phipps and Dr. Frick; in addition, Mr. Holmes was a member of the
Committee prior to his election as Acting President and Chief Executive Officer
of the Company in March 1995. The Committee met six times during 1994.
The COMPENSATION, EMPLOYEE BENEFITS AND STOCK INCENTIVE COMMITTEE
("Compensation Committee") makes recommendations to the Board with respect to
the salary and annual and long-term incentive compensation of certain officers
and other high-level employees, as well as the Company's benefit plans and
arrangements generally. The Compensation Committee also administers the
Company's stock incentive plans and determines the recipients and terms of stock
incentives granted under those plans. The current members of the Compensation
Committee are Messrs. Pyne (Chairman), Eckmann, Lynch, Macauley, Milliken and
Puelicher; as noted above under "Recent Corporate Governance Developments,"
Messrs. Pyne, Milliken and Puelicher will cease serving as directors at the
Annual Meeting. In 1994, the Compensation Committee met eight times.
The NOMINATING COMMITTEE recommends to the Board candidates for nomination
as directors of the Company. The current members of the Committee are Messrs.
Milliken (Chairman), Duffy, Macauley and Wood Prince and Dr. Dacey; as noted
above, Messrs. Milliken and Wood Prince will cease serving as directors at the
Annual Meeting. The Committee met once in 1994. The Committee will consider
candidates recommended by shareholders; such recommendations should be sent to
the Chairman of the Nominating Committee, c/o Robert B. Lamm, Secretary, W. R.
Grace & Co., One Town Center Road, Boca Raton, Florida 33486-1010.
The COMMITTEE ON CORPORATE RESPONSIBILITY advises management on the
Company's role in the public sector and its responsibility with respect to
matters of public policy. The Committee met three times in 1994. Its members are
Dr. Frick (Chairman) and Messrs. Humphrey and Yunich; in addition, Mr. Holmes
was a member of the Committee prior to his election as Acting President and
Chief Executive Officer of the Company in March 1995. As noted above, Mr. Yunich
will cease serving as a director at the Annual Meeting.
The Board of Directors held eight meetings in 1994. Each director attended
75% or more of the meetings held by the Board and the standing Board committees
on which he served; the average attendance of current directors at such Board
and committee meetings was approximately 95%.
NOMINEES
NOMINEES FOR ELECTION AS CLASS III DIRECTORS--TERM EXPIRING IN 1998
Photo
HAROLD A. ECKMANN
Director since 1976
Age: 73
Mr. Eckmann retired in 1985 as chairman and chief executive
officer of Atlantic Mutual Insurance Company and Centennial
Insurance Company--The Atlantic Companies. He was educated at
the United States Merchant Marine Academy and the University
of California. Mr. Eckmann joined The Atlantic Companies in
1949 and became president in 1970 and chairman and chief
executive officer in 1976.
3
<PAGE>
Photo
JAMES W. FRICK
Director since 1984
Age: 70
Dr. Frick is president of James W. Frick Associates, a
consulting firm to private colleges and universities. He is
also vice president emeritus of the University of Notre Dame,
having served the University in various capacities from 1951
to 1987, including as a member of the board of trustees. Dr.
Frick holds three degrees from Notre Dame. He is president
emeritus of the Community Foundation of St. Joseph County,
Indiana, a director of Society Bank of South Bend and Society
National Bank, Indiana, and a former member of the board of
trustees of Converse College. He also served a term as a
member of the board of the Department of Financial
Institutions of the State of Indiana.
Photo
THOMAS A. HOLMES
Director since 1989
Age: 71
Mr. Holmes was elected Acting President and Chief Executive
Officer of the Company in March 1995. He was chairman,
president and chief executive officer of Ingersoll-Rand
Company until his retirement in 1988, having spent his entire
business career with Ingersoll-Rand. He is a graduate of the
University of Missouri-- Rolla. Mr. Holmes is a director of
Becton, Dickinson and Company, Newmont Gold Co. and Newmont
Mining Corp.
Photo
PETER S. LYNCH
Director since 1989
Age: 51
Mr. Lynch became vice chairman of Fidelity Management &
Research Company in 1992, having retired in 1990 after 13
years of service as the portfolio manager of Fidelity
Magellan Fund. He spent his entire business career with
Fidelity after serving for two years as a United States Army
lieutenant, ending in 1969. Mr. Lynch is a graduate of Boston
College and holds an M.B.A. from the University of
Pennsylvania--Wharton School of Business Administration. He
is a director of Morrison Knudsen Corporation, a member of
the board of trustees of the Fidelity Group of Mutual Funds
and a director or trustee of several charitable and cultural
organizations.
4
<PAGE>
DIRECTORS CONTINUING IN OFFICE
CLASS I DIRECTORS--TERM EXPIRING IN 1996
Photo
GEORGE C. DACEY
Director since 1987
Age: 74
Dr. Dacey was president of Sandia National Laboratories,
engaged in government research and development, from 1981
until his retirement in 1986. He received a B.S. in
electrical engineering from the University of Illinois and a
Ph.D. in physics from the California Institute of Technology.
He began his business career as a research engineer with
Westinghouse Research Labs and later held various research
positions with the Bell System, including head of transistor
development of Bell Telephone Labs. Dr. Dacey is a director
of Milliken & Company and a former director of Perkin-Elmer
Corp. and SunWest Financial Services.
Photo
EDWARD W. DUFFY
Director since 1983
Age: 68
Mr. Duffy is the retired chairman of the board and chief
executive officer of Marine Midland Banks, Inc. A graduate of
Syracuse University, Mr. Duffy served in various managerial
and executive capacities with Marine Midland and its
predecessors from 1952 until his retirement in 1983. He is a
director of Columbus McKinnon Corp., Niagara Mohawk Power
Corporation, Oneida Ltd., Utica Mutual Insurance Co. and
Utica National Life Insurance Co.
Photo
CONSTANTINE L. HAMPERS
Director since 1986
Age: 62
Dr. Hampers is an executive vice president of the Company and
chairman of the board and chief executive officer of National
Medical Care, Inc. ("NMC"), a subsidiary of the Company
engaged in supplying kidney dialysis, home infusion and
respiratory therapy services and in the manufacture and sale
of dialysis and other medical products. NMC was founded by
Dr. Hampers in 1968. Prior to 1968 and for several years
thereafter, Dr. Hampers was director of artificial kidney
services at Peter Bent Brigham Hospital and assistant
professor of medicine at Harvard University School of
Medicine. He holds B.S. and M.D. degrees from the University
of Pittsburgh. Dr. Hampers is a director of IGI, Inc., a
company listed on the American Stock Exchange.
5
<PAGE>
Photo
GORDON J. HUMPHREY
Director since 1991
Age: 54
Mr. Humphrey represented New Hampshire in the United States
Senate from 1979 to 1991, serving on the Foreign Relations,
Banking and Judiciary Committees. Upon retiring, he founded
The Humphrey Group, Inc., which provides services to firms
seeking to do business abroad, particularly in the former
Soviet Union. Mr. Humphrey served in the Air Force and later
attended George Washington University, after which he became
an airline pilot. He serves on the board of MK Gold Co., is a
founder and director of the Russian American Chamber of
Commerce and serves on the boards of several charitable
organizations.
Photo
ROBERT C. MACAULEY
Director since 1985
Age: 71
Mr. Macauley founded Virginia Fibre Corporation, a producer
of corrugating medium, in 1972 and is its chairman. Following
graduation from Yale University in 1949, he held several
positions (including that of president) with M. L. Macauley
Company. From 1962 through 1972, he held executive positions
with Great Northern Paper Company and its successors. Mr.
Macauley also founded and is chairman of the AmeriCares
Foundation. He is a director of Greif Brothers Corporation.
Photo
EUGENE J. SULLIVAN
Director since 1991
Age: 74
Mr. Sullivan served as chief executive officer of Borden,
Inc. from 1979 until 1986, having held various management and
executive positions with Borden from 1946. Mr. Sullivan is a
graduate of St. John's University and New York University
Graduate School of Business Administration. He is vice
chairman of the board of trustees of St. John's, a trustee of
St. Francis Hospital and the Catholic Health Association and
Chairman of BNY-Hamilton Fund.
6
<PAGE>
CLASS II DIRECTORS--TERM EXPIRING IN 1997
Photo
VIRGINIA A. KAMSKY
Director since 1990
Age: 41
Ms. Kamsky is the founder, president and chief executive
officer of Kamsky Associates Inc., an advisory firm
specializing in The People's Republic of China. She graduated
from Princeton University with a degree in East Asian Studies
(with concentration in Chinese and Japanese language studies)
and served with The Chase Manhattan Bank in Tokyo, Beijing
and New York City before forming Kamsky Associates in 1980.
Ms. Kamsky is a member of the Council on Foreign Relations, a
founding director of the Council's Hong Kong Committee, and a
director of the National Committee on U.S.-China Relations.
JOHN E. PHIPPS
Director since 1975
Age: 62
Mr. Phipps is a private investor. He is chairman and a
director of John H. Phipps, Inc. and a director of The
Bessemer Group, Bessemer Securities Corporation, Bessemer
Trust Company, Bessemer Trust Company of Florida, Bessemer
Trust Company, N.A., Essex Holdings and Ingersoll-Rand
Company.
------------------
See "Relationships and Transactions with Management and Others" and
"Security Ownership of Management and Others" below for additional information.
7
<PAGE>
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth information concerning
the compensation of J.P. Bolduc (the Company's chief executive officer during
1994) and the other four most highly compensated executive officers of the
Company in 1994. Certain information has been omitted form this table because it
is not applicable or is not requird under the Securities and Exchange Commission
rules.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------
NAME AND
PRINCIPAL OTHER ANNUAL
POSITION YEAR SALARY BONUS COMPENSATION
- -------------------------------------- --------- -------- -------- ------------
<S> <C> <C> <C> <C>
J. P. Bolduc(d) 1994 $883,333 $1,262,000 $ 283,320
President and 1993 800,000 986,000 9,470
Chief Executive Officer 1992 780,000 611,000 61,030
J-L. Greze(e) 1994 323,333 400,000 11,588
Executive Vice President 1993 300,000 175,000 3,876
C. L. Hampers 1994 786,250 720,000 69,418(f)
Executive Vice President 1993 736,000 600,000 21,510
1992 690,250 184,000
D. H. Kohnken 1994 357,000 410,000 86
Executive Vice President 1993 357,000 310,000 2,372
1992 327,000 200,000 17,695
B. J. Smith 1994 335,333 400,000 333
Executive Vice President and 1993 316,000 300,000 5,414
Chief Financial Officer 1992 303,000 200,000 71,066
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C> <C>
LONG-TERM COMPENSATION
- -----------------------------------------------
AWARDS
- -----------------------------------
NO. OF SHARES
UNDERLYING OPTIONS
GRANTED
---------------------
ALL OTHER COMPENSATION(A)
PAYOUTS
RESTRICTED ----------
STOCK LTIP
AWARDS(B) PAYOUTS(C)
100,000 $ 176,969
100,000 $ 389,700 177,756
$ 936,038 90,000 629,100 200,304
30,000 31,451
30,000 108,905 30,841
70,000 89,278
70,000 1,012,000 90,391
351,525 42,500 26,468,000 83,078
50,000 36,200
50,000 157,167 33,948
429,188 37,500 150,267 30,484
40,000 43,373
40,000 176,022 42,250
273,863 37,500 308,405 61,399
</TABLE>
(a) The amounts in this column for 1994 consist of the following: (1) the
actuarially determined value of Company-paid premiums on "split-dollar" life
insurance, as follows: Mr. Bolduc -- $66,086; Mr. Greze -- $11,276; Dr. Hampers
- -- $51,830; Mr. Kohnken -- $9,346; and Mr. Smith -- $15,769; (2) payments made
to persons whose personal and/or Company contributions to the Company's Salaried
Employees Savings and Investment Plan would be subject to limitations under
federal income tax law, as follows: Mr. Bolduc -- $37,833; Mr. Greze -- $7,638;
Dr. Hampers -- $37,448; Mr. Kohnken -- $11,010; and Mr. Smith -- $10,060; (3)
Company contributions to such Plan of $4,500 for each of Messrs. Bolduc, Greze,
Kohnken and Smith; (4) $39,680 of imputed interest on a loan made to Mr. Bolduc
in 1987 (see "Relationships and Transactions with Management and Others" below);
and (5) interest on involuntarily deferred payments of awards under the LTIP, as
follows: Mr. Bolduc -- $28,870; Mr. Greze -- $8,037; Mr. Kohnken -- $11,344; and
Mr. Smith -- $13,044. Certain amounts for 1993 and 1992 have been restated to
reflect a new method of calculating the actuarially determined value of
Company-paid premiums on "split-dollar" life insurance, as mandated by the
Securities and Exchange Commission.
(b) The dollar values shown in this column were calculated by multiplying the
number of shares issued under the award by the closing market price of the
Company's Common Stock on the date of issuance (less any amounts paid by the
recipient). No restricted shares have been issued since 1992. The following
table shows the restricted shares issued in 1992, all of which had vesting
schedules of less than three years:
<TABLE>
<CAPTION>
VESTING SCHEDULE
TOTAL ------------------------------------------
SHARES
GRANTED 8/7/92 4/15/93 4/15/94 4/15/95
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
J. P. Bolduc 22,900 5,725 5,725 5,725 5,725
J-L. Greze 5,800 1,450 1,450 1,450 1,450
C. L. Hampers 8,600 2,150 2,150 2,150 2,150
D. H. Kohnken 10,500 2,625 2,625 2,625 2,625
B. J. Smith 6,700 1,675 1,675 1,675 1,675
The number and dollar values of restricted shares held at December 31, 1994 by the persons named in the table
were as follows: Mr. Bolduc -- 106,873 shares ($4,127,970); Mr. Greze -- 1,450 shares ($56,006); Dr. Hampers --
2,150 shares ($83,044); Mr. Kohnken -- 15,301 shares ($591,000); and Mr. Smith -- 12,825 shares ($495,366).
Recipients of restricted shares receive all dividends paid on such shares.
</TABLE>
9
<PAGE>
(c) The amounts in this column for 1992 (except for Dr. Hampers) represent (1)
the third annual installment (paid or payable in 1992) of awards under the
Company's Long-Term Incentive Program ("LTIP") for the 1987-1989 Performance
Period, and (2) the first of three annual installments of awards under the LTIP
for the 1990-1992 Performance Period; the latter payments were to have been made
in early 1993 but were made in 1992 to facilitate tax planning. The amounts of
such accelerated payments were: Mr. Bolduc -- $392,700; Mr. Kohnken -- $150,267;
and Mr. Smith -- $177,472. The amounts for 1993 (except for Dr. Hampers)
represent the second installment of awards under the LTIP for the 1990-1992
Performance Period; these payments were to have been made in early 1994 but were
made in 1993 to facilitate tax planning. Dr. Hampers did not participate in the
LTIP for either the 1987-1989 or the 1990-1992 Performance Periods. No payments
were made under the LTIP in 1994.
