<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:
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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.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
GRACE
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 Friday, May
10, 1996. The purpose of the Annual Meeting is to consider and act upon:
(1) the election of three directors for a term expiring in 1999 and one
director for a term expiring in 1997;
(2) the ratification of the selection of Price Waterhouse LLP as
independent certified public accountants of the Company and its consolidated
subsidiaries for 1996;
(3) the approval of the Company's Long-Term Incentive Program;
(4) the approval of the Company's Annual Incentive Compensation Program;
(5) a shareholder-proposed resolution; 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, 1996
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, 1996
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Election of Directors ......................................... 1
Board Committees and Meetings ................................ 1
Nominees ..................................................... 3
Directors Continuing in Office ............................... 4
Executive Compensation ....................................... 6
Relationships and Transactions with Management and Others ... 23
Security Ownership of Management and Others ................... 26
Management Security Ownership ................................ 26
Other Security Ownership ..................................... 27
Ownership and Transactions Reports ........................... 27
Selection of Independent Certified Public Accountants ........ 27
Approval of Long-Term Incentive Program ....................... 28
Approval of Annual Incentive Compensation Program ............ 32
Shareholder Proposal .......................................... 34
Other Matters ................................................. 35
Other Business ............................................... 35
Proxy and Voting Procedures .................................. 35
Votes Required ............................................... 36
Solicitation Procedures ...................................... 36
Proposals for 1997 Annual Meeting ............................ 36
</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, 1996. 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, 1996.
Only shareholders of record at the close of business on March 21, 1996 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>
6% Preferred 36,460 160
Class A Preferred 16,256 16
Class B Preferred 21,577 16
Common 98,452,251 1
</TABLE>
See "Other Matters" below for additional information concerning the voting of
proxies.
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for the division of
the Board of Directors into three classes, each to serve for a three-year
term. The term of the Class I Directors expires at the 1996 Annual Meeting;
accordingly, the shareholders will vote on the election of three Class I
Directors to serve for a term expiring in 1999. In addition, the shareholders
will vote on the election of one Class II Director to serve for a term
expiring in 1997.
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 4 and 5. 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 (other than Mr. Holmes, who served as Acting President and Chief
Executive Officer of the Company from March 2 to May 1, 1995) or has served
as a consultant to the Company (other than Ms. Kamsky, a member of the
Committee on Corporate Responsibility).
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 certified public
accountants to audit the annual financial statements of the Company and its
consolidated subsidiaries, (2) reviewing the annual financial statements and
(3) meeting with the Company's senior financial officers, internal auditors
and independent certified public accountants to review the scope and results
of the audit and other matters regarding the Company's accounting, financial
reporting and internal control systems. The members of the Committee are Mr.
Eckmann (Chairman) and Dr. Frick, as well as George C. Dacey, Robert C.
Macauley and Eugene J. Sullivan, directors who are not standing for
re-election at the Annual Meeting. The Committee met five times during 1995.
1
<PAGE>
The Compensation, Employee Benefits and Stock Incentive Committee
("Compensation Committee") makes recommendations to the Board with respect to
the salary and annual and long-term incentive compensation of certain
officers and other high-level employees, as well as the Company's benefit
plans, programs and arrangements generally. The Compensation Committee also
administers the Company's stock incentive plans and determines the recipients
and terms of stock incentives granted under those plans. The current members
of the Compensation Committee are Messrs. Eckmann, Holmes and Phipps, as well
as Edward W. Duffy (Chairman), a director who is not standing for re-election
at the Annual Meeting, and Peter S. Lynch, a director who has advised the
Company that he will resign from the Board effective the date of the Annual
Meeting. In 1995, the Compensation Committee met 11 times.
The Nominating Committee recommends to the Board candidates for nomination
as directors of the Company. The current members of the Committee are Messrs.
Phipps (Chairman), Duffy, Holmes and Macauley; as noted above, Messrs. Duffy
and Macauley are not standing for re-election at the Annual Meeting. The
Committee met three times in 1995. 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 Company's employment policy prohibits discrimination and encourages
diversity. Consistent with this policy, the Board (including the Nominating
Committee) recognizes that its composition should reflect the global nature
of the Company's operations and the diversity of its workforce. The Board
also recognizes that it is in a unique position to "set the tone at the top"
and to demonstrate its belief that diversity makes good business sense. At
the same time, however, the Board believes that the critical factor in
selecting a director should be his or her qualifications and abilities,
without regard to race, religion, gender or other status. The Board believes
that these goals should be accomplished by a variety of processes, including
(1) publicizing the Board's intent to diversify its membership, (2) utilizing
the skills of search firms (or individuals at search firms) that are
experienced in bringing diverse candidates to the attention of their clients
and/or that reflect diversity themselves and (3) assuring that the Company
executes its employment policy at all levels, thereby assuring the Company's
reputation as a truly diverse workplace and enhancing its ability to attract,
retain and motivate a diverse group of employees and Board members. While the
Board does not believe it is practicable to fix a specific date by which
these goals will be accomplished, it intends to achieve greater diversity as
vacancies and other opportunities occur and anticipates that a satisfactory
level of Board diversity could be achieved within approximately two years
(i.e., by the time of the 1998 Annual Meeting of Shareholders).
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 once in 1995. Its members are Dr.
Frick (Chairman) and Ms. Kamsky, as well as Dr. Dacey and Mr. Lynch (who, as
noted above, will cease serving as directors at the Annual Meeting).
The Board of Directors held 18 meetings in 1995. Each current director
attended 75% or more of the meetings held by the Board and the standing Board
committees on which he or she served, other than Dr. Hampers; he did not
attend certain meetings at which the Board discussed certain matters relating
to National Medical Care, Inc. ("NMC"), the Company's principal health care
subsidiary, of which he is chairman of the board and chief executive officer.
The average attendance of current directors at such Board and committee
meetings was approximately 92%.
2
<PAGE>
NOMINEES
NOMINEES FOR ELECTION AS CLASS I DIRECTORS -- TERM EXPIRING IN 1999
Photo ALBERT J. COSTELLO
Director since May 1995
Age: 60
Mr. Costello is the Company's chairman, president and
chief executive officer, positions he has held since May
1995. Before joining the Company, Mr. Costello served as
chairman of the board and chief executive officer of
American Cyanamid Company from April 1993 to December
1994. Mr. Costello received a B.S. in chemistry from
Fordham University and an M.S. in chemistry from New York
University. He joined American Cyanamid in 1957 as a
chemist and held various research, marketing and
management positions in the United States, Mexico and
Spain. In 1982, he was named group vice president in
charge of American Cyanamid's global agricultural
business; in 1983 he became an executive vice president
with responsibility for global agricultural and chemical
products businesses; and from 1991 through March 1993 he
was American Cyanamid's president. Mr. Costello is a
director of FMC Corporation and the Chemical Manufacturers
Association; a trustee of Fordham and the American
Enterprise Institute for Public Policy Research; a member
of the Business Roundtable; and a member of the executive
committee of the British-North American Committee of the
National Planning Association. He has previously served as
a director of the Pharmaceutical Manufacturers
Association; as chairman of the National Agricultural
Chemicals Association; and as a member of the executive
committee of the Societe de Chimie Industrielle.
Photo MARYE ANNE FOX
Director since January 1996
Age: 48
Dr. Fox is vice president for research, and the Waggoner
Regents chair in chemistry, of the University of Texas,
positions she has held since 1994 and 1992, respectively;
she has been on the faculty of the University since 1976.
Dr. Fox received a B.S. in chemistry from Notre Dame
College, an M.S. in organic chemistry from Cleveland State
University and a Ph.D. in organic chemistry from Dartmouth
College; she also holds an honorary doctoral degree from
Notre Dame. Dr. Fox is vice chair of the National Science
Board and has received numerous honors and awards from a
wide variety of educational and professional
organizations. She has also served on several editorial
boards and has authored approximately 300 publications,
including three books and more than 20 book chapters.
3
<PAGE>
PHOTO THOMAS A. VANDERSLICE
Director since March 1996
Age: 64
Mr. Vanderslice began his career with General Electric
Company, where he spent 23 years in various technical,
management and executive positions, including executive
vice president and sector executive of General Electric's
power systems business. He subsequently served as
president and chief operating officer of GTE Corporation,
as chairman and chief executive officer of Apollo
Computer, and, from 1989 to June 1995, as chairman and
chief executive officer of M/A-COM, Inc., a designer and
manufacturer of radio frequency and microwave components,
devices and subsystems for commercial and defense
applications. Mr. Vanderslice received a B.S. in chemistry
and philosophy from Boston College and a Ph.D. in
chemistry and physics from Catholic University; he holds
several patents and has written numerous technical
articles. He is a director of Texaco Inc., a trustee of
Boston College and chairman of the Massachusetts High
Technology Council. He is also a member of the National
Academy of Engineering, the American Chemical Society and
the American Institute of Physics.
Nominee for Election as a Class II Director--Term Expiring in 1997
Photo CONSTANTINE L. HAMPERS
Director since 1986
Age: 63
Dr. Hampers is an executive vice president of the Company
and chairman of the board and chief executive officer of
NMC, which he founded 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.
DIRECTORS CONTINUING IN OFFICE
CLASS II DIRECTORS--TERM EXPIRING IN 1997
Photo VIRGINIA A. KAMSKY
Director since 1990
Age: 42
Ms. Kamsky is the founder, president and co-chief
executive officer of Kamsky Associates Inc., an advisory,
consultancy and investment firm specializing in The
People's Republic of China. She graduated from Princeton
University with an honors degree in East Asian studies
(with concentration in Chinese and Japanese language
studies) and served as a lending officer with The Chase
Manhattan Bank in Tokyo, Beijing and New York City before
forming Kamsky Associates in 1980. Ms. Kamsky is a member
of the Council on Foreign Relations, a founding director
of the Council's Hong Kong Committee, and a trustee of
Princeton-in-Asia and the Johns Hopkins-Nanjing Council.
She previously served on Princeton's Board of Trustees,
including its Executive and Investment Committees.
4
<PAGE>
JOHN E. PHIPPS
Director since 1975
Age: 63
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.
CLASS III DIRECTORS--TERM EXPIRING IN 1998
Photo HAROLD A. ECKMANN
Director since 1976
Age: 75
Mr. Eckmann retired in 1985 as chairman and chief
executive officer of Atlantic Mutual Insurance Company and
Centennial Insurance Company--The Atlantic Companies. He
was educated at the United States Merchant Marine Academy
and the University of California. Mr. Eckmann joined The
Atlantic Companies in 1949 and became president in 1970
and chairman and chief executive officer in 1976.
Photo JAMES W. FRICK
Director since 1984
Age: 71
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 former director of Society
Bank of South Bend and Society National Bank, Indiana, and
a former member of the board of trustees of Converse
College. He also served 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: 72
Mr. Holmes served as acting president and chief executive
officer of the Company from March to May 1995. He was
chairman, president and chief executive officer of
Ingersoll-Rand Company until his retirement in 1988,
having spent his entire business career with
Ingersoll-Rand. He is a graduate of the University of
Missouri--Rolla. Mr. Holmes is a director of Newmont Gold
Co. and Newmont Mining Corp.
