SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
MINNESOTA MINING AND MANUFACTURING COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
LIVIO D. DESIMONE
Chairman of the Board and
Chief Executive Officer
March 25, 1997
Dear Stockholder:
We cordially invite you to attend the 1997 Annual Meeting of Stockholders, which
will be held on Tuesday, May 13, 1997, at 10 a.m. at the St. Paul Civic Center,
143 West Fourth Street, St. Paul, Minnesota. The notice of the meeting and the
proxy statement on the following pages cover the formal business of the meeting.
The meeting will consider the election of directors, the ratification of the
appointment of auditors for 1997, the proposed authorization for the issuance of
additional shares of common stock and the proposed change in par value of the
Company's common stock, the proposed adoption of general employee and management
stock plans and amendments to the existing performance unit plan. I will report
on current operations and discuss our plans for growth. We also will leave
plenty of time for your questions and comments. The fine attendance of our
stockholders at annual meetings over the years has been very helpful in
maintaining good communications and understanding. We sincerely hope you will be
able to be with us. Please vote your proxy by telephone as described in the
enclosed telephone voting instructions or, date, sign and return the enclosed
proxy in the envelope provided. Two attendance cards to the 1997 Annual Meeting
are enclosed.
Cordially,
MINNESOTA MINING AND MANUFACTURING COMPANY
3M CENTER, ST. PAUL, MINNESOTA 55144
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD MAY 13, 1997
To the Stockholders of
Minnesota Mining and Manufacturing Company:
The Annual Meeting of Stockholders of Minnesota Mining and
Manufacturing Company will be held on Tuesday, May 13, 1997, at 10 a.m. at the
St. Paul Civic Center, 143 West Fourth Street, St. Paul, Minnesota, for the
following purposes:
1. To elect three directors of the Company to the 2000 Class (see page
2 of the proxy statement).
2. To ratify the appointment of Coopers & Lybrand L.L.P., independent
accountants, to audit the books and accounts of the Company for the
year 1997 (page 21).
3. To act upon a proposal to amend the Restated Certificate of
Incorporation to increase the number of authorized shares of the
Company's common stock and to change the par value of the Company's
common stock (page 22).
4. To consider adoption of a 1997 General Employees Stock Purchase Plan
(page 24).
5. To consider adoption of a 1997 Management Stock Ownership Plan (page
25).
6. To consider adoption of amendments to the Performance Unit Plan
(page 30).
7. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed March 14, 1997, as the record date for
the determination of stockholders entitled to vote at the Annual Meeting and to
receive notice thereof. The transfer books of the Company will not be closed.
Examination of the list of stockholders entitled to vote can be arranged at the
office of Roger P. Smith, Secretary, 3M Center, St. Paul, Minnesota, during the
period of ten days prior to the meeting.
STOCKHOLDERS ARE ENCOURAGED TO VOTE THEIR PROXY BY TELEPHONE AS
DESCRIBED IN THE ENCLOSED TELEPHONE VOTING INSTRUCTIONS OR, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, TO WHICH NO POSTAGE NEED BE
AFFIXED IF MAILED IN THE UNITED STATES. TWO ATTENDANCE CARDS TO THE 1997 ANNUAL
MEETING ARE ENCLOSED.
ROGER P. SMITH
SECRETARY
March 25, 1997
CONTENTS
Proxy Statement ........................................................... 1
*Item 1 Election of Directors ............................................. 2
Information As To Executive Officers ...................................... 8
Compensation Committee Report on Executive Compensation ................... 8
Executive Compensation - Summary Compensation Table ....................... 12
Stock Options Table ....................................................... 15
Option Exercises and Year-End Value Table ................................. 16
Long-Term Incentive Plan Awards Table ..................................... 17
Pension Plan Table ........................................................ 18
Directors' Compensation ................................................... 18
3M Stock Performance Graph ................................................ 19
Transactions with Management .............................................. 20
Committees of the Board of Directors ...................................... 20
Section 16(a) Beneficial Ownership Reporting Compliance ................... 21
Certain Owners of Common Stock ............................................ 21
*Item 2 Independent Accountants ........................................... 21
*Item 3 Increase in Authorized Shares of
Common Stock and Change in Par Value .......................... 22
*Item 4 1997 General Employees Stock Purchase Plan ........................ 24
*Item 5 1997 Management Stock Ownership Program ........................... 25
*Item 6 1997 Amendments to Performance Unit Plan .......................... 30
Other Matters ............................................................. 31
Submission of Stockholder Proposals for 1998 Annual Meeting ............... 31
Exhibit A Proposed 1997 General Employees Stock Purchase Plan ............. A-1
Exhibit B Proposed 1997 Management Stock Ownership Program ................ B-1
* To be voted on at the meeting
MINNESOTA MINING AND MANUFACTURING COMPANY
3M CENTER, ST. PAUL, MINNESOTA 55144
March 25, 1997
PROXY STATEMENT FOR 1997 ANNUAL MEETING OF STOCKHOLDERS
VOTING PROCEDURES
This proxy statement is furnished to stockholders by the Board of
Directors for solicitation of proxies for use at the Annual Meeting of
Stockholders on Tuesday, May 13, 1997, at 10 a.m., and at all adjournments
thereof, for the purposes set forth in the attached Notice of Annual Meeting of
Stockholders. The Company anticipates that the proxy statement and the form of
proxy enclosed will first be sent to its stockholders on or about March 25,
1997.
The enclosed proxy is solicited by the Board of Directors of the
Company. If the proxy in such form is properly returned by dating, signing and
mailing, or the proxy is voted properly by using the telephone voting procedures
(set forth in the enclosed telephone voting instructions), and choices are
specified, the shares represented thereby will be voted at the meeting in
accordance with those instructions. If no choices are specified, the proxy will
be voted as recommended by the Board of Directors.
The proxy, if given, may be revoked by the stockholder giving it at any
time before it is voted in any of the following ways: (1) by a written
instruction to the Office of the Secretary reasonably indicating the
stockholder's desire to revoke an existing proxy; (2) a proxy with a more recent
date than that of the proxy first given (i) by using the telephone voting
procedures, or (ii) by signing and returning a proxy card to the Company; or (3)
by signing and returning a floor ballot at the meeting of stockholders.
The nominees for election as directors at the Annual Meeting will be
elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting. All other matters submitted to the
stockholders will require the affirmative vote of a majority of the shares of
the Company's common stock present or represented and entitled to vote at the
Annual Meeting. Abstentions and broker non-votes will be counted as present or
represented at the Annual Meeting for purposes of determining whether a quorum
exists. Because abstentions with respect to any matter are treated as shares
present or represented and entitled to vote for the purposes of determining
whether that matter has been approved by the stockholders, abstentions have the
same effect as negative votes. Broker non-votes and shares as to which proxy
authority has been withheld with respect to any matter are not deemed to be
present or represented and entitled to vote for purposes of determining whether
stockholder approval of that matter has been obtained and therefore will have no
effect on the outcome of the vote on any such matter.
The Company will bear the cost of preparing, printing and mailing
material in connection with this solicitation of proxies. In addition to the use
of the mails, solicitations may be made by regular employees of the Company
personally and by telephone. The Company intends to reimburse brokerage firms,
banks and others for their reasonable out-of-pocket expenses, including clerical
expenses, in forwarding proxy material to beneficial owners of stock or
otherwise in connection with this solicitation of proxies. The Company has
retained Georgeson & Co., Inc., to assist in the solicitation at a cost of
approximately $15,000, plus reasonable out-of-pocket expenses.
The Company's Board of Directors has adopted a policy that all
stockholder meeting proxies, ballots and tabulations that identify stockholders
are to be maintained in confidence, and no such document shall be available for
examination, nor shall the identity and vote of any stockholder be disclosed,
except as may be necessary to meet applicable legal requirements and to allow
the inspectors of election to certify the results of the stockholder vote. The
policy also provides that inspectors of election for stockholder votes shall be
independent and shall not be employees of the Company.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on March 14, 1997,
are entitled to vote at the Annual Meeting. As of February 28, 1997, the Company
had outstanding and entitled to vote [416,800,000] shares of common stock
without par value.
DIVIDEND REINVESTMENT PLAN
Shares held for the account of persons participating in the Company's
dividend reinvestment plan will be voted automatically in accordance with the
vote indicated by the stockholder of record on the proxy and, if no choice is
indicated, both record shares and shares held in the Company's dividend
reinvestment plan will be voted FOR Items 1 ,2, 3, 4, 5 and 6. If the
stockholder does not vote the shares held of record, the individual's shares
held in the dividend reinvestment account will not be voted.
ITEM 1. ELECTION OF DIRECTORS
NUMBER OF NOMINEES AND CLASSIFICATION
The Restated Certificate of Incorporation of the Company, as amended,
and the Bylaws of the Company, as amended, provide that the Board of Directors
shall consist of such number of directors as shall be fixed from time to time by
resolution of the Board of Directors. At its meeting of February 10, 1997, the
Board of Directors fixed the number of directors constituting the entire Board
at 11, effective as of the date of the 1997 Annual Meeting.
The Restated Certificate of Incorporation divides the Board into three
classes. Four directors have terms of office that expire at the 1997 Annual
Meeting, and three of these directors are standing for reelection for a
three-year term as members of the 2000 Class. These three are Ronald O. Baukol,
W. George Meredith, and Aulana L. Peters. Mr. Jacobson has reached normal
retirement age and is not standing for reelection at the 1997 Annual Meeting.
The four directors in the 1998 Class are continuing to serve until the 1998
Annual Meeting; and the four directors in the 1999 Class are continuing to serve
until the 1999 Annual Meeting.
All nominees for election to the Board of Directors to the 2000 Class
at the 1997 Annual Meeting will be elected for a term of three years and shall
serve until their terms expire at the 2000 Annual Meeting or until their
successors are duly elected and have been qualified.
The persons named as proxies intend to vote the proxies for the
election of the [three] nominees to the Board of Directors or, if any of the
nominees should be unavailable to serve as a director, an event which is not
anticipated, the persons named as proxies reserve full discretion to vote for
any other persons who may be nominated.
INFORMATION AS TO NOMINEES AND INCUMBENT DIRECTORS
The nominees and incumbent directors, their age, principal occupation
or position with the Company (shown in italics), experience, the year first
elected as a director, and common stock beneficially owned on February 28, 1997,
are shown on the following pages.
"Shares held" include: stock held in joint tenancy, stock owned as
tenants in common, stock owned or held by spouse or other members of the
nominee's household, and stock in which the nominee either has or shares voting
and/or investment power, even though the nominee disclaims any beneficial
interest in such stock. Options exercisable within 60 days after February 28,
1997, are shown separately.
"Shares held as deferred stock" by nonemployee directors represent the
number of shares of the Company's common stock, as of December 31, 1996, which
the directors will receive upon termination of membership on the Board of
Directors for any reason. These shares result from the voluntary election by the
nonemployee directors to defer the payment of directors fees otherwise payable
in cash into such deferred stock. No shares of common stock have as yet been
issued, and the directors have neither voting nor investment powers in these
shares of deferred stock.
As of February 28, 1997, executive officers and directors as a group
"beneficially owned" [468,948] shares and held options exercisable within 60
days after that date for [952,926] shares. All officers and directors as a group
owned beneficially less than one half of one percent (0.5%) of the outstanding
common stock of the Company.
None of the nominees or incumbent directors is related to any other
nominee or to any executive officer of the Company or its subsidiaries by blood,
marriage or adoption. Except for current employees of the Company, no nominee or
incumbent director has been an employee of the Company within the past five
years.
During 1996, the Company retained the law firm of Gibson, Dunn &
Crutcher LLP, with regard to various legal matters. Mrs. Peters is a partner
in this firm.
<TABLE>
NOMINEES FOR ELECTION TO THE 2000 CLASS:
<S> <C> <C>
RONALD O. BAUKOL, 59, EXECUTIVE VICE PRESIDENT, INTERNATIONAL OPERATIONS. Mr. Baukol joined 3M as
an engineer in the Medical Products Division laboratory in 1966 and served there until 1970, at
which point he took leave to serve as a White House Fellow and later with the Environmental
Protection Agency in Washington, D.C. Upon his return to 3M in 1972, he served in several
general management capacities in 3M's health care businesses until being appointed General
Manager of Riker Laboratories, Inc. in 1982. In 1984, Mr. Baukol was appointed Vice President
and General Manager, Riker Laboratories, Inc. and in 1986, Chairman and Chief Executive, 3M
United Kingdom PLC. He was elected Group Vice President, Pharmaceutical and Dental Products
Group in 1989; Group Vice President, Medical Products Group, in 1990; Vice President, Asia
Pacific, in 1991; Vice President, Asia Pacific, Canada and Latin America, in 1994; and Executive
Vice President, International Operations, in 1995. Mr. Baukol is a director of Graco, Inc. and
The Toro Company. He is also a member of the Advisory Council of the University of St. Thomas
Center for Health and Medical Affairs, a Trustee of the United States Council for International
Business, a member of the Board of Overseers of the Executive Council on Diplomacy, a Governor of
the Iowa State University Foundation, and a trustee of the United States Council for
International Business.
DIRECTOR SINCE 1996 SHARES HELD ......................................27,890*
* INCLUDES 1,808 SHARES OF PROFIT SHARING STOCK HELD BY
THE COMPANY AND SUBJECT TO FORFEITURE.
NOT INCLUDED ARE OPTIONS EXERCISABLE WITHIN 60 DAYS: 2,876
SHARES AT $34.76 PER SHARE; 2,587 SHARES AT $38.63 PER
SHARE; 2,351 SHARES AT $42.50 PER SHARE; 2,172 SHARES AT
$46.00 PER SHARE; 1,837 SHARES AT $54.41 PER SHARE; 2,073
SHARES AT $48.24 PER SHARE; 28,068 SHARES AT $57.27 PER
SHARE; AND 15,858 SHARES AT $66.74 PER SHARE.
W. GEORGE MEREDITH, 53, EXECUTIVE VICE PRESIDENT, LIFE SCIENCES SECTOR AND CORPORATE SERVICES.
Mr. Meredith joined 3M United Kingdom PLC in 1967 as a research supervisor and served in several
materials control, distribution, and manufacturing capacities in Europe and the United Kingdom
before being appointed Managing Director, Riker, United Kingdom, in 1980. In 1983, Mr. Meredith
was appointed Managing Director, 3M Health Care, United Kingdom; in 1986, General Manager, Riker
Laboratories, Inc.; in 1987, Vice President and General Manager, Riker Laboratories, Inc.; and in
1989, Division Vice President, 3M Pharmaceuticals. He was elected Group Vice President,
Pharmaceutical and Dental Products Group in 1990; Group Vice President, Pharmaceuticals, Dental
and Disposable Products Group in 1991; and Executive Vice President, Life Sciences Sector and
Corporate Services in 1995. Mr. Meredith is a trustee of Battelle Memorial Institute.
DIRECTOR SINCE 1996 SHARES HELD ......................................17,721*
* INCLUDES 1,045 SHARES OF PROFIT SHARING STOCK HELD BY
THE COMPANY AND SUBJECT TO FORFEITURE.
NOT INCLUDED ARE OPTIONS EXERCISABLE WITHIN 60 DAYS: 2,876
SHARES AT $34.76 PER SHARE; 2,587 SHARES AT $38.63 PER
SHARE; 2,351 SHARES AT $42.50 PER SHARE; 2,172 SHARES AT
$46.00 PER SHARE; 9,989 SHARES AT $54.41 PER SHARE; 992
SHARES AT $52.13 PER SHARE; 2,073 SHARES AT $48.24 PER
SHARE; 561 SHARES AT $50.88 PER SHARE; 23,519 SHARES AT
$57.27 PER SHARE; 4,994 SHARES AT $56.84 PER SHARE; AND
6,532 SHARES AT $65.77 PER SHARE.
AULANA L. PETERS, 55, PARTNER, GIBSON, DUNN & CRUTCHER LLP, A LAW FIRM, LOS ANGELES, CALIFORNIA;
MEMBER OF THE AUDIT AND BOARD ORGANIZATION COMMITTEES. Mrs. Peters joined Gibson, Dunn & Crutcher
as an Associate in 1973. In 1980, she was named a Partner in the firm and continued in the
practice of law until 1984, when she accepted an appointment as Commissioner of the Securities
and Exchange Commission. In 1988, after serving four years as Commissioner, she returned to the
private practice of law as Partner in the Gibson, Dunn & Crutcher firm. Mrs. Peters is a member
of the American and Los Angeles County Bar Associations, the Regulatory Advisory Committee of the
New York Stock Exchange and the Financial Accounting Standards Advisory Council of the Financial
Accounting Standards Board. She is also a director of Merrill Lynch & Co., Inc., Mobil
Corporation, Northrop Grumman Corp. and KCET Public Television.
DIRECTOR SINCE 1990 SHARES HELD ........................................1,065
SHARES HELD AS DEFERRED STOCK ......................7,757
INCUMBENT DIRECTORS IN THE 1999 CLASS:
RONALD A. MITSCH, 62, VICE CHAIRMAN OF THE BOARD AND EXECUTIVE VICE PRESIDENT, INDUSTRIAL AND
CONSUMER SECTOR AND CORPORATE SERVICES; MEMBER OF THE EXECUTIVE AND FINANCE COMMITTEES; CHAIRMAN
OF THE PUBLIC ISSUES COMMITTEE. Dr. Mitsch joined 3M in 1960 as a senior chemist in the central
research laboratories and served in several laboratory assignments until he was named Managing
Director of 3M Netherlands in 1979. In 1981, Dr. Mitsch was appointed Research and Development
Vice President for the Life Sciences Sector. He was elected Group Vice President for the Traffic
and Personal Safety Products Group in 1985; Senior Vice President, Research and Development in
1990; and Executive Vice President, Industrial and Consumer Sector and Corporate Services in
1991. He was elected Vice Chairman of the Board in 1995. Dr. Mitsch is a director of Lubrizol
Corporation; NCR; Shigematsu Works, Inc., Ltd.; the National Association of Manufacturers; and
the SEI Center for Advanced Studies in Management associated with The Wharton School of Business
of the University of Pennsylvania. He is also a member of the Board of Trustees of Hamline
University.
DIRECTOR SINCE 1993 SHARES HELD.......................................47,925*
* INCLUDES 9,698 SHARES OF PROFIT SHARING STOCK HELD BY
THE COMPANY AND SUBJECT TO FORFEITURE.
NOT INCLUDED ARE OPTIONS EXERCISABLE WITHIN 60 DAYS: 2,876
SHARES AT $34.76 PER SHARE; 2,587 SHARES AT $38.63 PER
SHARE; 2,351 SHARES AT $42.50 PER SHARE; 2,172 SHARES AT
$46.00 PER SHARE; 2,073 SHARES AT $48.24 PER SHARE; 8,242
SHARES AT $52.13 PER SHARE; 23,518 SHARES AT $54.41 PER
SHARE; 23,519 SHARES AT $57.27 PER SHARE; AND 22,386 SHARES
AT $66.73 PER SHARE.