In March 1989, the Company agreed to purchase in 1992 the 2.5% of the stock of
NMC that the Company did not already own for approximately $27 million, subject
to NMC's achievement of certain targets relating to earnings and return on
capital; approximately 79% of such stock was owned by Dr. Hampers. However, in
December 1989, the Company purchased the stock for approximately $14 million
($13 million less than initially agreed to). In consideration for their
agreement to accelerate the transaction, the Company agreed to make a payment to
the NMC shareholders (including Dr. Hampers) in 1993 based on NMC's earnings
during the 1990-1992 period. As a result of NMC's strong performance during this
period (which exceeded the targeted earnings by nearly 55% over the three-year
period), the payment to Dr. Hampers amounted to $27,480,000. To facilitate tax
planning, the Company paid $26,468,000 of this amount in 1992; the balance was
paid in 1993.
(d) Mr. Bolduc resigned in March 1995; see "Resignation of J. P. Bolduc" below.
(e) Mr. Greze became an executive
officer in 1993.
(f) This amount includes the value of personal benefits received by Dr. Hampers
during 1994, including $54,636 attributable to his personal use of corporate
aircraft.
10
<PAGE>
STOCK OPTIONS. The following table sets forth information concerning stock
options granted in 1994, including the potential realizable value of each grant
assuming that the market value of the Company's Common Stock appreciates from
the date of grant to the expiration of the option at annualized rates of (a) 5%
and (b) 10%, in each case compounded annually over the term of the option. THESE
ASSUMED RATES OF APPRECIATION HAVE BEEN SPECIFIED BY THE SECURITIES AND EXCHANGE
COMMISSION FOR ILLUSTRATIVE PURPOSES ONLY AND ARE NOT INTENDED TO PREDICT FUTURE
PRICES OF THE COMPANY'S COMMON STOCK, WHICH WILL DEPEND UPON VARIOUS FACTORS,
INCLUDING MARKET CONDITIONS AND THE COMPANY'S FUTURE PERFORMANCE AND PROSPECTS.
For example, the option granted to Mr. Bolduc in 1994 would produce the pretax
gain of $6,743,520 shown in the table only if the market price of the Common
Stock rises to nearly $110 per share by the time the option is exercised. Based
on the number and market price of the shares outstanding at year-end 1994, such
an increase in the price of the Common Stock would produce a corresponding
aggregate pretax gain of $6.7 billion for the Company's shareholders. Options
become exercisable at the time or times determined by the Compensation
Committee; all of the options listed below were exercisable in full at the date
of grant and have exercise prices equal to the fair market value of the Common
Stock at the date of grant.
<TABLE>
<CAPTION>
1994 GRANTS
---------------------------------------------------
NO. OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SHARES OPTIONS ASSUMED ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION FOR OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------------------
NAME GRANTED IN 1994* ($/SHARE) DATE 5% 10%
- ----------------------------- ----------- ---------- --------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
J. P. Bolduc................. 100,000 7.4 42.3125 4/6/04 $ 2,661,010 $ 6,743,520
J-L. Greze................... 30,000 2.2 42.3125 4/6/04 798,303 2,023,056
C. L. Hampers................ 70,000 5.2 42.3125 4/6/04 1,862,707 4,720,464
D. H. Kohnken................ 50,000 3.7 42.3125 4/6/04 1,330,505 3,371,760
B. J. Smith.................. 40,000 2.9 42.3125 4/6/04 1,064,404 2,697,408
All Shareholders............. -- -- -- -- 2,503,565,063 6,344,523,724
Named Executive Officers'
Percentage of Realizable
Value Gained by All
Shareholders................ -- -- -- -- 0.3% 0.3%
<FN>
- ------------------
*In 1994, options were granted covering 1,358,900 shares of Common Stock,
including an option covering 40,000 shares granted to Mr. Robbins in his
capacity as a consultant to the Company (see "Directors' Compensation and
Consulting Arrangements" below).
</TABLE>
The following table sets forth information concerning stock options
exercised in 1994, including the "value realized" upon exercise (the difference
between the total exercise price of the options exercised and the market value,
at the date of exercise, of the shares acquired), and the value of unexercised
"in-the-money" options held at December 31, 1994 (the difference between the
aggregate exercise price of all such options held and the market value of the
shares covered by such options at December 31, 1994).
<TABLE>
<CAPTION>
OPTION EXERCISES IN 1994 AND OPTION VALUES AT 12/31/94
--------------------------------------------------------------
NUMBER OF VALUE OF
SHARES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
NO. OF SHARES VALUE 12/31/94 12/31/94
ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE ($) UNEXERCISABLE UNEXERCISABLE
- -------------------------------------------------- --------------- ----------- ----------------- -------------
<S> <C> <C> <C> <C>
J. P. Bolduc...................................... -0- -0- 365,000/290,000 $ 141,250/$0
J-L. Greze........................................ -0- -0- 132,000/* $ 299,218/*
C. L. Hampers..................................... -0- -0- 220,000/* $ 80,938/*
D. H. Kohnken..................................... -0- -0- 215,500/49,000 $ 754,531/$0
B. J. Smith....................................... -0- -0- 155,000/47,500 $ 57,813/$0
<FN>
- ------------------
*Neither Mr. Greze nor Dr. Hampers held any unexercisable options at year-end
1994.
</TABLE>
11
<PAGE>
LTIP. Under the LTIP as in effect during 1994, executive officers and other
senior managers could be granted contingent "Performance Units" under which
awards could be earned based on (1) the achievement of pretax earnings by the
manager's product line (or, in the case of corporate managers, the Company),
and/ or (2) shareholder value performance (measured by appreciation in the price
of the Common Stock and dividends paid) as compared to that of the companies in
the Standard & Poor's Industrials, during a three-year "Performance Period." It
is anticipated that a new three-year Performance Period will commence each year
and that contingent Performance Units will be granted for each such Performance
Period (however, the terms of such contingent Performance Units granted
subsequent to 1994 will differ from those granted in 1994, as discussed below
under "Approval of Long-Term Incentive Program"). Performance Units granted in
1994 to employees of product lines were generally weighted 67% on the pretax
earnings performance of their product lines, and 33% on shareholder value
performance, during the Performance Period; Performance Units granted to
corporate employees were generally weighted 50% on the basis of the Company's
pretax earnings performance and 50% on the basis of shareholder value
performance during the Performance Period. Subject to shareholder approval (see
"Approval of Long-Term Incentive Program" below), the number of Performance
Units earned under the LTIP may be decreased by up to 20%, at the discretion of
the Compensation Committee, based upon individual performance.
Amounts, if any, earned under Performance Units are paid following the end
of each Performance Period. In keeping with the Company's compensation
philosophy of uniting executive interests with those of the shareholders, it is
currently anticipated that any such payments will be made 50% in cash and 50% in
shares of Common Stock issued under the Company's stock incentive plans;
however, the Compensation Committee has authority to reduce the portion of
earned Performance Units payable in Common Stock.
The following table shows the Performance Units granted during 1994 to the
executive officers named in the Summary Compensation Table with respect to the
1994-1996 Performance Period. The Performance Units granted to Messrs. Bolduc,
Kohnken and Smith, as well as half of the Performance Units granted to Mr. Greze
and Dr. Hampers, are weighted 50%/50%, as discussed above; the other half of the
Performance Units granted to Mr. Greze and Dr. Hampers are weighted 67%/33%, as
discussed above.
<TABLE>
<CAPTION>
1994 AWARDS OF CONTINGENT PERFORMANCE UNITS UNDER LTIP
-----------------------------------------------------------------
MAXIMUM
NUMBER PERFORMANCE NUMBER OF
NAME OF UNITS PERIOD THRESHOLD (A) TARGET (B) UNITS (C)
- --------------------------------------------- --------- ----------- ---------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
J. P. Bolduc................................. 25,000 1994-1996 $0 or $208,375 $1,250,000 250,000
J-L. Greze................................... 7,500 1994-1996 0 or 31,256 375,000 75,000
C. L. Hampers................................ 17,500 1994-1996 0 or 72,931 875,000 175,000
D. H. Kohnken................................ 12,500 1994-1996 0 or 104,188 625,000 125,000
B. J. Smith.................................. 10,000 1994-1996 0 or 83,350 500,000 100,000
<FN>
- ------------------------
(a) Refers to the minimum amount payable under the LTIP with respect to the
1994-1996 Performance Period. No payment will be made unless the minimum
targeted level of pretax earnings or shareholder value performance is
achieved, and the "threshold" payments will be made if either minimum
targeted level is achieved. The threshold payments shown in the table have
been calculated on the assumption that the market price of the Common Stock
is $50 per share at the end of the 1994-1996 Performance Period, but that
the minimum targeted level of pretax earnings is not achieved.
(b) Refers to the amount payable with respect to the 1994-1996 Performance
Period if the minimum targeted levels of both pretax earnings and
shareholder value performance are achieved.
(c) Refers to the maximum number of Performance Units that can be earned with
respect to the 1994-1996 Performance Period under the LTIP, as amended (see
"Approval of Long-Term Incentive Program" below).
</TABLE>
Employees to whom Performance Units are granted also receive grants of stock
options based on the number of Performance Units granted. Information concerning
options granted to the above executive officers in 1994 appears under "Stock
Options" above.
Additional information concerning the LTIP is set forth below under
"Approval of Long-Term Incentive Program."
12
<PAGE>
PENSION ARRANGEMENTS. Salaried employees of designated units of the Company
who are 21 or older and who have one or more years of service are eligible to
participate in the Company's Retirement Plan for Salaried Employees. Under this
basic retirement plan, pension benefits are based upon (1) the employee's
average annual compensation for the 60 consecutive months in which his or her
compensation is highest during the last 180 months of continuous participation
and (2) the number of years of the employee's credited service. For purposes of
this basic retirement plan, compensation generally includes nondeferred base
salary and annual incentive compensation (bonus) awards; however, for 1994,
federal income tax law limited to $150,000 the annual compensation on which
benefits under this plan may be based.
The Company also has a Supplemental Executive Retirement Plan under which a
covered employee will receive the full pension to which he or she would be
entitled in the absence of the above and other limitations imposed under federal
income tax law. In addition, this supplemental plan recognizes deferred base
salary and annual incentive compensation awards and, in some cases, periods of
employment with the Company during which an employee was ineligible to
participate in the basic retirement plan. An employee will generally be eligible
to participate in the supplemental plan if he or she has an annual base salary
of at least $75,000 and is earning credited service under the basic retirement
plan.
The following table shows the annual pensions payable under the basic and
supplemental plans for different levels of compensation and years of credited
service. The amounts shown have been computed on the assumption that the
employee retired at age 65 on January 1, 1995, with benefits payable on a
straight life annuity basis. Such amounts are subject to (but do not reflect) an
offset of 1.25% of the employee's primary Social Security benefit at retirement
age for each year of credited service under the basic and supplemental plans.
<TABLE>
<CAPTION>
HIGHEST YEARS OF CREDITED SERVICE
AVERAGE ANNUAL ----------------------------------------------------------------------------------
COMPENSATION 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
---------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000................... $ 15,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500
200,000................... 30,000 45,000 60,000 75,000 90,000 105,000
300,000................... 45,000 67,500 90,000 112,500 135,000 157,000
400,000................... 60,000 90,000 120,000 150,000 180,000 210,000
500,000................... 75,000 112,500 150,000 187,500 225,000 262,500
600,000................... 90,000 135,000 180,000 225,000 270,000 315,000
700,000................... 105,000 157,500 210,000 262,500 315,000 367,500
800,000................... 120,000 180,000 240,000 300,000 360,000 420,000
900,000................... 135,000 202,500 270,000 337,500 405,000 472,500
1,000,000.................. 150,000 225,000 300,000 375,000 450,000 525,000
1,100,000.................. 165,000 247,500 330,000 412,500 495,000 577,500
1,200,000.................. 180,000 270,000 360,000 450,000 540,000 630,000
1,300,000.................. 195,000 292,500 390,000 487,500 585,000 682,500
1,400,000.................. 210,000 315,000 420,000 525,000 630,000 735,000
1,500,000.................. 225,000 337,500 450,000 562,500 675,000 787,500
1,600,000.................. 240,000 360,000 480,000 600,000 720,000 840,000
1,700,000.................. 255,000 382,500 510,000 637,500 765,000 892,500
1,800,000.................. 270,000 405,000 540,000 675,000 810,000 945,000
1,900,000.................. 285,000 427,500 570,000 712,500 855,000 997,500
2,000,000.................. 300,000 450,000 600,000 750,000 900,000 1,050,000
</TABLE>
At year-end 1994, Messrs. Bolduc, Kohnken and Smith had 11, 26 and 20 years
of credited service, respectively, under the basic and supplemental retirement
plans. For purposes of those plans, the 1994 compensation of such executive
officers was as follows: Mr. Bolduc -- $1,869,333; Mr. Kohnken -- $667,000; and
Mr. Smith -- $635,333. Neither Mr. Greze nor Dr. Hampers is covered by the basic
or supplemental plan. At year-end 1994, the accrued annual benefit payable to
Mr. Greze at age 65 under the Company's
13
<PAGE>
Swiss pension plan was approximately $243,000, and the accrued annual benefit
payable to Dr. Hampers at age 65 under the NMC retirement plan (in which he is
an inactive participant) was approximately $119,000. The Company has agreed to
provide certain pension benefits to Messrs. Bolduc and Greze and Dr. Hampers
(see "Employment Agreements" and "Resignation of J. P. Bolduc" below).
DIRECTORS' COMPENSATION AND CONSULTING ARRANGEMENTS. Prior to July 1, 1994,
each nonemployee director received $3,000 for each Board meeting and $900 for
each committee meeting attended, except that committee chairmen received $1,200
for each committee meeting attended. In addition, an annual retainer of $12,000
was paid to the Chairmen of the Audit and Compensation Committees. Under a new
compensation program for nonemployee directors that became effective on July 1,
1994, (1) each nonemployee director receives an annual retainer of $24,000,
payable in shares of the Company's Common Stock; (2) the Chairmen of the Audit
and Compensation Committees receive annual cash retainers of $12,000, and the
Chairmen of the Nominating Committee and the Committee on Corporate
Responsibility receive annual cash retainers of $2,000; and (3) each nonemployee
director receives $2,000 in cash for each Board meeting and $1,000 for each
committee meeting attended (except that committee chairmen receive $1,200 per
committee meeting).
Nonemployee directors are reimbursed for expenses they incur in attending
Board and committee meetings, and the Company maintains business travel accident
insurance coverage for them. In addition, nonemployee directors (other than
those with whom the Company has consulting arrangements, described below)
receive a fee of $1,000 per day for work performed at the Company's request.
A director may defer payment of all or part of the fees received for
attending Board and committee meetings and/or the cash retainers referred to
above. The amounts deferred (plus an interest equivalent) are payable to the
director or his or her heirs or beneficiaries in a lump sum or in quarterly
installments over two to 20 years following a date specified by the director.
The interest equivalent on amounts deferred is computed at the higher of (1) the
prime rate plus two percentage points and (2) 120% of the prime rate, in either
case compounded semiannually. This program provides for the payment of
additional survivors' benefits in certain circumstances.
The Company also has a retirement plan under which a person who has been a
nonemployee director for more than four years will receive annual payments of
$24,000 for a period equal to the length of service as a nonemployee director
(but not more than 15 years) after the director ceases to be eligible to receive
directors' fees. In the event of a director's death, payments are made to his or
her surviving spouse.
Mr. Jenkins provides investment management services to the Company's pension
and savings plans, for which he received fees totaling $200,000 for 1994.