5
<PAGE>
See "Executive Compensation," "Relationships and Transactions with
Management and Others" and "Security Ownership of Management and Others"
below for additional information.
In March 1996, Thomas L. Gossage, Chairman and Chief Executive Officer of
Hercules, Incorporated ("Hercules"), a specialty chemicals company, resigned
as a director of the Company. In his letter of resignation, Mr. Gossage
stated that he could not remain a director of the Company "given what appears
to be its direction and long-term strategy regarding its specialty chemical
business," with particular reference to the Company's unwillingness to
consider a combination of the Company and Hercules. In announcing Mr.
Gossage's resignation, the Company stated, among other things, that the Board
of Directors viewed the proposed combination not to be in the best interests
of the Company and its shareholders; that neither the Company nor its
advisors see business-related synergies between the Company and Hercules;
that despite Mr. Gossage's statement that he was not in agreement with the
direction and long-term strategy of the Company, he never expressed
dissatisfaction at any meeting of the Board or to Mr. Costello; and that the
Company's new management had delivered significant shareholder value in a
relatively short period of time. The foregoing description of Mr. Gossage's
resignation and related matters does not purport to be complete and is
qualified in its entirety by reference to the Company's Current Report on
Form 8-K dated March 6, 1996, which has been filed with the Securities and
Exchange Commission ("SEC").
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth information concerning
the 1995 compensation of (1) Mr. Costello, the Company's chief executive
officer since May 1, 1995; (2) the other four most highly compensated
executive officers of the Company who were serving as such at year-end 1995;
(3) J. P. Bolduc, who served as the Company's chief executive officer from
January 1 to March 2, 1995; (4) Mr. Holmes, who was the Company's Acting
President and Chief Executive Officer from March 2 to May 1, 1995; and (5) F.
Peter Boer and Brian J. Smith, who resigned as executive officers on June 15,
1995 and July 18, 1995, respectively, and whose compensation would have been
reportable under clause (2) above but for the fact that they were not
executive officers of the Company at year-end 1995. Certain information has
been omitted from the Summary Compensation Table because it is not applicable
or because it is not required under SEC rules. See "Resignations of Executive
Officers" below for additional information.
Mr. Holmes did not participate in any of the Company's executive
compensation plans and programs during his tenure as Acting President and
Chief Executive Officer of the Company; accordingly, the disclosures relating
to such plans and programs in and following the Summary Compensation Table do
not contain any information concerning Mr. Holmes.
6
<PAGE>
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND PRINCIPAL
POSITION YEAR SALARY BONUS
- --------------------- ------ ---------- ----------
<S> <C> <C> <C>
A. J. Costello
Chairman,
President and Chief
Executive Officer 1995 $600,000 $900,000
J-L. Greze 1995 335,000 320,000
Executive Vice 1994 323,333 400,000
President 1993 300,000 175,000
C. L. Hampers 1995 821,068 422,755
Executive Vice 1994 786,250 720,000
President 1993 736,000 600,000
P. D. Houchin
Senior Vice President
and Chief Financial
Officer(e) 1995 250,604 250,000
D. H. Kohnken 1995 371,725 394,000
Executive Vice 1994 357,000 410,000
President 1993 357,000 310,000
J. P. Bolduc
President and 1995 225,000
Chief Executive 1994 883,333 1,262,000
Officer 1993 800,000 986,000
T. A. Holmes
Acting President
and Chief Executive
Officer 1995 174,231
F. P. Boer 1995 343,400 180,000
Executive Vice 1994 343,400 180,000
President 1993 343,400 150,000
B. J. Smith
Executive Vice 1995 345,000 400,000
President and Chief 1994 335,333 400,000
Financial Officer 1993 316,000 300,000
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------
AWARDS(A) PAYOUTS
-------------- ---------------
NO. OF SHARES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL OTHER ANNUAL OPTIONS LTIP COMPENSATION
POSITION COMPENSATION GRANTED PAYOUTS(B) (C)
- --------------------- -------------- --------------- ----------- --------------
<S> <C> <C> <C> <C>
A. J. Costello
Chairman,
President and Chief
Executive Officer $106,599 300,000
J-L. Greze 42,191 36,000 $108,905 $50,191
Executive Vice 22,166 30,000 31,451
President 14,676 30,000 108,905 30,841
C. L. Hampers 210,915(d) 70,000 105,564
Executive Vice 85,425 70,000 89,278
President 52,098 70,000 1,012,000 90,391
P. D. Houchin
Senior Vice President
and Chief Financial
Officer(e) 638 22,000 21,389 25,941
D. H. Kohnken 9,576 60,000 153,716 55,657
Executive Vice 86 50,000 36,200
President 2,372 50,000 157,167 33,948
J. P. Bolduc
President and 122,809(f) 391,201 6,496,477
Chief Executive 283,320 100,000 176,969
Officer 9,470 100,000 389,700 177,756
T. A. Holmes
Acting President
and Chief Executive
Officer 5,709
F. P. Boer 9,467 30,000 132,779 59,349
Executive Vice 52,759 30,000 43,407
President 5,696 30,000 132,223 46,855
B. J. Smith
Executive Vice 9,087 50,000 176,746 65,675
President and Chief 333 40,000 43,373
Financial Officer 5,414 40,000 176,022 42,250
</TABLE>
(Footnotes appear on following page)
7
<PAGE>
- ------------
(a) No restricted share awards have been made to any of the executive
officers named in the above table since 1992. The number and dollar
values of the restricted shares held at December 31, 1995 by the
persons named in the table were as follows: Mr. Kohnken -- 12,676
shares ($749,469); and Mr. Smith -- 11,150 shares ($659,244).
Recipients of restricted shares receive all dividends paid on such
shares.
(b) Except as to Dr. Hampers, the amounts in this column represent the
second installment and the third and final installment (paid or payable
in 1993 and 1995, respectively) of awards under the Company's Long-Term
Incentive Program ("LTIP") for the 1990-1992 Performance Period; the
1993 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 the 1990-1992 Performance Period. No payments were made under
the LTIP in 1994. See Note (c) below for information concerning
payments made to Mr. Bolduc with respect to the 1993-1995 and 1994-1996
Performance Periods under the LTIP in connection with his resignation.
The amount shown in this column for Dr. Hampers represents the second
of two payments in connection with the Company's 1989 purchase of the
NMC stock not already owned by the Company. In early 1989, the Company
agreed to purchase such stock in 1992 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, later in 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 performance during this period, the payment to Dr.
Hampers amounted to $27,480,000, of which $26,468,000 was paid in 1992
to facilitate tax planning.
(c) The amounts in this column for 1995 consist of the following: (1) the
actuarially determined value of Company-paid premiums on "split-dollar"
life insurance, as follows: Mr. Greze -- $12,918; Dr. Hampers --
$59,332; Mr. Houchin -- $9,433; Mr. Kohnken -- $10,737; Mr. Bolduc --
$75,419; Dr. Boer -- $25,087; and Mr. Smith -- $18,619; (2) payments
made to persons whose personal and/or Company contributions to the
Company's Salaried Employees Savings and Investment Plan ("Savings
Plan") would be subject to limitations under federal income tax law, as
follows: Mr. Greze -- $17,550; Dr. Hampers -- $46,232; Mr. Houchin --
$9,018; Mr. Kohnken -- $18,951; Mr. Bolduc -- $40,110; Dr. Boer --
$11,202; and Mr. Smith -- $17,850; (3) Company contributions to such
Plan of $4,500 for each of Messrs. Greze, Houchin, Kohnken, Bolduc and
Smith and Dr. Boer; (4) $9,557 of imputed interest on a loan made to
Mr. Bolduc in 1987 (see "Relationships and Transactions with Management
and Others" below); (5) interest on involuntarily deferred payments of
awards under the LTIP, as follows: Mr. Greze -- $15,223; Mr. Houchin --
$2,990; Mr. Kohnken -- $21,469; Mr. Bolduc -- $54,683; Dr. Boer --
$18,560; and Mr. Smith -- $24,706; and (6) in the case of Mr. Bolduc,
$6,312,208 paid in connection with the termination of his employment
agreement and with respect to the 1993-1995 and 1994-1996 Performance
Periods under the LTIP (see "Resignations of Executive Officers" below
for additional information).
(d) This amount includes the value of personal benefits received by Dr.
Hampers during 1995, including $111,481 attributable to his personal
use of corporate aircraft.
(e) Mr. Houchin became an executive officer of the Company during 1995.
(f) This amount includes the value of personal benefits received by Mr.
Bolduc during 1995, including $80,526 attributable to an automobile
transferred to him as part of his termination arrangements. See
"Resignations of Executive Officers" below for additional information.
8
<PAGE>
Stock Options. The following table sets forth information concerning stock
options granted in 1995, 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 SEC for illustrative purposes only and are not intended to
predict future prices of the Company's Common Stock, which will depend upon
various factors, including market conditions and the Company's future
performance and prospects. For example, the option granted to Mr. Costello in
1995 would produce the pretax gain of $25,041,690 shown in the table only if
the market price of the Common Stock rises to nearly $136 per share by the
time the option is exercised. Based on the number and market price of the
shares outstanding at year-end 1995, such an increase in the price of the
Common Stock would produce a corresponding aggregate pretax gain of $9.2
billion for the Company's shareholders. Options become exercisable at the
time or times determined by the Compensation Committee. Except for the
options granted to Mr. Costello, the options shown below were exercisable in
full at the date of grant; Mr. Costello's options become exercisable in three
approximately equal annual installments beginning one year after the date of
grant or upon the earlier occurrence of a "change in control" of the Company
or certain other events, as specified in his employment agreement (see
"Employment Agreements" below). All of the options shown below have exercise
prices equal to the fair market value of the Common Stock at the date of
grant.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
1995 GRANTS PRICE APPRECIATION FOR OPTION TERM
-------------------------------------------------------- ----------------------------------
NO. OF % OF TOTAL
SHARES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED IN 1995* ($/SHARE) DATE 5% 10%
- ---- ---------- --------- ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
A. J. Costello ......... 300,000 17.6% $52.375 4/30/05 $ 9,881,520 $ 25,041,690
J-L. Greze ............. 36,000 2.1 44.50 3/1/05 1,007,489 2,553,174
C. L. Hampers .......... 70,000 4.1 44.50 3/1/05 1,959,006 4,964,505
P. D. Houchin .......... 22,000 1.3 44.50 3/1/05 615,688 1,560,273
D. H. Kohnken .......... 60,000 3.5 44.50 3/1/05 1,679,148 4,255,290
J. P. Bolduc ........... -0- -- -- -- -- --
F. P. Boer ............. 30,000 1.8 44.50 3/1/05 839,574 2,127,645
B. J. Smith ............ 50,000 2.9 44.50 3/1/05 1,399,290 3,546,075
All Shareholders ....... -- -- -- -- 3,622,755,348 9,180,769,818
Named Executive
Officers' Percentage of
Realizable Value Gained
by All Shareholders ... -- -- -- -- 0.5% 0.5%
</TABLE>
- ------------
* In 1995, options were granted covering 1,704,150 shares of Common Stock,
including an option covering 40,000 shares granted to D. Walter Robbins, Jr.,
a former director of the Company, in his capacity as a consultant to the
Company (see "Directors' Compensation and Consulting Arrangements" below).