ROZANNE L. RIDGWAY, 61, FORMER ASSISTANT SECRETARY OF STATE FOR EUROPE AND CANADA; MEMBER OF THE
BOARD ORGANIZATION AND COMPENSATION COMMITTEES. Ambassador Ridgway served in the U.S. Foreign
Service from 1957 to 1989, including assignments as Ambassador for Oceans and Fisheries Affairs,
Ambassador to Finland and to the German Democratic Republic, and from 1985 and until her
retirement in 1989, Assistant Secretary of State for European and Canadian Affairs. After
retirement from the Department of State, Ms. Ridgway served as President until 1992 and Co-Chair
until 1996 of the Atlantic Council of the United States, an association to promote better
understanding of major international security, political and economic problems. She is a
director of Bell Atlantic Corporation, The Boeing Company, Citicorp and Citibank, Emerson
Electric Co., RJR Nabisco, Sara Lee Corporation, Union Carbide Corporation and the American
Academy of Diplomacy. She is also a trustee of Hamline University, the Brookings Institution and
the Aspen Institute.
DIRECTOR SINCE 1989 SHARES HELD.........................................1,213
SHARES HELD AS DEFERRED STOCK ......................9,210
FRANK SHRONTZ, 65, RETIRED CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER, THE BOEING COMPANY,
MANUFACTURER AND SELLER OF AIRCRAFT AND RELATED PRODUCTS; MEMBER OF THE COMPENSATION AND PUBLIC
ISSUES COMMITTEES. Mr. Shrontz joined The Boeing Company in 1958. In 1973, he left Boeing to
serve as Assistant Secretary of the Air Force and became Assistant Secretary of Defense in 1976.
In 1977, Mr. Shrontz returned to Boeing. After several assignments, he was named President and a
member of the Board of Directors of Boeing in 1985. In 1986, he was named Chief Executive Officer
and, in 1988, Chairman of the Board. Mr. Shrontz is a director of The Boeing Company, Boise
Cascade Corporation, Chevron Corporation and Citicorp and a citizen regent on the Smithsonian
Institution's Board of Regents. He is a member of the Washington Roundtable and Vice Chairman of
the New American Schools Development Corporation. He is also a member of The Business Council.
DIRECTOR SINCE 1992 SHARES HELD ........................................3,031
SHARES HELD AS DEFERRED STOCK.......................3,155
LOUIS W. SULLIVAN, 63, PRESIDENT, MOREHOUSE SCHOOL OF MEDICINE, ATLANTA, GEORGIA; MEMBER OF THE
AUDIT AND PUBLIC ISSUES COMMITTEES. Since completion of his medical training, Dr. Sullivan has
held both professional and administrative positions in health care facilities and medical
training institutions. He joined Morehouse College as Professor of Biology and Medicine in 1975
and was the founding dean and director of the Medical Education Program at the college. He was
named President of Morehouse School of Medicine in 1981. He served as Secretary, United States
Department of Health and Human Services, from 1989 to 1993. He returned to Morehouse School of
Medicine in 1993. Dr. Sullivan is a director of Bristol-Myers Squibb Company, CIGNA Corporation,
General Motors Corporation, Household International, Georgia Pacific Corporation and Equifax,
Inc. He is also a director of the Boy Scouts of America; a trustee of the Little League
Foundation; and a member of the National Medical Foundation.
DIRECTOR SINCE 1993 SHARES HELD ........................................1,634
Shares Held as Deferred Stock.......................1,923
INCUMBENT DIRECTORS IN THE 1998 CLASS:
EDWARD A. BRENNAN, 63, RETIRED CHAIRMAN OF THE BOARD, PRESIDENT, AND CHIEF EXECUTIVE OFFICER,
SEARS, ROEBUCK AND CO., A DIVERSIFIED COMPANY ENGAGED IN MERCHANDISING, CHICAGO, ILLINOIS;
CHAIRMAN OF THE COMPENSATION AND MEMBER OF THE BOARD ORGANIZATION COMMITTEES. Mr. Brennan joined
Sears in 1956. He was an Executive Vice President, 1978 to 1980; President and Chief Operating
Officer for merchandising, 1980; Chairman and Chief Executive Officer, Sears Merchandise Group,
1981 to 1984; President and Chief Operating Officer, 1984 through 1985; and was elected Chairman
of the Board and Chief Executive Officer of Sears, Roebuck and Co. in 1986. Mr. Brennan retired
from Sears in 1995. He is a director of The Allstate Corporation, Dean Witter, Discover & Co.,
AMR Corporation and Unicom Corporation. He also is Chairman of the Board of Trustees, Marquette
University; a trustee of DePaul University and Rush-Presbyterian-St. Luke's Medical Center; and a
member of The Business Council.
DIRECTOR SINCE 1986 SHARES HELD.........................................4,817
SHARES HELD AS DEFERRED STOCK ......................6,907
LIVIO D. DESIMONE, 60, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER; CHAIRMAN OF THE BOARD
ORGANIZATION, EXECUTIVE, AND FINANCE COMMITTEES. Mr. DeSimone joined 3M as a process engineer
with 3M Canada in 1957. He served in various international and subsidiary capacities until his
appointment in 1971 as Managing Director of 3M Brazil. In 1975, he served as General Manager,
Building Service and Cleaning Products Division, before being appointed Area Vice President,
Latin America. Mr. DeSimone was elected Vice President, Abrasives, Adhesives, Building Service
and Chemicals Group in 1979; Executive Vice President, Life Sciences Sector in 1981; Executive
Vice President, Industrial and Consumer Sector in 1984; Executive Vice President, Industrial and
Electronic Sector in 1987; Executive Vice President, Information and Imaging Technologies Sector
in 1989; and Chairman of the Board and Chief Executive Officer in 1991. He is a director of
Cargill, Incorporated, Dayton Hudson Corporation, General Mills, Inc., and Vulcan Materials
Company. He is also a director of National Junior Achievement Inc. and a trustee of the
University of Minnesota Foundation. He is Chairman of the World Business Council for Sustainable
Development.
DIRECTOR SINCE 1986 SHARES HELD......................................163,450*
* INCLUDES 69,851 SHARES OF PROFIT SHARING STOCK HELD BY
THE COMPANY AND SUBJECT TO FORFEITURE.
NOT INCLUDED ARE OPTIONS EXERCISABLE WITHIN 60 DAYS: 72,848
SHARES AT $57.27 PER SHARE; 51,804 SHARES AT $66.74 PER
SHARE; 2,351 SHARES AT $42.50 PER SHARE; 2,172 SHARES AT
$46.00 PER SHARE; 44,441 AT $54.41 PER SHARE; AND 2,073
SHARES AT $48.24 PER SHARE.
ALLEN E. MURRAY, 68, RETIRED CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER, MOBIL
CORPORATION, PETROLEUM EXPLORATION, MANUFACTURING AND MARKETING OF PETROLEUM AND PETROLEUM-BASED
PRODUCTS, FAIRFAX, VIRGINIA; MEMBER OF THE COMPENSATION AND PUBLIC ISSUES COMMITTEES. Mr. Murray
has been a director of Mobil Corporation since 1977. He was Chairman of the Board, President,
and Chief Executive Officer from 1986 until 1993; and Chairman of the Board and Chief Executive
Officer until March 1994. He retired from Mobil in 1994. He is a director of Metropolitan Life
Insurance Company, Lockheed Martin Corporation, Morgan Stanley Group Inc., and St. Francis
Hospital. He is also an honorary director of the American Petroleum Institute; a trustee of New
York University; and a member of the Chase Manhattan Bank International Advisory Committee, The
Business Council, The Business Roundtable, the Council on Foreign Relations, and The Trilateral
Commission.
DIRECTOR SINCE 1985 SHARES HELD.........................................3,065
SHARES HELD AS DEFERRED STOCK......................13,638
F. ALAN SMITH, 65, RETIRED EXECUTIVE VICE PRESIDENT AND DIRECTOR, GENERAL MOTORS CORPORATION,
MANUFACTURER AND SELLER OF AUTOMOBILES AND AUTOMOTIVE PRODUCTS, DETROIT, MICHIGAN; CHAIRMAN OF
THE AUDIT AND MEMBER OF THE PUBLIC ISSUES COMMITTEES. Mr. Smith was a director of General Motors
Corporation from 1981 until his retirement in 1992. He joined General Motors in 1956. He was
Treasurer, 1973 to 1975; Vice President, Finance, 1975 to 1978; Vice President of General Motors
Corporation and President and General Manager of General Motors of Canada Limited, 1978 to 1981,
Executive Vice President, Finance, 1981 to 1988. In 1988, he was elected Executive Vice
President, Operating Staffs and Public Affairs and Marketing Staffs. He is chairman of Advanced
Accessory Systems, Inc. and a director of TransPro, Inc. He is a Trustee of the Florida
Institute of Technology.
DIRECTOR SINCE 1986 SHARES HELD ........................................5,715
SHARES HELD AS DEFERRED STOCK .....................10,949
</TABLE>
INFORMATION AS TO EXECUTIVE OFFICERS
On the same basis as the "shares held" information provided on the
previous pages for nominees and incumbent directors, the following represents
shares of the Company's common stock held by the five executive officers named
in the Summary Compensation Table on page 12. Options exercisable within 60 days
after February 28, 1997, are shown separately.
OPTIONS
NAME AND PRINCIPAL POSITION SHARES HELD (1) EXERCISABLE (2)
- --------------------------- --------------- ---------------
Livio D. DeSimone, 163,450 248,537
Chairman of the Board and
Chief Executive Officer
Ronald A. Mitsch, 47,925 89,724
Vice Chairman of the Board and
Executive Vice President
Giulio Agostini, 16,236 69,643
Senior Vice President
Ronald O. Baukol, 27,890 57,822
Executive Vice President
W. George Meredith, 17,671 61,911
Executive Vice President
(1) The "shares held" include shares of Profit Sharing Stock held by the Company
and subject to forfeiture, as more fully described in footnote 3 on page 13 of
this proxy statement.
(2) Option prices for these executive officers range from $28.30 to $66.74 per
share.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report was prepared at the direction of the Compensation Committee
of the Board of Directors (the "Committee"), which is composed entirely of
nonemployee directors of the Company. The Committee establishes and periodically
reviews compensation levels and policies for the Chief Executive Officer ("CEO")
and other executive officers and authorizes short-term and long-term
compensation in the form of cash or stock. The current members of the Committee
are Edward A. Brennan, who serves as Chairman, Allen E. Murray, Rozanne L.
Ridgway, and Frank Shrontz.
COMPENSATION OBJECTIVES
The executive compensation program is designed to align total
compensation with the Company's strategic objectives and ensure that payouts are
driven by Company performance and employee contribution to the Company.
Executive compensation is linked to Company performance compared to specific
financial and non-financial objectives, ranging from achieving earnings and
sales growth targets to upholding the Company's Statement of Corporate Values
(which include customer satisfaction through superior quality and value,
attractive investor return, ethical business conduct, respecting the
environment, and fostering employee pride in the Company).
In determining the amount and type of executive compensation, the
Committee seeks to achieve the following objectives:
* To attract, motivate, and retain talented, competent, and
resourceful executive officers by providing competitive
compensation.
* To encourage executives to hold significant amounts of Company
stock.
* To require that a substantial portion of executive compensation is
"at risk" by being tied to quantifiable short-term and long-term
measures of the Company's performance.
It is also the Company's policy to take reasonable steps to obtain the
fullest possible corporate tax deduction for compensation paid to its executive
officers by qualifying for the exemptions from limitation on such deductibility
under Section 162(m) of the Internal Revenue Code of 1986 ("Code"). The Profit
Sharing Plan and amendments to the Performance Unit Plan were approved by
stockholders in 1994 and these two plans are now designed to permit
qualification for deduction under the Code. The Counsel for the Committee has
reviewed the Company's 1997 Management Stock Option Program and has determined
that this plan also meets Code requirements for deductibility under Section
162(m).
PROCESS OF ESTABLISHING COMPENSATION
The Committee begins the process of establishing the amount of
compensation for the CEO and other executive officers by reviewing compensation
surveys of selected peer companies. The surveys are primarily conducted by
independent consultants specializing in executive compensation. The peer
companies included in the compensation surveys are selected by the independent
consultants. These peer companies consist of large industrial companies that are
most likely to be competitors for executive talent. The objective of the
Committee is to use the survey data to establish a competitive level of total
compensation. The Committee believes that the Company's most direct competitors
for executive talent are not necessarily all of the companies that would be
included in a peer group established to compare shareholder returns. Thus, the
peer group for purposes of the compensation surveys is not the same as the peer
group index in the Comparison of Five-Year Cumulative Total Return graph
included on page 20 of this proxy statement.
The Committee does not target any specific quartile of the survey data
for total compensation or any component of total compensation (e.g., base
salary, profit sharing, performance unit plan or stock options). The Committee's
objective of maintaining the total compensation at a competitive level has
resulted in short-term compensation (base salary and profit sharing) and
long-term compensation (performance unit plan and stock options) being at or
very close to the median.
After the Committee has established the amount of total compensation
for the CEO and other executive officers, the Committee next determines what
percent of the total compensation should be allocated to short-term compensation
in the form of base salary and profit sharing and long-term compensation in the
form of the performance unit plan and stock options. This determination is
subjective, but is based on information from the compensation surveys and the
objectives for executive compensation referred to above. It is the Committee's
long-standing policy that variable, at-risk compensation, both short- and
long-term, should make up a significant portion of executive compensation.
Depending upon the level of the executive, the Committee targets between 45
percent and 75 percent of executive compensation to be variable and at risk by
being tied to quantifiable measures of the Company's performance.
ELEMENTS OF THE COMPENSATION PROGRAM
Each of the components of short- and long-term executive compensation
is described in greater detail below.
BASE SALARY
The Committee establishes base salaries annually in relation to base
salaries paid by the selected peer companies from the compensation surveys. Base
salaries may be adjusted from time to time according to guidelines established
for all employees to reflect increased salary levels within the peer group,
increased responsibilities or individual performance. This is the only component
of executive compensation that is not variable. The Committee does not use
financial performance factors, such as earnings per share, in establishing base
salary.
PROFIT SHARING
Profit sharing is variable compensation based on the quarterly
consolidated net income of the Company and is used to focus management attention
on profits and the effective use of assets. The number of profit sharing units
granted to the CEO and executive officers is determined by the Committee as part
of the overall compensation. The number of profit sharing units allocated to the
CEO and executive officers is established by the Committee, in the exercise of
its collective judgment, to achieve the appropriate ratio between short-term,
performance-based compensation and other forms of compensation, and to reflect
the level of responsibility of the respective executive officer.
The amount payable with respect to each profit sharing unit is
determined by dividing the Company's consolidated quarterly net income, less a
quarterly reserve of two and one-half percent of stockholders' equity (or
approximately ten percent on an annual basis), by the number of outstanding
shares of the Company's common stock. Because of the required minimum return on
stockholder equity, the amount of compensation paid under the profit sharing
plan tends to rise and fall relatively more sharply than changes in net income.
No amount will be payable under the profit sharing plan if the Company's
quarterly net income is equal to or less than the quarterly reserve of two and
one-half percent return on stockholders' equity. Profit sharing payments are
subject to limitations when individual amounts exceed specified relationships to
base salary.
For the executive officers listed in the Summary Compensation Table, a
portion of profit sharing is paid in cash and a portion is paid in stock which
is held by the Company for ten years or until age 65, whichever occurs first.
The ratio between that portion of profit sharing paid in cash and the portion
paid in stock to the named executive officers for 1996 is subjective and varies
from year to year and among executive officers. However, the more senior
executive officers generally have been paid a larger portion of profit sharing
in stock than less senior executive officers. (More details about the Company's
Profit Sharing Plan are provided on page 12 of this proxy statement.)
PERFORMANCE UNIT PLAN
The Performance Unit Plan is variable compensation based on the
Company's long-term performance. The number of performance units allocated to
the CEO and executive officers is established by the Committee, in its judgment,
to achieve the appropriate ratio between long-term, performance-based
compensation and other forms of compensation. The amount payable with respect to
each performance unit granted is determined by and is contingent upon attainment
of the performance criteria described below over the performance period
1996-1998 (each year weighted equally). The performance criteria have been
selected to focus management attention on the quality of future earnings and
assets and on global real sales growth. (More details about the Company's
Performance Unit Plan are provided on page 17 of this proxy statement.)
PERFORMANCE CRITERIA:
(1) "Relative ROCE" is the percentage determined by dividing the
Company's average return on capital employed by the average return on capital
employed of the companies included, at the end of each year of the performance
period, in the Standard and Poor's Industrial Index ("S&P 400 ROCE"); and
(2) "Sales Growth" is the percentage amount by which the Company's real
sales growth (sales growth adjusted for inflation and currency effects) exceeds
the weighted average of real growth reflected by the Industrial Production Index
for seven major industrial countries (the "Big 7 IPI").
PERFORMANCE UNIT PLAN PAYMENTS:
The amount payable with respect to each performance unit granted in
1996 is $100 if both the Relative ROCE and Sales Growth targets are achieved and
is payable on January 1, 2002, in the form (at the discretion of the Committee)
of cash, stock or a combination of cash and stock. The maximum amount payable
with respect to each performance unit is $200. No amount will be payable under
the Performance Unit Plan if either the Company's cumulative ROCE is less than
150 percent of the S&P 400 ROCE or if Sales Growth (as defined above) is less
than zero percent.
STOCK OPTIONS
The Company's Stock Option plan is also variable compensation. It is
based on the market appreciation of the Company's common stock and is designed
to increase ownership of the Company's stock. The Company makes stock option
grants annually at 100 percent of the market price on the date of grant. The
options may be exercised after one year and have a ten year life. The number of
shares under options to be granted to the CEO and executive officers is
determined by the Committee as part of the overall compensation. The awards are
designed to keep total compensation competitive with awards made by companies in
the survey group, and as such require subjective judgment as to the value of the
award. The number of option shares currently held by each executive is not
considered in determining awards. Stock options encourage executives to become
owners of the Company, which further aligns their interests with the
stockholders. Options have no value unless the price of the Company's stock
increases.
CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation of Livio D. DeSimone, Chairman of the Board and Chief
Executive Officer, is determined by the same process and consists of the same
short- and long-term components as for the other executive officers listed in
the Summary Compensation Table, namely base salary, profit sharing, performance
unit plan and stock options. A higher portion of Mr. DeSimone's total
compensation is variable and at risk by being tied to quantifiable measures of
the Company's performance. These measures are quarterly net income, Relative
ROCE and Sales Growth, as those terms are defined above, and appreciation in the
value of 3M stock.