The Company has consulting agreements with Kamsky Associates Inc. (of which
Ms. Kamsky is president and chief executive officer) relating to the Company's
interests in The People's Republic of China. The agreements expire in 1997
(subject to earlier termination) and provide for monthly fees of $25,000, plus
additional payments based on the extent to which the Company establishes certain
business relationships in The People's Republic of China. In 1994, the Company
paid fees totaling $300,000 under these agreements. The Company also has a
consulting agreement with Ms. Kamsky relating to business opportunities in nine
other countries in the Asia Pacific region. The agreement expires in 1997 (or
earlier, in certain cases) and currently provides for monthly fees of $10,000,
plus additional payments based on the extent to which the Company establishes
certain business relationships in the relevant countries. The Company paid Ms.
Kamsky $120,000 under this agreement in 1994.
The Company has consulting arrangements with Mr. Robbins (relating to
pension investment management and divestitures) and Mr. Yunich (relating to
corporate investments) under which they earned fees of $610,000 and $315,000,
respectively, for 1994. In 1994, the Company also granted a stock option
covering 40,000 shares of Common Stock to Mr. Robbins (in his capacity as a
consultant). The exercise price and other terms of the option were the same as
those granted to executive officers (see "Stock Options" above). In addition,
Messrs. Robbins and Yunich have severance agreements with the Company (see
"Severance Agreements" below).
14
<PAGE>
During 1994, the Company provided car services to Messrs. Jenkins and Yunich
at a cost to the Company of approximately $69,000 (including a payment to cover
related income tax obligations) and $24,000, respectively. Approximately the
same costs have been incurred by the Company for such services for several
years.
ARRANGEMENTS WITH J. PETER GRACE, JR. Upon his retirement as Chief
Executive Officer of the Company at year-end 1992, Mr. Grace entered into an
agreement ("Grace Retirement Agreement") with the Company under which Mr. Grace
received a lump sum payment of $5 million in exchange for the termination of Mr.
Grace's employment agreement. The Grace Retirement Agreement provides that Mr.
Grace would act as a consultant to the Company and provide such consulting
services as the Board may request. For such consulting arrangement, Mr. Grace
receives a fee of $50,000 per month. The consulting arrangement expires on
December 31, 1995, but provides for automatic one-year extensions unless either
party gives notice by September 30 of any year that the arrangement is not to be
continued for the following year. At the time of his retirement, Mr. Grace had
been an employee of the Company for 57 years and the Chief Executive Officer of
the Company for 48 years.
The Grace Retirement Agreement provides for a pension of $1 million per year
to Mr. Grace until his death (and, if his wife shall survive him, to her until
her death) in lieu of any other pension to which Mr. Grace might otherwise have
been entitled and for the termination of restrictions on previous awards of
restricted stock. The Grace Retirement Agreement also provides benefits and
arrangements to Mr. Grace consisting of: (1) a continuation of Mr. Grace's
insurance benefits in effect on the date of such Agreement, consisting of (a)
basic life insurance in the amount of $900,000 (for which the cost to the
Company was approximately $2,500 in 1991 (information in this section with
respect to 1991 and 1992 reflects pre-retirement periods), $2,500 in 1992,
$68,000 in 1993 and $101,000 in 1994), (b) payment of a portion of the premium
for supplemental life insurance in the amount of $750,000 in 1993 and 1994 (for
which the cost to the Company was approximately $36,000 in 1993 and $54,000 in
1994), (c) business travel accident insurance in the amount of $1.5 million (for
which the cost to the Company was approximately $1,500 in 1991, $1,500 in 1992,
$4,500 in 1993 and $4,500 in 1994), and (d) voluntary group accident insurance
in the amount of $350,000 (for which Mr. Grace pays the full premium); (2) a
"gross-up" payment to cover income tax obligations for 1993 and 1994 in respect
of the foregoing insurance benefits (with respect to which the Company paid
approximately $66,000 in 1993 and $96,000 in 1994); and (3) a continuation of
all other benefits and arrangements provided to Mr. Grace as Chief Executive
Officer, which include private nursing services and related expenses (for which
the cost to the Company was approximately $139,000 in 1991, $132,000 in 1992,
$162,000 in 1993 and $189,000 in 1994), security services (for which the cost to
the Company was approximately $155,000 in 1991, $172,000 in 1992, $180,000 in
1993 and $191,000 in 1994), the services of a cook (for which the cost to the
Company was approximately $28,000 in 1991, $28,000 in 1992, $28,000 in 1993 and
$30,000 in 1994), the use of an apartment (for which the cost to the Company was
approximately $234,000 in 1991, $264,000 in 1992, $242,000 in 1993 and $250,000
in 1994), limousine services (for which the cost to the Company was
approximately $106,000 in 1991, $99,000 in 1992, $100,000 in 1993 and $112,000
in 1994) and club membership dues (for which the cost to the Company was
approximately $11,000 in 1991, $12,000 in 1992, $15,000 in 1993 and $14,000 in
1994). In addition, the Grace Retirement Agreement provided for Mr. Grace's
continued use of Company aircraft. The Company has a policy of making Company
aircraft available for the use of certain senior executives. From 1991 through
his retirement as Chief Executive Officer in December 1992 and thereafter
through 1993, the Company reserved for the use of Mr. Grace a Company aircraft
(for which the estimated cost to the Company, including depreciation, personnel,
fuel and maintenance expense, averaged approximately $2.7 million per year);
and, since 1993, Mr. Grace has had access to Company aircraft (for which the
cost to the Company allocable to Mr. Grace's usage was approximately $700,000 in
1994, and for which, based on information provided by Mr. Grace, the value of
such usage to Mr. Grace, calculated in accordance with the Standard Industry
Fare Level method of Internal Revenue Service guidelines, was approximately
$113,000 in 1991, $148,000 in 1992, $146,000 in 1993 and $61,000 in 1994). As is
the case with the other Company costs for the benefits and arrangements listed
in this paragraph, the Company costs with respect to Company aircraft referred
to in the preceding sentence have been calculated on a pre-tax basis. In
addition, since 1991, the Company has provided Mr. Grace with office space,
secretarial services and business expense reimbursement (including
15
<PAGE>
reimbursement for business travel and entertainment expenses). Mr. Grace is also
provided medical insurance coverage by the Company in accordance with the
Company's policies applicable to retirees generally, subject to payment by Mr.
Grace of a portion of the premium on the same basis as other retirees.
Under the Grace Retirement Agreement, the Company will be required to
continue to provide the benefits and arrangements described in the preceding
paragraph to Mr. Grace until his death. The Company did not include the value of
such benefits and arrangements in prior disclosures.
The Grace Retirement Agreement was filed as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992, and the
foregoing description of such Agreement does not purport to be complete and is
qualified in its entirety by reference to such Agreement.
EMPLOYMENT AGREEMENTS. The Company had an employment agreement with Mr.
Bolduc that was terminated in connection with his resignation in March 1995. The
agreement provided for his employment as Chief Executive Officer of the Company
through July 1999 (subject to earlier termination in certain circumstances), but
provided for automatic one-year extensions unless either party gave notice that
the agreement was not to be extended. The agreement also provided that Mr.
Bolduc would be nominated for election as a director during the term of the
agreement. Under the agreement, Mr. Bolduc was entitled to participate in all
incentive compensation and bonus plans maintained by the Company for its senior
executives and to participate in all benefit plans available to employees
generally, as well as to the following: an annual base salary of at least
$800,000; an annual incentive compensation award (bonus) equal to at least 50%
of his base salary for the relevant year; an annual grant of options covering at
least 30,000 shares of Common Stock; and an annual supplementary pension equal
to the sum of the amounts payable annually under the Company's basic and
supplemental retirement plans (see "Pension Arrangements" above), but in no
event less than 50% of Mr. Bolduc's "pensionable compensation" (annual base
salary and annual incentive compensation, without giving effect to any voluntary
deferrals) during specified periods of his employment. The agreement also
provided for payments in the case of Mr. Bolduc's disability or death or the
termination of his employment with or without cause; in the latter case, the
agreement provided that Mr. Bolduc would be entitled to receive 150% of his
annual base salary for the remaining term of the agreement, subject to a
reduction of up to 50% for income earned for personal services following the
termination of his employment by the Company.
See "Resignation of J. P. Bolduc" below for information concerning
arrangements with respect to Mr. Bolduc's resignation.
The Company has an agreement with Mr. Greze relating to his current
assignment (as an Executive Vice President of the Company and head of its global
packaging business) and his related relocation from Switzerland to the United
States. The agreement provides that the Company will pay tuition and related
fees in connection with the education of Mr. Greze's son (up to, but not
including, college); reimburse Mr. Greze for the cost of one round trip between
Florida and Switzerland for his family each year; and provide Mr. Greze with a
Company-leased car. The agreement also provides for the loan referred to below
under "Relationships and Transactions with Management and Others"; for
arrangements relating to his return to Switzerland following the end of his
current assignment (including reimbursement for the cost of his family's move to
Switzerland and provisions relating to the sale of his Florida residence in
accordance with the Company's policy applicable to expatriate employees
generally); and for Mr. Greze's continued participation in the Company's Swiss
pension plan and the payment of pension benefits under that plan based on a
schedule of final average salary, including payment if Mr. Greze's employment is
involuntarily terminated (not for cause) prior to August 1, 1996.
Dr. Hampers has an employment agreement that provides for his employment as
an Executive Vice President of the Company and head of its health care business
through March 1996; at that time, he has the right to become a consultant to the
Company for a five-year period for an annual consulting fee equal to 50% of his
annual base salary, subject to cost-of-living adjustments. The agreement also
provides that Dr. Hampers will be nominated for election as a director of the
Company during his employment. Under the agreement, Dr. Hampers is entitled to
an annual base salary of at least $675,000, subject to increases of at least 9%
every 18 months, and to participate in the Company's annual incentive
compensation (bonus) program. The agreement also provides for benefits generally
available to senior executives of the Company,
16
<PAGE>
as well as the use of a corporate aircraft (and an option to purchase the
aircraft at its fair market value upon the termination of his employment or
consulting relationship). Further, the agreement entitles Dr. Hampers to a
supplementary annual pension benefit equal to the amount by which (1) the lesser
of (a) $300,000 and (b) three times his actual annual pension benefit exceeds
(2) such actual pension benefit, subject to certain cost-of-living adjustments.
The agreement prohibits Dr. Hampers from engaging in certain competitive
activities during its term and for three years thereafter and provides for the
continuation of compensation for the term of the agreement in the event his
employment terminates other than for cause.
SEVERANCE AGREEMENTS. The Company has severance agreements with all of its
executive officers, as well as its other officers and Messrs. Robbins and Yunich
(in their capacity as consultants). Each agreement provides that in the event of
the involuntary termination of the individual's employment or consulting
services or a material reduction in his or her authority or responsibility, in
either case without cause, following a change in control of the Company, he or
she will receive a severance payment equal to 2.99 times his or her average
annual taxable compensation or consulting fees for the five years preceding the
change in control, plus certain additional benefits, subject to reduction in
certain cases to prevent the recipient from incurring liability for excise taxes
and the Company from incurring nondeductible compensation expense. Dr. Hampers
may instead elect to receive the payments provided for under his employment
agreement, if applicable. For purposes of these severance agreements, a change
in control would occur upon the acquisition of 20% or more of the Company's
Common Stock or the failure of Company-nominated directors to constitute a
majority of any class of the Board of Directors.
RESIGNATION OF J. P. BOLDUC. In January 1995, the Company's Board of
Directors received conflicting opinions from two law firms with respect to the
Company's obligation to disclose the matters described in "Arrangements with J.
Peter Grace, Jr." above and "Relationships and Transactions with Management and
Others -- J. Peter Grace, III" below. The Board then engaged Harold R. Tyler, a
former federal judge for the United States District Court for the Southern
District of New York, of counsel to Patterson, Belknap, Webb & Tyler LLP
("Patterson Belknap"), to provide advice with respect to these matters.
Thereafter, the Board appointed a special committee of the Board to investigate
select management issues and engaged Mr. Tyler and his firm to assist the
special committee. In the course of that investigation, unrelated allegations of
misconduct by Mr. Bolduc were brought to the attention of the special committee
and its counsel. As a result, members of the special committee, Mr. Tyler and
members of his firm conducted various interviews with employees of the Company,
including Mr. Bolduc, and certain other individuals. During the evening of
February 27, 1995, counsel to Mr. Bolduc asked the special committee that Mr.
Bolduc be given the opportunity to address the full Board at a meeting scheduled
in New York City on the morning of February 28. The special committee replied
that it did not have the authority to bind the full Board to invite Mr. Bolduc
to the meeting, but suggested that Mr. Bolduc travel to New York City to stand
by in the event the Board issued the invitation. Late that evening, Mr. Bolduc's
counsel advised Patterson Belknap that Mr. Bolduc was not willing to travel to
New York City without assurances of an opportunity to speak. Counsel to Mr.
Bolduc asked whether the Board would permit such counsel to appear on his
behalf. At the meeting on February 28, the Board declined Mr. Bolduc's counsel's
request to appear. At that meeting, Patterson Belknap reported to the Board that
grounds existed to find that Mr. Bolduc had sexually harassed certain employees
of the Company and other persons affiliated with the Company and that Mr. Bolduc
had been advised of such allegations in interviews on February 21 and 22, 1995.
Mr. Bolduc vehemently denied, and continues to deny, that he engaged in any such
misconduct. No formal charges of sexual harassment had ever been filed against
Mr. Bolduc during his 12 years of service with the Company. In addition, the
Board was informed that the individuals interviewed refused to have their names
made public or disclosed to Mr. Bolduc. In light of the report from Patterson
Belknap and the termination provisions of Mr. Bolduc's employment agreement, the
Board adopted resolutions to the effect that it was the sense of the Board that
Mr. Bolduc should sever his relationship with the Company, that Mr. Bolduc
should immediately be advised of the sense of the Board and that, if requested
by Mr. Bolduc, he should be given the opportunity to address the Board at or
prior to its next scheduled meeting on March 2 prior to final action on his
retention or termination. Mr. Bolduc declined the invitation to address the
Board. J. Peter Grace, Jr. did not participate in the February 28 deliberations
of the Board. Mr. Bolduc has stated that he agreed to enter into negotiations
regarding his resignation not because he believed that there was any substance
to the charges
17
<PAGE>
made against him, but because he believed that he had lost the support of the
Board and that his future effectiveness as Chief Executive Officer had been
compromised. The negotiations resulted in agreements providing for Mr. Bolduc's
resignation as President and Chief Executive Officer of the Company effective
March 3, 1995, and Mr. Bolduc subsequently resigned as a director of the Company
effective March 17, 1995 ("Bolduc Resignation Arrangements").
Pursuant to the Bolduc Resignation Arrangements, Mr. Bolduc's employment
agreement with the Company was terminated, Mr. Bolduc received a lump sum
payment of $5,062,208 in connection with the termination of his employment
agreement and in lieu of monthly severance payments that would otherwise have
been due thereunder, and the Company acquired from Mr. Bolduc 268,348 shares of
the Company's Common Stock (including 101,148 shares subject to restrictions on
resale and 5,725 shares not previously vested) for a purchase price of
$12,075,660 (or $45 per share), less $4,900 repaid to the Company pursuant to
Section 16 of the Securities Exchange Act of 1934, and less $400,000 in
repayment of a loan made in 1987 to Mr. Bolduc by a subsidiary of the Company.