9
<PAGE>
The following table sets forth information concerning stock options
exercised in 1995, 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, 1995 (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, 1995).
<TABLE>
<CAPTION>
OPTION EXERCISES IN 1995 AND OPTION VALUES AT 12/31/95
----------------------------------------------------------------------
NUMBER OF VALUE OF
SHARES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
NO. OF SHARES 12/31/95 12/31/95
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED ($) UNEXERCISABLE UNEXERCISABLE*
- ---- -------------- ------------ --------------- -------------------
<S> <C> <C> <C> <C>
A. J. Costello -0- -0- 0/300,000 $-/2,006,250
J-L. Greze ..... -0- -0- 168,000/0 3,391,344/-
P. D. Houchin . -0- -0- 94,000/0 1,732,000/-
C. L. Hampers . -0- -0- 290,000/0 5,305,625/-
D. H. Kohnken . -0- -0- 275,500/49,000 5,822,875/869,441
J. P. Bolduc .. 655,000 $13,094,423 0/0 0/0
F. P. Boer ..... 130,000 2,833,438 177,500/0 3,054,071/-
B. J. Smith ... 170,000 3,850,938 35,000/47,500 509,688/842,826
</TABLE>
- ------------
* Except for Messrs. Costello, Kohnken and Smith, none of the individuals
listed in the table held unexercisable options at year-end 1995.
LTIP. Under the LTIP as in effect during 1995, executive officers and
other senior managers could be granted contingent "Performance Units" under
which awards could be earned based on (1) value contribution performance
(measured by the extent to which the return on gross assets of the
participant's product line or other unit, or, in the case of corporate
participants, the Company, exceeds the cost of capital by a specified
targeted amount), 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 1995 will differ from
those granted in 1995, as discussed below under "Approval of Long-Term
Incentive Program"). Performance Units granted in 1995 to employees of
product lines were weighted 67% on the value contribution performance of
their respective product lines or other units, and 33% on shareholder value
performance, during the Performance Period; Performance Units granted to
corporate employees were weighted 50% on the basis of the Company's value
contribution performance and 50% on the basis of shareholder value
performance during the Performance Period. The number of Performance Units
earned under the LTIP may be decreased by up to 20%, at the discretion of the
Compensation Committee, based upon individual performance.
Amounts, if any, earned under Performance Units are paid following the end
of each Performance Period. In keeping with the Company's compensation
philosophy of uniting executive interests with those of the shareholders (see
"Report of the Compensation Committee on Executive Compensation--Stock
Ownership Guidelines" below), any such payments may be made up to 100% in
shares of Common Stock issued under the Company's stock incentive plans
(subject to shareholder approval, as discussed below under "Approval of
Long-Term Incentive Program"); however, the Compensation Committee has
authority to reduce the portion of earned Performance Units payable in Common
Stock or to pay such Units entirely in cash.
10
<PAGE>
The following table shows the Performance Units granted during 1995 to the
executive officers named in the Summary Compensation Table. Half of the
Performance Units granted to Mr. Greze and Dr. Hampers are weighted 50%/50%,
as discussed above, and the other half are weighted 67%/33%, as discussed
above; the Performance Units granted to the other recipients are all weighted
50%/50%.
<TABLE>
<CAPTION>
1995 AWARDS OF CONTINGENT PERFORMANCE UNITS UNDER LTIP
------------------------------------------------------------------
MAXIMUM
NUMBER OF PERFORMANCE THRESHOLD TARGET NUMBER OF
NAME UNITS PERIOD (A)(B) (B)(C) UNITS (D)
- -------------- ---------- ------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
A. J. Costello 5,600 1993-1995 $0 or $ 55,164 $ 330,750 56,000
13,950 1994-1996 0 or 162,750 976,500 139,500
22,275 1995-1997 0 or 80 1,782,000 222,750
J-L. Greze .... 9,000 1995-1997 0 or 80 720,000 90,000
C. L. Hampers 17,500 1995-1997 0 or 80 1,400,000 175,000
P. D. Houchin 5,500 1995-1997 0 or 80 440,000 55,000
D. H. Kohnken 15,000 1995-1997 0 or 80 1,200,000 150,000
J. P. Bolduc . -0- -- ---- -- --
B. J. Smith .. 12,500 1995-1997 0 or 80 1,000,000 125,000
F. P. Boer .... 7,500 1995-1997 0 or 80 600,000 75,000
</TABLE>
- ------------
(a) Refers to the minimum amount payable under the LTIP with respect to the
indicated Performance Period. No payment will be made unless the
minimum targeted level of pretax earnings or shareholder value
performance is achieved with respect to the 1993-1995 and 1994-1996
Performance Periods, and no payment will be made unless the minimum
targeted level of value contribution or shareholder value performance
is achieved with respect to the 1995-1997 Performance Period. The
"threshold" payments will be made if the minimum targeted level of
value contribution performance is achieved with regard to the 1995-1997
Performance Period. With respect to the 1993-1995 and 1994-1996
Performance Periods, the "threshold" payments will be made if either
the minimum targeted level of pretax earnings or shareholder value
performance is achieved.
(b) The threshold and target payments shown in the table have been
calculated on the basis of a per share market price of the Common Stock
of $59.0625 at the end of the 1993-1995 Performance Period, and on
assumed per share market prices of $70 and $80 at the end of the
1994-1996 and 1995-1997 Performance Periods, respectively.
(c) Refers to the amount payable with respect to the 1995-1997 Performance
Period if the minimum targeted levels of both value contribution and
shareholder value performance are achieved.
(d) Refers to the maximum number of Performance Units that can be earned
with respect to the Performance Periods under the LTIP, as amended.
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 1995 appears
under "Stock Options" above.
Additional information concerning the LTIP is set forth below under
"Approval of Long-Term Incentive Program."
Pension Arrangements. Salaried employees of designated units of the
Company who are 21 or older and who have one or more years of service are
eligible to participate in the Company's Retirement Plan for Salaried
Employees. Under this basic retirement plan, pension benefits are based upon
(1) the employee's average annual compensation for the 60 consecutive months
in which his or her compensation is highest during the last 180 months of
continuous participation and (2) the number of years of the employee's
credited service. For purposes of this basic retirement plan, compensation
generally includes nondeferred base salary and nondeferred annual incentive
compensation (bonus) awards; however, for 1995, federal income tax law
limited to $150,000 the annual compensation on which benefits under this plan
may be based.
11
<PAGE>
The Company also has a Supplemental Executive Retirement Plan under which
a covered employee will receive the full pension to which he or she would be
entitled in the absence of the above and other limitations imposed under
federal income tax law. In addition, this supplemental plan recognizes
deferred base salary, deferred annual incentive compensation awards and, in
some cases, periods of employment with the Company during which an employee
was ineligible to participate in the basic retirement plan. An employee will
generally be eligible to participate in the supplemental plan if he or she
has an annual base salary of at least $75,000 and is earning credited service
under the basic retirement plan.
The following table shows the annual pensions payable under the basic and
supplemental plans for different levels of compensation and years of credited
service. The amounts shown have been computed on the assumption that the
employee retired at age 65 on January 1, 1996, 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
</TABLE>
Messrs. Costello, Houchin, Kohnken, Bolduc and Smith and Dr. Boer had 0,
3, 27, 11, 21 and 12 years of credited service, respectively, under the basic
and supplemental retirement plans at year-end 1995 (March 31, 1995 in the
case of Mr. Bolduc). For purposes of those plans, the 1995 compensation of
such executive officers was as follows: Mr. Costello -- $600,000; Mr. Houchin
- -- $450,604; Mr. Kohnken -- $781,725; Mr. Bolduc -- $1,487,000; Dr. Boer --
$523,400; and Mr. Smith -- $745,000. Neither Mr. Greze nor Dr. Hampers is
covered by the basic or supplemental plan. At year-end 1995, the accrued
annual benefit payable to Mr. Greze at age 65 under the Company's Swiss
pension plan was approximately $314,040, 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 $120,000. The Company has
agreed to provide certain pension benefits to Messrs. Bolduc and Greze and
Dr. Hampers (see "Employment Agreements" and "Resignations of Executive
Officers" below).
Directors' Compensation and Consulting Arrangements. Under the Company's
compensation program for nonemployee directors, (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
receive a fee of $1,000 per day for work performed at the Company's request.
12
<PAGE>
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.
The Company has consulting agreements with Kamsky Associates Inc. (of
which Ms. Kamsky is president and co-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 1995, the Company paid fees totaling $300,000 under these agreements. The
Company also has a consulting agreement with another company of which Ms.
Kamsky is a principal relating to business opportunities in nine other
countries in the Asia Pacific region. The agreement expires 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 1995. The foregoing
description does not purport to be complete and is qualified in its entirety
by reference to the agreements referred to above, which have been filed with
the SEC as exhibits to the Company's Annual Reports on Form 10-K for the
years ended December 31, 1992 and 1994, respectively, and the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.
George P. Jenkins, D. Walter Robbins, Jr. and David L. Yunich were
directors of the Company who retired on May 10, 1995. The Company had
consulting arrangements with Mr. Jenkins (relating to pension and savings
plan investment management), Mr. Robbins (relating to pension investment
management and divestitures) and Mr. Yunich (relating to corporate
investments) under which they received fees totaling $200,000, $350,000 and
$225,000, respectively, in 1995. During 1995, the Company also granted a
stock option covering 40,000 shares of Common Stock to Mr. Robbins (in his
capacity as a consultant) at an exercise price of $44.50 per share (see
"Stock Options" above). In addition, during 1995 the Company provided car
services to Messrs. Jenkins and Yunich at a cost to the Company of
approximately $47,000 and $13,000, respectively. The consulting arrangements
with Messrs. Jenkins, Robbins and Yunich were terminated by the Company
during 1995.
As previously reported, in 1991 the Company granted Mr. Yunich an option
to purchase a portion of a minority investment held by the Company; in 1995,
he received net proceeds of $126,000 upon the cancellation of the option in
connection with the Company's sale of such investment.
Effective December 1, 1995, the Company entered into a consulting
agreement with Gordon J. Humphrey, who resigned as a director in November
1995. Under the agreement, Mr. Humphrey is to provide such services as are
assigned to him by the Company, including promoting projects related to the
Company's business interests in the Commonwealth of Independent States. The
agreement expires in November 1997 (subject to earlier termination in certain
circumstances) and provides for a monthly retainer of $5,000 plus such
additional fees as may be agreed to in connection with specific projects.