In addition, the compensation paid to Mr. DeSimone is also based on
performance against non-financial measures, such as upholding the Company's
Statement of Corporate Values (which include customer satisfaction through
superior quality and value, attractive investor return, ethical business
conduct, respecting the environment and fostering employee pride in their
company), management succession planning, and the general overall perception of
the Company by financial and business leaders. To keep Mr. DeSimone's total
compensation competitive, the Committee increased his base salary in 1996, which
is reflected in part in the Summary Compensation Table on page 12 of this proxy
statement. Because of increased performance in 1996, Mr. DeSimone's profit
sharing cash and profit sharing stock was greater in 1996 than in 1995. The
Committee awarded Mr. DeSimone 9,000 performance units in 1996 under the
performance unit plan (an increase from the 7,700 units in 1995 in order to keep
his long-term incentive compensation at competitive levels).
The Compensation Committee
Edward A. Brennan, Chairman
Allen E. Murray
Rozanne L. Ridgway
Frank Shrontz
EXECUTIVE COMPENSATION
The following table shows compensation for services rendered in all
capacities to the Company and its subsidiaries during 1996, 1995 and 1994 by the
Chief Executive Officer and the next four highest-paid executive officers.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------------------------
LONG -TERM COMPENSATION (1)
----------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------- -------------------------- ----------
PROFIT SHARING PERFORMANCE
STOCK OPTIONS UNIT PLAN
PROFIT SHARING OTHER ANNUAL (RESTRICTED GRANTED (LTIP) ALL OTHER
NAME AND SALARY CASH (BONUS) COMPENSATION STOCK AWARDS) NUMBER PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(2) ($(4)) ($)(2)(3) OF SHARES(5) ($)(6) ($)(7)
- ------------------- ------- --------- --------------- -------------- ---------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Livio D. DeSimone, 1996 $971,100 $502,594 $59,224 $524,047 131,384 $697,620 $137,068
------- ---------- ------------ ------------- ----------------- ------------ -------------- -----------
Chairman of the 1995 903,600 366,901 61,293 382,561 118,658 678,370 62,838
Board and
------- ---------- ------------ ------------- ----------------- ------------ -------------- -----------
Chief Executive 1994 799,500 362,308 64,306 377,773 93,956 987,910 97,763
Officer
- ------------------- ------- ---------- ------------ ------------- ----------------- ------------ -------------- -----------
Ronald A. Mitsch, 1996 552,000 330,539 52,671 181,687 60,414 335,220 79,418
------- ---------- ------------ ------------- ----------------- ------------ -------------- -----------
Vice Chairman 1995 474,000 241,298 -- 132,634 41,463 325,970 41,161
of the Board
------- ---------- ------------ ------------- ----------------- ------------ -------------- -----------
and Executive 1994 420,000 238,278 -- 105,410 33,124 474,710 49,691
Vice President
- ------------------- ------- ---------- ------------ ------------- ----------------- ------------ -------------- -----------
Giulio Agostini, 1996 396,200 276,361 -- 96,316 21,888 217,440 37,236
------- ---------- ------------ ------------- ----------------- ------------ -------------- -----------
Senior Vice 1995 369,975 201,748 -- 70,312 15,000 158,580 21,739
President ------- ---------- ------------ ------------- ----------------- ------------ -------------- -----------
1994 345,025 199,222 -- 64,067 15,000 230,940 18,290
- ------------------- ------- ---------- ------------ ------------- ----------------- ------------ -------------- -----------
Ronald O. Baukol 1996 419,400 227,656 -- 77,710 39,377 86,070 41,970
------- ---------- ------------ ------------- ----------------- ------------ -------------- -----------
Executive Vice 1995 333,800 166,192 -- 39,192 31,570 83,695 33,373
President
------- ---------- ------------ ------------- ----------------- ------------ -------------- -----------
1994 269,500 164,112 -- 0 16,708 121,885 47,529
- ------------------- ------- ---------- ------------ ------------- ----------------- ------------ -------------- -----------
W. George Meredith 1996 403,150 224,373 -- 38,308 30,051 86,070 36,196
------- ---------- ------------ ------------- ----------------- ------------ -------------- -----------
Executive Vice 1995 289,050 163,795 -- 27,965 27,400 83,695 26,157
President
------- ---------- ------------ ------------- ----------------- ------------ -------------- -----------
1994 230,400 142,020 -- 0 13,332 121,885 35,253
- ------------------- ------- ---------- ------------ ------------- ----------------- ------------ -------------- -----------
</TABLE>
(1) The amounts shown in the Summary Compensation Table do not include amounts
expensed for financial reporting purposes under the Company's pension plan. This
plan is a defined benefit plan. The amounts shown in the Table do, however,
include those amounts voluntarily deferred by the named individuals under the
Company's Deferred Compensation Plan. The Deferred Compensation Plan allows
management personnel to defer portions of current base salary, profit sharing
and performance unit compensation earned during the year.
(2) The amounts shown under the headings "Profit Sharing Cash (Bonus)" and
"Profit Sharing Stock (Restricted Stock Awards)" are payments received under the
Profit Sharing Plan. The terms "(Bonus)" and "(Restricted Stock Awards)" are
included to satisfy the requirements of the Securities and Exchange Commission
("SEC"). These payments are based upon the Company's performance and are
variable in accordance with a predetermined formula. The Compensation Committee
does not view these payments as bonus payments or restricted stock awards as
these terms are most often used. The Committee views bonus plans as plans which
provide for annual (as opposed to quarterly) payments from a pool, rather than
based on a strict formula related to earnings per share. Restricted stock awards
are generally outright grants of stock as opposed to payment in the form of
stock held in the custody of the company (restricted period) in lieu of cash
under a formula-based profit sharing plan.
Generally, profit sharing is paid in cash; however, senior executive
management, as determined by the Compensation Committee, receive a portion of
their profit sharing in shares of the Company's common stock (see footnote 3 on
page 13).
The Company's Profit Sharing Plan provides for quarterly payments based
upon net income after deducting an allowance for a predetermined ten percent
annual rate of return on stockholder equity and is determined by multiplying the
number of profit sharing units awarded to an individual by this quarterly net
income, after deduction, divided by the number of the outstanding shares of the
Company's common stock.
Because of the required minimum return on stockholder equity, profit
sharing tends to rise and fall relatively more sharply than changes in net
income.
The number of profit sharing units awarded to the individuals named is
determined by the Compensation Committee and is intended to reflect the level of
responsibility of the respective individual. Profit sharing payments are subject
to limitations when individual amounts exceed specified relationships to base
salary. Approximately 3,700 management employees currently participate in profit
sharing, including the five individuals in the summary compensation table.
(3) The amount shown under the heading "Profit Sharing Stock (Restricted Stock
Awards)" represents the portion of profit sharing issued as common stock to the
named individuals, valued at 100 percent of the fair market value of the
Company's common stock at the end of the quarterly profit sharing performance
period. The number of shares is determined by the Company's quarterly net income
performance. However, payment is deferred and conditional upon continued
employment by the Company. Therefore, pursuant to SEC rules, it is included
under the headings of "Long-Term Compensation." The shares are held in the
custody of the Company for a period of ten years or until age 65, whichever
occurs first. Any termination of employment, prior to that time, without the
consent of the Compensation Committee or the Board of Directors, other than upon
death or permanent disability, will result in forfeiture of the Profit Sharing
Stock. The recipient is entitled to receive dividends and vote these shares in
the same manner as any other holder of the Company's common stock during the
period of custody by the Company. From the time of issuance throughout the
Restricted Period, Profit Sharing Stock rises or falls in value in direct
relationship to the Company's common stock market performance. Consequently,
Profit Sharing Stock reflects both short-term and long-term performance
elements. The named individuals have accumulated, in one case over nine years,
the following shares of the Company's common stock under the Company's Profit
Sharing Plan as of December 31, 1996, valued for these purposes at the fair
market value of such stock on December 31, 1996, and also on the respective
dates when the shares were issued into the custody of the Company:
<TABLE>
<CAPTION>
VALUE VALUE
NAME SHARES AT 12/31/96 WHEN ISSUED
---- ------ ----------- -----------
<S> <C> <C> <C>
L.D. DeSimone 69,851 $5,797,633 $3,393,707
R.A. Mitsch 9,698 804,934 567,032
G. Agostini 5,348 443,884 313,602
R.O. Baukol 1,808 150,064 120,352
W. G. Meredith 1,045 86,735 68,310
</TABLE>
(4) "Other Annual Compensation" includes the following, to the extent that the
aggregate thereof exceeds $50,000: personal benefits received by the named
individuals, amounts reimbursed the individuals during the year for payment of
taxes, and that portion of interest above market rates (as determined by the
Securities and Exchange Commission) paid on that compensation voluntarily
deferred by the individuals. The personal benefits included in these numbers
represent the amount of personal financial planning services, an amount paid on
behalf of the individual for the term portion of insurance under the Company's
Senior Executive Split Dollar Plan, and personal air travel on corporate
aircraft imputed to the individual as income for tax purposes. In the case of
Mr. DeSimone, nearly all of the "Other Annual Compensation" received in 1994,
1995 and 1996 was a result of income imputed to him for travel.
(5) The number of stock options shown in this column includes both annual grants
of incentive and nonqualified stock options and Progressive Stock Options, which
are described more fully in footnote 1 on page 15. The number and price of all
outstanding options were adjusted after the spin-off of Imation Corp. in order
to preserve the intrinsic value of the options. The number of stock options
shown in this column for 1996 reflects this adjustment.
(6) "LTIP Payouts" reflects the value of the total grant for each individual
under the Company's Performance Unit Plan after the three year performance
period (e.g., for 1996, the performance period is 1994-1996), but no amount will
be paid to these individuals under the grant for an additional three years
pursuant to the terms of the grant. The numbers shown represent estimates based
upon information available as of February 28, 1997. During this additional three
year period, interest will be paid at a rate determined by the Company's ROCE
performance. More specific information about the Performance Unit Plan is set
forth on page 10.
(7) "All Other Compensation" includes: (a) that amount of Performance Unit
Plan earnings allocated during the year to the base amounts determined after the
three year performance periods of each respective grant, to the extent that such
earnings are in excess of market interest rates (as determined by the Securities
and Exchange Commission); (b) that amount deemed to be compensation to the
individuals under the Company's Senior Executive Split Dollar Plan in accordance
with rules developed by the Securities and Exchange Commission; and (c) all
amounts contributed to the account of each named executive under the Company's
401(k) plan. The Senior Executive Split Dollar Plan provides insurance to all of
the Company's executive officers under split dollar life insurance, which is
partly term insurance and partly whole life insurance with a cash value. Under
this Plan, the Company is reimbursed for the premium costs of the non-term
portion of coverage and a possible return when the arrangement terminates either
by insurance proceeds incident to the death of the individual or by cash value
after 15 years of participation in the Plan. During 1996, amounts deemed
compensation under the Plan to the named executive officers in the Summary
Compensation Table were $9,375 for Mr. DeSimone; $15,760 for Dr. Mitsch; $11,742
for Mr. Agostini; $19,146 for Mr. Baukol; and $13,375 for Mr. Meredith. These
amounts were determined by treating the non-term portion of the coverage as an
interest-free loan.
STOCK OPTIONS TABLE
The following table shows specified information with respect to option
grants during 1996 for each person named in the Summary Compensation Table.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
- -------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------
% OF TOTAL
OPTIONS/SARS
GRANTED EXERCISE OR GRANT DATE VALUE
OPTIONS/ TO EMPLOYEES BASE PRICE EXPIRATION ----------------
SARS IN ($/SH) (1) DATE GRANT DATE
NAME GRANTED(#)(1) FISCAL YEAR (2) ($) (4) PRESENT VALUE
------------- ----------- --- ------- -------------
<S> <C> <C> <C> <C> <C>
L.D. DeSimone 72,848 1.187% $63.04 5-12-2006 $922,110
6,732 0.110% 66.73 5-09-1997 56,946
10,365 0.169% 66.73 5-08-1998 87,678
3,730 0.061% 66.73 5-07-1999 31,552
37,709 0.614% 66.73 5-07-2004 318,980
R.A. Mitsch 37,569 0.612% 63.04 5-12-2006 475,548
459 0.007% 66.73 5-09-1997 3,883
4,376 0.071% 66.73 5-10-2002 37,017
18,010 0.293% 66.73 5-07-2004 152,347
G. Agostini 15,610 0.254% 63.04 5-12-2006 197,591
1,696 0.028% 63.04 5-11-2001 14,346
4,582 0.075% 63.04 5-10-2002 38,759
R.O. Baukol 23,519 0.383% 63.04 5-12-2006 297,704
169 0.003% 66.74 5-07-1999 1,430
4,080 0.066% 66.74 5-05-2000 34,513
5,001 0.081% 66.74 5-10-2002 42,303
6,608 0.108% 66.74 5-07-2004 55,897
W.G. Meredith 23,519 0.383% 63.04 5-12-2006 297,704
1,359 0.022% 65.77 5-11-2001 11,496
5,173 0.084% 65.77 5-10-2002 43,758
- ----------------------- ---------------- -------------- -------------- ----------------- -----------------
All Optionees (10,296
Participants) 6,908,000 100.000% 63.04(2) 5-12-2006(3) $84,212,278
- ----------------------- ---------------- -------------- -------------- ----------------- -----------------
</TABLE>
(1) The number and price of all outstanding options were adjusted after the
spin-off of Imation Corp. in order to preserve the intrinsic value of the
options. The Company has not granted any stock appreciation rights ("SARs"). The
options shown for each individual include both annual grants of Incentive Stock
Options and nonqualified stock options and grants of Progressive Stock Options
("PSO"). Nonqualified options are subject to a reload feature when exercised
with the payment of the option price in the form of previously owned shares of
the Company's common stock. Such an exercise results in further grants of PSOs.
The first grant shown for each individual is the annual grant. The remaining
lines are PSOs. The PSO grants for each individual were made on a single date,
but are, pursuant to SEC rules, shown in multiple lines because of different
expiration dates.
PSO grants were made to participants who exercised nonqualified stock
options and who paid the purchase price using shares of previously owned Company
common stock. The PSO grant is for the number of shares equal to the shares
utilized in payment of the purchase price and tax withholding, if any. The
option price for the PSO is equal to 100 percent of the market value of the
Company's common stock on the date of the exercise of the primary option or,
alternatively, on the date of the PSO grant to the five named individuals in the
Table, all of whom are subject to the requirements of Section 162(m) of the
Internal Revenue Code. The option period is equal to the remaining period of the
options exercised.
Company common stock used for payment must have been owned by the
participant for at least six months, and only one exercise of nonqualified
options per participant per calendar year will be eligible for PSO grants by the
Committee.
The presence of PSOs encourages early exercise of nonqualified stock
options, without foregoing the opportunity for further appreciation, and
promotes retention of the Company stock acquired.
In any event, a participant receiving an annual grant of nonqualified
stock options can never acquire more shares of Company common stock through
successive exercises of the initial and subsequent PSO grants than the number of
shares covered by the initial annual grant from the Committee.
(2) All options granted during the period were granted at the market value on
the date of grant if initial grants, or at the fair market values discussed in
footnote 1 above in the case of Progressive Stock Options, as calculated from
the average of the high and low prices reported on the New York Stock Exchange
Composite Index. The option price shown for the "All Optionees" line is $63.04
because the vast majority of options granted during 1996 carried that price.
(3) The expiration date for the "All Optionees" line is shown as May 12, 2006,
since that is the applicable date for the vast majority of options granted
during 1996.
(4) Pursuant to the rules of the Securities and Exchange Commission, the Company
has elected to provide a grant date present value for these option grants
determined by a modified Black-Scholes pricing model. Among key assumptions
utilized in this pricing model were: (i) that the time of exercise of stock
options would be 66 months (26 months for PSOs ) into the term of the option,
which could be for terms as long as ten years, in recognition of the historical
exercise patterns at the Company for these types of options; (ii) expected
volatility of 14.2 percent (15.53 percent for PSOs); (iii) risk-free rate of
return of 6.40 percent (5.83 percent for PSOs); and (iv) dividend growth rate of
4.26 percent. No adjustments for non-transferability or risk of forfeiture have
been made. The Company voices no opinion that the present value will, in fact,
be realized and expressly disclaims any representation to that effect.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table shows specified information with respect to option
exercises during 1996 and the value of unexercised options at the end of 1996
for each person named in the Summary Compensation Table.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION/SAR VALUE
- --------------------------------------------------------------------------------------------------------------------
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS/SARS
SHARES VALUE OPTIONS AT FY-END (#) AT FY-END ($)(1)
ACQUIRED ON REALIZED --------------------------------- -------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
L.D. DeSimone 74,714 $1,419,568 276,421 72,848 $7,382,783 $1,454,410
R.A. Mitsch 33,058 785,827 124,218 37,569 3,497,880 750,065
G. Agostini 9,193 233,682 69,643 15,610 2,084,584 311,654
R.O. Baukol 25,045 673,809 78,346 23,519 2,126,366 469,557
W.G. Meredith 11,049 337,239 73,433 23,519 2,208,753 469,557
- -------------------- ------------- --------------- ---------------- ---------------- --------------- ---------------
</TABLE>
(1) The "Value Realized" or the unrealized "Value of Unexercised In-the-Money
Options at FY-End" represents the aggregate difference between the market value
on the date of exercise or at December 31, 1996, in the case of the unrealized
values, and the applicable exercise prices. These differences accumulate over
what may be, in many cases, several years. These stock options all have option
periods of ten years when first granted, and Progressive Stock Options have
option periods equal to the remaining option period of the initial nonqualified
options resulting in Progressive Stock Options.
LONG-TERM INCENTIVE PLAN AWARDS TABLE
The following table shows specified information with respect to awards
during 1996 under the Company's Performance Unit Plan for each person in the
Summary Compensation Table.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
---------------------------------------------------------------------------------------------
NUMBER OF PERFORMANCE OR ESTIMATED FUTURE PAYOUTS
SHARES, UNITS OTHER PERIOD UNDER NON-STOCK PRICE BASED PLANS(3)
OR OTHER UNTIL MATURATION ----------------------------------------------------
NAME RIGHTS (#)(1) OR PAYOUT (2) THRESHOLD ($) TARGET ($) MAXIMUM ($)
---- ------------- ------------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
L.D. DeSimone 9,000 6 years $0 $900,000 $1,800,000
R.A. Mitsch 5,500 6 years 0 550,000 1,100,000
G. Agostini 2,400 6 years 0 240,000 480,000
R.O. Baukol 3,700 6 years 0 370,000 740,000
W.G. Meredith 3,700 6 years 0 370,000 740,000
- ------------------------- ---------- ----------------- ---------------- ---------------------- --------------------
</TABLE>
(1) The Company's Performance Unit Plan provides long-term compensation to 94
key management personnel based upon the Company's attainment of long-term
performance and growth criteria.