The Bolduc Resignation Arrangements also provide for the payment to Mr. Bolduc
of deferred compensation owed to Mr. Bolduc in the aggregate principal amount of
$1,529,604, plus interest, in quarterly installments over a 10-year period
commencing June 30, 1995, and for the payment of gross pension benefits to Mr.
Bolduc until his death (and, if his wife shall survive him, to her until her
death) of $848,585 per year commencing in April 1995, such pension benefits to
be calculated as though Mr. Bolduc were retiring at age 62 (rather than at his
actual age of 55 years and 7 months). Under the Bolduc Resignation Arrangements,
Mr. Bolduc and his wife will continue to receive medical coverage under the
Company's retiree medical plan (subject to payment by Mr. Bolduc of a portion of
the premium on the same basis as other retirees) and continued coverage under
the Company's "split-dollar" life insurance policy in the face amount of $4.5
million currently maintained for Mr. Bolduc by the Company (with annual premiums
continuing to be shared by Mr. Bolduc and the Company in accordance with the
terms of the policy at a cost to the Company of approximately $300,000 per year
until 2008, at which time the Company will receive a full return of all premiums
paid). In addition, Mr. Bolduc will continue to hold previously granted options
covering 655,000 shares of the Company's Common Stock (including previously
unexercisable options covering 290,000 shares that, pursuant to the Bolduc
Resignation Arrangements, became exercisable immediately and at any time through
March 31, 1998). In payment of his rights under the LTIP, Mr. Bolduc received a
payment of $1,250,000. Mr. Bolduc's balance of approximately $620,000 under the
Company's Salaried Employees Savings and Investment Plan will be paid to him in
accordance with his election under the terms of that Plan. The Bolduc
Resignation Arrangements also provide Mr. Bolduc with ownership of a car and
certain office furniture previously provided to him by the Company for his use
and provide that the Company will reimburse Mr. Bolduc for certain legal fees
associated with his resignation and that Mr. Bolduc will be entitled to the
benefit of certain rights of indemnification by the Company as provided in the
Company's By-laws. Mr. Bolduc agreed, in the Bolduc Resignation Arrangements,
not to engage in any business which is in substantial competition with the
Company in any of the Company's current six core businesses until he reaches the
age of 62. The Bolduc Resignation Arrangements provide that the Company would
make no disclosure to any third person with respect to the circumstances of Mr.
Bolduc's resignation other than pursuant to an agreed upon press release that
stated that Mr. Bolduc's "decision to resign his position resulted from
differences of style and philosophy with the Company's leadership," except as
required by law or in certain other specified circumstances. In addition, Mr.
Bolduc had the right, in certain circumstances, to have the Company state that
no complaint of misconduct has ever been filed against Mr. Bolduc. In connection
with Mr. Bolduc's resignation as a director, the Company confirmed to Mr. Bolduc
that he will be entitled to indemnification by the Company to the full extent
permitted by New York law with respect to his service as a director.
The agreements providing for the Bolduc Resignation Arrangements were filed
as exhibits to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994, and the foregoing description of such agreements does not
purport to be complete and is qualified in its entirety by reference to such
agreements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The current
members of the Compensation Committee are Messrs. Pyne (Chairman), Eckmann,
Lynch, Macauley, Milliken and Puelicher; there were no other members of the
Compensation Committee during 1994.
18
<PAGE>
PERFORMANCE COMPARISON. The following graph and table compare the
cumulative total shareholder return on the Company's Common Stock from December
31, 1989 through December 31, 1994 with the Standard & Poor's 500 Stock Index
and the Standard & Poor's Specialty Chemicals Index (both of which include the
Company), as well as the Standard & Poor's Chemicals Index, using data supplied
by the Compustat Services unit of Standard & Poor's Corporation. The Company has
elected to compare its performance to both the Chemicals and Specialty Chemicals
Indices in view of its diversified nature in the past. However, in view of the
Company's strategic restructuring program (which has resulted in the sale of
noncore businesses and concentration on a group of core specialty chemical and
health care businesses), the Company may in the future decide that comparisons
to a different group or groups of companies would be more appropriate. The
comparisons reflected in the graph and table are therefore not intended to
forecast the future performance of the Common Stock and may not be indicative of
such future performance. The graph and table assume an investment of $100 in the
Common Stock and each index on December 31, 1989, as well as the reinvestment of
dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
W.R. GRACE &CO. S&P 500 STOCK INDEX S&P SPECIALTY CHEMICALS INDEX S&P CHEMICALS INDEX
<S> <C> <C> <C> <C>
1989 100 100 100 100
1990 76.98 96.89 96.10 84.91
1991 132.70 126.42 135.66 110.73
1992 140.45 136.05 143.72 121.25
1993 146.94 149.76 163.87 135.60
1994 144.45 151.74 143.06 156.98
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1989 1990 1991 1992 1993 1994
- ----------------------------------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
W. R. Grace & Co........................................... 100 76.98 132.70 140.45 146.94 144.45
S&P 500 Stock Index........................................ 100 96.89 126.42 136.05 149.76 151.74
S&P Specialty Chemicals Index.............................. 100 96.10 135.66 143.72 163.87 143.06
S&P Chemicals Index........................................ 100 84.91 110.73 121.25 135.60 156.98
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION.__The Board
of Directors approves all compensation decisions with respect to the Company's
executive officers, including the chief executive officer and other executives
whose annual base salaries exceed $250,000, based on the recommendations of the
Compensation Committee, except that all actions under the Company's stock
incentive plans are approved solely by the Compensation Committee and reported
to the Board. The Compensation Committee is comprised of directors who are not,
and have never been, employees of the Company or any of its subsidiaries and who
have no consulting arrangements or other significant relationships with the
Company.
19
<PAGE>
This Report describes the Company's performance-based compensation
philosophy and executive compensation program, as approved by the Compensation
Committee. In particular, it discusses the compensation decisions and
recommendations made by the Compensation Committee in 1994 regarding Mr. Bolduc,
the Company's President and Chief Executive Officer during that year, and the
four other executive officers named in the Summary Compensation Table above
(collectively referred to in this Report as the "executive officers").
Executive Compensation Philosophy and Program Components
The Company's executive compensation program is structured to enable the
Company to compete effectively with other firms in attracting, motivating and
retaining executives of the calibre needed to ensure the Company's future growth
and profitability. The components of this program consist of base salary and, if
warranted, annual incentive compensation (both paid in cash) and long-term
incentives (paid in the form of stock and cash). These compensation components
are intended to (1) stimulate executive performance that benefits the Company
and its shareholders by increasing shareholder value, (2) reward executive
performance with competitive levels of compensation, and (3) unite executive and
shareholder interests.
Background
In 1992, management (in consultation with the Compensation Committee) began
a comprehensive review of the Company's executive officer compensation program
with the assistance of a leading compensation consulting firm that consults with
management and the Compensation Committee on matters pertaining to the strategy,
structure and administration of the program. As a result of this review, certain
modifications were made to the program in 1993 to further strengthen the linkage
between executive compensation, Company and individual performance and
shareholder interests. This review continued during 1993 and 1994 in response to
the restructuring of the Company's businesses and the resultant changes in
certain executive responsibilities, and the program will continue to be
evaluated in the future. As a result of this ongoing review and evaluation,
compensation for executives is expected to become even more performance- and
formula-driven in 1995 and future years.
The strategy that is continuing to evolve from this review is expected, over
time, to position executive base salaries at the 50th percentile among those for
companies with annual sales of $3 to $10 billion*; at present, certain
executives' base salaries are above the 50th percentile, and others' are below
that level. In order to attract and retain a world-class executive team,
however, the Compensation Committee believes that the combination of salary and
annual and long-term incentive opportunities should result in total compensation
at the 75th percentile when specific performance objectives are met and
significant individual contributions are made to support the Company's
initiatives to enhance shareholder value.
In accordance with this strategy, the Company has placed less emphasis on
base salaries and other fixed forms of compensation and greater emphasis on
performance-based compensation, consisting of compensation based on (1) total
Company and/or product line performance and (2) individual and team performance,
including achievements involving corporate strategy and the creation of
shareholder value (such as research and development achievements, acquisitions,
business alliances and the like), as well as achievements relating to the
Company's corporate responsibilities (such as maintaining ethical, environmental
and diversity standards). The total compensation of executive officers will
reach the 75th percentile level only if targeted Company and individual
performance levels are achieved.
- ------------------
*These companies are not identical to those included in the indices reflected in
the above performance graph (although a number of them are included in one or
more of such indices), because the firms with which the Company compares itself
with respect to executive compensation and competition for executive talent are
not necessarily the same as those with which it competes for product market
share or shareholders' investments.
20
<PAGE>
The following sections of this Report describe the compensation program for
executive officers in effect in 1994 and the manner in which the Compensation
Committee and the Board reached their determinations as to performance-based
compensation.
Base Salary
In 1994, salaries of Company executives (employees whose salaries exceed
$100,000) based in the United States were eligible for review at intervals of
not less than 18 months since the date of the last increase, although the
general practice among companies with annual sales of $3 to $10 billion is to
review salaries at more frequent intervals. The Company's practice with respect
to executive base salaries is consistent with its intent of placing less
emphasis on fixed compensation components, such as salaries, and more emphasis
on performance-based pay, such as annual and long-term incentive compensation.
Although salary increases for executives as a group averaged approximately
4.5% in 1994 on an annualized basis, Mr. Bolduc received an increase of $100,000
(6.3% annualized) after a 24-month interval; Mr. Greze received an increase of
$35,000 (4.7% annualized) after a 30-month interval; Dr. Hampers received an
increase of $67,000 (6.1% annualized) after an interval of 18 months; and Mr.
Smith received an increase of $29,000 (5.0% annualized) after a 22-month
interval. These increases exceeded the average for all executive increases and
the average increase among companies with annual sales of $3 to $10 billion
because of the assessment of the performance of the individuals. Mr. Kohnken did
not receive a salary increase in 1994.
Pending developments arising out of the ongoing review of the Company's
executive compensation program, the Compensation Committee may propose salary
increases for executive officers in cases where, in its judgment, such increases
are warranted on the basis of (1) individual performance (as evaluated by the
Compensation Committee in its discretion), (2) salaries paid to executives in
comparable positions in other companies with annual sales of $3 to $10 billion,
and (3) other factors that the Compensation Committee deems relevant at the
time. It is expected that the 1995 salary increases for executives will average
approximately 4.5% of their current salaries on an annualized basis. Based on
data furnished by its consulting firm, the Compensation Committee believes that
this rate of increase is generally in line with executive salary increases among
companies with annual sales of $3 to $10 billion. All of the executive officers
are eligible to be considered for salary increases in 1995.
Annual Incentive Compensation
In 1993, certain changes were made by the Compensation Committee and the
Board to the annual incentive compensation component of the Company's executive
compensation program. The changes, which were designed to increase the extent to
which executive pay is based on performance, involved the establishment of
incentive compensation "pools" that, for 1994, were generated based on the
extent to which 1994 pretax income exceeded that of 1993. Awards to individual
executives were allocated from the formula-based incentive compensation pools.
The factors that the Compensation Committee took into consideration in
proposing individual awards for the executive officers for 1994 (other than Mr.
Bolduc, whose compensation is discussed below) were (1) that the Company's 1994
pretax income was 23% (or $87.9 million) higher than 1993 pretax income
(excluding special items in both years) and (2) the Company's achievement of
previously targeted specific objectives, consisting primarily of (a) the
reorganization of the Company's staff functions to support the globalization of
its core product lines, (b) the divestment of approximately $650 million of
noncore businesses and the resulting realignment of capital to core businesses
(including through acquisitions), and (c) the reduction of debt and related
interest expense. In addition, in determining the awards for Mr. Greze and Dr.
Hampers, the Compensation Committee took into consideration the 1994 pretax
income of the Company's packaging and health care businesses, which exceeded
1993 pretax income by 10% and 28%, respectively. The Compensation Committee also
considered the progress made in achieving the Company's objectives of
globalizing its health care business and strengthening the industry leadership
positions of both businesses.
21
<PAGE>
Based on these considerations, the Board, upon the recommendation of the
Compensation Committee, approved awards for the executive officers (other than
Mr. Bolduc) ranging from 89.7% to 119.4% of their 1994 annual base salary rates.
Long-Term Incentives
The long-term incentive component of the Company's total executive
compensation program, which is described elsewhere in this Proxy Statement,
provides for the annual grant of contingent targeted Performance Units and stock
options. Such grants provide opportunities for significant rewards based on
performance versus pre-established pretax income and shareholder value
performance targets (in the case of Performance Units) and on increases in the
price of the Company's Common Stock (in the case of options).
In 1994, the executive officers listed above and certain other individuals
were granted contingent targeted Performance Units for the 1994-1996 Performance
Period, as well as stock options. The number of contingent targeted Performance
Units granted, and the number of shares of stock covered by options granted,
were based on the Compensation Committee's evaluation of each recipient's
ability to contribute to the achievement of the performance targets discussed
above, as well as guidelines aimed at positioning long-term compensation
opportunities at the 75th percentile of companies with annual sales of $3 to $10
billion.
The Company's LTIP is described elsewhere in this Proxy Statement. As noted
in such descriptions, Performance Units granted to employees of product lines
are weighted 67% on the pretax earnings performance of their product lines and
33% on the Company's shareholder value performance; Performance Units granted to
corporate employees are weighted 50% on the basis of the Company's pretax
earnings performance and 50% on the basis of the Company's shareholder value
performance. This weighting is intended to reflect the respective
responsibilities of the Company's product line and corporate managers. However,
half of the Performance Units granted to Mr. Greze and Dr. Hampers are weighted
67%/33%, and the other half of their Performance Units are weighted 50%/50%,
reflecting their responsibilities as both product line managers (with respect to
the Company's packaging and health care businesses, respectively) and corporate
managers (as Executive Vice Presidents with policy-making responsibilities on a
Company-wide basis). The Compensation Committee determined these weightings and
approved the targeted levels of product line and Company performance based on
its assessment of the extent to which the approved weighting and targeted levels
would act as challenging -- but realizable -- incentives for senior managers.
If earned, payment under the Performance Unit awards would be made in 1996
for the 1993-1995 Performance Period, and in 1997 for the 1994-1996 Performance
Period. It is anticipated that payments under any earned Performance Units will
be made 50% in cash and 50% in shares of Common Stock issued under the Company's
stock incentive plans; however, the Compensation Committee has authority to
reduce the portion of earned Performance Units payable in Common Stock. Payment
of a portion of any earned Performance Units in stock is intended to unite the
interests of executives with those of shareholders by placing a significant
portion of the executives' compensation at risk.
Under an amendment to the LTIP, which is discussed elsewhere in this Proxy
Statement, the maximum number of performance units a recipient may earn with
respect to a Performance Period would be limited to ten times the number of
contingent targeted Performance Units granted to the recipient, or 250,000 such
Units, whichever is less; however, there is no assurance that any Performance
Units will be earned, since specified pretax earnings or shareholder value
performance thresholds must be achieved in order for there to be any payments.
Compensation of the Chief Executive Officer
Mr. Bolduc's 1994 compensation was determined in accordance with the
philosophy and program components discussed above. This determination consisted
of (1) a subjective assessment of Mr. Bolduc's continued effectiveness in
leading the Company and strategically positioning it to successfully compete
globally in the 21st century and (2) his achievements with respect to the
Company's financial performance and restructuring and the Company's performance
relative to the targets discussed above.