During 1995, Mr. Humphrey earned $5,000 under the agreement. The foregoing
description does not purport to be complete and is qualified in its entirety
by reference to the agreement, which has been filed as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
Arrangements with J. Peter Grace, Jr. J. Peter Grace, Jr. served as the
Company's Chief Executive Officer for 48 years until his retirement at
year-end 1992; following his retirement, he continued to serve as the
Company's Chairman until his death in April 1995. Upon his retirement as
Chief Executive Officer, Mr. Grace entered into an agreement ("Grace
Retirement Agreement") with the Company under which, among other things, he
agreed to act as a consultant to the Company and provide such consulting
services as the Board requested; for such consulting arrangement, Mr. Grace
received a fee of $50,000 per month from January 1993 until his death.
13
<PAGE>
The Grace Retirement Agreement provided for a pension of $1 million per
year to Mr. Grace until his death (and thereafter, to his wife until her
death) in lieu of any other pension to which Mr. Grace might otherwise have
been entitled. The Grace Retirement Agreement also provided benefits and
arrangements to Mr. Grace consisting of: (1) a continuation of 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 $33,695 in 1995), (b) payment of a portion of the premium
for supplemental life insurance in the amount of $750,000 (for which the cost
to the Company was approximately $18,046 in 1995), (c) business travel
accident insurance in the amount of $1.5 million (for which the cost to the
Company was approximately $1,338 in 1995) and (d) voluntary group accident
insurance in the amount of $350,000 (for which Mr. Grace paid the full
premium); (2) a "gross-up" payment to cover income tax obligations for 1995
in respect of the foregoing insurance benefits (with respect to which the
Company paid approximately $31,633 in 1995); and (3) a continuation of all
other benefits and arrangements provided to Mr. Grace as Chief Executive
Officer, which included private nursing services and related expenses (for
which the cost to the Company was approximately $96,900 in 1995), security
services (for which the cost to the Company was approximately $102,400 in
1995), the services of a cook (for which the cost to the Company was
approximately $12,700 in 1995), the use of an apartment (for which the cost
to the Company was approximately $81,430 in 1995), limousine services (for
which the cost to the Company was approximately $59,700 in 1995), and club
membership dues (for which the cost to the Company was approximately $8,700
in 1995). In addition, the Grace Retirement Agreement provided for Mr.
Grace's continued use of Company aircraft, consistent with the Company's
policy of making Company aircraft available for the use of certain senior
executives. The value of such usage to Mr. Grace in 1995, calculated in
accordance with the Standard Industry Fare Level method of Internal Revenue
Service guidelines, was approximately $3,600. The costs for the benefits and
arrangements listed in this paragraph have been stated on a pre-tax basis. In
addition, until his death, the Company provided Mr. Grace with office space,
secretarial services and business expense reimbursement (including
reimbursement for business travel and entertainment expenses), as well as
medical insurance coverage 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.
Employment Agreements. The Company has an employment agreement with Mr.
Costello providing for his service as the Company's Chairman, President and
Chief Executive Officer through April 1998, subject to (1) earlier
termination in certain circumstances and (2) automatic one-year extensions
unless either party gives notice that the agreement is not to be extended.
The agreement also provides that Mr. Costello will stand for election as a
director during its term. Under the agreement, Mr. Costello is entitled to an
annual base salary of at least $900,000; an annual incentive compensation
award (bonus) of at least $900,000 for 1995 and awards thereafter based on
the performance of the Company, in accordance with its annual incentive
compensation program; participation in the LTIP on the same basis as other
senior executives (including the grant of the awards for the 1993-1995,
1994-1996 and 1995-1997 Performance Periods set forth above under "LTIP");
grants of stock options (including those granted to him in 1995, as set forth
above under "Stock Options"); and participation in all other compensation and
benefit plans and programs generally available to senior executives of the
Company. The agreement also provides for payments in the case of Mr.
Costello's disability or death, or the termination of his employment with or
without cause, including termination following a "change in control" and
termination by Mr. Costello for "good reason." For purposes of the agreement,
"change in control" means the acquisition of 20% or more of the Company's
Common Stock, the failure of Company-nominated directors to constitute a
majority of any class of the Board of Directors, or the occurrence of a
transaction in which the Company's shareholders immediately preceding such
transaction do not own more than 50% of the combined voting power of the
corporation resulting from such transaction; however, the Board of Directors
has authorized, and Mr. Costello has agreed to, the amendment of the
agreement so as to (1) increase such percentage from 50% to 60%, (2) exempt
from the definition of "change in control" the previously reported
transaction between the Company and Fresenius AG (which is described in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995)
and (3) expand such definition to include the liquidation or dissolution of
the Company. In the event of the termination of Mr. Costello's employment
following a change in control, he would receive a multiple of the sum of his
annual
14
<PAGE>
base salary plus bonus, pro rated bonus and LTIP awards, earned but unpaid
compensation, and the balance of the LTIP awards for all Performance Periods
during which the change in control takes place. The foregoing description of
Mr. Costello's employment agreement does not purport to be complete and is
qualified in its entirety by reference to such agreement, which has been
filed with the SEC as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995.
Prior to his retirement in February 1996, the Company had an agreement
with Mr. Greze relating to his 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 provided that
the Company would 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 provided 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 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 had been
involuntarily terminated (not for cause) prior to August 1, 1996.
Dr. Hampers has an employment agreement that originally provided for his
employment as an Executive Vice President of the Company and head of its
health care business through March 1996, at which time he would have 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. In March 1996, the Company and Dr. Hampers agreed
to extend his employment until the first to occur of (1) December 31, 1996 or
(2) completion of the transaction with Fresenius AG. The agreement, as
extended, provides that Dr. Hampers will resign from the Board upon
termination of his employment, as described above. Under the agreement, Dr.
Hampers was initially entitled to an annual base salary of at least $675,000,
subject to increases of at least 9% every 18 months, and to participate in
the Company's annual incentive compensation (bonus) program. The agreement
also provides for benefits generally available to senior executives of the
Company, as well as the use of a corporate aircraft (and an option to
purchase the aircraft at its fair market value 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.
The foregoing description of Dr. Hampers' employment agreement does not
purport to be complete and is qualified in its entirety by reference to such
agreement, which was filed with the SEC as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991.
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
15
<PAGE>
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 "Resignations of Executive Officers" below for information concerning
arrangements with respect to Mr. Bolduc's resignation.
Severance Agreements. The Company has severance agreements with all of its
executive officers (other than Mr. Costello, whose employment agreement,
discussed above, provides for severance arrangements), as well as its other
officers. 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 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.
The Board of Directors has authorized the amendment of such severance
agreements to conform the definition of "change in control" contained in such
agreements to the definition contained in Mr. Costello's employment
agreement, as it is to be amended (see "Employment Agreements" above). In
addition, pursuant to such amendment, the severance payment to be made under
each agreement would, until 1999, equal the greater of (1) the severance
payment described in the preceding paragraph or (2) three times the
individual's annual base salary plus bonus, plus a "gross up" payment to
cover any excise tax obligations resulting from the severance payment; in the
event a change in control occurs in 1999 or a subsequent year, the severance
payment would be made solely in accordance with clause (2).
Resignations of Executive Officers. In connection with his resignation in
March 1995, Mr. Bolduc and the Company entered into agreements providing for
his resignation and related matters ("Bolduc Resignation Arrangements").
Pursuant to the Bolduc Resignation Arrangements, Mr. Bolduc's employment
agreement with the Company was terminated, he received a lump sum payment of
$5,062,208 in connection with the termination of the agreement and in lieu of
monthly severance payments that would otherwise have been due thereunder, and
the Company acquired from him 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 provided for the payment to Mr. Bolduc of
deferred compensation owed to him 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 having been 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 previously 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
16
<PAGE>
premiums paid). In addition, Mr. Bolduc continued 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). Mr. Bolduc received a payment of $1,250,000
in payment of his rights under the LTIP, and his balance of approximately
$620,000 under the Savings Plan was paid to him in accordance with his
election under the terms of that Plan. The Bolduc Resignation Arrangements
also provided Mr. Bolduc with ownership of a car and certain office furniture
previously provided to him by the Company for his use and provided that the
Company would reimburse Mr. Bolduc for certain legal fees associated with his
resignation and that he would be entitled to the benefit of certain rights of
indemnification by the Company, as provided in its By-laws. In addition, in
connection with Mr. Bolduc's resignation as a director, the Company confirmed
to Mr. Bolduc that he would be entitled to indemnification by the Company to
the full extent permitted by New York law with respect to his service as a
director. 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 then core businesses until he reaches the age of 62.
Pursuant to the Bolduc Resignation Arrangements, Mr. Bolduc released the
Company and its affiliates, as well as certain individuals, and the Company
released Mr. Bolduc, with respect to all claims, including any matters
arising out of or related to Mr. Bolduc's employment by the Company and his
resignation (other than claims arising under the Bolduc Resignation
Arrangements). The agreements providing for the Bolduc Resignation
Arrangements were filed with the SEC as exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994; the foregoing
description of such agreements does not purport to be complete and is
qualified in its entirety by reference to such agreements.
In connection with Dr. Boer's resignation as an executive officer of the
Company on June 15, 1995, he entered into an agreement with the Company
providing that (1) he would remain an employee, and continue to receive
salary and participate in the Company's benefit plans and programs (other
than its Long-Term Disability Plan), through year-end 1995, at which time he
would be entitled to receive severance pay for 5 1/2 months (which, combined
with the salary received from June 15 to December 31, 1995, would equal one
year of severance pay); (2) he would be considered for an annual incentive
compensation award for 1995 consistent with the award paid to him in respect
of 1994; (3) he would remain a participant in the LTIP for the 1993-1995
Performance Period and, on a pro rata basis, the 1994-1996 and 1995-1997
Performance Periods; (4) certain restrictions on shares and stock options
granted to him in 1991 would be removed; and (5) his participation in the
Company's split-dollar life insurance program would be terminated, although
he could elect to purchase the policy by reimbursing the Company for the
premiums paid on his behalf (approximately $408,000). The agreement also
provided that he would receive payment of amounts due him under other Company
plans and programs in accordance with their terms.
In connection with Mr. Smith's resignation as an executive officer of the
Company on July 18, 1995, he entered into arrangements with the Company
providing that (1) he would remain an employee, and continue to receive
salary and participate in the Company's benefit plans and programs (other
than its Long-Term Disability Plan), through July 1996; (2) he would be
considered for an annual incentive compensation award for 1995 consistent
with the award paid to him in respect of 1994; (3) he would remain a
participant in the LTIP for the 1993-1995 Performance Period and, on a pro
rata basis, the 1994-1996 and 1995-1997 Performance Periods; (4) certain
restrictions on shares and stock options granted to him in 1991 would be
removed; and (5) his participation in the Company's split-dollar life
insurance program would be terminated, although he could elect to purchase
the policy by reimbursing the Company for the premiums paid on his behalf
(approximately $325,000). The agreement also provided that he would receive
payment of amounts due him under other Company plans and programs in
accordance with their terms.