It is administered by the Compensation Committee, none of the members
of which are current employees of the Company. The Committee has sole discretion
in the selection of participants, performance criteria, size of awards,
performance period, and the timing and form of payment, as well as all other
conditions regarding awards.
To date, the Committee has established the performance goals based on
criteria of return on capital employed and sales growth. More detail about
current performance goals is available in the Compensation Committee Report on
page 10. Performance units awarded to date have been assigned a face value of
$100 each. However, the actual amount of the payments is based upon the
Company's attainment of the performance goals. If the targets established by the
Committee are attained during the performance periods, the performance unit will
have a value of $100 at the end of the performance period. If the targets are
not attained, the value will be less than $100 and, if exceeded, will be more
than $100. The ultimate value of the performance unit can vary from no value to
$200, depending upon actual performance.
Payment is contingent upon continued employment to the payment date or
earlier retirement under the Company's pension plan. Participants receiving
awards during 1996, including the five executive officers in the Summary
Compensation Table, will receive payment in 2002, provided that such individuals
continue employment with the Company until such payment date (except in the
event of death, retirement, or disability). Payment under the Plan may be made
in cash, shares of the Company's common stock, or any combination of cash and
stock, at the discretion of the Compensation Committee. In the past, payment has
been made only in cash.
(2) The value of awards granted for 1996 will be determined by the Company's
attainment of return on capital employed and sales growth criteria during a
three-year performance period of 1996, 1997 and 1998. More detail about current
performance goals is available in the Compensation Committee Report on page 10.
However, there will be an additional three-year involuntary holding period
thereafter during which the base amounts determined during the performance
period will earn interest and remain subject to forfeiture if the participant
discontinues employment for any reason other than death, disability or
retirement.
(3) The estimated future payouts do not include any interest factor that would
be earned annually during the three-year involuntary holding period following
the performance period. Interest during the involuntary holding period would
accrue annually at a rate equal to 50 percent of the prior year's return on
capital employed of the Company during the three years and would be payable,
together with the base award, in 2002.
PENSION PLAN TABLE
The following table shows estimated annual benefits payable to the
Company's executive officers upon retirement in specified remuneration and years
of service classifications.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
ANNUAL RETIREMENT BENEFITS
AVERAGE WITH YEARS OF SERVICE
ANNUAL EARNINGS INDICATED (2)
DURING THE HIGHEST ------------------------------------------------------------------------------------------
FOUR CONSECUTIVE 30 35 40 45
YEARS OF SERVICE (1) YEARS YEARS YEARS YEARS
- ------------------------- --------------------- ------------------------ --------------------------- --------------
<S> <C> <C> <C> <C> <C>
$ 800,000 $356,923 $416,410 $462,410 $508,410
1,200,000 536,923 626,410 695,410 764,410
1,600,000 716,923 836,410 928,410 1,020,410
2,000,000 896,923 1,046,410 1,161,410 1,276,410
2,400,000 1,076,923 1,256,410 1,394,410 1,532,410
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Earnings include base salary, profit sharing cash, and the value of Profit
Sharing Stock (at the time of award) actually earned by the participant and do
not include any other forms of remuneration. The benefits are computed on the
basis of straight-life annuity amounts and are not subject to any deduction for
social security or other offset amounts.
(2) To provide for the retirement security of its employees, the Company has
defined benefit pension plans for U.S. employees. These plans are fully paid by
the Company, and employees become vested after five years of service. Under the
plans, a participant may retire with an unreduced pension at age 60 (61 or 62
for employees born after 1942) and if the participant's age and years of service
total at least 90 (91 or 92 for employees born after 1942) he or she would
receive a Social Security bridge to age 62.
The five individuals listed in the Summary Compensation Table are
presently entitled to the respective years of service credit set opposite their
names:
- --------------------------------------------------------------------------------
L.D. DeSimone......................................40
R.A. Mitsch........................................37
G. Agostini........................................31
R.O. Baukol........................................30
W. George Meredith.................................29
- --------------------------------------------------------------------------------
DIRECTORS' COMPENSATION
Directors who are not employed by the Company receive an annual fee of
$60,000 and an additional fee of $5,500 per year for serving as Committee
chairman. [Messrs. Brennan and Murray received these additional fees in 1996.]
Nonemployee directors are paid $1,800 for attendance at meetings of the Board of
Directors and $1,200 for attendance at meetings of Committees of the Board. No
directors' fees are paid to directors who were also employees of the Company.
During 1996, there were six meetings of the Board of Directors, and each
nonemployee director attended seven meetings of Committees of the Board.
Pursuant to the terms of the Company's 1992 Directors Stock Ownership
Program, nonemployee directors received $35,000 of the total annual retainer of
$60,000 in common stock of the Company. Nonemployee directors may elect to defer
payment of all or a portion of the foregoing fees payable in cash through a
deferred cash or common stock equivalents account and fees payable in stock
through a deferred common stock equivalents account. The nonemployee directors
also may elect to receive common stock of the Company, on a current basis, at
current fair market value, in lieu of cash retainer and meeting fees.
Information regarding accumulated deferred stock is set forth in the director
biographical materials on pages 3 through 7.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Committee are Messrs. Brennan (Chairman), Murray and
Shrontz and Ambassador Ridgway. Mr. Jacobson and Mrs. Peters were members of the
Compensation Committee for a brief period in 1996.
Mr. Jacobson retired on November 1, 1991, as Chairman of the Board and
Chief Executive Officer of the Company. The Securities and Exchange Commission
requires that Mr. Jacobson's participation on the Committee be characterized as
"insider participation" based upon his former employment with 3M. Mr. Jacobson
did not participate in any grant or award decisions of the Committee during the
one-year period following his retirement or with regard to any matter that might
affect him personally. Mr. Jacobson did not continue his membership on the
Compensation Committee beyond the May 14, 1996 Annual Meeting.
Mrs. Peters was a member of the Compensation Committee and her
membership on that committee terminated prior to the effective date of the
amendments of the rules under Section 16. During 1996, the Company retained the
law firm of Gibson, Dunn & Crutcher LLP, with regard to various legal matters.
Mrs. Peters is a partner in this firm.
3M STOCK PERFORMANCE GRAPH
The following compares the Company's cumulative and annualized total
shareholder return, overall stock market performance with reinvested dividends*,
during the five fiscal years preceding December 31, 1996, against the Standard &
Poor's 500 Stock Index and the Dow Jones Industrial Average, both of which are
well-known and published industry indices. The Company is included in both the
S&P 500 Stock Index and the Dow Jones Industrial group of 30 companies. The
Company, as a highly diversified manufacturer and seller of a broad line of
products, is not easily categorized with other, more specific, industry indices.
*The Company's interest in Imation Corp. was distributed to
stockholders as a special stock dividend payable in shares of Imation Corp.
stock on July 15, 1996. The following graph accounts for this distribution as
though it were paid in cash and reinvested in common shares of the Company.
COMPARISON OF FIVE-YEAR CUMULATIVE AND ANNUALIZED TOTAL RETURN AMONG
3M, S&P 500 INDEX AND DOW JONES INDUSTRIAL AVERAGE
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Culuative Return
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
3M 100.00 109.17 121.69 123.56 158.58 213.33
DJIA 100.00 107.41 125.60 131.96 180.56 232.64
S&P500 100.00 107.61 118.41 120.01 164.96 202.75
</TABLE>
<TABLE>
<CAPTION>
Annualized Return
<S> <C> <C> <C> <C> <C> <C> <C>
3M 14.90% 9.18% 11.46% 1.54% 28.34% 34.52%
DJIA 24.19% 7.41% 16.94% 5.06% 36.84% 28.84%
S&P500 30.34% 7.61% 10.03% 1.36% 37.46% 22.90%
</TABLE>
TRANSACTIONS WITH MANAGEMENT
During 1996, eight executive officers and directors had loans
outstanding with the Eastern Heights Bank, a subsidiary of the Company. These
loans were made in the ordinary course of business on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons of comparable circumstances and
did not involve more than normal risk of collectibility or present other
unfavorable features.
AUDIT, COMPENSATION, AND BOARD ORGANIZATION
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit, Compensation, and Board Organization Committees are standing
Committees of the Board.
AUDIT COMMITTEE
Members of the Audit Committee are Mr. Smith (Chairman), Mr. Jacobson,
Mrs. Peters, and Dr. Sullivan. The Committee met four times during 1996. Its
primary functions are to recommend the appointment of independent accountants;
review the scope of the annual audit, including fees and staffing; review the
independence of the auditors; review and approve nonaudit services provided by
the auditors; review findings and recommendations of the auditors and
management's response; review the internal audit and control function; and
review compliance with the Company's ethical business practices policy.
COMPENSATION COMMITTEE
Members of the Compensation Committee are Messrs. Brennan (Chairman),
Murray and Shrontz and Ambassador Ridgway. The Committee met four times during
1996. Its primary functions are to review management compensation programs,
approve compensation changes for senior executive officers, review compensation
changes for senior management, and administer management stock option plans
(acting without any person who may be a participant under any such plans). Mr.
Jacobson and Mrs. Peters were also members of the Compensation Committee for a
brief period in 1996.
BOARD ORGANIZATION COMMITTEE
Members of the Board Organization Committee are Messrs. DeSimone
(Chairman), Brennan and Jacobson, Mrs. Peters, and Ambassador Ridgway. The
Committee met three times during 1996. The Committee acts to select and
recommend candidates to the Board of Directors to be submitted for election at
the Annual Meeting. The Board of Directors has adopted criteria with respect to
its membership and the Committee will consider candidates recommended by
stockholders or others in light of these criteria. A stockholder may submit the
name of a proposed nominee by writing to the Office of the Secretary, Minnesota
Mining and Manufacturing Company, 3M Center, St. Paul, Minnesota 55144. The
Committee also reviews and makes recommendations to the Board of Directors
concerning the composition and size of the Board and its committees, frequency
of meetings, directors' fees, and similar subjects; reviews and makes
recommendations concerning retirement and tenure policy for Board membership;
recommends proxies for meetings at which directors are elected; audits programs
for senior management succession; and deals with corporate governance issues.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The rules of the Securities and Exchange Commission require disclosure
of late Section 16 filings by 3M directors and executive officers. Mr. Jacobson
made several gifts of stock to various charitable organizations in 1995 some of
which were inadvertently overlooked in the report on Form 4. The Form 4 was
filed in December 1996 upon discovery of the gifts of stock. A purchase of
common stock in November 1996 by a family member of Mr. Smith was inadvertently
not reported until January, 1997. Effective August 15, 1996, the SEC changed the
reporting rules under Section 16 to require option exercises to be reported on
Form 4 no later than 10 days following the end of the month in which the option
was exercised. Due in part to the rule change and the time required to
recalculate the price of options as a result of the spin-off of Imation Corp.,
company staff responsible for Section 16 reporting inadvertently failed to file
Form 4 for Mr. Ursu as required by the new rules for an option exercise in
September 1996. The Form 4 was filed on November 4, 1996.
CERTAIN OWNERS OF COMMON STOCK
State Street Bank and Trust Company, Boston, Massachusetts, has advised
the Company that as of December 31, 1996, it held 26,336,613 shares of common
stock (6.3% of the then outstanding common stock) and (i) 21,540,266 shares were
held in its capacity as trustee of the voluntary investment plan and the
employee stock ownership plan; 3,872,898 shares were held in its capacity as
trustee for various collective investment funds for employee benefit plans and
index accounts; and 923,449 shares for various trust accounts; and (ii) it had
sole power to vote 4,133,041 of such shares, shared voting power on 21,882,272
shares, sole dispositive power on 4,354,199 shares and shared dispositive power
on 21,982,414 shares. The Company knows of no other holder with more than five
percent of the outstanding Common Stock.
ITEM 2. INDEPENDENT ACCOUNTANTS
The Audit Committee recommended and the Board of Directors appointed
the firm of Coopers & Lybrand L.L.P., independent accountants, to audit the
books and accounts of the Company and its subsidiaries for the year 1997. In
accordance with the Bylaws of the Company, this appointment is being presented
to the stockholders for ratification. If the stockholders do not ratify the
selection of Coopers & Lybrand L.L.P., the selection will be reconsidered by the
Board of Directors.
Coopers & Lybrand L.L.P. has audited the Company's books since 1975.
The firm has offices and affiliates in most localities throughout the world
where the Company has operations. Audit services provided by the firm in 1996
included: audit of consolidated financial statements of the Company and its
subsidiaries; limited reviews of interim reports; reviews of filings with the
Securities and Exchange Commission; consultations on matters related to
accounting and financial reporting; audits of statutory financial statements for
certain foreign subsidiaries; and audits of the financial statements of the
Company's benefit plans.
Coopers & Lybrand L.L.P. also provided a number of nonaudit services
during 1996, all of which were approved or reviewed by the Audit Committee.
A representative of Coopers & Lybrand L.L.P. is expected to be present
at the stockholders meeting and available to respond to appropriate questions
and will be given an opportunity to make a statement, if the representative
chooses to do so.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF COOPERS & LYBRAND L.L.P., INDEPENDENT ACCOUNTANTS, TO AUDIT THE
BOOKS AND ACCOUNTS FOR 1997. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE
VOTED FOR RATIFICATION UNLESS A CONTRARY VOTE IS SPECIFIED.
ITEM 3. INCREASE IN AUTHORIZED SHARES OF COMMON STOCK AND CHANGE IN PAR VALUE
The Board of Directors has determined that it is advisable to amend
Article FOURTH: A. and TENTH: A of the Company's Restated Certificate of
Incorporation (i) to increase the number of authorized shares of common stock of
the Company from 500,000,000 shares to 1,000,000,000 shares (ii) and to change
the par value of the Company's common stock from "no par value" to "$0.50 par
value". The change from "no par value" to "$0.50 par value" common stock will
have no impact on value of the Company's stock or the rights of its
stockholders. If the proposed amendment is approved by the stockholders, the
change in par value will, however, enable the Company to realize significant
reductions in the amount of the filing fees charged by various states for filing
its amended Certificate of Incorporation reflecting the increase in authorized
shares of common stock.
Accordingly, at its meeting held on February 10, 1997, the Board of
Directors adopted a resolution proposing that an amendment to paragraphs A of
Articles FOURTH and TENTH of the Company's Restated Certificate of Incorporation
be presented to the stockholders at the Annual Meeting for their approval. Such
amendments would change only the number of authorized shares of common stock and
change the par value of the Company's common stock from "no par value" to "$0.50
par value". The amendment to paragraph A of Article FOURTH would read in its
entirety as follows:
"FOURTH: A. The total number of shares of all classes of stock
which this Corporation shall have authority to issue is 1,010,000,000
consisting of 10,000,000 shares of preferred stock without par value
and 1,000,000,000 shares of common stock of a par value of $0.50 per
share.
If approved by stockholders, paragraph A of Article TENTH of
the Restated Certificate of Incorporation would be amended by deleting
the reference to "common stock, without par value" an replacing such
with "common stock, of a par value of $0.50 per share."
Under existing provisions of the Company's Restated Certificate of
Incorporation, the Company is authorized to issue 500,000,000 shares of common
stock without par value and 10,000,000 shares of preferred stock without par
value. As of the close of business on February 28, 1997, there were
[472,016,528] shares of validity issued common stock, including [416,787,990]
shares of common stock outstanding and 55,228,538 shares held by the Company in
treasury, and [ ] shares were reserved for issuance to participants in general
employee and management stock ownership programs. Thus, a total of [ ] ( %) of
the Company's authorized shares of common stock was issued or reserved for
issuance. As of the close of business on February 28, 1997, none of the
Company's 10,000,000 shares of authorized preferred stock have been issued.
Adoption of this proposal would increase the number of authorized, unissued and
unreserved shares of Common Stock by [ ].
The Board of Directors has concluded that there is not presently
authorized a sufficient number of shares of common stock to give the Company the
ability to react quickly to today's competitive, fast changing environment.
Although the Company has no specific plans or commitments for the issuance of
any of the additional shares that would be authorized by the amendment, the
Board of Directors believes that an increase in the authorized shares is
desirable because it would provide the Company the necessary flexibility for
other actions the Company might wish to take relating to future stock splits,
stock distributions, employee benefit plans, acquisitions, and other general
corporate purposes. The increase in the authorized shares would also provide the
Company with the flexibility to take advantage of financing and acquisition
opportunities. Such shares may be issued by the Board of Directors without
further stockholder action except as required by law or applicable stock
exchange requirements.
If the proposed amendment is approved, the additional shares, when
issued, will have the same voting and other rights as the Company's presently
authorized common stock. The holders of common stock do not have preemptive
rights to subscribe for additional shares of common stock.
Although the Board has no present intention of issuing any additional
shares of common stock as an anti-takeover step, the issuance of additional
common shares could be used to create impediments to or otherwise discourage
persons attempting to gain control of the Company. For example, the issuance of
additional shares could be used to dilute the voting power of shares then
outstanding. Shares of common stock could also be issued to persons or entities
who would support the Board of Directors in opposing a takeover bid which the
Board determines to be not in the best interests of the Company, its
stockholders, and its employees.
A favorable vote by the holders of a majority of the Company's common
stock present, or represented, and entitled to vote at the Annual Meeting, at
which a quorum is present, is required to approve this amendment to the
Company's Restated Certificate of Incorporation.
If the amendment is approved by the stockholders at the Annual Meeting,
it will become effective upon the filing of a Certificate of Amendment in
accordance with the General Corporation Law of Delaware.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND
ARTICLE FOURTH: A. AND TENTH: A OF THE RESTATED CERTIFICATE OF INCORPORATION (i)
TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK TO 1,000,000,000 AND (ii) TO
CHANGE THE PAR VALUE OF THE COMMON STOCK FROM "NO PAR VALUE" TO "$0.50 PAR
VALUE." PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR THIS
PROPOSAL UNLESS A CONTRARY VOTE IS SPECIFIED.
ITEMS 4 AND 5. PROPOSED GENERAL EMPLOYEE AND MANAGEMENT STOCK PLANS
By action of the Board of Directors taken February 10, 1997, two stock
compensation plans are being submitted to stockholders for their approval - the
1997 General Employees Stock Purchase Plan and the 1997 Management Stock
Ownership Program. These proposed plans are successors to the 1992 General
Employees Stock Purchase Plan and the 1992 Management Stock Ownership Program,
respectively.
The Board of Directors believes that successors to both existing plans
should be considered at the same time. Options continue to be outstanding under
the 1992 General Employees Stock Purchase Plan and the 1992 Management Stock
Ownership Program, but no further options will be granted under these plans
after the date of termination. The 1997 General Employees Stock Purchase Plan
and the 1997 Management Stock Ownership Program will expire in 2002.
The Board of Directors has historically proposed the adoption of stock
option plans as a means of motivating employees to exert added effort toward the
Company's overall growth and success and to provide greater incentive to remain
in the employ of the Company. [Twelve] separate management stock option plans
have been approved by the Company's stockholders since 1949.