22
<PAGE>
Mr. Bolduc's annual incentive compensation award for 1994 was $1,262,000.
This amount, which is 140.2% of his annualized base salary rate, exceeded his
1993 award by $276,000, or 28%, and was made from the pool generated by the
Company's 1994 pretax income performance (which, as noted above, exceeded 1993
pretax income by 23%, or $87.9 million). Mr. Bolduc's award was not determined
in accordance with a precise formula. Rather, the Compensation Committee
considered Mr. Bolduc's leadership in directing the significant accomplishments
achieved under the Company's strategic plan, as well as continued growth in
earnings. These accomplishments included the divestment of approximately $650
million of noncore businesses; the resulting realignment of capital to core
businesses (including acquisitions amounting to over $350 million in 1994); and
a reduction of over $175 million in debt, resulting in a reduction of the
Company's debt-to-capital ratio to 50.4% at year-end 1994 as compared to 52.9%
at year-end 1993. The effects of these accomplishments were reflected in the
increase of 17.6% in operating earnings per share for 1994 as compared to 1993.
In 1994, under the long-term incentive component of the executive
compensation program, Mr. Bolduc was granted 25,000 targeted Performance Units
with respect to the 1994-1996 Performance Period, and a stock option covering
100,000 shares of the Company's Common Stock. The size of these grants
(identical to those made in 1993), which would position Mr. Bolduc's long-term
compensation opportunity at approximately the 75th percentile among the $3 to
$10 billion group of companies, was determined by the Compensation Committee on
the basis of the following factors (as well as those considered in determining
Mr. Bolduc's annual incentive compensation award): (1) the Company's defined
strategic goals; (2) the anticipated degree of difficulty in achieving those
goals; (3) the potential shareholder value to be derived from achieving them;
and (4) the future positioning of the Company for competitive global advantage.
Under the LTIP as amended, the maximum number of Performance Units that Mr.
Bolduc could have earned for the 1994-1996 Performance Period and each
subsequent Performance Period would have been 250,000 Units. However, in order
for the maximum award to have been earned for the 1994-1996 Performance Period,
the Company's pretax earnings would have had to exceed the performance target by
over 100%, and the Company's shareholder value performance would have had to
rank at the 99th percentile among the companies that comprise the Standard and
Poor's Index of industrial companies.
Mr. Bolduc had an employment agreement with the Company, the terms of which
are summarized elsewhere in this Proxy Statement.
Deductibility of Executive Compensation
In 1994, the Compensation Committee reported that the Company intended to
qualify its executive compensation plans, where appropriate, as
performance-based plans and thereby not be subject to United States federal
income tax provisions that may limit the Company's ability to deduct
compensation in excess of $1 million per year paid to any executive officer. To
comply with those provisions, the LTIP has been amended (subject to shareholder
approval) to (1) limit the number of Performance Units that may be earned by any
individual to ten times the number of contingent targeted Performance Units or
250,000 such Units, whichever is less, with respect to any single three-year
Performance Period, and (2) eliminate the provision that permits the
Compensation Committee to make an "upward" (positive) discretionary adjustment
in the number of earned Performance Units in recognition of individual
performance.
In addition, the Company has adopted (subject to shareholder approval) a
separate annual incentive compensation program in which only the President and
Chief Executive Officer and Dr. Hampers are currently expected to participate
(although other executive officers would participate in the separate program in
the event their compensation exceeded $1 million in any year). Under this
separate program, the President and Chief Executive Officer could earn annual
incentive compensation awards equal to specified percentages of his annual base
salary as in effect at the end of each year, based upon the Company's pretax
income for the year as compared to a pretax income target determined by the
Board on the recommendation
23
<PAGE>
of the Compensation Committee. The following table shows the amount of the award
that would be paid to the President and Chief Executive Officer for 1995
(expressed as a percentage of his annual base salary), with intermediate results
calculated on a straight-line pro rata basis:
<TABLE>
<CAPTION>
AWARD AS % OF
1995 PRETAX INCOME AS % OF 1994 PRETAX INCOME YEAR-END BASE SALARY
- -------------------------------------------------------------------- --------------------
<S> <C>
Less than 100%...................................................... 0%
100%................................................................ 48%
105%................................................................ 80%
108%................................................................ 112%
115.5%.............................................................. 160%
125% and above...................................................... 200%
</TABLE>
Dr. Hampers could earn annual incentive compensation awards equal to specified
percentages of his annual base salary as in effect at the end of each year,
based upon NMC's earnings before interest and taxes ("EBIT") for the year as
compared to an EBIT target determined by the Board on the recommendation of the
Compensation Committee. The following table shows the amount of the award that
would be paid to Dr. Hampers for 1995 (expressed as a percentage of his annual
base salary), with intermediate results calculated on a straight-line pro rata
basis:
<TABLE>
<CAPTION>
AWARD AS % OF
1995 EBIT AS % OF 1994 EBIT YEAR-END BASE SALARY
- -------------------------------------------------------------------- --------------------
<S> <C>
Less than 100%...................................................... 0%
100%................................................................ 35%
110%................................................................ 70%
120%................................................................ 105%
135% and above...................................................... 133%
</TABLE>
Under the new annual incentive compensation program, the President and Chief
Executive Officer and Dr. Hampers could also earn incentive compensation based
on the achievement of nonfinancial objectives, such as leadership, overall
strategic positioning, reorientation of long-term goals, the development of
human resources, corporate/product line strategy, shareholder value creation,
and achievements relating to the Company's corporate responsibilities (such as
maintaining ethical, environmental and diversity standards), at the discretion
of the Board on the recommendation of the Compensation Committee. However,
amounts earned with respect to such nonfinancial objectives would not be
deductible by the Company if the total of salary and other non-performance-based
compensation (including amounts with respect to such nonfinancial objectives)
paid to either individual should exceed $1 million in any calendar year.
COMPENSATION, EMPLOYEE BENEFITS AND
STOCK INCENTIVE COMMITTEE
Eben W. Pyne, CHAIRMAN
Harold A. Eckmann
Peter S. Lynch
Robert C. Macauley
Roger Milliken
John A. Puelicher
24
<PAGE>
RELATIONSHIPS AND TRANSACTIONS WITH MANAGEMENT AND OTHERS
The following are descriptions of certain relationships and transactions
between the Company and its directors and executive officers (or members of
their families). Information regarding consulting arrangements with certain
directors appears above under "Directors' Compensation and Consulting
Arrangements" and "Arrangements with J. Peter Grace, Jr." under the heading
"Executive Compensation."
LOANS TO OFFICERS. In 1987, a subsidiary of the Company made an
interest-free loan of $400,000 to Mr. Bolduc in connection with his previous
relocation to the New York City area; this loan was repaid in connection with
Mr. Bolduc's severance arrangements (see "Executive Compensation -- Resignation
of J. P. Bolduc" above). The Company has also made interest-free loans to the
following executive officers in connection with their relocations to the United
States: Mr. Greze -- $400,000; Fred Lempereur (a Senior Vice President) --
$350,000; and Ian Priestnell (a Vice President) -- $458,000.
J. PETER GRACE, III. J. Peter Grace, III is a son of J. Peter Grace, Jr.
Mr. Grace III was the Chairman of Grace Hotel Services Corporation ("GHSC"), a
wholly owned subsidiary of the Company, from its formation in July 1990 until
his resignation on November 9, 1994. GHSC is in the business of providing food
and beverage service at hotels.
In February 1993, the Company decided to dispose of GHSC due to the failure
of GHSC to meet certain profit targets. At about this time, Mr. Grace III made a
proposal to acquire GHSC. As a result of negotiations that took place over the
following months, the Company entered into a non-binding letter of intent dated
November 5, 1993 with Mr. Grace III reflecting the terms of the proposed
purchase of GHSC by a new company to be formed by Mr. Grace III and others
("Letter of Intent"). In order to facilitate the acquisition, the Company agreed
to fund certain of the expenses that would be incurred by the new company in
connection with the acquisition, up to a maximum of $125,000, which would be
reimbursed to the Company upon the consummation of the acquisition. J. Peter
Grace, Jr. was not involved in either the negotiation or the approval of the
Letter of Intent or the agreement to contingently fund such expenses. Following
one extension, the Letter of Intent expired when the new company failed to
consummate an acquisition of GHSC by the date contemplated by the Letter of
Intent.
Mr. Grace III and the Company continued to discuss the acquisition of GHSC
by Mr. Grace III and others following the expiration of the Letter of Intent. In
this connection, in March 1994, Mr. Grace III formed a new corporation, HSC
Holding Co., Inc. ("HSC"), to facilitate the acquisition of GHSC. Mr. Grace III
planned that HSC would enter into agreements to provide food and beverage
service at additional hotels that were not being served by GHSC. Mr. Grace III
advised the Company that the purpose of the plan was to demonstrate to potential
investors that the hotel food and beverage service businesses of GHSC and HSC
could be profitably expanded. The Company was aware of the plan of Mr. Grace III
to develop the operations of HSC while he was employed by GHSC, and HSC agreed
to pay GHSC a management fee to recompense GHSC for administrative services and
time spent by Mr. Grace III and other GHSC employees on HSC business. It was the
Company's understanding that Mr. Grace III would maintain the administration and
finances of HSC separate and distinct from those of GHSC and that Mr. Grace III
and others had committed to advance HSC up to $300,000. Mr. Grace III has
advised the Company that he believed that the Company understood at the time
that the development costs would be advanced by GHSC and that GHSC would be
reimbursed on an ongoing basis from HSC's assets and receivables and upon the
consummation of HSC's acquisition of GHSC._ J. Peter Grace, Jr. was not aware of
the manner of the operation of GHSC and HSC.
In pursuing the plan to develop the operations of HSC, HSC (through Mr.
Grace III) and GHSC (through its Chief Financial Officer) entered into an agency
agreement, dated June 13, 1994 ("Agency Agreement"). Neither the senior
executives of the Company nor J. Peter Grace, Jr. were aware of either the
existence or terms of the Agency Agreement. Pursuant to the Agency Agreement:
(1) GHSC agreed that all new lease arrangements entered into by HSC would be
undertaken by HSC as agent of GHSC and, if the acquisition of GHSC were not
consummated, GHSC would be liable for the obligations under such leases; (2) HSC
and GHSC agreed that all persons employed by HSC would be employees of GHSC, and
GHSC agreed to assume and discharge all liabilities and obligations with respect
to such employees; and (3) GHSC
25
<PAGE>
and HSC agreed that all obligations of HSC under all leases entered into by HSC
would be performed by employees of GHSC acting on behalf of HSC and that all
actual out-of-pocket costs and expenses incurred by GHSC with respect to such
employees would be reimbursed by HSC to GHSC.
Thereafter, HSC entered into a series of leases in its name (and not in the
name of GHSC) with respect to new hotel food and beverage service operations.
HSC used the working capital of GHSC to finance its acquisition, development and
operations of these operations. These new operations began in June 1994, and
substantially increased in the latter part of September and October 1994. When
senior executives of the Company objected in the beginning of November 1994 to
HSC and GHSC being operated as a single enterprise in substantial part and to
working capital being provided to HSC by GHSC, Mr. Grace III resigned as
Chairman of GHSC and undertook to provide that GHSC would not be adversely
affected in any way then known as a result of the relationship between GHSC and
HSC.
In connection with Mr. Grace III's resignation from GHSC, HSC entered into a
service agreement with GHSC dated November 10, 1994 ("Service Agreement")
pursuant to which GHSC separated the accounts, assets, liabilities and
operations of HSC and GHSC, and GHSC provided certain management services to
HSC. The Service Agreement provided that HSC would pay GHSC $3,000 per month for
each HSC food and beverage service location as compensation for such services.
The Service Agreement was terminated by GHSC as of December 9, 1994. GHSC and
HSC have been operated as independent entities since Mr. Grace III's resignation
as Chairman of GHSC.
Following Mr. Grace III's resignation, the Company, GHSC, Mr. Grace III and
HSC entered into negotiations providing for the repayment of all funds provided
to HSC by GHSC. As a result of these negotiations, HSC, GHSC and the Company
entered into a letter agreement dated December 14, 1994 ("December Letter
Agreement"). J. Peter Grace, Jr. was not involved in the negotiation or approval
of either the Service Agreement or the December Letter Agreement.
Pursuant to the December Letter Agreement, HSC paid $1 million to GHSC and
deposited $381,000 into an escrow account ("Escrow Amount") pending a final
determination of the amounts due to GHSC in repayment of all working capital
provided by GHSC to HSC and for other costs and expenses incurred by GHSC on
behalf of HSC. On March 15, 1995, $213,424.70 of the Escrow Amount was released
to the Company. The Company claims that HSC owes an additional $201,068.85 to
GHSC. HSC disputes this claim. Pursuant to the terms of the December Letter
Agreement, this dispute will be resolved by a panel of three arbitrators, each
being a certified public accountant. As of the date of this Proxy Statement, no
demands from any third party have been made against either GHSC or the Company
arising out of the activities of HSC that have resulted in any payment by either
GHSC or the Company. GHSC has obtained estoppel letters from the landlords of
each of the properties leased by HSC acknowledging that HSC is the only entity
that is liable under the terms of such leases.
The December Letter Agreement also granted HSC the opportunity, on a
nonexclusive basis, to acquire GHSC on or before March 14, 1995, subject to
terms and conditions to be agreed upon. Under the December Letter Agreement, the
Company has made the use of GHSC's offices and secretarial staff available to
HSC and has permitted HSC to engage in reasonable due diligence with respect to
GHSC. The December Letter Agreement permitted the Company to actively seek other
purchasers of GHSC during the term of the nonexclusive period covered by the
Agreement. As of the date of this Proxy Statement, neither Mr. Grace III nor HSC
had made any agreement or entered into any understanding with the Company
concerning the acquisition of GHSC.
The Letter of Intent, the Agency Agreement, the Service Agreement and the
December Letter Agreement were filed as exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994, and the foregoing description
of such documents does not purport to be complete and is qualified in its
entirety by reference to such documents.
LEGAL PROCEEDINGS; INSURANCE; INDEMNIFICATION. In March and April 1995,
four lawsuits were brought against the Company and all the members of the Board
of Directors (as well as Mr. Bolduc) in New York State Supreme Court. The
lawsuits, which purport to be derivative actions (I.E., actions brought on
behalf of the Company), contain similar allegations relating, among other
things, to claims that the individual
26
<PAGE>
defendants breached their fiduciary duties to the Company by providing Mr. Grace
with certain compensation arrangements upon his retirement as Chief Executive
Officer of the Company in 1992 and by approving Mr. Bolduc's severance
arrangements (see "Arrangements with J. Peter Grace, Jr." and "Resignation of J.
P. Bolduc" under the heading "Executive Compensation" above), and that Messrs.
Grace and Bolduc breached their fiduciary duties by accepting such benefits and
payments. The lawsuits seek, among other things, unspecified damages, attorneys'
fees and costs, and such other relief as the Court deems proper.
The Company has been notified that the Securities and Exchange Commission is
conducting an informal inquiry into the Company's prior disclosures, including
disclosures regarding benefits and arrangements provided to Mr. Grace (see
"Executive Compensation -- Arrangements with J. Peter Grace, Jr." above) and the
matters described above relating to his son, J. Peter Grace, III.
In 1990, Dr. Hampers consented to the entry of a misdemeanor finding and to
the payment of a fine for his importation of skins of endangered species in
violation of federal law.