The foregoing descriptions of the agreements with Dr. Boer and Mr. Smith
do not purport to be complete and are qualified in their entirety by
reference to such agreements, which have been filed with the SEC as exhibits
to the Company's Annual Report on Form 10-K for the year ended December 31,
1995.
17
<PAGE>
Compensation Committee Interlocks and Insider Participation. Prior to May
10, 1995, the Compensation Committee consisted of Mr. Eckmann, as well as
Roger Milliken, John A. Puelicher and Eben W. Pyne (who retired from the
Board on that date); Peter S. Lynch (a director who has advised the Company
that he will resign from the Board effective the date of the Annual Meeting);
and Robert C. Macauley (a director who is not standing for re-election at the
Annual Meeting). On May 10, 1995, the Compensation Committee was
reconstituted to consist of its current members: Messrs. Eckmann, Holmes,
Lynch and Phipps, as well as Edward W. Duffy (a director who is not standing
for re-election at the Annual Meeting). In addition, Mr. Gossage served on
the Compensation Committee from August 1995 until March 1996. As noted above,
Mr. Holmes served as Acting President and Chief Executive Officer of the
Company from March 2 to May 1, 1995. During 1995, the Company purchased
approximately $1.1 million of products from, and sold approximately $46,000
of products to, Hercules, of which Mr. Gossage is Chairman and Chief
Executive Officer. See "Report of the Compensation Committee on Executive
Compensation" below for information concerning the modification of the
Company's executive compensation program by the reconstituted Compensation
Committee.
Performance Comparison. The following graph and table compare the
cumulative total shareholder return on the Company's Common Stock from
December 31, 1990 through December 31, 1995 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 its packaging and specialty chemicals 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 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, 1990, as well as the reinvestment of dividends.
<TABLE>
<CAPTION>
DECEMBER 31, 1990 1991 1992 1993 1994 1995
- ------------------------------ ------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
W. R. Grace & Co. ............. 100 172.38 182.43 190.87 187.63 293.90
S&P 500 Stock Index ........... 100 130.47 140.41 154.56 156.60 215.45
S&P Specialty Chemicals Index 100 141.17 149.56 170.53 148.87 195.67
S&P Chemicals Index ........... 100 130.41 142.80 159.70 184.88 241.50
</TABLE>
18
<PAGE>
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, as well
as other executives whose annual base salaries exceed $250,000, based upon
the recommendations of the Compensation Committee, except that all actions
under the Company's Stock Incentive Plans and certain aspects of the LTIP 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 (other than Mr.
Holmes, who served as the Company's Acting President and Chief Executive
Officer from March 2 to May 1, 1995) and who have no consulting arrangements
or other significant relationships with the Company.*
This Report describes the Company's performance-based compensation
philosophy and executive compensation program, as approved by the
Compensation Committee. In particular, it discusses the compensation
decisions and recommendations made by the Compensation Committee in 1995
regarding Mr. Costello, the Company's Chairman, President and Chief Executive
Officer, and the other executive officers named in the Summary Compensation
Table above (collectively referred to in this Report as the "executive
officers").
Management and the Compensation Committee use the services of Towers
Perrin, an independent management consulting firm, for advice regarding the
Company's executive compensation program.
Executive Compensation Philosophy and Program Components
The Company's executive compensation program is structured to enable the
Company to compete effectively with other firms in attracting, motivating and
retaining executives of the caliber needed to 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.
In the second half of 1995, certain revisions of the Company's executive
compensation program were initiated as a result of business, organizational
and senior management changes. First, the group of firms the Company uses for
the purpose of measuring competitive levels of compensation was modified to
include U.S.-based companies with annual sales of $3 billion to $6 billion
(rather than $3 billion to $10 billion, as in prior years)**. Second, the
Compensation Committee adopted a philosophy that executive salaries and
annual incentive compensation should approximate the 50th percentile, and
that long-term incentive opportunities should approximate the 60th
percentile, of those companies' practices when performance objectives are
achieved, and that executive compensation should be above those levels only
when performance objectives are exceeded and should be below those levels
when performance objectives are not achieved. Previously, both annual and
long-term incentive compensation were expected to approximate the 75th
percentile when performance objectives were met.
Consistent with the practices of recent years, the Company continues to
place less emphasis on base salaries and greater emphasis on
performance-based compensation, based on (1) total Company and/or product
line financial performance, and (2) individual and team performance.
The following sections of this Report describe the compensation program
for executive officers in effect in 1995 (as well as modifications being
implemented in 1996) and the manner in which the Compensation Committee and
the Board reached their determinations as to performance-based compensation.
- ------------
* In the ordinary course of business, the Company engages in transactions
with Hercules, whose Chairman and Chief Executive Officer, Mr. Gossage,
was a member of the Company's Compensation Committee from August 1995
to March 1996.
** 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.
19
<PAGE>
Base Salary
During 1995, salaries of Company executives based in the United States
were eligible for review at intervals of not less than 18 months from the
date of the last increase. This practice was consistent with the intent of
placing less emphasis on fixed compensation, such as salaries, and more
emphasis on performance-based pay, such as annual and long-term incentive
compensation. Salary increases for executive officers in 1995 were based on
(1) individual performance (as evaluated by the Compensation Committee in its
discretion) and (2) salaries paid to executives in comparable positions in
other companies.
In 1996, executive officers' positions, as well as other management
positions, have been assigned to grades with salary ranges based on the
median salaries paid to individuals who hold comparable positions in
companies with annual sales of $3 billion to $6 billion. Individual salaries
will be set with reference to the salary ranges based on individual
performance and experience, as well as other factors, such as the time since
the last increase and the amount budgeted for salary increases.
Annual Incentive Compensation
For 1995, incentive compensation pools were generated based on (1) the
extent to which 1995 pretax and pre-interest income, reduced by a working
capital charge, exceeded 1994 pretax earnings, in the case of product line
employees, and (2) the extent to which budgeted 1995 pretax income was
achieved, in the case of corporate employees. Awards to individual executives
were allocated from these formula-based pools.
The factors that the Compensation Committee took into consideration in
proposing individual awards for the executive officers (excluding Mr.
Costello, whose compensation is discussed below) were that (1) the 1995
results of the Company (including its health care business, which was
classified as a discontinued operation in the 1995 second quarter) reflected
(a) a 13% increase in sales and revenues over 1994 ($5.74 billion in 1995
versus $5.09 billion in 1994), (b) an improvement of $43.6 million (or 9%) in
pretax income over 1994 (before special items in both years) and (c) an 11%
increase in earnings per share (before special items in both years) and (2)
the Company implemented a plan to reduce annual costs by more than $100
million, $15 million of which was realized during 1995. In addition, in
determining Mr. Greze's award, the Compensation Committee took into
consideration that the 1995 pretax and pre-interest income of the Company's
packaging business exceeded 1994 pretax and pre-interest income by 20%. Dr.
Hampers' award was determined in accordance with the annual incentive
compensation program approved by the shareholders in 1995.
Based on these factors, the Board, on the recommendation of the
Compensation Committee, approved awards for the executive officers (other
than Mr. Costello and the former executive officers named in the Summary
Compensation Table) ranging from 48.3% to 100.0% of their year-end 1995
annual base salaries.
Several changes are being made in the annual incentive compensation
program in 1996 to relate awards under the program more closely to business
and individual performance and to align the program with those of comparable
companies. Specifically, a targeted award, expressed as a percentage of base
salary, will be established for each salary grade and eligible position.
Actual awards will be allocated from incentive pools that will be established
for each product line, based on the extent to which targeted pretax and
pre-interest earnings (less a charge for working capital) are achieved, and
for the Company, based upon the extent to which targeted pretax earnings are
achieved. With respect to officers who report to the Chief Executive Officer,
individual awards will be based 75% on product line/corporate performance and
25% on individual performance and may range from zero to 200% of the targeted
award, depending on business and individual performance. In the case of other
executives, individual awards may range from zero to 200% of the targeted
award, based on business and/or individual performance.
In addition, on the recommendation of the Compensation Committee, the
Board of Directors has adopted (subject to shareholder approval) a separate
two-component annual incentive compensation program in which the Chairman,
President and Chief Executive Officer would participate, along with other
executive officers whose compensation may exceed $1 million in any year.
Under a formula
20
<PAGE>
component of the program, the Board, on the recommendation of the
Compensation Committee, will, by the end of the first calendar quarter of
each year, approve the participants in the program, the amount of incentive
compensation that may be earned at various levels of performance, the maximum
amount that may be earned by each executive officer (expressed as a
percentage of salary in effect at the beginning of the year), and the
criteria by which performance will be measured. The performance criteria will
be selected from one or more of the following each year by the Compensation
Committee: earnings, earnings per share, rate of return on assets or capital
employed, cash flow, or net worth, of the Company or one or more of its
units.
Under a discretionary component of the program, executive officers could
also earn incentive compensation based on the achievement of nonfinancial
objectives, such as leadership, overall strategic positioning, reorientation
of long-term goals, corporate/product line strategy, shareholder value
creation, environmental and social matters and the development of the
Company's human resources. 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 executive officer should exceed $1
million in any calendar year.
This program, which is being proposed for approval by the shareholders, is
described elsewhere in this Proxy Statement.
Long-Term Incentives
The Company's long-term incentives consist of the LTIP (involving the
annual grant of Performance Units) and stock options. Such grants provide
opportunities for rewards based on performance versus pre-established
performance targets with respect to value contribution (cash flow
attributable to net operating profit after taxes, less a capital charge),
shareholder value creation and increases in the price of the Company's Common
Stock.
In 1995, the executive officers and certain other key individuals were
granted Performance Units for the 1995-1997 Performance Period, as well as
stock options. The number of Performance Units and the number of options
granted were based on the Compensation Committee's evaluation of each
recipient's ability to contribute to the achievement of the performance
objectives.
Performance Units granted to employees of product lines are weighted 67%
on the value contribution performance of their respective product lines, and
33% on the Company's shareholder value performance; Performance Units granted
to corporate employees are weighted 50% on the basis of the Company's value
contribution performance and 50% on the basis of the Company's shareholder
value performance. This weighting 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
in 1995 were weighted 67%/33%, and the other half of their Performance Units
were weighted 50%/50%, reflecting their responsibilities as both product line
managers (with regard 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.
Mr. Greze retired on February 29, 1996. Dr. Hampers' employment agreement
(discussed elsewhere in this Proxy Statement) is expected to be extended to
provide that his employment will terminate on the earlier of (1) the date of
the closing of the previously reported transaction with Fresenius AG and (2)
December 31, 1996. Mr. Greze and Dr. Hampers were granted Performance Unit
Awards for the 1995-1997 Performance Period because at the time grants were
made in 1995, they were the principal executives of their respective product
lines, and it was deemed important to maintain their focus on the long-term
strategic objectives of their businesses. As provided under the LTIP,
payments of earned Performance Units are made on a pro rata basis in cases
when executives retire or are terminated not for cause before the end of the
Performance Period.