ITEM 4. 1997 GENERAL EMPLOYEES STOCK PURCHASE PLAN
The 1997 General Employees Stock Purchase Plan (the "Plan") is intended
to be a successor to the Company's 1992 General Employees Stock Purchase Plan
which expires this year, and the proposed plan is similar to previous employee
stock purchase plans approved by the Company's stockholders. The most
significant differences between the 1997 and 1992 Plans are the elimination of
unused flexible benefit credits as a source of contributions to the 1997 Plan
and the use of fractional share accounting permitting the elimination of the 5,
15 and 50 share units required to exercise options under the 1992 Plan. The text
of the proposed 1997 General Employees Stock Purchase Plan is attached to this
proxy statement as Exhibit "A", and the following description is subject in all
respects to the provisions of the Plan.
OBJECTIVE: The objective of the proposed Plan, which provides for the
granting of options at a price equivalent to 85 percent of fair market value, is
to provide a means whereby essentially all employees may acquire stock in the
Company on terms mutually advantageous to the Company and the employee.
SECURITIES TO BE UTILIZED: The aggregate number of shares of the
Company's common stock which may be optioned and sold under the Plan cannot
exceed 15,000,000 shares, all or any portion of which may be treasury shares
presently held by the Company or as hereafter reacquired or authorized but
unissued shares. It is the Company's present intention to utilize treasury
shares and shares reacquired from time to time hereafter under ongoing corporate
repurchase programs, rather than to issue authorized but as yet unissued shares.
PARTICIPATION AND ELIGIBILITY: Regular employees with two months of
service with the Company or any of its subsidiaries designated by the Board of
Directors may participate. It is anticipated that more than 52,000 employees of
the Company and its subsidiaries will be eligible to participate. Approximately
19,500 employees of the Company and its subsidiaries are presently participating
in the 1992 General Employees Stock Purchase Plan. Directors and officers who
are regular employees of the Company will be entitled to participate in the
Plan, subject to compliance in all regards with the federal securities laws
pertaining thereto. This means that all five of the executive officers
referenced in the compensation table that remain in the employ of the Company,
if still employed by the Company at the effective date, will be eligible to
participate in the 1997 General Employees Stock Purchase Plan, including Messrs.
Baukol and Meredith, nominees for election to the Board of Directors.
TERMS OF OPTION AND PRICE: The option price will be 85 percent of the
fair market value on the date the option is granted, unless the fair market
value on the day of exercise is lower. In that event, the option will be
exercised at the fair market value. Options will be granted on the first
business day of each month during which a participant has amounts available to
purchase shares under the Plan. Options will be granted for the number of full
and fractional shares of the Company's common stock which may be purchased each
month with the participant's accumulated payroll deductions. Payment for shares
under option may be made only by payroll deductions, and a participant may elect
the amount of regular deductions in whole percentages of from 3 through 10
percent of the participant's gross earnings. However, a participant may not
purchase stock under the Plan or any other employee stock purchase plan of the
Company, if any, with a fair market value at the date of grant in excess of
$25,000 in any calendar year. Options will be automatically exercised on the
last business day of each month during which the participant has accumulated
payroll deductions. A participant may withdraw from the Plan at any time, in
which event any remaining accumulated payroll deductions will be used to
purchase use shares on the last business day of the month of withdrawal.
TAXES: The Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code of 1986, as amended. This
section provides that participants do not realize any income at the date of
grant or at the time of receipt of the shares and that such income is postponed
until they dispose of the shares. The tax consequences to participants upon
disposition is dependent upon the variables determining the option price, the
sale price, and the holding period.
The Company is entitled to a deduction under Section 162 of the
Internal Revenue Code only to the extent that ordinary income is realized by the
participant as a result of disqualifying dispositions.
PLAN AMENDMENT: The Board of Directors may at any time terminate or
amend the Plan, except that no amendment shall be made without prior approval of
stockholders which would (i) authorize the issuance of more than 15,000,000
unissued shares of common stock or the granting of more than a total of
15,000,000 shares of common stock, (ii) permit the issuance of stock before
payment in full, (iii) reduce the price per share at which the stock may be
purchased, (iv) increase the rate of payroll deductions above 10 percent of a
participant's gross earnings, or (v) increase the aggregate number of shares
which may be optioned and sold under the Plan.
ADMINISTRATION: The Plan will be administered under the direction
of the Compensation Committee. The committee is empowered to adopt rules and
regulations concerning the administration and interpretation of the Plan.
PLAN DURATION: The Plan will continue in effect for five years from the
effective date determined by the Board of Directors and it may be extended for
successive one-year periods by resolution of the Board of Directors.
EFFECT OF VOTE: A favorable vote by the holders of a majority of the
Company's common stock present, or represented, and entitled to vote at the
Annual Meeting, at which a quorum is present, is required to adopt the Plan. In
the event the Plan does not receive a favorable majority vote, the Plan will be
abandoned.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO ADOPT
THE 1997 GENERAL EMPLOYEES STOCK PURCHASE PLAN. PROXIES SOLICITED BY THE BOARD
OF DIRECTORS WILL BE VOTED FOR THIS PROPOSAL UNLESS A CONTRARY VOTE IS
SPECIFIED.
ITEM 5. 1997 MANAGEMENT STOCK OWNERSHIP PROGRAM
The 1997 Management Stock Ownership Program (the "1997 Program") is
intended to be a successor to the Company's 1992 Management Stock Ownership
Program, and the proposed program is similar to previous management stock option
plans approved by the Company's stockholders. One difference is that the 1997
Program authorizes the Compensation Committee to permit individual participants
to transfer ownership of nonqualified stock options granted under the 1997
Program to immediate family members or a trust for the exclusive benefit of such
family members, subject to certain restrictions set forth in the 1997 Program.
The text of the 1997 Program is attached to this proxy statement as Exhibit "B",
and the following description is subject in all respects to the provisions of
the 1997 Program.
OBJECTIVE: The objective of the 1997 Program is to provide a strong
incentive for supervisory and management employees to remain with the Company
and to exert added effort to its growth and success by affording these employees
an opportunity to acquire shares of the Company
SECURITIES TO BE UTILIZED: The aggregate number of shares of the
Company's common stock which may be optioned, granted as restricted stock, or
made subject to stock appreciation rights under the 1997 Program cannot exceed
35,000,000, all or any portion of which may be treasury shares presently held by
the Company or as hereafter reacquired or authorized but unissued shares. It is
anticipated that substantially all 35,000,000 shares will be utilized during the
life of the 1997 Program, and it is also the Company's present intention to
utilize treasury shares and shares reacquired from time to time hereafter under
ongoing corporate repurchase programs, rather than to issue authorized but as
yet unissued shares. The 35,000,000 shares proposed to be authorized for the
1997 Program reflect an increase of 5,000,000 shares over the 30,000,000 share
authorization of the predecessor 1992 Management Stock Ownership Program. This
increase is due primarily to the broader participation of supervisory and
management employees in the 1997 Program and the Progressive Stock Option
feature of the 1997 Program (explained on page 26) and interpretive rulings by
the Securities and Exchange Commission as to the method of calculating options
such as the Progressive Stock Options against stockholder approved share
authorizations. The 35,000,000 share authorization contemplates that all
Progressive Stock Options will be counted against the total share authorization
in the same manner as original option grants. The Board of Directors believes
this additional authorization for the Progressive Stock Option feature to be an
important element of the 1997 Program and central to achieving the 1997
Program's objectives of promoting stock ownership and retention by management
employees.
PARTICIPATION AND ELIGIBILITY: Eligibility criteria, the number of
participants, and the number of shares under option or restricted stock to be
granted to individual officers and others will be determined by the Compensation
Committee, which is composed entirely of nonemployee directors and which will
act without the participation of any individual eligible to have participated
within the prior one year period. It is anticipated that approximately 11,000
supervisory and management employees will participate, including all five of the
executive officers referenced in the compensation table that remain in the
employ of the Company. Of the three nominees for election as directors, only
Messrs. Baukol and Meredith will be eligible to participate.
STOCK OPTIONS
OPTION PRICE OF INCENTIVE STOCK OPTIONS: The option price will equal
100 percent of the fair market value on the date the option is granted.
OPTION PRICE OF NONQUALIFIED OPTIONS: The option price will generally
be equal to 100 percent of the fair market value on the date the option is
granted. However, the Committee may grant nonqualified options at prices below
or above the fair market value on the date the option is granted from time to
time. It is anticipated that the Compensation Committee will grant nonqualified
options at prices below or above the fair market value on the date the option is
granted only to certain key management employees.
PAYMENT: Full payment for the shares must be made at the time the
option is exercised. Payment may be made, in whole or in part, in shares of the
Company's common stock valued at the fair market value on the date the option is
exercised.
EXERCISE OF OPTION: Each option will be for a ten-year period, or less
in the case of Progressive Stock Options. Shares under an original option may be
purchased on the first anniversary date and at any time, as a portion of the
total grant or in their entirety, throughout the remainder of the period ending
ten years from the date of the grant. Shares under Progressive Stock Options may
be purchased no sooner than six months from the date of grant and continuing
throughout the remainder of the option period. Option rights are forfeited by a
participant in the event of termination of employment for any cause other than
retirement, death, or disability, and abbreviated exercise periods are provided
in the event of death or disability.
LIMITS OF GRANTS: The maximum number of shares of the Company's common
stock which may be granted to any one participant under the 1997 Program by way
of options, stock appreciation rights, restricted stock, and other stock awards
shall not exceed 1,000,000. The aggregate fair market value, at the date of
grant, of Incentive Stock Options first exercisable in any calendar year by any
one participant may not exceed $100,000.
TAXES: It is the opinion of Company's counsel that certain options
granted under the 1997 Program will qualify as "Incentive Stock Options" under
Section 422 of the Internal Revenue Code of 1986, as amended to date, to the
extent not in excess of the individual limitation of first exercise in any
calendar year of $100,000 and granted at an option price equal to the fair
market value on the date of grant. This Section provides that participants do
not realize any income at the time of exercise and that recognition of such
income is postponed until they dispose of the shares. The federal income tax
payable by the participant upon disposition will be at the long-term capital
gain rate, unless the shares are disposed of within one year.
The Committee may provide grants of nonqualified options to
participants, in which case the difference between the option price and the fair
market value at the time of exercise is treated as ordinary income to the
participant and the Company is entitled to a deduction for the same amount.
PROGRESSIVE STOCK OPTIONS: The Committee intends to continue under the
1997 Program the practice adopted in 1990 under the 1987 Program of granting
nonqualified options, on a quarterly basis, equal to the number of shares of
previously owned stock delivered in payment of the option price of outstanding
nonqualified options granted under the 1997 Program or any predecessor plans of
the Company or in payment for any applicable federal, state, and local
withholding taxes. These nonqualified options, known as Progressive Stock
Options ("PSO's"), would have as their term the remaining term of the primary
option being exercised and are granted at the fair market value of the stock on
the date of the primary option exercise. The Committee believes that PSO grants
encourage exercise of nonqualified options early in the life of option terms by
permitting participants to exercise on a repetitive basis without loss of future
potential appreciation and that such PSO grants promote the retention of stock
of the Company received through the exercise of options. PSO grants increase the
aggregate number of shares granted under option to participants, but the actual
number of shares acquired under PSO grants will never exceed the number of
shares under the original primary option grant.
TRANSFERABILITY. The Committee may, in its sole discretion, authorize a
participant to transfer ownership of all or a portion of the nonqualified
options granted to such participant under the 1997 Program to (i) the spouse,
children or grandchildren of such participant ("Immediate Family Members"), (ii)
a trust or trusts for the exclusive benefit of such Immediate Family Members, or
(iii) a partnership in which such Immediate Family Members are the only
partners, provided that (x) there may be no consideration for any such transfer,
and (y) subsequent transfers of transferred options shall be prohibited except
those in accordance with the 1997 Program (by will or the laws of descent and
distribution). The Committee may, in its sole discretion, create further
conditions and requirements for the transfer of nonqualified options. Following
transfer, any such options shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer. The events causing
termination of rights under the 1997 Program shall continue to be applied with
respect to the original participant, following which the nonqualified options
shall be exercisable by the transferee only to the extent, and for the periods
specified in the 1997 Program.
RESTRICTED STOCK GRANTS
GRANTS: The Committee may provide grants of the Company's common stock
designated as restricted stock, subject to specified conditions which the
Committee, in its sole discretion, shall determine to be fair and appropriate
for the incremental lapse of restrictions upon such stock over a period of time.
The Committee may also, in its sole discretion, shorten or terminate the period
for the lapsing of restrictions or waive any conditions for the lapsing or
termination of restrictions as regards all or any portion of the restricted
stock. It is anticipated that the Compensation Committee will make grants of
restricted stock only to certain key management employees, and that the periods
during which such restrictions or conditions apply will not exceed ten years.
A stock certificate representing the number of shares of the Company's
common stock designated by the Committee as restricted stock granted to a
participant shall be registered in the participant's name but shall be held in
custody by the Company for the participant's account. The participant shall
generally have the rights and privileges of a stockholder as to the shares of
restricted stock, including the right to vote, except that the restricted stock
shall remain in the custody of the Company until all restrictions have lapsed
and the Company has received payment of any purchase price for such shares.
None of the shares representing the restricted stock may be sold,
transferred, assigned, pledged, or otherwise encumbered or disposed of during
the period of restrictions determined by the Committee. At the discretion of the
Committee, cash and stock dividends as regards the restricted stock may be
either currently paid or withheld by the Company for the participant's account,
and interest may be paid on the amount of cash dividends withheld at a rate and
subject to such terms as determined by the Committee. Cash or stock dividends so
withheld by the Committee shall not be subject to forfeiture.
CONDITIONS FOR THE LAPSING OF RESTRICTIONS: The participant shall not
be entitled to delivery of the stock certificate representing the restricted
stock unless and until: (i) the period stated by the Committee for the
continuation of restrictions shall have expired or been terminated; (ii) any
conditions stated by the Committee (including payment of any purchase price)
shall have been fully satisfied; and (iii) the participant shall have remained a
regular full-time employee of the Company until the expiration or termination of
the period determined by the Committee. Notwithstanding these conditions, all
restrictions shall lapse and the participant or the participant's beneficiary or
estate shall be entitled to delivery of the stock upon the death or total
disability of the participant or upon the occurrence of an event of acceleration
as described below. In the event that any of the conditions regarding the lapse
of restrictions shall not have been satisfied, the restricted stock and the
participant's rights therein shall be forfeited, and such forfeited shares of
restricted stock shall be transferred to the Company without further action by
the participant.
DELIVERY OF RESTRICTED STOCK: Upon the satisfaction of the foregoing
conditions and the lapsing of restrictions, the Company shall deliver to the
participant or the participant's beneficiary or estate, a stock certificate for
the number of shares of restricted stock granted, free of all such restrictions,
except any that may be imposed by applicable law. No payment other than any
purchase price will be required from the participant upon the delivery of the
formerly restricted stock, except any amounts necessary to satisfy applicable
federal, state, or local tax requirements for withholding.
LIMITS OF GRANTS: The maximum number of shares of the Company's common
stock which may be granted to any one participant under the 1997 Program by way
of options, stock appreciation rights, restricted stock, and other stock awards
shall not exceed 1,000,000.
TAXES: A participant normally will not realize taxable income and the
Company will not be entitled to a deduction upon the grant of restricted shares.
When the shares are no longer subject to a substantial risk of forfeiture, the
participant will realize taxable ordinary income in an amount equal to the fair
market value of the stock at the time, and the Company will be entitled to a
deduction in the same amount. However, a participant may elect to realize
taxable ordinary income in the year the restricted shares are granted in an
amount equal to their fair market value at the time, determined without regard
to the restrictions. In that event, the Company will be entitled to a deduction
in such year in the same amount, and any gain or loss realized by the
participant upon the subsequent disposition of the stock will be taxable at
short- or long-term capital gain rates but will not result in any further
deduction to the Company.
OTHER STOCK AWARDS
The 1997 Program does permit the Compensation Committee discretion to
award shares of the Company's common stock other than restricted stock. This
authorization would allow the Committee to effect replacements for grants or
rights outstanding under the 1997 Program or other compensation plans of the
Company. For example, the stock award might be utilized by the Committee to
effect payment of awards under the Company's Performance Unit Plan described on
page 10. In any event, the maximum number of shares of the Company's common
stock which may be granted to any one participant under the 1997 Program by way
of options, stock appreciation rights, restricted stock, or other stock awards
shall not exceed 1,000,000.
STOCK APPRECIATION RIGHTS
GRANTS: It is anticipated that the Compensation Committee will grant
stock appreciation rights only to management employees that the Committee
believes to be deserving of special consideration because of unusual tax
situations, such as restrictive tax laws in other jurisdictions of overseas
assignments. The 1997 Program does confer broad powers to the Committee to
determine appropriate circumstances for the granting of stock appreciation
rights and to establish appropriate terms and conditions for such grants.
Stock appreciation rights will entitle the recipient to receive an
amount of cash or a number of shares of the Company's common stock measured by
the appreciation of the fair market value of the common stock at the date of
exercise above the fair market value of the common stock at the date of the
initial grant.
LIMITS OF GRANTS: The maximum number of shares of the Company's common
stock which may be granted to any one participant under the 1997 Program by way
of options, stock appreciation rights, restricted stock, and other stock awards
shall not exceed 1,000,000.
EXERCISE OF RIGHTS: Stock appreciation rights will be exercisable
during a period determined by the Committee, but which will commence no sooner
than six months from the date of grant and will expire no later than ten years
from the date of grant. Stock appreciation rights are forfeited by a participant
in the event of termination of employment for any cause other than retirement,
death, or disability, and abbreviated exercise periods are provided in the event
of death or disability.
GENERAL PROGRAM FEATURES
PROGRAM AMENDMENT: The Board of Directors may at any time terminate or
amend the 1997 Program, except that no amendment shall be made without prior
approval of the Company's stockholders which would (i) authorize the issuance of
more than 35,000,000 unissued shares of common stock or the granting of more
than a total of 35,000,000 shares of common stock, (ii) permit the issuance of
stock under option before payment in full, or (iii) reduce the price per share
at which the stock under Incentive Stock Options may be purchased.
ADMINISTRATION: The 1997 Program will be administered by the
Compensation Committee appointed by the Board of Directors from its own members.
The present committee members are Messrs. Brennan (Chairman), Murray and
Shrontz, and Ambassador Ridgway, none of whom is eligible for participation. The
committee is empowered to adopt rules and regulations concerning the
administration and interpretation of the 1997 Program.