The Company maintains director and officer liability insurance covering
directors and officers of the Company and its subsidiaries. Such insurance is
currently provided by Corporate Officers' and Directors' Assurance Ltd., X.L.
Insurance Company Ltd., Gulf Insurance Company and A.C.E. Insurance Company Ltd.
under contracts dated November 4, 1994. The annual premiums for such insurance
total approximately $1.2 million. In addition, the Company is purchasing
insurance that will cover its directors and officers with respect to claims made
within six years after May 10, 1995 relating to conduct prior to that date. Such
"extended discovery" coverage is being purchased from the above underwriters at
a cost of $275,000.
At a meeting of the Board of Directors held on April 6, 1995, the Board
resolved that the Company will provide certain rights of indemnification
(including related reimbursement and advances of expenses) to directors, which
rights will be contractual rights, and will seek to maintain directors' and
officers' liability insurance covering certain potential obligations for at
least six years following the date of the meeting, provided that the Company
will not be obligated to spend more than 150% of the current annual premiums to
maintain such insurance.
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
MANAGEMENT SECURITY OWNERSHIP
The following tables set forth the Common and Preferred Stocks of the
Company beneficially owned at February 1, 1995 by each current director and
nominee, by each of the executive officers named in the Summary Compensation
Table set forth under "Election of Directors--Executive Compensation" above, and
by directors and executive officers as a group. The tables include shares owned
by (1) those persons and their spouses, minor children and certain relatives,
(2) trusts and custodianships for their benefit and (3) trusts and other
entities as to which the persons have the power to direct the voting or
investment of securities (including shares as to which the persons disclaim
beneficial ownership). The Common Stock table includes shares in accounts under
the Company's Salaried Employees Savings and Investment Plan and shares covered
by currently exercisable stock options; it does not reflect shares covered by
unexercisable stock options (see "Election of Directors--Executive
Compensation--Stock Options" above). The bracketed figures in the tables
indicate the percentage of the class represented by the shares shown (if over
1%), based on the shares outstanding at March 21, 1995. The Common and Preferred
Stocks owned by directors and executive officers as a group (excluding option
shares) at February 1, 1995 represent approximately 6.6% of the voting power of
all the Company's stock outstanding at March 21, 1995.
27
<PAGE>
COMMON STOCK
<TABLE>
<CAPTION>
AMOUNT/NATURE
OF OWNERSHIP
--------------
<S> <C> <C>
J. P. Bolduc*...................... 288,022
365,000 (O)
G. C. Dacey........................ 805
E. W. Duffy........................ 2,100
H. A. Eckmann...................... 2,533
C. H. Erhart, Jr................... 99,416
2,900 (T,S)
J. W. Frick........................ 1,989
J. P. Grace........................ 492,028
166,751 (T,S)
180,000 (O)
J-L. Greze......................... 26,604
132,000 (O)
C. L. Hampers...................... 8,600
50,000 (T)
220,000 (O)
T. A. Holmes....................... 3,200
G. J. Humphrey..................... 705
G. P. Jenkins...................... 805
V. A. Kamsky....................... 1,700
D. H. Kohnken...................... 37,650
215,500 (O)
P. S. Lynch........................ 6,105
R. C. Macauley..................... 1,605
<CAPTION>
AMOUNT/NATURE
OF OWNERSHIP
--------------
<S> <C> <C>
R. Milliken........................ 1,201
10,238 (T,S)
J. E. Phipps....................... 10,700
17,450 (T)
J. A. Puelicher.................... 2,605
E. W. Pyne......................... 2,540
1,000 (T)
18,000 (T,S)
D. W. Robbins, Jr.................. 41,644 (T)
175,000 (O)
B. J. Smith........................ 37,380
155,000 (O)
E. J. Sullivan..................... 2,300
W. Wood Prince..................... 1,700
37,996 (T,S)
D. L. Yunich....................... 1,700
Various directors, executive
officers and others, as Trustees.. 57,126 (T,S)
Directors and executive officers as
a group........................... 1,182,094 [1.3%]
51,000 (T)
253,335 (T,S)
1,990,700 (O)
</TABLE>
28
<PAGE>
PREFERRED STOCKS
<TABLE>
<CAPTION>
AMOUNT/NATURE OF OWNERSHIP
----------------------------------------------------------------------
CLASS A CLASS B
6% PREFERRED PREFERRED PREFERRED
------------------------ --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
C. H. Erhart, Jr........................ 42
J. P. Grace............................. 387 (T,S) [1.1%] 467 (T,S) [2.9%] 562 (T,S) [2.6%]
E. W. Pyne.............................. 38 (T,S)
Various directors, executive officers
and others, as Trustees................ 21,637 (T,S) [59.3%] 725 (T,S) [4.4%] 985 (T,S) [4.6%]
Various directors, executive officers
and others, as members of the
Retirement Board of the W. R. Grace &
Co. Retirement Plan for Salaried
Employees.............................. 9,648 (T,S) [26.5%] 959 (T,S) [4.4%]
Directors and executive officers as a
group.................................. 42 1,192 (T,S) [7.3%] 2,506 (T,S) [11.6%]
31,710 (T,S) [87.0%]
- ------------
<FN>
* In March 1995, in connection with Mr. Bolduc's severance arrangements, (1)
he sold 268,348 shares to the Company and (2) options previously granted to
him covering an additional 290,000 shares became fully exercisable. See
"Election of Directors -- Executive Compensation -- Resignation of J. P.
Bolduc" above for further information.
(O) Shares covered by stock options exercisable on or within 60 days after
February 1, 1995.
(T) Shares owned by trusts and other entities as to which the person has the
power to direct voting and/or investment.
(S) Shares as to which the person shares voting and/or investment power with
others.
</TABLE>
The above tables do not include shares held by Fidelity Management &
Research Company and its affiliated mutual funds (see "Other Security Ownership"
below). Mr. Lynch is vice chairman of Fidelity Management & Research Company and
a trustee of the Fidelity Group of Mutual Funds. However, he disclaims
beneficial ownership of such shares and has advised the Company that he does not
participate in and is not responsible for investment and voting decisions with
respect to such shares. Further, Mr. Lynch has advised the Company that he has
served and will continue to serve as a director in his individual capacity and
not as a representative or deputy of Fidelity Management & Research Company or
any related entity.
OTHER SECURITY OWNERSHIP
The Company has been advised that at December 31, 1994, College Retirement
Equities Fund (730 Third Avenue, New York, New York 10017-3206) held 7,880,600
shares of Common Stock, or 8.4% of the Common Stock outstanding on March 21,
1995; Delaware Management Company, Inc. (1818 Market Street, Philadelphia,
Pennsylvania 19103) and affiliated mutual funds held 6,597,900 shares of Common
Stock, or 7.0% of the Common Stock outstanding on March 21, 1995; and FMR Corp.
(82 Devonshire Street, Boston, Massachusetts 02108) and affiliated mutual funds
held 10,009,637 shares of Common Stock, or 10.6% of the Common Stock outstanding
on March 21, 1995. In addition, at March 21, 1995, Namanco & Co. (P.O. Box 426
Exchange Place Station, 69 Montgomery Street, Jersey City, New Jersey 07303) was
the record owner of 2,722 shares of Class A Preferred Stock, or 16.6% of the
Class A Preferred Stock outstanding, and 4,951 shares of Class B Preferred
Stock, or 22.9% of the Class B Preferred Stock outstanding.
OWNERSHIP AND TRANSACTIONS REPORTS
Under Section 16 of the Securities Exchange Act of 1934, the Company's
directors, certain of its officers, and beneficial owners of more than 10% of
the outstanding Common Stock are required to file reports with the Securities
and Exchange Commission and the New York Stock Exchange concerning their
ownership of and transactions in Common Stock; such persons are also required to
furnish the Company with copies of such reports. Based solely upon the reports
and related information furnished to the Company, the Company believes that all
such filing requirements were complied with in a timely manner during and with
respect to 1994, except that a report regarding Mr. Grace's July 1994
acquisition of 700 shares of the Company's Common Stock was filed one day late.
SELECTION OF INDEPENDENT ACCOUNTANTS
On the recommendation of the Audit Committee, the Board of Directors has
selected the firm of Price Waterhouse LLP ("Price Waterhouse") to be the
independent accountants of the Company and its consolidated subsidiaries for
1995. Although the submission of this matter for shareholder ratification at the
Annual Meeting is not required by law or the Company's By-laws, the Board is
nevertheless doing so to determine the shareholders' views. If the selection is
not ratified, the Board will reconsider its selection of independent
accountants.
Price Waterhouse has acted as independent accountants of the Company and its
consolidated subsidiaries since 1906. Its fees and expenses for the 1994 audit
are expected to be approximately $2.8 million. In addition, during 1994 Price
Waterhouse performed special audits and reviews in connection with certain
acquisitions and divestments, consulted with the Company on various matters and
performed other services for the Company (including audits of the financial
statements of certain employee benefit plans and certain units of the Company)
for fees and expenses totaling approximately $4.2 million. A representative of
Price Waterhouse will attend the Annual Meeting, will be available to answer
questions and will have an opportunity to make a statement if he wishes to do
so. Members of the Audit Committee are also expected to attend.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE SELECTION
OF PRICE WATERHOUSE.
29
<PAGE>
APPROVAL OF LONG-TERM INCENTIVE PROGRAM
As described above (see "Election of Directors -- Executive Compensation --
LTIP"), the LTIP provides for the grant to executive officers and other senior
managers of contingent "Performance Units" under which awards may be earned
based on performance during a three-year "Performance Period"; a new three-year
Performance Period commences each year, and contingent Performance Units are
granted for each Performance Period. Amounts, if any, earned under Performance
Units are paid following the end of each Performance Period. In keeping with the
Company's compensation philosophy of uniting executive interests with those of
the shareholders, it is currently anticipated that any such payments will be
made 50% in cash and 50% in shares of Common Stock issued under the Company's
stock incentive plans; however, the Compensation Committee has authority to
reduce the portion of earned Performance Units payable in Common Stock. Payments
of earned Performance Units are not treated as compensation for purposes of the
Company's basic and supplemental retirement plans or other employee benefit
plans.
Performance Units are forfeited in the case of (1) voluntary resignation
prior to age 55 or voluntary retirement prior to age 62, in either case without
the consent of the Compensation Committee, during the Performance Period and (2)
termination for cause. In all other cases of termination of employment during
the Performance Period, a participant receives a pro rata number of the
Performance Units earned; similarly, Performance Units are granted on a pro rata
basis to any person who begins participating in the LTIP after the beginning of
a Performance Period.
Employees to whom Performance Units are granted also receive grants of stock
options based on the number of Performance Units granted (see "Election of
Directors -- Executive Compensation -- Stock Options" above).
Under the LTIP as in effect for the 1994-1996 Performance Period (as
approved by the Company's shareholders at the 1994 Annual Meeting), awards may
be earned based on (1) the achievement of pretax earnings targets by the
manager's product line (or, in the case of corporate managers, the Company),
and/or (2) shareholder value performance (measured by appreciation in the price
of the Common Stock and dividends paid) as compared to that of the companies in
the Standard & Poor's Industrials, with Performance Units granted to employees
of product lines weighted 67% on the pretax earnings performance of their
product lines, and 33% on shareholder value performance, during the Performance
Period, and Performance Units granted to corporate employees weighted 50% on the
basis of the Company's pretax earnings performance and 50% on the basis of
shareholder value performance during the Performance Period. (However, in the
case of certain executive officers, half of the Performance Units granted are
weighted 50%/50%, and the other half are weighted 67%/33%, in recognition of
such officers' responsibilities as both product line managers and corporate
managers.) For the 1994-1996 Performance Period, the number of Performance Units
that may be earned by a participant in the LTIP were initially subject to an
increase or decrease of up to 20%, at the discretion of the Compensation
Committee, based on individual performance, which could include, among other
things, the participant's performance with respect to strategic matters (such as
research and development, acquisitions, business alliances and the like), as
well as environmental and social matters. In addition, with respect to the
1994-1996 Performance Period, the LTIP initially did not provide for a limit on
the number of Performance Units that could be earned by a participant.
Following shareholder approval of the LTIP in 1994, the Board of Directors
(on the recommendation of the Compensation Committee) determined to amend the
LTIP in certain respects. With respect to the 1993-1995 Performance Period and
each subsequent Performance Period, the amendments consisted of (1) limiting the
maximum number of Performance Units that may be earned by any participant to 10
times the targeted number of Performance Units (or, if less, 250,000 Performance
Units) and (2) eliminating the ability of the Compensation Committee to increase
by up to 20% the number of earned Performance Units in recognition of individual
performance (the Compensation Committee would retain the discretion to decrease
the number of earned Performance Units by up to 20%); these amendments have been
agreed to by the LTIP participants for the 1993-1995 and 1994-1996 Performance
Periods, subject to shareholder approval at the 1995 Annual Meeting. In
addition, the Board of Directors (on the recommendation of the
30
<PAGE>
Compensation Committee) has determined to replace "Earnings Targets" with "Value
Contribution Performance" in determining whether Performance Units are earned;
this amendment would be effective for the 1995-1997 and subsequent Performance
Periods, subject to shareholder approval at the Annual Meeting. The calculation
of Performance Units earned under the LTIP, as amended, is described below.
CALCULATION OF PERFORMANCE UNITS EARNED
As noted above, commencing with the 1995-1997 Performance Period,
Performance Units may be earned to the extent that, during the Performance
Period, (1) the return on assets of the participant's product line or other unit
(or, in the case of corporate participants, the Company) exceeds a specified
target based on the cost of capital ("Value Contribution Performance") and/or
(2) the Company's shareholder value performance (measured by appreciation in the
price of the Common Stock and dividends paid) reaches a specified level as
compared to that of the companies in the Standard & Poor's Industrials
("Shareholder Value Performance"). The following is a summary of the manner in
which Performance Units may be earned with respect to Value Contribution
Performance and Shareholder Value Performance.
VALUE CONTRIBUTION PERFORMANCE. If the product line (or the Company) does
not exceed the targeted return on assets during each year of the Performance
Period (cumulated over the entire three-year Performance Period), the portion of
the relevant participants' Performance Units relating to nominal Value
Contribution Performance ("Value Contribution Component") will not be earned; as
indicated above, the Value Contribution Component is 67% of each contingent
Performance Unit for product line employees and 50% for corporate employees. If
the product line (or the Company) exceeds the targeted return on assets during
each year of the Performance Period (cumulated over the entire three-year
Performance Period), a payout pool will be established in an amount equal to 1%
of the excess (such excess being referred to as the "Value Contribution"). In
addition, if the prior year's Value Contribution was below the targeted return
on assets, the payout pool will be increased (or decreased) by an amount equal
to 2% of the amount by which the Value Contribution for each year during the
Performance Period is greater (or less) than the Value Contribution for the
preceding year, cumulated over the entire three-year Performance Period. If the
prior year's Value Contribution was above the targeted return on assets, the
payout pool will be increased by an amount equal to 2% of the amount by which
the Value Contribution for each year during the Performance Period is greater
than the Value Contribution for the preceding year, cumulated over the entire
three-year Performance Period.