21
<PAGE>
Payments under the Performance Unit Awards covering the 1993-1995
Performance Period were made in March 1996. The final one-third of the payout
under the LTIP covering the 1990-1992 Performance Period was made in March
1995. Any payments earned with respect to the 1994-1996 and 1995-1997
Performance Periods are scheduled to be made in 1997 and 1998, respectively.
Under a proposed 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 two-and-one-half times the
number granted, or 30,000 Units, whichever is less, subject to adjustment for
stock splits and similar events. A second proposed amendment provides for the
establishment of three-year value contribution targets for each Performance
Period against which product line and corporate performance would be
measured. The third proposed amendment would permit the Compensation
Committee to determine, in its sole discretion (which may take the
participants' preferences into account), that up to 100% of the value of any
earned Performance Units be paid in shares of the Company's Common Stock and
that the balance, if any, be paid in cash.
The amended LTIP, the first complete Performance Period of which would
cover 1996-1998, would target long-term incentive opportunities (Performance
Units and stock options) at the 60th percentile of opportunities provided by
other companies with annual sales of $3 to $6 billion. Payments above that
level would result only if performance targets were exceeded and/or if the
price of the Company's stock increased significantly.
Beginning in 1996, all stock options granted to executive and other
officers will become exercisable in installments over a three-year term
beginning one year after the date of grant (rather than being exercisable in
full on date of grant, as was the case in previous years), and the number of
options granted to an individual will be based on the salary grade to which
his/her position is assigned.
Compensation of the Chief Executive Officer
Mr. Costello's 1995 compensation was determined in accordance with his
employment agreement, which is summarized elsewhere in this Proxy Statement.
Mr. Costello's annual incentive compensation award for 1995 was $900,000.
As specified in his employment agreement, upon the commencement of his
employment, he was granted 22,275 LTIP Performance Units with respect to the
1995-1997 Performance Period, and stock options covering 300,000 shares of
the Company's Common Stock; these options become exercisable in three annual
installments beginning in May 1996. He was also granted 5,600 and 13,950 LTIP
Performance Units with regard to the 1993-1995 and 1994-1996 Performance
Periods, respectively. The size of these grants was determined on the basis
of (1) the number of Performance Units and stock options granted to the
previous Chief Executive Officer of the Company and (2) the need to attract
to the Company an experienced chief executive officer from the chemical
industry. Under the LTIP, the maximum number of Performance Units that Mr.
Costello could earn for the 1994-1996 and 1995-1997 Performance Periods would
be 139,500 and 222,750, respectively. However, in order for the maximum award
to be earned for either Performance Period, the Company's financial
performance would have to exceed the performance target by over 100%, and the
Company's shareholder value performance would have to rank first with respect
to shareholder value performance among the companies that comprise the
Standard and Poor's Industrial Index.
Beginning with the 1996-1998 Performance Period, Performance Unit Awards
will be granted to Mr. Costello in accordance with the proposed amendments to
the LTIP, as discussed above. In addition, beginning with 1996, his annual
incentive compensation will be determined in accordance with the program for
executive officers summarized above under "Annual Incentive Compensation
Program."
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code prohibits the Company from
deducting annual compensation in excess of $1 million paid to the executive
officers named in the Summary Compensation Table of the Proxy Statement,
unless such compensation is performance-based and satisfies certain other
conditions.
22
<PAGE>
It is the Committee's view that, with the exception of base salaries and
any discretionary annual incentive compensation payments or
non-performance-based payments provided for under Mr. Costello's employment
agreement, amounts awarded under the Company's executive compensation program
qualify as performance-based compensation and are therefore expected to be
fully deductible.
Stock Ownership Guidelines
To further strengthen the link between executive and shareholder
interests, the Board of Directors, on the recommendation of the Compensation
Committee, adopted a policy in 1995 requiring executive and other officers
and certain other executives of the Company to meet the following specified
targets with respect to the ownership of the Company's Common Stock by 2000:
<TABLE>
<CAPTION>
POSITION VALUE OF STOCK
- --------- --------------------
<S> <C>
Chief Executive Officer ........................................ 4.0 times salary
Executive Vice Presidents and other members of the Executive
Committee ..................................................... 3.0 times salary
Senior Vice Presidents (other than members of the Executive
Committee) .................................................... 2.0 times salary
Vice Presidents ................................................ 1.0 times salary
Other executives who participate in the LTIP ................... 0.5 times salary
</TABLE>
COMPENSATION, EMPLOYEE BENEFITS AND
STOCK INCENTIVE COMMITTEE
Edward W. Duffy, Chairman
Harold A. Eckmann
Thomas A. Holmes
Peter S. Lynch
John E. Phipps
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) and/or businesses with which they are affiliated. Information
regarding certain consulting arrangements appears above under "Directors'
Compensation and Consulting Arrangements" and "Arrangements with J. Peter
Grace, Jr." under the heading "Executive Compensation."
Commercial Transactions. Mr. Costello is a director of FMC Corp. ("FMC").
During 1995, various units of the Company purchased approximately $3.4
million of materials and/or products from, and sold approximately $161,000 of
materials and/or products to, units of FMC.
Mr. Gossage, Chairman and Chief Executive Officer of Hercules, was a
director of the Company from July 1995 to March 1996. During 1995, the
Company purchased approximately $1.1 million of products from, and sold
approximately $46,000 of products to, Hercules.
The foregoing transactions were in the ordinary course of business and
were on terms believed to be similar to those with unaffiliated parties.
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 1995 in
connection with Mr. Bolduc's severance arrangements (see "Executive
Compensation -- Resignations of Executive Officers" above). The Company has
also made interest-free loans to the following executive officers in
connection with relocations: Mr. Greze -- $400,000; Fred Lempereur (a Senior
Vice President) -- $350,000; and Ian Priestnell (a Vice President) --
$458,000. Mr. Greze's loan is to be repaid upon the sale of his Florida
residence or, if earlier, December 31, 1996.
23
<PAGE>
J. Peter Grace, III. J. Peter Grace, III is a son of J. Peter Grace, Jr.
From July 1990 until his resignation in November 1994, Mr. Grace III was the
Chairman of Grace Hotel Services Corporation ("GHSC"), a wholly owned
subsidiary of the Company engaged in the business of providing food and
beverage service at hotels. As reported in the Proxy Statement for the
Company's 1995 Annual Meeting, in connection with discussions between Mr.
Grace III and the Company regarding the possible acquisition of GHSC by Mr.
Grace III and others, Mr. Grace III formed a new corporation, HSC Holding
Co., Inc. ("HSC"), to facilitate such acquisition. Following Mr. Grace III's
resignation, the Company, GHSC, Mr. Grace III and HSC entered into
negotiations providing for the repayment of all funds that had been provided
to HSC by GHSC. As a result of these negotiations, HSC, GHSC and the Company
entered into a letter agreement in December 1994 ("December 1994 Letter
Agreement").
Pursuant to the December 1994 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. In March 1995, $213,425 of the Escrow Amount was
released to the Company. The Company claimed that HSC owed an additional
$201,069 to GHSC; HSC disputed this claim. Following the commencement of an
arbitration proceeding in accordance with the terms of the December 1994
Letter Agreement, the Company and GHSC entered into a settlement agreement
with HSC pursuant to which (1) GHSC was paid $110,313 of the remaining Escrow
Amount (together with interest) and (2) the balance of the Escrow Amount was
returned to HSC.
To date, 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. The December 1994 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. However, neither Mr. Grace III nor HSC has entered into any
agreement or understanding with the Company concerning the acquisition of
GHSC, and this provision of the December 1994 Letter Agreement has lapsed in
accordance with its terms.
The December 1994 Letter Agreement and other agreements relating to the
above matters were filed as exhibits to the Company's Annual Report on Form
10-K for the year ended December 31, 1994, and the settlement agreement
referred to above was filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995. The foregoing
description of such documents does not purport to be complete and is
qualified in its entirety by reference to such documents and to the Proxy
Statement for the Company's 1995 Annual Meeting, which contained additional
information concerning the foregoing matters.
Legal Proceedings; Insurance; Indemnification. Commencing in March 1995,
five lawsuits were brought against the Company and members of its Board of
Directors (as well as Mr. Bolduc) in New York State Supreme Court, New York
County; the lawsuits were subsequently consolidated in one case. The
consolidated amended complaint in this lawsuit, which purports to be a
derivative action (i.e., an action brought on behalf of the Company),
alleges, among other things, that the individual defendants breached their
fiduciary duties to the Company (1) by providing J. Peter Grace, Jr. with
certain compensation arrangements upon his voluntary retirement as the
Company's Chief Executive Officer in 1992 and (2) by approving Mr. Bolduc's
severance arrangements, and that Messrs. Grace and Bolduc breached their
fiduciary duties by accepting such benefits and payments. The lawsuit seeks
unspecified damages, the cancellation of all allegedly improper agreements,
the cancellation of the nonemployee director retirement plan, the return of
all remuneration paid to the present and former directors who are defendants
while they were in breach of their fiduciary duties to the Company, an award
of attorneys' and experts' fees and costs and such other relief as the Court
may deem appropriate.
In 1995, nine purported class action lawsuits were brought against the
Company and certain of its officers and directors in various federal courts.
These lawsuits are being consolidated in a case pending in the United States
District Court for the Southern District of New York (Murphy, et al. v. W. R.
Grace & Co., et al.). The first amended class action complaint in this
lawsuit, which purports to be a class action on behalf of all persons and
entities who purchased the Company's publicly traded securities during the
24
<PAGE>
period from March 13, 1995 through October 17, 1995, generally alleges that
the defendants concealed information, and issued misleading public statements
and reports, concerning NMC's financial position and business prospects, a
proposed spin-off of NMC and the matters that are the subject of certain
federal investigations of NMC, in violation of federal securities laws. The
lawsuit seeks unspecified damages, attorneys' and experts' fees and costs and
such other relief as the Court deems proper.
In October 1995, a purported derivative lawsuit was filed in the United
States District Court for the Southern District of Florida, Northern
Division, against the Company, certain of its directors and Mr. Bolduc
alleging that such individuals breached their fiduciary duties by failing to
properly supervise the activities of NMC in the conduct of its business
(Bennett v. Bolduc, et al.). In December 1995, the plaintiff in this action
filed a new action, based on similar allegations, in the United States
District Court for the Southern District of New York (Bennett v. Bolduc, et
al.). The Florida action has been dismissed in favor of the action filed in
the Southern District of New York. A second action making similar allegations
was filed in October 1995 in New York State Supreme Court, New York County
(Bauer v. Bolduc, et al.). The Company has been advised that this action will
be dismissed or stayed in favor of the Bennett action, which has been
consolidated, for discovery purposes only, with the Murphy action described
above. The complaint in the Bennett action seeks unspecified damages,
attorneys' and experts' fees and costs and such other relief as the Court
deems proper.