EVENTS OF ACCELERATION: The 1997 Program provides that all outstanding
options and stock appreciation rights under the 1997 Program would become
immediately exercisable in full for the remainder of the respective option
period or term and remain exercisable in full for a minimum period of six months
following a change in control of the Company, irrespective of the possible
termination of a participant's employment. However, no option or stock
appreciation right shall in any event be exercisable more than ten years from
the date of the original grant. Similarly, all restrictions imposed by the
Committee upon outstanding grants of restricted stock or other stock awards
under the 1997 Program would automatically be terminated and the participant
would be entitled to take delivery of the stock certificate representing the
restricted stock in the event of a change in control of the Company,
irrespective of the possible termination of a participant's employment.
The 1997 Program defines a change in control to have occurred if: (i)
any person is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing [20] percent or more of the combined
voting power of the Company's then outstanding securities, unless a majority of
the Continuing Directors (as defined in Article THIRTEENTH of the Company's
Restated Certificate of Incorporation) have determined, in their sole
discretion, that no change in control has occurred, or (ii) the Continuing
Directors shall at any time fail to constitute a majority of the Company's Board
of Directors.
Further, in the event that the exercise of options or stock
appreciation rights granted under the 1997 Program or the receipt of the
Company's common stock as a result of a restricted stock grant or other stock
award, after an event of acceleration (change in control), shall be determined
to be subject to the excise tax of Section 4999 of the Internal Revenue Code of
1986, as amended, the Company shall pay affected participants such additional
amounts of cash that the net amount, after allowance for the excise tax and any
additional federal, state, and local income tax paid on the additional amount,
shall be equal to the net amount which would be retained by the participant if
there were no excise tax imposed by Section 4999. Similarly, in the event that a
participant should be required to take legal action to obtain or enforce rights
under the 1997 Program after an event of acceleration, the Company shall pay all
reasonable legal and accounting fees and expenses incurred, unless a lawsuit is
subsequently determined to have been spurious or frivolous.
The purpose of these provisions regarding events of acceleration is to
protect the rights of participants to exercise outstanding stock options and to
receive restricted stock grants in the event of a change in control in the
Company.
PROGRAM DURATION: The 1997 Program will terminate five years after the
effective date set by the Board of Directors, but such termination will not
adversely affect options or restricted stock theretofore granted.
EFFECT OF VOTE: A favorable vote by the holders of a majority of the
Company's common stock present, or represented, and entitled to vote at the
Annual Meeting, at which a quorum is present, is required to adopt the program.
In the event the program does not receive a favorable majority vote, the program
will be abandoned.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO ADOPT
THE 1997 MANAGEMENT STOCK OWNERSHIP PROGRAM. PROXIES SOLICITED BY THE BOARD OF
DIRECTORS WILL BE VOTED FOR THIS PROPOSAL UNLESS A CONTRARY VOTE IS SPECIFIED.
ITEM 6. 1997 AMENDMENTS TO PERFORMANCE UNIT PLAN
The Performance Unit Plan was submitted to and approved by the
Company's stockholders in 1981 and amendments were submitted to and approved by
the Company's stockholders in 1994.
Current payments under the Plan to the five most highly compensated
employees of the Company are set forth in the Summary Compensation Table on page
12, under the column captioned "Performance Unit Plan (LTIP) Payouts." Current
awards under the Plan to the five most highly compensated employees are set
forth in the Long-Term Incentive Plan Awards Table on page 17, and the Plan is
described in the footnotes to this Table on page 17.
In order to maximize deductibility of the payments under the Plan to
the Company's five most highly compensated employees under the provisions of
Section 162(m) of the Internal Revenue Code, certain further technical
amendments are required to the Plan already approved by stockholders in 1981 and
amended with stockholder approval in 1994. These technical amendments deal with
the following subject of the Performance Criteria under the Plan.
The definition of "Performance Criteria", as amended through 1994,
previously generally covered internal performance criteria with specific
reference only to a few examples of such criteria, return on capital employed
and sales growth of the Company. Regulations adopted by the Internal Revenue
Service with regard to Section 162(m) of the Code require specific criteria to
be approved by stockholders in advance. Thus, the Board of Directors, at its
meeting of February 10, 1997, amended the Plan to include specific examples of
the internal performance criteria always intended to be within the scope of such
Performance Criteria and is now seeking stockholder approval of such criteria.
As amended to date, the Performance Criteria now include the concept of
economic profit, which is equivalent to after-tax operating income less the cost
of capital. Economic profit is a specific component of the Performance Units
awarded in 1997, subject to stockholder approval. Additional examples of
Performance Criteria include return on capital employed, sales growth, return on
equity, total shareholder return, reductions in certain asset or cost areas
including reductions in inventories or accounts receivable or laboratory,
engineering, sales, or administrative costs, net income or variations of income
criteria in varying time periods, or general comparisons with other peer
companies or industry groups or classifications across a spectrum of these
criteria. The stockholders are requested to approve these amendments and endorse
the specific examples of Performance Criteria.
A favorable vote by the holders of a majority of the Company's common
stock present, or represented, and entitled to vote at the Annual Meeting, at
which a quorum is present is required to approve the foregoing amendments to the
Plan. In the event that the amendments to the Plan do not receive a favorable
majority vote, the Board of Directors would then determine whether to amend or
abandon the Plan or to simply forego the deductibility of those limited
individual compensation amounts In excess of $1 million, as provided by Section
162(m) of the Internal Revenue Code of 1986, as amended.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE
THE FOREGOING AMENDMENTS TO THE PERFORMANCE UNIT PLAN. PROXIES SOLICITED BY THE
BOARD OF DIRECTORS WILL BE VOTED FOR THIS PROPOSAL UNLESS A CONTRARY VOTE IS
SPECIFIED.
OTHER MATTERS
The Bylaws of the Company contain requirements relating to the timing
and content of the notice which stockholders must provide to the Secretary of
the Company for any matter (including nominations for director and stockholder
proposals) to be properly presented at a stockholders meeting. A copy of the
Bylaws may be obtained by writing to the Secretary.
The enclosed proxy confers upon the person or persons entitled to vote
the shares represented thereby discretionary authority to vote such shares in
accordance with their best judgment with respect to all matters which may
properly come before the meeting in addition to the scheduled items of business.
It is intended that proxies solicited by the Board of Directors, unless
otherwise specified therein, will be voted in accordance with the
recommendations of the Board of Directors.
The Management knows of no other matters that may properly be presented
at the Annual Meeting, but if other matters do properly come before the meeting,
it is intended that the persons named in the proxy will vote according to their
best judgment.
Stockholders are encouraged to date, sign and return the enclosed proxy
in the enclosed envelope, to which no postage need be affixed if mailed in the
United States. If you attend the Annual Meeting, you may revoke your proxy at
that time and vote in person if you desire; otherwise, your proxy will be voted
for you. Two attendance cards are enclosed.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any proposal submitted for inclusion in the Company's proxy statement
and form of proxy for the 1998 Annual Meeting of Stockholders must be sent
CERTIFIED MAIL-RETURN RECEIPT REQUESTED and received at the Company's principal
executive offices in St. Paul, Minnesota, on or before November 25, 1997.
Proposals should be addressed to Roger P. Smith, Secretary, Minnesota Mining and
Manufacturing Company, 3M Center, St. Paul, MN 55144.
By Order of the Board of Directors.
ROGER P. SMITH
SECRETARY
EXHIBIT A - PROPOSED 1997 GENERAL
EMPLOYEES STOCK PURCHASE PLAN
SECTION 1 DEFINITIONS
For the purpose of this Plan:
1.01. PLAN. The term "Plan" shall mean the 1997 General Employees Stock
Purchase Plan, the terms and provisions of which are set forth herein.
1.02. COMPANY. The term "Company" shall mean Minnesota Mining and
Manufacturing Company and such subsidiaries as may be designated by the Board of
Directors from time to time.
1.03. STOCK. The term "Stock" shall mean the common stock, without par
value, of Minnesota Mining and Manufacturing Company.
1.04. PARTICIPANT. The term "Participant" shall mean an employee who
has authorized payroll deductions in the manner set forth in the Plan. Each
Participant shall have the same rights and privileges as every other
Participant.
1.05. CURRENT COMPENSATION. The term "Current Compensation" shall mean
the actual gross earnings of each Participant for each pay period applicable to
such Participant before any deductions have been made.
1.06 REGULAR EMPLOYEE. The term "Regular Employee" shall mean an
individual recognized as such in the employment records and information systems
of the Company. Such term shall not include individuals recognized in the
employment records and information systems of the Company as temporary
employees, nor shall it include independent contractors or leased employees of
the Company.
1.07 VOICE RESPONSE SYSTEM. The term "Voice Response System" shall mean
a telephone answering service by which eligible employees and Participants may
elect to participate in the Plan, give instructions and make elections by
electronic communication to the Company or by speaking with a representative of
the Company.
1.08 1992 PLAN. The term "1992 Plan" shall mean the 1992 General
Employees Stock Purchase Plan.
1.09 EFFECTIVE DATE. The term "Effective Date" shall mean the date upon
which this Plan becomes effective, determined in accordance with Section 12.01.
SECTION 2 ELIGIBLE EMPLOYEES
Any Regular Employee of the Company shall be eligible to participate in
the Plan in the month following the month in which he or she completes two
months of service.
SECTION 3 ELECTION TO PARTICIPATE
3.01. An eligible employee may participate in the Plan only by
voluntary payroll deductions from Current Compensation.
3.02. Unless and until the Company implements a Voice Response System,
an eligible employee may elect to participate in this Plan by completing and
returning to Employee Administrative Services of the Company a form known as
"Stock Authorization" which authorizes regular payroll deductions from the
employee's Current Compensation beginning no later than the first pay period
commencing in the month following receipt of the form by Employee Administrative
Services and continuing until the employee withdraws from the Plan or his or her
option is terminated for any reason. If and when the Company implements a Voice
Response System, both initial elections to participate in the Plan and changes
in elections will be made by using such Voice Response System in accordance with
uniform procedures established by the Company.
3.03. With the following exceptions, all elections made by participants
under the 1992 Plan and outstanding as of 11:59 PM CT on June 30, 1997 shall be
transferred to and remain in effect under this Plan (until changed by the
respective Participant) from and after 12:01 AM CT on July 1, 1997. Elections to
participate by making elections under the 3M Flexible Benefits Program which
result in unutilized flex dollars being credited to participants' stock option
accounts will not be recognized by the Plan. Elections to purchase Stock in
five, fifteen or fifty share units will be recognized simply as elections to
participate under this Plan without regard to such block size.
SECTION 4 GRANTING OF OPTION
4.01. An option for as many shares of Stock as may be purchased with
each Participant's Stock Option Account balance as of the last business day of
each calendar month shall be granted to such Participant on the first trading
day on the New York Stock Exchange of such month.
4.02. No Participant may be granted options which would permit his or
her right to purchase Stock under the Plan (and, for 1997, under the 1992 Plan)
to accrue at a rate which would exceed $25,000 of fair market value (determined
at the time the option is granted) for each calendar year in which such options
are outstanding at any time.
SECTION 5 OPTION PRICE
The option price for each share of Stock shall be eighty-five percent
(85%) of the fair market value of such shares on the New York Stock Exchange on
the date the option is granted, rounded up to the next higher even cent. The
fair market value shall be the mean between the high and low sales price for
such shares on the New York Stock Exchange.
SECTION 6 PAYROLL DEDUCTIONS
6.01. A Participant may elect payroll deductions in whole percentages
from three to ten percent of Current Compensation, subject to the individual
limit set forth in Section 4.02 herein. With the exception of account balances
carried over from the 1992 Plan, no deductions shall commence prior to the
granting of the option.
6.02. A Participant may at any time increase or reduce the amount of
his or her payroll deduction within the limitations of Section 6.01 by
completing a "Payroll Data Record" (or, if and when the Company implements a
Voice Response System, by furnishing appropriate instructions using such Voice
Response System). The change shall become effective not later than the next pay
period commencing after receipt of the form by Employee Administrative Services
of the Company (or receipt of appropriate instructions by the Voice Response
System).
6.03. Payroll deductions will be credited to each Participant's Stock
Option Account on the last business day of each month for payrolls prepared on
or prior to the last Friday of such month and for which funds are made available
to the Treasurer of the Company on or prior to the last business day of such
month.
SECTION 7 STOCK OPTION ACCOUNT
All funds withheld from a Participant's Current Compensation in
accordance with his or her authorization shall be credited to the Participant's
Stock Option Account. Unless required by law, a Participant may not make any
separate cash payment into his or her Stock Option Account. Unused funds
remaining in a participant's stock option account under the 1992 Plan following
the termination of such plan will be transferred and credited to the
Participant's Stock Option Account under this Plan as of the Effective Date.
SECTION 8 EXERCISE OF OPTIONS
8.01. On the last business day of each month during which a Participant
has a Stock Option Account balance, the Participant's option shall automatically
be exercised at the option price for that month.
8.02. If on the exercise date the fair market value of a share of Stock
on the New York Stock Exchange is lower than the Participant's option price, the
option will be exercised at the fair market value of such shares on the New York
Stock Exchange on the exercise date.
8.03 As soon as practicable after the exercise of a Participant's
option, the shares purchased upon the exercise of such option will be credited
to the Participant's book entry account established by the Company with its
stock transfer agent.
SECTION 9 TERMINATION OF PARTICIPATION
9.01. A Participant who is participating through voluntary payroll
deductions may at any time, by written notice on a Payroll Data Record (or, if
and when the Company implements a Voice Response System, by furnishing
appropriate instructions using such Voice Response System), cease making any
further payroll deductions. In such event, any balance remaining in the
Participant's Stock Option Account shall be used to purchase additional shares
of Stock in accordance with the provisions of Section 8.01. A Participant may,
however, make only one election to withdraw from or to re-enter the Plan in any
one calendar month.
9.02. Participation under the Plan shall automatically cease upon the
date of a Participant's death or termination of employment for reasons other
than retirement, and the amount credited to the Participant's Stock Option
Account (if any) shall be used to purchase additional shares of Stock in
accordance with the provisions of Section 8.01.
9.03. When a Participant retires, the Participant's option for the
month immediately preceding his or her retirement will be automatically
exercised on the last business day of such month to the extent of the funds in
his or her Stock Option Account. Following such exercise, the Participant's
participation in this Plan will end.
9.04. Approved leave of absence or layoff shall not be deemed a
termination of employment for purposes of Section 9.
SECTION 10 TRANSFERABILITY
10.01. The options may not be assigned, transferred, pledged, or
hypothecated (whether by operation of law or otherwise), and shall not be
subject to execution, attachment, or similar process. Any attempted assignment,
transfer, pledge, hypothecation, other disposition of the option, or levy of
attachment or similar process upon the option shall be null and void and without
effect. The option may be exercised only by the Participant.
10.02. The funds accumulated in the Stock Option Account may not be
assigned, transferred, pledged, or hypothecated in any way, and any attempted
assignment, transfer, pledge, hypothecation or other disposition of the funds
accumulated in the Stock Option Account shall be null and void and without
effect.
SECTION 11 STOCK CERTIFICATES
11.01. Certificates for the shares of Stock purchased by a Participant
upon the exercise of options granted under this Plan shall not be delivered to
the Participant unless and until the Company's stock transfer agent receives an
appropriate written request (or, at the election of the Company, appropriate
instructions using the Voice Response System) from the Participant.
11.02. The Company shall not be required to issue or deliver any
certificate for Stock purchased upon the exercise of options (i) prior to the
admission of such Stock to listing on any stock exchange on which Stock may at
that time be listed or required to be listed, or (ii) prior to registration
under the Securities Act of 1933, or registration under any state law, if such
registration is required. The Company will use its best efforts to accomplish
such listing or registration not later than a reasonable time following each
exercise of such option, and delivery of Stock by the Company may be deferred
until listing or registration is accomplished.
11.03. A Participant shall have no interest in the Stock covered by the
options until the shares purchased in accordance with Section 8 are credited to
the Participant's book entry account.
SECTION 12 EFFECTIVE DATE AND AMENDMENT OR TERMINATION OF PLAN
12.01. The Plan shall become effective on the date fixed by the Board
of Directors after approval by the stockholders.
12.02. The Plan shall automatically terminate five years from the
Effective Date unless extended by the Board of Directors. The Board of Directors
may by resolution extend the Plan for one or more additional periods of one year
each.
12.03. The Board of Directors may at any time terminate or amend the
Plan except that no amendment shall be made without prior approval of the
stockholders which would (i) authorize the issuance of more than 15,000,000
unissued shares of Stock (after adjustment for stock splits), (ii) permit the
issuance of Stock before payment thereof in full, (iii) increase the rate of
payroll deductions above ten percent of Current Compensation, (iv) reduce the
price per share at which the Stock may be sold, or (v) authorize the sale of
more than an aggregate of 15,000,000 shares of Stock (after adjustment for stock
splits).
12.04. Upon termination of the Plan, the Participant's option shall be
exercised for the number of whole and fractional shares which can be purchased
with the funds credited to the Participant's Stock Option Account on the date of
termination.
SECTION 13 ADMINISTRATION
The Plan shall be administered under the direction of the Compensation
Committee of the Board of Directors. In administering the Plan, it will be
necessary to follow various laws and regulations. It may be necessary from time
to time to change or waive requirements of the Plan to conform with the law, to
meet special circumstances not anticipated or covered in the Plan, or to carry
on successful operations of the Plan. Therefore, it is necessary for the Company
to reserve the right to make variations in the provisions of the Plan and to
determine any questions which may arise regarding interpretation and application
of the Plan's provisions. The Committee's determinations as to the
interpretation and operation of this Plan shall be final and conclusive.
SECTION 14 STOCK DIVIDEND, STOCK SPLIT, REDUCTION IN SHARES, MERGER, OR
CONSOLIDATION
If a record date for a stock dividend, split, or reduction in the
number of shares of Stock should occur during the option period, appropriate
adjustments in numbers of shares and option prices shall be made to give effect
thereto on an equitable basis.
If the Company is merged into or consolidated with one or more
corporations during the option period, appropriate adjustments shall be made to
give effect thereto on an equitable basis in terms of issuance of shares of the
corporation surviving the merger or the consolidated corporation, as the case
may be.
SECTION 15 STOCK TO BE SOLD
The aggregate number of shares of Stock which may be optioned and sold
under the Plan shall not exceed 15,000,000 shares, all or any portion of which
may be treasury shares, shares reacquired from time to time, or authorized but
unissued shares. In the event of a reclassification or stock split of the Stock,
the foregoing number of shares shall be appropriately adjusted.
SECTION 16 FUNDS IN STOCK OPTION ACCOUNT
The funds deducted and retained from the Participants shall be
accounted for in U.S. dollars and shall be remitted to the Company as directed
by the Finance Committee of the Company. The funds in the Stock Option Account,
after receipt by the Company, shall be under the direction of the Company and
applied to the payment of Stock at the time the Participant's options are
exercised.
No interest will be accumulated or paid by the Company on funds held in
the Stock Option Account.