The number of earned Performance Units will be determined by (1) dividing
the amount of the payout pool by the closing price of the Company's Common Stock
on the last trading day of the year prior to the beginning of the Performance
Period, (2) multiplying the quotient by the amount of the Value Contribution
Component (67% for product line employees and 50% for corporate employees), and
(3) applying a factor, determined by the Compensation Committee in accordance
with a formula related to the Company's 1995-1997 business plan, to calculate
the number of Performance Units earned by the participants in each product line
(or corporate participants, in the case of the Company) as compared to the
number of targeted Performance Units granted to such participants.
SHAREHOLDER VALUE PERFORMANCE. As discussed above, the portion of each
Performance Unit relating to the Company's Shareholder Value Performance
("Shareholder Value Component") amounts to 33% for product line employees and
50% for corporate employees. If the Company's Shareholder Value Performance
during the Performance Period ranks below the 50th percentile of all companies
comprising the Standard & Poor's Industrials at both the beginning and the end
of the Performance Period, the Shareholder Value Component will not be earned,
and the participant will receive no payment with respect thereto. If the
Company's Shareholder Value Performance ranks at the 50th percentile of such
companies at the end of the Performance Period, the participant will earn 33% of
the Shareholder Value Component. For each one-tenth of a percentile by which the
Company's Shareholder Value Performance at the end of the Performance Period
ranks above the 50th percentile level, the participant will earn an additional
.044% of the Shareholder Value Component, up to 100% of the Shareholder Value
Component if the Company's Shareholder Value Performance at the end of the
Performance Period ranks at the 65th percentile of such companies. Further, the
participant will earn an additional 1.2% of the Shareholder Value Component for
each one-tenth of a percentile above such 65th percentile.
31
<PAGE>
ADJUSTMENTS. The LTIP is intended to relate to the Company's ongoing
businesses; consequently, Performance Units are expected to be earned based on
the Company's core businesses, as constituted at the beginning of the
Performance Period. However, adjustments may be made by or under the authority
of the Compensation Committee in the case of certain divestments of business
units, transfers of business units from one product line to another, and gains
or losses resulting from unbudgeted extraordinary events. In addition, the
Compensation Committee may make certain adjustments to Performance Units
(including reducing the length of a Performance Period) in the event of a change
in control of the Company. For purposes of the LTIP, a change in control of the
Company would occur upon the acquisition of 20% or more of the Company's Common
Stock or the failure of Company-nominated directors to constitute a majority of
any class of the Board of Directors.
TAX TREATMENT OF PERFORMANCE UNITS
Under the present provisions of the United States Internal Revenue Code
("Code"), a participant who receives payment with respect to earned Performance
Units will realize taxable compensation equal to the amount of such payment. To
the extent that such payment is made in shares of Common Stock as described
above, the recipient's taxable compensation will equal the fair market value of
the shares so delivered, and the participant's tax basis for such shares will be
the amount of such taxable compensation. If such shares are subsequently sold,
the participant will realize a capital gain (or loss) equal to the amount by
which the proceeds of the sale exceed (or are less than) his basis for such
shares.
Subject to provisions of the Code that may limit the Company's ability to
deduct compensation in excess of $1 million per year paid to any executive
officer named in the Summary Compensation Table, the Company will generally be
entitled to a tax deduction in the amount of the taxable compensation realized
by a participant in the LTIP.
ACCOUNTING TREATMENT OF PERFORMANCE UNITS
The payment of Performance Units will result in compensation expense over
each three-year Performance Period; to the extent such payment is made in shares
of Common Stock, the amount of such expense will equal the fair market value of
the shares so delivered.
GENERAL
The LTIP is administered by the Compensation Committee, which is responsible
for approving (1) the performance measurements and objectives for each
Performance Unit; (2) the terms of future Performance Periods; (3) the persons
to whom Performance Units are granted; and (4) the number of Performance Units
granted to each such person. In addition, the Compensation Committee is
responsible for determining any adjustments of the components of any Performance
Unit, as discussed above under "Calculation of Performance Units Earned --
Adjustments." The Compensation Committee has determined that certain information
concerning the Company's strategic objectives and the calculation of awards
under the LTIP (E.G., the targeted return on assets) constitutes confidential
business information, the disclosure of which in this Proxy Statement would have
an adverse effect on the Company.
It is not possible to state which employees will be granted Performance
Units under the LTIP in the future, the terms of such Performance Units or the
amounts that may be earned pursuant thereto, since these matters will be
determined by the Compensation Committee in the future based on an individual's
ability to contribute to the Company's growth and profitability. However, Mr.
Greze, Dr. Hampers and Messrs. Kohnken and Smith have been granted 9,000,
17,500, 15,000 and 12,500 contingent Performance Units, respectively, for the
1995-1997 Performance Period, and, subject to the above considerations, the
Company expects that contingent Performance Units will continue to be granted to
high-level managers in executive, operating, administrative, professional and
technical positions on a basis generally comparable to prior grants. At March
21, 1995, a total of 396,300 Performance Units relating to the 1995-1997
Performance Period were held by 10 executive officers, 24 other officers, and
235 other employees worldwide. (See
32
<PAGE>
"Election of Directors -- Executive Compensation -- LTIP" above for information
regarding Performance Units granted to the executive officers named in the
Summary Compensation Table with respect to the 1994-1996 Performance Period.)
The LTIP is being submitted for shareholder approval in connection with
provisions of the Code that may limit the Company's ability to deduct
compensation in excess of $1 million per year paid to any executive officer
named in the Summary Compensation Table; such limitation may not apply to
certain performance-based compensation arrangements (such as the LTIP) approved
by shareholders. If the LTIP is not approved by the shareholders (see "Other
Matters -- Votes Required" below), the Company will reconsider the alternatives
available with respect to long-term, performance-based compensation.
------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE LTIP.
APPROVAL OF ANNUAL INCENTIVE COMPENSATION PROGRAM
Under the Company's annual incentive compensation program ("Program"),
annual incentive compensation awards, or bonuses ("Awards"), have been paid to
executive and other officers, senior managers and other employees. Prior to
1993, Awards were made on the basis of Company, operating unit and individual
performance and other factors, including discretionary considerations. In 1993,
the Program was modified to increase the extent to which pay is based on
performance. Under the Program as in effect in 1994, incentive compensation
pools were generated based on the extent to which 1994 pretax income exceeded
that of 1993, and Awards to individuals were allocated from these incentive
pools; however, these allocations continued to be based to some extent on
discretionary factors. (See "Election of Directors -- Executive Compensation --
Report of the Compensation Committee on Executive Compensation" for additional
information.)
In early 1995, the Board of Directors (on the recommendation of the
Compensation Committee) adopted, subject to shareholder approval at the Annual
Meeting, further modifications to the Program, primarily in order to comply with
provisions of the Code that may limit the Company's ability to deduct for United
States federal income tax purposes compensation in excess of $1 million per year
paid to any executive officer named in the Summary Compensation Table. As
modified, the Program would have two components. The first component ("Formula
Component") would be strictly formula-driven and would apply only to the
President and Chief Executive Officer and to Dr. Hampers, although other
executive officers would become subject to the Formula Component if their annual
compensation approached $1 million. Under the second component ("Discretionary
Component"), Awards would be based on discretionary factors in addition to the
pools referred to above. Awards could be made to the President and Chief
Executive Officer and/or Dr. Hampers under the Discretionary Component, as well
as the Formula Component; however, Awards under the Discretionary Component
would not qualify as "performance-based" under the Code provisions referred to
above and would consequently not be deductible by the Company if the total of
salary and other non-performance-based compensation paid to either individual
should exceed $1 million in any calendar year.
FORMULA COMPONENT. Under the Formula Component, the Awards for the
President and Chief Executive Officer and Dr. Hampers would be equal to
specified percentages of their respective annual base salaries as in effect at
the end of the year, based upon (1) the Company s pretax income for the year as
compared to a pretax income target determined by the Board on the recommendation
of the Compensation Committee (in the case of the President and Chief Executive
Officer) and (2) NMC's EBIT for the year as compared to an EBIT target
determined by the Board on the recommendation of the Compensation Committee (in
the case of Dr. Hampers). The amounts of the Awards that would be paid to the
President and Chief Executive Officer and to Dr. Hampers for 1995 (expressed as
percentages of their respective annual base salaries) are set forth under
"Election of Directors -- Executive Compensation -- Report of the Compensation
Committee on Executive Compensation" above. However, the Award paid to the
President and Chief Executive Officer may not exceed $1.8 million, and the Award
paid to Dr. Hampers may not exceed $1.068 million, regardless of the levels of
pretax income and EBIT achieved by the Company and NMC, respectively.
33
<PAGE>
DISCRETIONARY COMPONENT. Under the Discretionary Component, the President
and Chief Executive Officer, Dr. Hampers and/or other executive officers could
also earn Awards based on the achievement of nonfinancial objectives, such as
leadership, overall strategic positioning, reorientation of long-term goals, the
development of human resources, corporate and/or product line strategy,
shareholder value creation, and achievements relating to the Company's corporate
responsibilities (such as maintaining ethical, environmental and diversity
standards), at the discretion of the Board of Directors on the recommendation of
the Compensation Committee. As noted above, however, amounts earned under the
Discretionary Component would not be deductible by the Company if the total of
salary and other non-performance-based compensation (including amounts with
respect to such nonfinancial objectives) paid to any such individual should
exceed $1 million in any calendar year.
TAX TREATMENT OF ANNUAL INCENTIVE COMPENSATION AWARDS
Under the present provisions of the Code, an executive officer who receives
an Award (whether under the Formula Component, the Discretionary Component, or
both) will realize taxable compensation equal to the amount of the Award.
Subject to the provisions of the Code that may limit the Company's ability
to deduct compensation in excess of $1 million per year paid to any executive
officer named in the Summary Compensation Table, the Company will generally be
entitled to a tax deduction in the amount of the taxable compensation paid to
the recipient of an Award.
ACCOUNTING TREATMENT OF AWARDS
The payment of Awards (whether under the Formula Component, the
Discretionary Component, or both) will result in compensation expense.
GENERAL
The Program is administered by the Compensation Committee, which is
responsible for, among other things, approving (1) the performance measurements
and objectives under the Program, (2) the persons to whom Awards are given; and
(3) the amounts of Awards. The Compensation Committee has determined that
certain information concerning the calculation of Awards under the Program
(E.G., the pretax income and EBIT targets) constitutes confidential business
information, the disclosure of which in this Proxy Statement would have an
adverse effect on the Company.
It is not possible to state which employees will receive Awards in the
future or the amounts of such Awards, since these matters will be determined in
the future by the Board of Directors (on the recommendation of the Compensation
Committee). However, the Company expects that Awards will continue to be made to
executive and other officers, senior managers and other employees, including
employees in executive, operating, administrative, professional and technical
positions. Under the Program as in effect with respect to 1994, Awards totaling
approximately $25.6 million were paid to a total of 11 executive officers, 27
other officers, and approximately 2,500 other employees worldwide. (See the
Summary Compensation Table for information regarding Awards made to the
executive officers named in the Table.)
As noted above, the Program is being submitted for shareholder approval in
connection with provisions of the Code that may limit the Company's ability to
deduct compensation in excess of $1 million per year paid to any executive
officer named in the Summary Compensation Table; such limitation may not apply
to certain performance-based compensation arrangements (such as the Formula
Component of the Program) approved by shareholders. If the Program is not
approved by the shareholders (see "Other Matters -- Votes Required" below), the
Company will reconsider the alternatives available with respect to annual
incentive compensation.
------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROGRAM.
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SHAREHOLDER PROPOSALS
The General Board of Pension and Health Benefits of the United Methodist
Church (1201 Davis Street, Evanston, Illinois 60201), Immaculate Heart Missions,
Inc. (4651 North 25th Street, Arlington, Virginia 22207), and The Sisters of
Providence (Saint-Mary-of-the-Woods-Indiana, 1623 15th Avenue, No. 11, Kenosha,
Wisconsin 53140-1503), have indicated that they will cause the following
proposal to be presented at the Annual Meeting:
"WHEREAS, NAFTA, the North American Free Trade Agreement, and GATT, the
General Agreement on Trade & Tariffs, have emphasized the debate surrounding
U.S. corporations in Mexican maquiladora operations. Critics deplore marginal
survival wages paid Mexican maquiladora employees by a majority of U.S.
companies, even though those employees work productively and efficiently.
"A 1994 market basket study reveals a maquiladora worker labors 69.0 minutes
to purchase 5 lbs. of rice in comparison to the 13.5 minutes of a U.S.
worker. The purchasing power required by the maquiladora worker for aspirin
is 153.8 minutes versus 19.3 minutes for the U.S. worker; American cheese,
214.3 to 12.6; chicken legs, 54.4 to 5.0; bananas, 20.4 to 2.3. (MARKET
BASKET SURVEY, Ruth Rosenbaum, 1994).
"An MIT study declares the Ford factory in Hermosillo, Mexico has the highest
quality of any auto plant in North America. Yet it pays on average one-tenth
of U.S. wages. Even in Mexico, these wages are barely enough to feed a
family, let alone buy a refrigerator or one of the cars the workers assemble.
("POLICY ADVOCATE", The Center for Ethics and Economic Policy, Spring, 1994).
"In 1982, the average Mexican blue collar employee worked 8.1 hours to buy
the basic basket of food: beef, beans, tortillas, tomatoes, sugar, eggs, and
milk. In 1986, it was 12.7 hours, and by 1993, 21.9 hours (DALLAS MORNING
NEWS, 8/14/94).
"WHEREAS, the U.S. and Mexico could build a healthy model of North-South
integration for the 21st century IF Mexico is recognized not just as a
trading partner, but as a country that contains fellow workers and global
citizens with whom we share much more than trade.
"WHEREAS, the socially-concerned proponents of this resolution firmly believe
there is a need for strict, enforceable standards of conduct for corporations
operating in Canada, Mexico and the United States. One expectation, based on
NAFTA, is that the wages of Mexican workers will rise, thereby raising the
standard of living of Mexican workers and their families. However, we believe
this will not happen unless corporations commit to paying wages substantially
higher than marginal survival wages paid in maquiladoras. We find it ironic
that some of the same companies that publicly committed to paying entry-level
workers 50% above the poverty datum line in South Africa in 1974, are
unresponsive when challenged with the reality of the poverty level wages they
pay employees in Mexico.
"It is important that our company review maquiladora operations including:
minimum and average wages paid to employees; how these compare with local
cost of living and poverty level; other methods of compensation such as
profit sharing, special trust funds to finance infrastructure improvements in
nearby neighborhoods where employees live. The religiously-affiliated
proponents of this resolution recommend the review contain a market basket
survey.
"RESOLVED: The shareholders request that the management of W. R. Grace & Co.
initiate a review of wages and benefits paid and environmental standards
upheld in its Maquiladora Operations. A summary report of findings of the
review and recommendations for changes in policy or performance in light of
this survey should be available to shareholders upon request within six
months of the 1995 Annual Meeting."
THE BOARD OF DIRECTORS RECOMMENDS VOTING AGAINST THIS PROPOSAL.
The Board of Directors believes that this proposal is not applicable to the
Company's "maquiladora" operation and that the proposed review and report would
consequently represent an inappropriate use of staff time and other corporate
resources, particularly given that the Company has only one maquiladora
operation, which represents less than .1% of total assets and which accounted
for less than .1% of total revenues in each of 1993 and 1992 (and less than .2%
of total 1994 revenues).