In February 1996, a purported class action was filed in New York State
Supreme Court, New York County, against the Company, certain of its directors
and a former director, alleging that the defendants breached their fiduciary
duties in connection with the Company's agreement to combine NMC with
Fresenius AG. The lawsuit seeks injunctive relief ordering defendants to
carry out their fiduciary duties and preventing or rescinding the transaction
or any related transactions with Fresenius AG, unspecified monetary damages,
an award of attorneys' and experts' fees and costs and such other relief as
the Court may deem just and proper.
In March 1996, two purported shareholder derivative class actions were
filed in New York State Supreme Court, New York County, against the Company
and Mr. Costello alleging that the defendants breached their fiduciary duties
to the Company's shareholders by failing to investigate and consider fully a
proposal by Hercules to acquire or merge with Grace. The lawsuits seek
injunctive relief ordering defendants to carry out their fiduciary duties by
considering and evaluating such proposal, unspecified monetary damages, costs
and counsel fees and such other relief as the Court deems proper.
The Company has been notified that the SEC has issued a formal order of
investigation with respect to the Company's prior disclosures regarding
benefits and retirement arrangements provided to J. Peter Grace, Jr. (see
"Executive Compensation -- Arrangements with J. Peter Grace, Jr." above), and
the matters referred to above relating to his son, J. Peter Grace III. The
Company is cooperating fully with the investigation.
The Company maintains director and officer liability insurance covering
directors and officers of the Company and its subsidiaries. Such insurance
includes, among other things, coverage with respect to claims made against
directors and officers within six years after May 10, 1995 relating to
conduct prior to that date. However, such insurance provides for various
deductibles and exclusions, some of which are substantial, and may therefore
not provide coverage with respect to all or a portion of certain claims,
including certain of the lawsuits described above. 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, 1995. The annual premiums for such
insurance total approximately $1.2 million.
In April 1995, the Board of Directors resolved that the Company would
provide certain contractual rights of indemnification (including related
reimbursement and advances of expenses) to directors, and would seek to
maintain directors' and officers' liability insurance covering certain
potential obligations for at least six years, provided that the Company would
not be obligated to spend more than 150% of the then current annual premiums
to maintain such insurance.
25
<PAGE>
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, 1996 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
(other than those who resigned in 1995), and by such 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
Savings 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, 1996.
The Common and Preferred Stocks owned by directors and executive officers as
a group (excluding option shares) at February 1, 1996 represent approximately
1.7% of the voting power of all the Company's stock outstanding at March 21,
1996.
Common Stock
<TABLE>
<CAPTION>
AMOUNT/NATURE
OF OWNERSHIP
---------------
<S> <C>
A. J. Costello* ............. 5,000
G. C. Dacey ................. 1,195
E. W. Duffy ................. 2,490
H. A. Eckmann ............... 2,923
M. A. Fox ................... 200
J. W. Frick ................. 2,400
J-L. Greze .................. 26,695
168,000(O)
C. L. Hampers ............... 8,600
50,000(T)
290,000(O)
T. A. Holmes ................ 3,590
P. D. Houchin ............... 7,719
94,000(O)
V. A. Kamsky ................ 2,100
D. H. Kohnken ............... 37,731
275,500(O)
P. S. Lynch ................. 6,505
R. C. Macauley .............. 2,005
J. E. Phipps ................ 11,090
17,450(T,S)
E. J. Sullivan .............. 2,700
T. A. Vanderslice ........... 0
Various directors, executive
officers and others, as
Trustees ................... 2,696(T,S)
Directors and executive
officers as a group ........ 170,886*
50,000(T)
20,146(T,S)
1,390,834(O)
</TABLE>
Preferred Stocks
<TABLE>
<CAPTION>
AMOUNT/NATURE OF OWNERSHIP
---------------------------------------------
6% PREFERRED CLASS B PREFERRED
----------------------- --------------------
<S> <C> <C>
Various executive officers and others,
with respect to 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 .................................... 9,648 (T,S)[26.5%] 959 (T,S)[4.4%]
</TABLE>
- ------------
* Does not include 20,100 shares purchased by Mr. Costello in February
1996.
(O) Shares covered by stock options exercisable on or within 60 days
after February 1, 1996.
(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.
26
<PAGE>
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 serves 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, 1995, College Retirement
Equities Fund (730 Third Avenue, New York, New York 10017-3206) held
7,238,300 shares of Common Stock, or 7.3% of the Common Stock outstanding on
March 21, 1996; and FMR Corp. (82 Devonshire Street, Boston, Massachusetts
02108) and affiliated mutual funds held 888,184 shares of Common Stock, or
0.9% of the Common Stock outstanding on March 21, 1996. In addition, at March
21, 1996, 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 16.7% 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. Further, Grace Institute and Lillius
Gilchrest Grace Institute (c/o Marine Midland Bank, P.O. Box 1329, Buffalo,
New York 14240) owned 18,231 shares and 3,406 shares, respectively, of the 6%
Preferred Stock, or 50% and 9.3%, respectively, of the 6% Preferred Stock
outstanding, at March 21, 1996; neither entity is currently affiliated with
the Company.
OWNERSHIP AND TRANSACTIONS REPORTS
Under Section 16 of the Securities Exchange Act of 1934, the Company's
directors, certain of its officers, and beneficial owners of more than 10% of
the outstanding Common Stock are required to file reports with the SEC and
the New York Stock Exchange concerning their ownership of and transactions in
Common Stock; such persons are also required to furnish the Company with
copies of such reports. Based solely upon the reports and related information
furnished to the Company, the Company believes that all such filing
requirements were complied with in a timely manner during and with respect to
1995, except that (1) one report regarding five transactions by Mr. Bolduc
was filed late; (2) a report regarding one transaction by William Wood
Prince, a former director, was filed late; and (3) a report regarding the
purchase of 11 shares of Common Stock by Dr. Frick's wife (by means of
dividend reinvestment) was filed late.
SELECTION OF INDEPENDENT CERTIFIED PUBLIC 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 certified public accountants of the Company and its consolidated
subsidiaries for 1996. Although the submission of this matter for shareholder
ratification at the Annual Meeting is not required by law or the Company's
By-laws, the Board is nevertheless doing so to determine the shareholders'
views. If the selection is not ratified, the Board will reconsider its
selection of independent certified public accountants.
Price Waterhouse has acted as independent certified public accountants of
the Company and its consolidated subsidiaries since 1906. Its fees and
expenses for the 1995 audit are expected to be approximately $3.2 million. In
addition, during 1995 Price Waterhouse performed special audits and reviews
in connection with certain acquisitions and divestments, consulted with the
Company and its counsel 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 $7.2 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.
27
<PAGE>
APPROVAL OF LONG-TERM INCENTIVE PROGRAM
BACKGROUND
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, the LTIP (as currently in effect)
provides that, at the discretion of the Compensation Committee, up to 50% of
any such payments may be made in shares of Common Stock issued under the
Company's stock incentive plans (proposed to be increased to 100%, as
discussed below). 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 other cases of termination of
employment during the Performance Period, the participant generally receives
a pro rata number of the Performance Units earned; similarly, Performance
Units are granted on a pro rata basis to any person who begins participating
in the LTIP after the beginning of a Performance Period.
Employees to whom Performance Units are granted also receive grants of
stock options based on the number of Performance Units granted (see "Election
of Directors --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 and pre-interest
earnings targets by the participant's product line (or, in the case of
corporate participants, pretax earnings of 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 could 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.
1995 AMENDMENTS
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
28
<PAGE>
Units in recognition of individual performance (however, the Compensation
Committee retained the discretion to decrease the number of earned
Performance Units by up to 20%). In addition, the Board of Directors (on the
recommendation of the Compensation Committee) determined to replace "Earnings
Targets" with "Value Contribution Performance" in determining whether
Performance Units would be earned with respect to the 1995-1997 and
subsequent Performance Periods. These amendments were approved by
shareholders at the 1995 Annual Meeting.
As a result of such amendments, Performance Units for the 1995-1997
Performance Period may be earned to the extent that, during the Performance
Period, (1) the dollar return on assets of the participant's product line or
other unit (or, in the case of corporate participants, the Company) exceeds a
specified dollar target based on the cost of capital ("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 for the 1995-1997 Performance Period.
Value Contribution Performance. If the product line (or the Company) does
not exceed the targeted dollar return on assets during each year of the
Performance Period (cumulated over the entire three-year Performance Period),
the portion of the relevant participants' Performance Units relating to
nominal Value Contribution Performance ("Value Contribution Component") will
not be earned; as indicated above, the Value Contribution Component is 67% of
each contingent Performance Unit for product line employees and 50% for
corporate employees. If the product line (or the Company) exceeds the
targeted dollar return on assets during each year of the Performance Period
(cumulated over the entire three-year Performance Period), a payout pool will
be established in an amount equal to 1% of the excess (such excess being
referred to as the "Value Contribution"). In addition, if the prior year's
Value Contribution was below the targeted dollar return on assets, the payout
pool will be increased (or decreased) by an amount equal to 2% of the amount
by which the Value Contribution for each year during the Performance Period
is greater (or less) than the Value Contribution for the preceding year,
cumulated over the entire three-year Performance Period. If the prior year's
Value Contribution was above the targeted dollar return on assets, the payout
pool will be increased by an amount equal to 2% of the amount by which the
Value Contribution for each year during the Performance Period is greater
than the Value Contribution for the preceding year, cumulated over the entire
three-year Performance Period.
The number of earned Performance Units will be determined by (1) dividing
the amount of the payout pool by the closing price of the 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, the participant will earn 33% of the
Shareholder Value Component. For each one-tenth of a percentile by which the
Company's Shareholder Value Performance ranks above the 50th percentile
level, the participant will earn an additional 0.44% of the Shareholder Value
Component, up to 100% of the Shareholder Value Component if the Company's
Shareholder Value Performance ranks at the 65th percentile of such companies.
Further, the participant will earn an additional 1.2% of the Shareholder
Value Component for each one-tenth of a percentile above such 65th
percentile.
29
<PAGE>
PROPOSED AMENDMENTS
The Board of Directors (on the recommendation of the Compensation
Committee) has determined to amend the LTIP in certain additional respects
(subject to shareholder approval at the Annual Meeting). First, with respect
to the 1996-1998 Performance Period and all subsequent Performance Periods,
the maximum number of Performance Units that may be earned by any participant
would be limited to the lesser of (1) 250% of the number of contingent
Performance Units initially granted or (2) 30,000 Performance Units (subject
to adjustment for stock splits and similar events). A second proposed
amendment would modify the manner in which Value Contribution Performance and
Shareholder Value Performance would be determined for purposes of the
1996-1998 Performance Period and all subsequent Performance Periods. The
third proposed amendment (which would apply to the 1994-1996 Performance
Period as well as all subsequent Performance Periods) would permit the
Compensation Committee to determine, in its sole discretion (which may take
the participants' preferences into account), that up to 100% of the value of
any earned Performance Units be paid in shares of the Company's Common Stock
and that the balance, if any, be paid in cash.