SECTION 17 NOTICES
Notices to the Committee shall be addressed as follows:
Compensation Committee
c/o Roger P. Smith, Secretary
3M Center, Bldg. 220-14W
St. Paul, MN 55144-1000
SECTION 18 OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS
Unless otherwise specifically determined by the Committee, the receipt
by Participants of options under the Plan shall not be deemed a part of a
Participant's regular, recurring compensation for purposes of calculating
payments or benefits from any Company benefit plan, severance program, or
severance pay law of any country. Further, the Company may adopt other
compensation programs, plans, or arrangements as it deems appropriate or
necessary.
SECTION 19 FUTURE RIGHTS
No Participant shall have any rights under the Plan to be retained in
the employ of the Company.
EXHIBIT B - PROPOSED 1997 MANAGEMENT
STOCK OWNERSHIP PROGRAM
SECTION 1 PURPOSE
The purpose of this plan is to provide a strong incentive for
supervisory and management employees to remain with the Company and to exert
added effort toward its growth and success by affording these employees an
opportunity to acquire or receive shares of the Company's common stock on terms
which are mutually advantageous to the employee and the Company. It has been the
policy of the Company to encourage employee participation as stockholders and
the Company believes that employee stock ownership has been an important factor
contributing to the Company's growth and progress.
It is intended that the 1997 Management Stock Ownership Program may
provide for the granting to participants of (1) stock options, either Incentive
Stock Options as defined in Section 422 of the Code, or options not so qualified
under the foregoing or similar tax provisions; (2) stock appreciation rights;
(3) restricted stock grants; and (4) other stock awards.
SECTION 2 DEFINITIONS
(a) "Agreement" shall mean the agreement entered into between the
Company and a Participant at the time of the grant of any rights under the 1997
Program, or other written evidence issued by the Company to the Participant.
(b) "Anniversary Date" shall be the date one year after the Date the
Option is Granted to a Participant.
(c) "Board of Directors" shall mean the Board of Directors of Minnesota
Mining and Manufacturing Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Committee" shall mean the Compensation Committee established by
the Board of Directors acting without the participation of any member who may
have received a grant or award under the 1997 Program or any other similar plan
or program of the Company (except those limited to participation by directors)
during the previous one year period, or such other committee of disinterested
administrators established by the Board of Directors to comply with Rule 16b-3
promulgated by the Securities and Exchange Commission, as amended from time to
time.
(f) "Common Stock" shall mean the common stock, without par value, of
Minnesota Mining and Manufacturing Company.
(g) "Company" shall mean Minnesota Mining and Manufacturing Company and
such subsidiaries or affiliates as may be designated by the Board of Directors
from time to time.
(h) "Conditions" shall mean the condition that the Restricted Period
stipulated by the Committee at the time of grants of Restricted Stock shall have
expired or terminated and that any other conditions prescribed by the Committee
regarding a Participant's continued employment by the Company or the Company's
performance during the Restricted Period shall have been satisfied, or any other
conditions stipulated by the Committee with respect to Stock Awards.
(i) "Date the Option is Granted" shall mean the effective date of the
Agreement.
(j) "Dividend Equivalents" shall mean that sum of cash or Common Stock
of equivalent value equal to the amount of cash or stock dividends paid upon
Common Stock subject to any grants or awards under the 1997 Program, prior to
such time as the Participant otherwise becomes entitled thereto as a holder of
record.
(k) "Fair Market Value" shall mean the average of the high and low
prices for Common Stock as reported on the New York Stock Exchange Composite
Transactions, rounded upwards to the nearest $0.05.
(l) "Incentive Stock Options" shall mean an Option granted to a
Participant under the 1997 Program which is properly qualified under the
provisions of Section 422 of the Code in effect at the date of grant.
(m) "Nonqualified Option" shall mean an Option granted to a Participant
under the 1997 Program which is not an Incentive Stock Option or otherwise
qualified under similar tax provisions.
(n) "Option" shall mean a Participant's right to purchase the number of
shares of Common Stock designated in the Agreement, subject to the terms and
conditions of the 1997 Program and Agreement, and the term shall include both
Incentive Stock Options and Nonqualified Options.
(o) "Option Period" shall mean the shorter of (i) the ten-year period
commencing with the Date the Option is Granted, or (ii) the period commencing
with the Date the Option is Granted and terminating pursuant to Section 10
hereof.
(p) "Participant" shall mean any employee of the Company or any of its
subsidiaries who is designated as a Participant by the Committee.
(q) "1997 Program" shall mean the Company's 1997 Management Stock
Ownership Program.
(r) "Program Effective Date" shall mean the date fixed by the Board of
Directors upon which the 1997 Program becomes effective after approval of
stockholders.
(s) "Restricted Period" shall mean that period of time determined by
the Committee and provided in the applicable Conditions stated in the Restricted
Stock Agreement of a Participant regarding the incremental or complete lapse of
the restrictions.
(t) "Restricted Stock" shall mean that Common Stock granted to a
Participant in a Restricted Stock Agreement and subject to the Conditions, as so
determined by the Committee, during the Restricted Period of the grant.
(u) "Retirement Date" shall be the date a Participant retires from
employment with the Company, pursuant to any income or retirement plan of the
Company.
(v) "Stock Appreciation Right" shall mean a Participant's right to
receive an amount of cash or shares of Common Stock measured by the appreciation
of the Fair Market Value of the Common Stock to which the right relates on the
date of exercise above the Fair Market Value of such Common Stock on the date of
the initial grant.
(w) "Stock Award" shall mean any award of Common Stock under the
Program and may include Restricted Stock awards or other awards of Common Stock
as determined appropriate by the Committee.
SECTION 3 PARTICIPATION
(a) Subject to the right of the Committee, in its sole discretion, to
delegate its authority to grant options to an officer of the Company (the
"Designated Officer"), the Committee shall determine and designate from time to
time those employees of the Company who are to be granted Options, Stock
Appreciation Rights, and/or Stock Awards and thereby become Participants and the
number of shares to be the subject of the grant to each Participant; provided,
however, that no Designated Officer shall have or obtain the authority to grant
options to (i) himself or herself, (ii) any person deemed a reporting person
under Section 16 of the Securities Exchange Act of 1934, or (iii) any person if
such grant would result in application of the limit on deductible remuneration
imposed by Section 162(m) of the Code.
(b) The maximum number of shares of Common Stock which may be made
subject to Option, Stock Appreciation Right, or Stock Award grants with regard
to any one Participant under the 1997 Program shall not exceed in the aggregate
1,000,000 shares.
SECTION 4 OPTIONS
(a) Type. Options granted by the Committee or the Designated Officer
shall be designated as Incentive Stock Options or Nonqualified Options and shall
be evidenced by Agreements in such forms as the Committee shall approve, which
Agreements shall comply with and be subject to the terms and conditions of the
1997 Program.
(b) Price. Incentive Stock Options granted from time to time hereunder
shall have a purchase price equal to one hundred percent (100%) of the Fair
Market Value of Common Stock on the Date the Option is Granted. The aggregate
Fair Market Value, at the date Options are granted, of Incentive Stock Options
exercisable for the first time in any calendar year by any Participant shall not
exceed $100,000. Nonqualified Options may have a purchase price equal to or more
or less than one hundred percent (100%) of the Fair Market Value of Common Stock
on the Date the Option is Granted, as determined by and at the sole discretion
of the Committee or the Designated Officer, provided that such purchase price
shall be clearly set forth in the Agreement presented to the Participant.
(c) Exercise. A Participant may purchase the total number of shares
under option after the Anniversary Date or at such other date as determined by
the Committee or the Designated Officer and clearly set forth in the Agreement,
except that Progressive Stock Options may be exercised six months after the date
of grant. This right to purchase may be exercised as to any shares not
previously purchased during the remainder of the Option Period. In order to
exercise an Option, a Participant shall give written notice to the Office of the
Treasurer at Saint Paul, Minnesota, together with full payment. The exercise of
Nonqualified Options may be made subject to such additional conditions and
restrictions as the Committee or the Designated Officer, in its sole discretion
shall determine. Such restrictions, if any, will be clearly set forth in the
Agreement applicable to such Nonqualified Options.
(d) Payment. No shares of Common Stock shall be issued to any
Participant upon exercise of an Option until full payment of the purchase price
has been made to the Company and the Participant has remitted to the Company the
required federal and state withholding taxes, if any. A Participant shall obtain
no rights as a stockholder until certificates for such stock are issued to the
Participant. Payment of the purchase price or applicable withholding taxes, if
any, may be made in whole, or in part, in shares of Common Stock, pursuant to
such terms and conditions as may be established from time to time by the
Committee. If payment is made in shares of Common Stock, such stock shall be
valued at one hundred percent (100%) of Fair Market Value on the day a
Participant exercised his or her Option or, as regards a withholding tax, such
other date when the tax withholding obligation becomes due. A Participant need
not surrender shares of Common Stock as payment; and the Company may, upon the
giving of satisfactory evidence of ownership of said Common Stock by
Participant, deliver the appropriate number of additional shares of Common Stock
reduced by the number of shares required to pay the purchase price and any
applicable withholding taxes. Such form of evidence shall be determined by the
Committee.
(e) Progressive Stock Options. For the purpose of promoting the
retention of Common Stock received upon the exercise of Nonqualified Options and
encouraging Participants to exercise Nonqualified Options early in the Option
Period, the Committee may, in its sole discretion, grant Nonqualified Options
("Progressive Stock Options") to a Participant who exercises Nonqualified
Options and makes payment of all or part of the purchase price and withholding
taxes, if any, in Common Stock, equal in number to shares of Common Stock
utilized by the Participant to effect payment of the purchase price and
withholding taxes, if any. Progressive Stock Options, if granted by the
Committee, will have a purchase price equal to one hundred percent (100%) of the
Fair Market Value of Common Stock on the date of exercise of Nonqualified
Options and will be exercisable no sooner than six months from the date of grant
and for an additional time period expiring at the end of the Option Period of
the Nonqualified Option exercised. Notwithstanding the foregoing, the Committee
or the Designated Officer may grant Nonqualified Options in any manner provided
in this Section 4, and Participants will have no rights to receive Nonqualified
Options or Progressive Stock Options, except to the extent determined by the
Committee or the Designated Officer in its sole discretion.
SECTION 5 STOCK APPRECIATION RIGHTS
(a) Stock Appreciation Rights granted by the Committee shall be
evidenced by Agreements in such forms as the Committee shall approve, which
Agreements shall comply with and be subject to the terms and conditions of the
1997 Program.
(b) Exercise. Stock Appreciation Rights shall be exercisable at such
time or times consistent with the terms and conditions determined by the
Committee and set forth in the Agreement presented to the Participant. No Stock
Appreciation Right shall, in any event, be exercisable during the first six
months from the date of grant of such Stock Appreciation Right, except as
provided in Section 10 of this 1997 Program. In order to exercise his or her
Stock Appreciation Right, a Participant shall give written notice to the Office
of the Treasurer, at Saint Paul, Minnesota.
(c) Term. The term of a Stock Appreciation Right shall be fixed by the
Committee and set forth in the Agreement evidencing the Stock Appreciation
Right, but no Stock Appreciation Right shall be exercisable more than ten years
after the date of grant.
SECTION 6 RESTRICTED STOCK
(a) Restricted Stock granted by the Committee shall be designated as
such and shall be evidenced by Agreements in such forms as the Committee shall
approve, which Agreements shall comply with and be subject to the terms and
conditions of this 1997 Program.
(b) Restricted Stock, in addition to the Conditions stated and
determined by the Committee in the Agreement, may or may not have a stated
purchase price. The purchase price determined by the Committee, in its sole
discretion, if any, shall be clearly set forth in the Agreement presented to a
Participant, along with any and all other applicable Conditions.
(c) If the Committee shall fix a purchase price for Restricted Stock in
addition to other Conditions therefor, no shares of Common Stock shall be issued
upon the satisfaction of Conditions until full payment has been made to the
Company as provided in foregoing paragraph (d) of Section 4, subject to such
restrictions regarding payment in shares of Common Stock as the Committee may
determine from time to time. Similarly, any applicable withholding taxes may be
paid upon the lapse of restrictions upon Restricted Stock by the withholding of
shares of Common Stock otherwise deliverable, in accordance with the valuation
procedures set forth in Section 4(d) of this 1997 Program.
(d) At the time a grant of Restricted Stock is made, the Committee, in
its sole discretion, shall establish a Restricted Period and such additional
Conditions as may be deemed appropriate for the incremental lapse or complete
lapse of restrictions with respect to all or any portion of the shares of Common
Stock represented by the Restricted Stock. The Committee may also, in its sole
discretion, shorten or terminate the Restricted Period or waive any Conditions
with respect to all or any portion of the shares of Common Stock represented by
the Restricted Stock. Notwithstanding the foregoing, all restrictions set forth
in the Conditions shall lapse or terminate with respect to all Common Stock
represented in the grant of Restricted Stock in the event of the death or total
disability of a Participant (as defined in Section 10 below) or the occurrence
of a Change in Control (as defined in Section 15 below).
(e) A stock certificate for the number of shares of Common Stock
represented in the grant of Restricted Stock to a Participant shall be
registered in the Participant's name but shall be held in custody by the Company
for the Participant's account. The Participant shall generally have the rights
and privileges of a stockholder as to such Restricted Stock, including the right
to vote such Restricted Stock, except that, subject to the provisions of Section
10 below, the following restrictions shall apply: (i) the Participant shall not
be entitled to delivery of the certificate until the expiration or termination
of the Restricted Period, the satisfaction of any other Conditions prescribed by
the Committee, if any, and the payment in full of the purchase price, if any;
(ii) none of the Restricted Stock may be sold, transferred, assigned, pledged,
or otherwise encumbered or disposed of during the Restricted Period and until
the satisfaction of other Conditions prescribed by the Committee, if any; and
(iii) all of the Restricted Stock shall be forfeited and all rights of the
Participant shall terminate without further obligation on the part of the
Company unless the Participant shall have remained a regular full-time employee
of the Company, any of its subsidiaries or affiliates, until the expiration or
termination of the Restricted Period and the satisfaction of other Conditions
prescribed by the Committee, if any.
(f) At the sole discretion of the Committee, Dividend Equivalents may
be either currently paid or withheld by the Company for the Participant's
account, and interest may be paid on the amount of cash dividends withheld at a
rate and under such terms as determined by the Committee. Cash or stock
dividends so withheld by the Committee shall not be subject to forfeiture. Upon
the forfeiture of any Restricted Stock, such shares of Common Stock represented
in the grant of Restricted Stock shall be transferred to the Company without
further action by the Participant.
(g) Upon the expiration or termination of the Restricted Period and the
satisfaction of other Conditions prescribed by the Committee, if any, or at such
earlier time as provided for in Section 10 below, the restrictions applicable to
the Restricted Stock shall lapse and a stock certificate for the number of
shares of Common Stock represented in the grant of Restricted Stock shall be
delivered to the Participant or the Participant's beneficiary, representative,
or estate, as the case may be, free of all restrictions, except any that may be
imposed by law, subject as well to the obligation of the Participant to pay the
purchase price, and applicable withholding taxes, if any, as provided in Section
4(d) herein. Unless otherwise instructed by a Participant by an irrevocable,
written instruction received by the Company at least six months prior to the
date that applicable restrictions lapse, the Company shall automatically
withhold as payment the number of shares of Common Stock, determined by the Fair
Market Value at the date of the lapse, required to pay withholding taxes, if
any. The Company shall not be required to deliver any fractional share of Common
Stock but will pay, in lieu thereof, the Fair Market Value (as of the date the
last Conditions lapse) of such fractional share.
SECTION 7 OTHER STOCK AWARDS
(a) The Committee may, in its sole discretion, grant Stock Awards other
than Restricted Stock grants, and such Stock Awards may be granted singly, in
combination or in tandem with, in replacement of, or as alternatives to grants
or rights under this Program or any other employee or compensation plan of the
Company, including the plan of any acquired entity.
(b) If the Committee shall stipulate Conditions with respect to such
Stock Awards, the Conditions will be set forth in Agreements evidencing the
grant, and such Agreements shall comply with and be subject to the terms and
conditions of this Program.
(c) If Conditions with respect to such Stock Awards shall require the
surrender or forfeiture of other grants or rights under this Program or any
other employee or compensation plan of the Company, then the Participant shall
not have any rights under such Stock Awards until the grants or rights exchanged
have been fully and effectively surrendered or forfeited.
SECTION 8 ADMINISTRATION
The 1997 Program shall be administered under the direction of the
Committee. In administering the 1997 Program, it will be necessary to follow
various laws and regulations. It may be necessary from time to time to change or
waive requirements of the 1997 Program to conform with the law, to meet special
circumstances not anticipated or covered in the 1997 Program, or to carry on
successful operation of the 1997 Program, and in connection therewith, the
Committee shall have the full power and authority to:
(a) Prescribe, amend, and rescind rules and regulations relating to the
1997 Program, establish procedures deemed appropriate for its administration,
and make any and all other determinations not herein specifically authorized
which may be necessary or advisable for its effective administration;
(b) Make any amendments to or modifications of the 1997 Program which
may be required or necessary to make the 1997 Program set forth herein comply
with the provisions of any laws, federal or state, or any regulations issued
thereunder, and to cause the Company at its expense to take any action related
to the 1997 Program which may be required under such laws or regulations;
(c) Contest on behalf of the Participants or the Company, at the sole
discretion of the Committee and at the expense of the Company, any ruling or
decision on any issue related to the 1997 Program, and conduct any such contest
and any resulting litigation to a final determination, ruling, or decision; and
(d) Delegate to a committee of the Company's executives the authority
to extend the time within which terminated Participants may exercise their
options and Stock Appreciation Rights in accordance with the provisions of
Section 10(d) below.
SECTION 9 SHARES SUBJECT TO THE 1997 PROGRAM
(a) The Committee may from time to time provide for Option, Stock
Appreciation Right, or Stock Award grants to the extent that such grants do not
exceed an aggregate total of 35,000,000 shares of Common Stock. Shares shall be
made available in the discretion of the Board of Directors from authorized but
unissued shares, treasury shares, or the Company may reacquire shares from time
to time for sale under the 1997 Program.
(b) In instances where a Stock Appreciation Right or other award under
the 1997 Program is settled in cash or any form other than Common Stock, then
the shares of Common Stock covered by these settlements shall remain available
for issuance of rights under the 1997 Program, to the extent permitted under
Rule 16b-3 as promulgated by the Securities and Exchange Commission. Further,
the payment of stock dividends and Dividend Equivalents settled in Common Stock
in conjunction with outstanding awards shall not be counted against the shares
available for issuance. Any shares that are issued by the Company through the
assumption by the Company, or in substitution for, outstanding awards previously
granted by an acquired entity shall not be counted against the shares available
for issuance under the 1997 Program. In the event that the Securities and
Exchange Commission determines that any of the foregoing shares of Common Stock
must be counted, then the shares of Common Stock otherwise provided in the
foregoing not to be counted shall be counted against the aggregate limit of
shares under the 1997 Program, but only to the minimal amount necessary to
provide compliance with the determination by the Securities and Exchange
Commission.