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The proposal addresses the wages paid to maquiladora employees of U.S.
corporations generally and implies that the Company pays insufficient wages to
its maquiladora workers. However, the Company believes that many of the
generalizations in the proposal are inapplicable to the Company and that the
wages paid to the workers at its facility in Reynosa, Mexico are among the
highest paid by operators of maquiladora facilities. Moreover, the wages paid to
the Company's maquiladora employees, as well as their working conditions
generally, are governed by and conducted in strict accordance with contracts
with labor unions and Mexican law. The Board is mindful of the difficulties
experienced by the Mexican labor force (as illustrated in the proposal).
However, the Board does not believe that mandating companies to pay higher wages
would necessarily alleviate those difficulties. For example, if companies were
required to raise maquiladora wages to U.S. levels, they would be forced to
consider moving these operations elsewhere, including locations in countries
other than Mexico. Rather, the Board believes that the wages and living
standards of maquiladora workers will be enhanced over time by continued
investment in people, plants and other facilities.
The proposal would also require a review and report concerning
"environmental standards," as well as wages, at the Company's maquiladora
facility. However, the Board believes that the facility's environmental
performance meets or exceeds not only the Company's stringent internal standards
(which are based on United States requirements), but also the standards set by
applicable laws.
In summary, the Board believes that the proposal is largely inapplicable to
the Company and that the review and report contemplated by the proposal are
consequently not appropriate or necessary.
------------------
Catholic Healthcare West (1700 Montgomery Street, San Francisco, California
94111) and The Sinsinawa Dominicans (561 Village Green Drive No. 275, Mobile,
Alabama 36609-1403), have indicated that they will cause the following proposal
to be presented at the Annual Meeting:
"Our Company has made statements affirming our policy of non-discrimination
in employment, a position we commend as shareholders. However, this position
is not reflected in our Board of Directors, which is presently composed of
white men and women and no minorities. We believe major corporations, aware
that employees, customers and stockholders include a broad diversity in terms
of sex and race, should have a Board that includes persons of diverse racial
backgrounds and gender.
"There is increased awareness on the issue of diversity in corporate America.
In a global marketplace that grows increasingly more competitive, companies
need to promote the best people, regardless of race, color or national
origin.
"The Teachers Insurance and Annuity Association and College Retirement
Equities Fund, the largest institutional investor in the United States,
recently issued a set of corporate governance guidelines including a call for
"diversity of directors by experience, sex, age and race."
"The Office of Federal Contract Compliance mandates that companies must not
discriminate on the basis of race, sex, color, religion, national origin,
disability, or veterans status. Women and minorities comprise fifty percent
of America's workforce and the U.S. Department of Labor reports their
advancement is oftentimes hindered by artificial barriers -- glass ceilings.
Our company must make a strong and continued commitment to use its available
tools and resources to remove glass ceiling barriers because it is our
responsibility under the law, and the right thing to do.
"While racial and gender diversity among the purchasing population and the
workforce has experienced an enormous increase, the Equal Employment
Opportunity Commission reports that 97% of senior ranks of corporations are
occupied by white males. We believe our company needs to open up top
management and the board to qualified people of all races and women.
"We believe Boards of Directors of many corporations have benefited from the
perspectives gleaned from well qualified women and minority members. In
addition, individual and institutional investors are increasingly voting
their proxies against boards which are not representative and have no women
or
36
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minorities. We believe it is not in our company's best long range interests
to keep an all white board, excluding minorities. Such composition of the
Board unfortunately gives the impression of an "exclusive club" closed to any
perspectives beyond those in the inner sanctum.
"Increasingly major corporations are broadening their boards by including
women and minorities. We believe our company should show similar leadership.
"THEREFORE BE IT RESOLVED, that shareholders request:
"1. The nominating committee of the Board, in its search for suitable
Board candidates, make a greater effort to search for qualified women
and minority candidates for nomination to the Board of Directors.
"2. Report on our Corporation's programs to encourage diversified
representation on our Board of Directors.
"3. Issue a statement publicly committing the company to a policy of
board inclusiveness, indicating the steps we plan to take and the
expected timeline."
THE BOARD OF DIRECTORS RECOMMENDS VOTING AGAINST THIS PROPOSAL.
Although the Board of Directors supports the spirit of the proposal, it
believes the proposal is duplicative of existing Company policy and intent and
is therefore unnecessary.
As noted in the proposal, the Company has a nondiscriminatory employment
policy. Consistent with this policy, and in keeping with the global nature of
the Company's operations, the Board (including the Nominating Committee)
recognizes that Board members of varying backgrounds generally have different
perspectives that could lead to improved performance. At the same time, however,
the Board believes that the critical factor in selecting a director should be
his or her qualifications, experience and skills, without regard to race,
religion, gender or other status. Accordingly, the Board would prefer to achieve
diversity over time, when vacancies occur, by acting in accordance with the
Company's nondiscriminatory policy and selecting the most qualified candidates,
regardless of gender or minority status. By doing so, the Board believes that it
will become more diverse, which will enable it to better reflect the composition
of the Company's global workforce.
In view of the foregoing, the Board believes that the proposal is
unnecessary and would result in costs without a commensurate benefit to the
Company.
------------------
William Steiner (4 Radcliff Drive, Great Neck, New York 11024) has indicated
that he will cause the following proposal to be presented at the Annual Meeting:
"'RESOLVED, that the shareholders assembled in person and by proxy,
recommend (i) that all future non-employee directors not be granted pension
benefits and (ii) current non-employee directors voluntarily relinquish their
pension benefits.'
SUPPORTING STATEMENT
"Aside from the usual reasons, presented in the past, regarding "double
dipping", that is outside (non-employee) directors who are in almost all
cases amply rewarded with their pension at their primary place of employment,
and in many instances serving as outside pensioned directors with other
companies, there are other more cogent reasons that render this policy as
unacceptable.
"Traditionally, pensions have been granted in both the private and public
sectors for long term service. The service component usually represents a
significant number of hours per week. The practice of offering pensions for
consultants is a rarity. Outside directors' service could logically fit the
definition of consultants and pensions for this type of service is an abuse
of the term.
"But more importantly, outside directors, although retained by corporate
management, namely the C.E.O., are in reality representatives of
shareholders. Their purpose is to serve as an impartial group to
37
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which management is accountable. Although outside directors are certainly
entitled to compensation for their time and expertise, pensions have the
pernicious effect of compromising their impartiality. In essence, pensions
are management's grants to outside directors to insure their unquestioning
loyalty and acquiescence to whatever policy management initiates, and at
times, serving their own self interests. Thus, pensions become another device
to enhance and entrench management's controls over corporate policies while
being accountable only to themselves. As a founding member of the Investors
Rights Association of America I feel this practice perpetuates a culture of
corporate management "cronyism" that can easily be at odds with shareholder
and company interest.
"A final note in rebuttal to management's contention that many companies
offer their outside directors pensions, so they can attract and retain
persons of the highest quality. Since there are also companies that do not
offer their outside directors pensions, can management demonstrate that those
companies that offer pensions have a better performance record then their
non-pensioned peers? In addition, do we have any evidence of a significant
improvement in corporate profitability with the advent of pensions for
outside directors?
"I URGE YOUR SUPPORT, VOTE FOR THIS RESOLUTION."
THE BOARD OF DIRECTORS RECOMMENDS VOTING AGAINST THIS PROPOSAL.
The Company believes that it is appropriate and necessary to provide
retirement benefits to its nonemployee directors in order to attract, retain and
motivate the most qualified directors. Recent studies by independent
compensation consultants indicate that from 64% to nearly 80% of major U.S.
industrial companies provide such benefits for their nonemployee directors.
Although the proposal states that "there are also companies that do not offer
their outside directors pensions," that fact in no way diminishes the need to
provide competitive compensation arrangements for directors.
The proposal also suggests that such benefits constitute "double-dipping" by
nonemployee directors, who may receive retirement benefits from others while
remaining eligible to receive such benefits from the Company. However, since the
benefits provided to nonemployee directors by the Company relate solely to the
services they provide to the Company, their receipt of benefits from others is
irrelevant.
In addition, the proposal compares nonemployee directors to consultants and
argues that since consultants do not normally receive retirement benefits from
their clients, neither should nonemployee directors. The Company believes this
comparison is thoroughly inappropriate. First, consultants are generally
responsible for specific assignments of a short-term nature; in contrast,
directors have ongoing relationships with their corporations and are responsible
for the long-term viability and success of their corporations. Second, directors
are subject to liability for a wide variety of actions (and inactions) by their
corporations; this is rarely true of consultants, whose liability is generally
limited by the terms of contractual arrangements with their clients.
Finally, the proposal argues that directors, as representatives of the
shareholders, should not "compromise their impartiality" by receiving retirement
benefits. In the Company's view, the receipt of retirement benefits by
nonemployee directors would tend to enhance their financial independence,
thereby enhancing (rather than compromising) their ability to act impartially.
OTHER MATTERS
OTHER BUSINESS
The Company does not know of any other business that will be presented for
consideration at the Annual Meeting. However, if any other business should come
before the Annual Meeting, the persons named in the enclosed proxy (or their
substitutes) will have discretion to act in accordance with their best judgment.
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PROXY AND VOTING PROCEDURES
The enclosed proxy covers the shares held of record by a shareholder at the
close of business on March 21, 1995. In addition, the proxy covers shares held
at that date in such shareholder's accounts under the Company's Dividend
Reinvestment Plan and/or Savings and Investment Plan if such accounts carry the
same federal tax identification number as the shares held of record.
The proxy enables a shareholder to vote on the proposals covered by this
Proxy Statement. The shares represented by each valid proxy received in a timely
manner will be voted in accordance with the choices indicated on the proxy. A
proxy may be revoked by written notice to the Company prior to the Annual
Meeting, or at the Annual Meeting before it is voted.
The Company has adopted a policy that all proxies, ballots and other voting
materials that identify the votes of specific shareholders are to be kept
permanently confidential, except as required by law. The policy provides that
access to such materials is limited to the vote tabulators and the independent
inspectors of voting, who must certify compliance with such policy.
VOTES REQUIRED
Under the laws of the State of New York (in which the Company is
incorporated), the election of directors requires the affirmative vote of a
majority of the voting power of the shares represented at the Annual Meeting,
and the ratification of the selection of independent accountants and approval of
the LTIP, the Program and the shareholder proposals require the affirmative vote
of a majority of the votes cast thereon at the Annual Meeting.
Under New York law, abstentions and votes withheld, as well as "non-votes,"
are counted in determining the number of shares represented at the Annual
Meeting, but are not voted for the election of directors (thereby having the
effect of a vote withheld with respect to such election), or for or against
other proposals submitted to the shareholders, and are not deemed "cast" by
shareholders (thereby having no effect on the vote with respect to such other
proposals).
SOLICITATION PROCEDURES
Proxies will be solicited primarily by mail; however, employees of the
Company may also solicit proxies in person or otherwise. In addition, the
Company has retained D. F. King & Co., Inc. to solicit proxies by mail,
telephone and/or otherwise and will pay such firm a fee estimated at $13,000,
plus reasonable expenses, for these services. Certain holders of record (such as
brokers, custodians and nominees) are being requested to distribute proxy
materials to beneficial owners and to obtain such beneficial owners'
instructions concerning the voting of proxies. The Company will pay all costs of
the proxy solicitation, and will reimburse brokers and other persons for the
expenses they incur in sending proxy materials to beneficial owners and
compensate them for such services in accordance with the rules of the New York
Stock Exchange.
PROPOSALS FOR 1996 ANNUAL MEETING
Any shareholder wishing to submit a proposal for inclusion in the Proxy
Statement for the 1996 Annual Meeting pursuant to the shareholder proposal rules
of the Securities and Exchange Commission should submit the proposal in writing
to Robert B. Lamm, Secretary, W. R. Grace & Co., One Town Center Road, Boca
Raton, Florida 33486-1010. The Company must receive a proposal by December 12,
1995 in order to consider it for inclusion in the 1996 Proxy Statement.
In addition, the Company's By-laws require that shareholders give advance
notice and furnish certain information to the Company in order to bring a matter
of business before an annual meeting or to nominate a person for election as a
director. Any communications relating to those By-law provisions should be
directed to Mr. Lamm at the above address.
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W. R. Grace & Co.
One Town Center Road
Boca Raton, Florida 33486-1010
<PAGE>
GRACE PROXY
For the Annual Meeting of Shareholders of W. R. Grace & Co., to be held at
10:30 a.m. on May 10, 1995, at the Boca Raton Marriott-Boca Center, 5150 Town
Center Circle, Boca Raton, Florida.
The undersigned hereby appoints R. B. Lamm, P. B. Martin and B. J. Smith as
agents to act and vote on behalf of the undersigned at the Annual Meeting of
Shareholders of W. R. Grace & Co., to be held on May 10, 1995, and any
adjournments. As more fully described in the Proxy Statement for the meeting,
such agents (or their substitutes) are directed to vote as indicated on the
reverse side and are authorized to vote in their discretion upon any other
business that properly comes before the meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
PLEASE MARK, DATE AND SIGN YOUR PROXY ON THE REVERSE SIDE.
PLEASE LET US KNOW WHETHER YOU PLAN TO ATTEND THE ANNUAL MEETING.
/ / Yes, I plan to attend the Annual Meeting.
/ / No, I cannot attend.
SHAREHOLDER QUESTIONS/COMMENTS_________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE>
PLEASE MARK YOUR CHOICE LIKE THIS /X/ IN BLUE OR BLACK INK.
- ----------- ---------------- ----------------- ---------------------------
Common 6% Preferred A/B Preferred Savings & Investment (401K)
- -------------------------------------------------------------------------------
THE DIRECTORS RECOMMEND A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
1. Election of Directors
For all nominees listed Withhold authority
below (except as to vote for all
marked to the nominees listed
contrary below) below
FOR WITHHOLD
/ / / /
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, STRIKE A LINE
THROUGH THE NOMINEE'S NAME BELOW.)
CLASS III (THREE-YEAR TERM) H.A. Eckmann, J.W. Frick,
T.A. Holmes, P.S. Lynch
- -------------------------------------------------------------------------------
IF NO CHOICE IS SPECIFIED, THE SHARES WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4
AND AGAINST PROPOSALS 5, 6 AND 7. PLEASE DATE AND SIGN AND RETURN PROMPTLY.
- -------------------------------------------------------------------------------
2. Ratification of selection of Price Waterhouse
as independent accountants.
FOR AGAINST ABSTAIN
/ / / / / /
3. Approval of Long-Term Incentive Program.
FOR AGAINST ABSTAIN
/ / / / / /
4. Approval of Annual Incentive
Compensation Program.
FOR AGAINST ABSTAIN
/ / / / / /
- -------------------------------------------------------------------------------
THE DIRECTORS RECOMMEND A VOTE AGAINST PROPOSALS 5, 6 AND 7.
5. Shareholder Proposal
(Mexican operation)
FOR AGAINST ABSTAIN
/ / / / / /
6. Shareholder Proposal
(Board diversity)
FOR AGAINST ABSTAIN
/ / / / / /
7. Shareholder Proposal
(Directors' retirement benefits)
FOR AGAINST ABSTAIN
/ / / / / /
Date: ___________ Signature:___________________ Signature:_____________________
Please sign EXACTLY as name or names appear above. When signing on behalf of a
corporation, estate, trust or another shareholder, please give its full name and
state your full title or capacity or otherwise indicate that you are authorized
to sign.
(See reverse side for comments.)
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