The following is a summary of the manner in which Performance Units may be
earned with respect to Value Contribution Performance and Shareholder Value
Performance for purposes of the 1996-1998 Performance Period and subsequent
Performance Periods if the amendment referred to in clause (2) above is
approved by shareholders.
Value Contribution Performance. As discussed above, the Value Contribution
Component is 67% of each contingent Performance Unit for product line
employees and 50% for corporate employees. At the beginning of each
Performance Period, the Compensation Committee will establish, for each
product line (except as noted below) and the Company, (1) a "Target" based on
forecasted cash flow attributable to annual net operating profit after taxes
of the product line (or the Company), less a charge based on its average
annual gross assets, aggregated for each of the three years during the
Performance Period; (2) a "Performance Threshold" and an "Interim Performance
Target," each of which represents a percentage (but less than 100%) of the
Target; and (3) three "Performance Levels," each of which represents a
percentage (in excess of 100%) of the Target. The Value Contribution
Component will not be earned (and the participant will receive no payment
with respect thereto) if the product line (or the Company) does not achieve
the Performance Threshold; if the Performance Threshold is achieved, a
portion of the Value Contribution Component will be earned. If the Interim
Performance Target is achieved, a greater portion of the Value Contribution
Component (but less than 100%) will be earned. If the Target is achieved,
100% of the Value Contribution Component will be earned, and if any of the
three Performance Levels is achieved, more than 100% of the Value
Contribution Component will be earned (subject to a maximum of 250% of the
Value Contribution Component, as discussed above). The Targets and the
percentages of the Value Contribution Component that may be earned at the
Performance Thresholds, the Interim Performance Targets and the Performance
Levels vary among the product lines and the Company, based on factors
affecting their respective strategies, operations and objectives. In
addition, the performance objectives established with respect to one small
product line differ from those described above.
Shareholder Value Performance. As discussed above, the Shareholder Value
Component amounts to 33% for product line employees and 50% for corporate
employees. If the Company's Shareholder Value Performance during the
Performance Period ranks below the 40th 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 40th percentile of
such companies, the participant will earn 40% of the Shareholder Value
Component. For each one-tenth of a percentile by which the Company's
Shareholder Value Performance ranks above the 40th percentile level, the
participant will earn an additional 0.6% of the Shareholder Value Component,
up to 100% of the Shareholder Value Component if the Company's Shareholder
Value Performance ranks at the 50th percentile of such companies. Further,
the participant will earn an additional 0.4286% of the Shareholder Value
Component for each one-tenth of a percentile above such 50th percentile
(subject to a maximum of 250% of the Shareholder Value Component, as
discussed above).
30
<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.
TAX TREATMENT OF PERFORMANCE UNITS
Under the present provisions of the 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 or her 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 "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 Targets, the Performance Thresholds, the Interim Performance
Targets and the Performance Levels referred to above) constitutes
confidential business information, the disclosure of which in this Proxy
Statement would have an adverse effect on the Company.
It is not possible to state which employees will be granted Performance
Units under the LTIP in the future, the terms of such Performance Units or
the amounts that may be earned 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, Messrs. Costello, Houchin and Kohnken have been granted 12,000,
2,400 and 4,000 contingent Performance Units, respectively, for the 1996-1998
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, 1996, a total of 111,200 Performance Units relating to the 1996-1998
Performance Period were held by 9 executive officers, 16 other officers, and
135 other employees worldwide. (See "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 1995-1997 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
31
<PAGE>
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 1995, the Board of Directors (on the recommendation of the Compensation
Committee) adopted, and the Company's shareholders approved, 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 had two components. The first component ("Formula
Component") would be strictly formula-driven and would apply to the Chief
Executive Officer and to other executive officers whose annual compensation
approached $1 million. Under the second component ("Discretionary
Component"), Awards would be based on discretionary factors in addition to
the pools referred to above. Awards could be made to the Chief Executive
Officer and other executive officers under the Discretionary Component, as
well as the Formula Component; however, Awards under the Discretionary
Component would not qualify as "performance-based" under the Code provisions
referred to above and would consequently not be deductible by the Company if
the total of salary and other non-performance-based compensation paid to any
such individual should exceed $1 million in any calendar year.
In early 1996, the Board of Directors (on the recommendation of the
Compensation Committee) adopted, subject to shareholder approval at the
Annual Meeting, additional modifications to the Program. The following is a
description of the Program, as proposed to be approved.
Formula Component. Under the Formula Component, the Compensation Committee
would, during the first quarter of each year, specify (1) the executive
officers to participate in the Program that year; (2) the amount of the Award
that could be earned by each participant at various levels of performance;
(3) the maximum amount of the Award that could be earned for that year by
each participant (expressed as a percentage of annual base salary in effect
at the beginning of the year); and (4) the performance criteria under which
Awards may be earned by each participant, using one or more of the following:
pretax or after-tax earnings from continuing operations, earnings per share,
rate of return on assets or capital employed, cash flow, or net worth, of the
Company and/or one or more of its product lines or other units. For purposes
of evaluating performance based on these criteria, the Compensation Committee
could employ such comparisons as results versus budget; current year results
versus results for one or more prior years; results relative to those
achieved by comparable companies; or results versus a standard or target
designated by the Compensation Committee; or a combination of the foregoing.
Discretionary Component. Under the Discretionary Component, the Chief
Executive Officer and 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
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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 performance criteria on which Awards are based)
constitutes confidential business information, the disclosure of which in
this Proxy Statement would have an adverse effect on the Company.
It is not possible to state which employees will receive Awards in the
future or the amounts of such Awards, since these matters will be determined
in the future by the Board of Directors (on the recommendation of the
Compensation Committee). However, the Company expects that Awards will
continue to be made to executive and other officers, senior managers and
other employees, including employees in executive, operating, administrative,
professional and technical positions. Under the Program as in effect with
respect to 1995, Awards totaling approximately $23.4 million were paid to a
total of 11 executive officers, 16 other officers, and approximately 2,042
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.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROGRAM.
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SHAREHOLDER PROPOSAL
William Steiner (4 Radcliff Drive, Great Neck, New York 11024) has
indicated that he intends to 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
"At last year's annual meeting of stockholders a similar resolution was
approved by a significant number of voting shares.
"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 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. I am a founding
member of the Investors Rights Association of America and 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 the availability of retirement benefits enhances
the Company's ability to attract, retain and motivate the most qualified
nonemployee directors. Recent studies by independent compensation consultants
indicate that up to 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," it offers no evidence that such companies have better performance
records than those providing such benefits; in any case, the fact that not
all companies provide such benefits in no way diminishes the need to provide
competitive compensation arrangements for directors.
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In addition, the Company takes issue with a number of statements contained
in the proposal, as follows:
o 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. 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.
o The proposal argues that management, by providing retirement benefits to
nonemployee directors, insures such directors' "unquestioning loyalty and
acquiescence to whatever policy management initiates." 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.
o The proposal suggests that nonemployee directors are "retained by
management, namely the C.E.O.," but such directors are actually nominated by
the Board of Directors on the recommendation of the Nominating Committee and
are elected by the shareholders.
o The proposal 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.
The Company also believes that it has one of the more progressive
directors' compensation programs, including features -- such as a $24,000
annual retainer paid entirely in shares of the Company's Common Stock -- that
are only now being instituted by other companies in replacement for their
directors' retirement plans. Further, unlike some other companies' plans, the
Company provides retirement benefits for a limited period of time, based on
the individual's length of service on the Board.
This proposal was defeated last year, when nearly 78% of the votes cast on
the proposal were voted against its adoption.
OTHER MATTERS
OTHER BUSINESS
The Company does not know of any other business that will be presented for
consideration at the Annual Meeting. However, if any other business should
come before the Annual Meeting, the persons named in the enclosed proxy (or
their substitutes) will have discretion to act in accordance with their best
judgment.
PROXY AND VOTING PROCEDURES
The enclosed proxy covers the shares held of record by a shareholder at
the close of business on March 21, 1996. 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 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.
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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 certified public
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 1997 ANNUAL MEETING
Any shareholder wishing to submit a proposal for inclusion in the Proxy
Statement for the 1997 Annual Meeting pursuant to the shareholder proposal
rules of the SEC should submit the proposal in writing to Robert B. Lamm,
Secretary, W. R. Grace & Co., One Town Center Road, Boca Raton, Florida
33486-1010. The Company must receive a proposal by December 11, 1996 in order
to consider it for inclusion in the 1997 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, 1996, at the Boca Raton
Marriott-Boca Center, 5150 Town Center Circle, Boca Raton, Florida.
The undersigned hereby appoints P. D. Houchin, R. B. Lamm and P. B. Martin 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, 1996, and any
adjournments. As more fully described in the Proxy Statement for the meeting,
such agents (or their substitutes) are directed to vote as indicated on the
reverse side and are authorized to vote in their discretion upon any other
business that properly comes before the meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
PLEASE MARK, DATE AND SIGN YOUR PROXY ON THE REVERSE SIDE.
PLEASE LET US KNOW WHETHER YOU PLAN TO ATTEND THE ANNUAL MEETING.
[ ] Yes, I plan to attend the Annual Meeting.
[ ] No, I cannot attend.
SHAREHOLDER QUESTIONS/COMMENTS
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FOLD AND DETACH HERE
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PLEASE MARK [X]
YOUR VOTES AS
INDICATED IN
THIS EXAMPLE
THE DIRECTORS RECOMMEND A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
1. ELECTION OF DIRECTORS FOR [ ]
FOR ALL NOMINEES LISTED
BELOW (EXCEPT AS
MARKED TO THE
CONTRARY BELOW)
WITHHOLD AUTHORITY WITHHOLD [ ]
TO VOTE FOR ALL
NOMINEES LISTED
BELOW
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME BELOW.)
CLASS I (THREE-YEAR TERM): A. J. COSTELLO, M. A. FOX, T. A. VANDERSLICE
CLASS II (ONE-YEAR TERM): C. L. HAMPERS
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IF NO CHOICE IS SPECIFIED, THE SHARES WILL BE VOTED FOR ALL OF THE NOMINEES
LISTED ABOVE, FOR PROPOSALS 2, 3 AND 4 AND AGAINST PROPOSAL 5. PLEASE DATE AND
SIGN AND RETURN PROMPTLY.
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2. RATIFICATION OF SELECTION OF PRICE WATERHOUSE LLP
AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. APPROVAL OF LONG-TERM INCENTIVE PROGRAM.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. APPROVAL OF ANNUAL INCENTIVE COMPENSATION
PROGRAM.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
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THE DIRECTORS RECOMMEND A VOTE AGAINST PROPOSAL 5.
5. 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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FOLD AND DETACH HERE