(c) In instances where Options, Stock Appreciation Rights, or Stock
Awards expire, terminate, or are forfeited or canceled for whatever reasons,
then the shares of Common Stock covered by these previously outstanding awards
shall be returned to the unutilized, authorized shares available for further
granting of rights under the 1997 Program.
(d) Shares of Common Stock issued under the 1997 Program may consist in
whole or in part of authorized and unissued shares or of treasury shares, and no
fractional shares shall be issued under the 1997 Program. Cash may be paid in
lieu of any fractional shares issuable under the 1997 Program.
(e) In the event of a reclassification or stock split after the Program
Effective Date, the foregoing absolute numbers of shares shall be appropriately
adjusted.
SECTION 10 TERMINATION OF RIGHTS UNDER THE 1997 PROGRAM
(a) Participation hereunder shall cease and all rights under the 1997
Program are automatically forfeited by the Participant upon the date of
termination of employment for any cause other than: (1) retirement under a
pension plan maintained by the Company, (ii) because of physical or mental
disability as recognized under a plan maintained by the Company, or (iii) death.
(b) If a Participant retires pursuant to a pension plan maintained by
the Company or changes employment status as a result of physical or mental
disability, without having fully exercised an Option or Stock Appreciation
Right, the Participant shall be entitled, within the remaining Option Period or
term of the Stock Appreciation Right, as provided in the applicable Agreement,
even though subsequent to the Participant's Retirement Date (but not more than
ten years from the date of Agreement), to exercise his or her Option or Stock
Appreciation Right and, in case of Options, to purchase (i) the number of shares
which could have been purchased on the Retirement Date or date of changed
employment status, plus (ii) the number of additional shares which the
Participant would be entitled to purchase on the next Anniversary Date; or, in
the case of Stock Appreciation Rights, to receive the full amount of
appreciation for all issued Stock Appreciation Rights, regardless of whether yet
exercisable. Incentive Stock Options, if not exercised within three months (one
year in the case of a participant who was disabled at retirement) following
Participant's Retirement Date, shall fail to qualify for treatment under Section
422 of the Code, except in the case where a Participant dies within the three
month period (one year period in the case of a disabled person) following such
Retirement Date, in which event Participant's estate or representative shall
have two years to exercise Options as Incentive Stock Options. If a Participant
who has thus retired dies prior to the end of such remaining Option Period or
term of the Stock Appreciation Right, without having yet fully exercised an
Option or Stock Appreciation Right, the Option or Stock Appreciation Right may
be exercised within two years after the date of his or her death (not more than
ten years from the date of the Agreement) by the Participant's estate or by a
person who acquired the right to exercise such Option or Stock Appreciation
Right by bequest or inheritance or by reason of the death of the Participant.
(c) If the Participant, prior to retirement, dies without having fully
exercised an Option or Stock Appreciation Right, the Option or Stock
Appreciation Right may be exercised within two years following his or her death
(but not more than ten years from the date of the Agreement) by the
Participant's estate or by a person who acquired the right to exercise such
Option or Stock Appreciation Right by bequest or inheritance or by reason of the
death of the Participant, and such representative may, in the case of Options,
purchase (1) the number of shares which the decedent could have purchased on the
date of death, plus (ii) the number of additional shares which the decedent
would have been entitled to purchase on the next Anniversary Date, or, in the
case of Stock Appreciation Rights, may receive the full amount of appreciation
for all issued Stock Appreciation Rights at the date of Participant's death,
regardless of whether yet exercisable.
(d) Notwithstanding paragraph (a) of this section, if the Participant
is terminated without having fully exercised an Option or Stock Appreciation
Right under circumstances which the Committee believes to warrant special
consideration and the Committee has determined that the Participant's rights
will not be forfeited at the date of termination, the Option or Stock
Appreciation Right may be exercised within two years following his or her
termination of employment (but not more than ten years from the date of the
Agreement) for (i) the number of shares which the Participant could have
purchased or received on the date of termination of employment, plus (ii) the
number of additional shares which the Participant would have been entitled to
purchase on the next Anniversary Date, or, in the case of Stock Appreciation
Rights, the full amount of appreciation for all issued Stock Appreciation
Rights, regardless of whether yet exercisable
(e) If the Participant dies, either prior to or following retirement,
or becomes totally disabled because of a physical or mental disability and has
not yet received the stock certificate for the shares of Common Stock
represented by the grant of Restricted Stock or other Stock Award, then all
restrictions imposed by the Restricted Period or other Conditions prescribed by
the Committee, if any, shall automatically lapse and a stock certificate shall
be delivered to the Participant or the Participant's beneficiary,
representative, or estate, as the case may be, as provided in Section 6(g)
herein.
SECTION 11 DELIVERY OF STOCK CERTIFICATES
Within sixty (60) days after the receipt of notice of exercise of
Option or Stock Appreciation Right, or the complete satisfaction of Conditions
applicable to Stock Awards, the Company will have delivered to Participants
certificates representing all stock purchased or received thereunder.
The Company shall not, however, be required to issue or deliver any
certificates for its Common Stock prior to the admission of such stock to
listing on any stock exchange on which stock may at that time be listed or
required to be listed, or prior to registration under the Securities Act of
1933. The Participant shall have no interest in Common Stock until certificates
for such stock are issued or transferred to the Participant and the Participant
becomes the holder of record.
SECTION 12 TRANSFERABILITY
Except as permitted in this Section 12, rights and grants under the
1997 Program may not be assigned, transferred (other than a transfer by will or
the laws of descent and distribution as provided in Section 10), pledged, or
hypothecated (whether by operation of law or otherwise), and shall not be
subject to execution, attachment, or similar process. Any attempted assignment,
transfer (other than a transfer by will or laws of descent and distribution, or
as authorized by the Committee in accordance with this Section 12), pledge,
hypothecation, other disposition of a Participant's rights and grants under the
1997 Program, or levy of attachment or similar process upon a Participant's
Option, Stock Appreciation Right, or Stock Award shall constitute an immediate
cancellation of such Participant's rights and grants under the 1997 Program.
The Committee may, in its sole discretion, authorize a Participant to
transfer ownership of all or a portion of the Nonqualified Options granted to
such Participant under the 1997 Program to (i) the spouse, children or
grandchildren of such Participant ("Immediate Family Members"), (ii) a trust or
trusts for the exclusive benefit of such Immediate Family Members, or (iii) a
partnership in which such Immediate Family Members are the only partners,
provided that (x) there may be no consideration for any such transfer, and (y)
subsequent transfers of transferred options shall be prohibited except those in
accordance with Section 10 (by will or the laws of descent and distribution).
The Committee may, in its sole discretion, create further conditions and
requirements for the transfer of Nonqualified Options. Following transfer, any
such Options shall continue to be subject to the same terms and conditions as
were applicable immediately prior to transfer, provided that for purposes of
Sections 4, 11 and 15 hereof the term "Participant" shall be deemed to refer to
the transferee. The events causing termination of rights in accordance with
Section 10 hereof shall continue to be applied with respect to the original
Participant, following which the Nonqualified Options shall be exercisable by
the transferee only to the extent, and for the periods specified in Section 10.
SECTION 13 STOCK DIVIDEND, STOCK SPLIT, REDUCTION IN SHARES, MERGER, OR
CONSOLIDATION
If a record date for a stock dividend, split, or reduction in the
number of shares of Common Stock should occur after the Program Effective Date
during the period of continued exercisability of any rights under the 1997
Program, appropriate adjustment shall be made to give effect thereto on an
equitable basis.
If the Company is merged into or consolidated with one or more
corporations during the period of continued exercisability of any rights under
the 1997 Program, appropriate adjustments shall be made to give effect thereto
on an equitable basis in terms of issuance of shares of the corporation
surviving the merger or the consolidated corporation, as the case may be.
In the event that within such period there shall be any change in the
number or kind of the issued shares of stock (of the class optioned or granted
hereunder), or of any issued capital stock or other securities into which such
shares shall have been converted, or for which they shall have been exchanged,
and such change shall occur otherwise than through a stock dividend or split-up
or combination of shares of stock of the Company, then if (and only if) the
Committee shall, in its sole discretion, determine that such change equitably
requires an adjustment in the number or kind or purchase price of shares of
stock then subject to rights under this 1997 Program, such adjustment as the
Committee shall, in its sole discretion, determine is equitable, shall be made
and shall be effective and binding for all purposes of such outstanding rights.
SECTION 14 WITHDRAWAL, AMENDMENT, OR TERMINATION OF THE 1997 PROGRAM
The 1997 Program shall terminate five (5) years after the date of the
initial grants or awards under the 1997 Program, and no rights under the 1997
Program shall be granted after the date of termination. Such termination shall
not adversely affect rights under the 1997 Program theretofore granted.
The Board of Directors may at any time withdraw or amend the 1997
Program, except that there shall be no withdrawal or amendment which shall
adversely affect rights under the 1997 Program theretofore granted, and no
amendment shall be made without prior approval of the stockholders which would
(i) permit the issuance of stock before payment of the purchase price as
determined herein or by the Committee, (ii) increase the number of shares to be
granted to more than the 35,000,000 shares authorized, or (iii) reduce the price
per share at which the stock may be sold under Incentive Stock Options.
SECTION 15 CHANGE IN CONTROL
(a) For purposes of this Section 15, the following words and phrases
shall have the meanings indicated below, unless the context clearly indicates
otherwise:
(i) "Person" shall have the meaning associated with that term
as it is used in Sections 13(d) and 14(d) of the Act.
(ii) "Affiliates and Associates" shall have the meanings
assigned to such terms in Rule 12b-2 promulgated under Section 12 of
the Act.
(iii) "Act" means the Securities Exchange Act of 1934.
(iv) "Continuing Directors" shall have the meaning assigned to
such term in Article Thirteenth of the Company's Restated Certificate
of Incorporation.
(v) "Code" means the Internal Revenue Code of 1986,
as amended.
(b) Notwithstanding any other provision of this 1997 Program to the
contrary, all outstanding Options and Stock Appreciation Rights shall (i) become
immediately exercisable in full for the remainder of the respective Option
Period upon the occurrence of a Change in Control of the Company, and (ii)
remain exercisable in full for a minimum period of six months following the
Change in Control; provided, however, that in no event shall any Option or Stock
Appreciation Right be exercisable more than ten years from the date of the
Agreement.
(c) Similarly, all restrictions regarding the Restricted Period or the
satisfaction of other Conditions prescribed by the Committee, if any, with
respect to grants of Stock Awards, shall automatically lapse, expire, and
terminate and the Participant shall be immediately entitled to receive a stock
certificate for the number of shares of Common Stock represented in the grant of
Stock Awards as provided in Section 6(g) herein upon the occurrence of a Change
in Control.
(d) For purposes of this Section 15, a Change in Control of the Company
shall be deemed to have occurred if:
(i) any Person (together with its Affiliates and Associates),
other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company, is or becomes the "beneficial
owner" (as that term is defined in Rule 13d-3 promulgated under the
Act), directly or indirectly, of securities of the Company representing
twenty percent (20%) or more of the combined voting power of the
Company's then outstanding securities, unless a majority of the
Continuing Directors of the Company's Board of Directors prior to that
time have determined in their sole discretion that, for purposes of
this 1997 Program, a Change in Control of the Company has not occurred;
or
(ii) the Continuing Directors of the Company's Board of
Directors shall at any time fail to constitute a majority of the
members of such Board of Directors.
(e) In the event that the provisions of this Section 15 result in
"payments" that are finally determined to be subject to the excise tax imposed
by Section 4999 of the Code, the Company shall pay to each Participant an
additional amount such that the net amount retained by such Participant
following realization of all compensation under the 1997 Program that resulted
in such "payments," after allowing for the amount of such excise tax and any
additional federal, state, and local income taxes paid on the additional amount,
shall be equal to the net amount that would otherwise have been retained by the
Participant following the realization of such compensation if there were no
excise tax imposed by Section 4999 of the Code.
(f) The Company shall pay to each Participant the amount of all
reasonable legal and accounting fees and expenses incurred by such Participant
in seeking to obtain or enforce his or her rights under this Section 15, or in
connection with any income tax audit or proceeding to the extent attributable to
the application of Section 4999 of the Code to the payments made pursuant to
this Section 15, unless a lawsuit commenced by the Participant for such purposes
is dismissed by the court as being spurious or frivolous. The Company shall also
pay to each Participant the amount of all reasonable tax and financial planning
fees and expenses incurred by such Participant in connection with such
Participant's receipt of payments pursuant to this Section 15.
SECTION 16 DIVIDENDS AND DIVIDEND EQUIVALENTS
The Committee may provide that awards under the 1997 Program earn
dividends or Dividend Equivalents. Such Dividend Equivalents may be paid
currently or may be credited to a Participant's account. In addition, dividends
paid on outstanding awards or issued shares may be credited to a Participant's
account rather than paid currently. Any crediting of dividends or Dividend
Equivalents may be subject to such restrictions and conditions as the Committee
may establish, including reinvestment in additional shares or share equivalents.
SECTION 17 DEFERRALS AND SETTLEMENTS
Payment of awards may be in the form of cash, Common Stock, other
awards or combinations thereof as the Committee shall determine, and with such
other restrictions as it may impose. The Committee may also require or permit
Participants to elect to defer the issuance of shares or the settlement of
awards in cash under such rules and procedures as it may establish under the
1997 Program. It may also provide that deferred settlements include the payment
or crediting of interest on the deferral amounts denominated in cash or the
payment or crediting of Dividend Equivalents on deferred settlements denominated
in shares.
SECTION 18 OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS
Unless otherwise specifically determined by the Committee, settlements
of awards received by Participants under the 1997 Program shall not be deemed a
part of a Participant's regular, recurring compensation for purposes of
calculating payments or benefits from any Company benefit plan, severance
program, or severance pay law of any country. Further, the Company may adopt
other compensation programs, plans, or arrangements as it deems appropriate or
necessary.
SECTION 19 UNFUNDED PLAN
Unless otherwise determined by the Committee, the 1997 Program shall be
unfunded and shall not create (or be construed to create) a trust or a separate
fund or funds. The 1997 Program shall not establish any fiduciary relationship
between the Company and any Participant or other person. To the extent any
person holds any rights by virtue of a grant under the 1997 Program, such right
(unless otherwise determined by the Committee) shall be no greater than the
right of an unsecured general creditor of the Company.
SECTION 20 FUTURE RIGHTS
No person shall have any claim or rights to be granted an award under
the 1997 Program, and no Participant shall have any rights under the 1997
Program to be retained in the employ of the Company.
Recycled Paper
40% Pre-consumer paper
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MINNESOTA MINING AND MANUFACTURING COMPANY
3M CENTER, ST. PAUL, MINNESOTA 55144 PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON TUESDAY, MAY 13, 1997.
The shares of stock you hold in your account or in a dividend reinvestment
account will be voted as you specify on the reverse side of this card. IF NO
CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" ITEMS 1, 2, 3, 4, 5 AND 6.
By signing the proxy, you revoke all prior proxies and appoint L.D. DeSimone,
A.E. Murray, and E.A. Brennan, and each of them, with full power of
substitution, to vote your shares on the matters shown on the reverse side and
any other matters which may come before the Annual Meeting and all adjournments.
(CONTINUED, AND TO BE SIGNED, ON THE OTHER SIDE)
SHARES
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR ITEMS 1, 2, 3, 4, 5 AND
6.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3, 4, 5 AND 6.
ITEM 1. Election of directors
- Nominees to 2000 Class:
(A) Ronald O. Baukol (B) W. George Meredith (C) Aulana L. Peters
[ ] Vote FOR all nominees
[ ] Vote FOR ALL EXCEPT
(use letter before nominee's name to indicate exceptions):
[ ] Vote WITHHELD from all nominees
ITEM 2. Ratification of auditors
[ ] For [ ] Against [ ] Abstain
ITEM 3. Increase in authorized shares of common stock and change in par value
[ ] For [ ] Against [ ] Abstain
ITEM 4. 1997 General employees stock purchase plan
[ ] For [ ] Against [ ] Abstain
ITEM 5. 1997 Management stock ownership program
[ ] For [ ] Against [ ] Abstain
ITEM 6. 1997 Amendments to performance unit plan
[ ] For [ ] Against [ ] Abstain
ITEM 7. In their discretion, to vote upon other matters properly coming before
the meeting.
________________________________
Signature
________________________________
Signature
________________________________
Date
Please sign exactly as your
name(s) appear above. If held in
joint tenancy, all persons must
sign. Trustees, administrators,
etc. should include title and
authority. Corporations should
provide full name of corporation
and title of authorized officer
signing the proxy
YOU CAN NOW VOTE YOUR PROXY BY TELEPHONE
If you wish to vote ALL proposals FOR or AGAINST the Board of
Directors' recommendation, please use the automated telephone voting system. The
system is available 24 hours a day. HOWEVER, IF YOU WISH TO WITHHOLD AUTHORITY
OR ABSTAIN FROM VOTING, OR CHOSE NOT TO VOTE ALL PROPOSALS FOR OR AGAINST THE
BOARD OF DIRECTORS' RECOMMENDATION, YOU MUST COMPLETE AND SIGN THE PROXY VOTING
FORM AND RETURN IT IN THE PRE-PAID ENVELOPE PROVIDED.
TELEPHONE VOTING INSTRUCTIONS:
1. Using a TOUCH-TONE telephone, dial 1-800-240-6326.
2. When prompted, enter the 3 digit company number located on the proxy
voting form above your name and address.
3. When prompted, enter your 7 digit NUMERICAL Personal Identification
Number (PIN) that follows the company number. DO NOT ENTER the alpha
character.
4. If you enter an invalid PIN, you will be prompted to re-enter your
PIN. You will have 3 opportunities to enter the correct PIN before the
telephone system will end the call.
5. When prompted:
* Press "1" to vote all proposals FOR the Board of Directors'
recommendation. Pressing "1" will vote all proposals in favor
of the Board's recommendation.
OR
* Press "9" to vote all proposals AGAINST the Board of
Directors' recommendation. Pressing "9" will vote all
proposals against the Board's recommendation.
A recorded voice will confirm your vote has been cast as you directed
and end the phone call. YOU DO NOT HAVE TO MAIL BACK YOUR PROXY VOTING FORM -
YOUR VOTE HAS BEEN RECORDED ELECTRONICALLY. THE DEADLINE FOR ELECTRONIC VOTING
BY TELEPHONE IS 12:00 P.M. (CDT) ONE BUSINESS DAY PRIOR TO THE ANNUAL MEETING
DATE.
Stockholders have the option of returning the proxy card or using the
telephone voting.
Thank you for voting.
