SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Chemfab Corporation
(Name of Registrant as Specified In Its Charter)
Chemfab Corporation
(Name of Person(s) Filing Proxy Statement)
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[ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
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CHEMFAB CORPORATION
701 Daniel Webster Highway
Merrimack, New Hampshire 03054
NOTICE OF 1996 ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF CHEMFAB CORPORATION:
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Shareholders of
Chemfab Corporation will be held at the Corporation's principal executive
office, 701 Daniel Webster Highway, Merrimack, New Hampshire, on Thursday,
October 31, 1996 at 9:00 A.M. (local time) for the following purposes:
(a) To elect directors of the Corporation; and
(b) To consider and vote upon a proposal to ratify the selection
by the Board of Directors of the firm of Ernst & Young LLP as
independent auditors of the Corporation for the fiscal year
ending June 30, 1997; and
(c) To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Board of Directors has fixed September 4, 1996 as the record date for
the determination of shareholders entitled to notice of, and to vote at, the
1996 Annual Meeting of Shareholders. Accordingly, only shareholders of record
at the close of business on September 4, 1996 will be entitled to notice of, and
to vote at, such meeting or any adjournments thereof.
By order of the Board of Directors
MOOSA E. MOOSA
Secretary
September 30, 1996
NOTE: THE BOARD OF DIRECTORS SOLICITS THE EXECUTION AND PROMPT RETURN OF THE
ACCOMPANYING PROXY. A RETURN ENVELOPE IS ENCLOSED.
CHEMFAB CORPORATION
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of Chemfab
Corporation (the "Corporation") for use at the 1996 Annual Meeting of
Shareholders on October 31, 1996 and at any adjournments or postponements
thereof (the "Meeting").
The Corporation's principal executive office is located at 701 Daniel
Webster Highway, P.O. Box 1137, Merrimack, New Hampshire 03054.
The cost of soliciting proxies by mail, telephone, telegraph or in person
will be borne by the Corporation. The Corporation has retained the services of
W.F. Doring & Company, a proxy solicitation firm based in New Jersey, to whom
the Corporation will pay a fee of $1,500 plus reimbursement for mailing and out-
of-pocket expenses. In addition to solicitation by mail, the Corporation will
reimburse brokerage houses and other nominees for their expenses incurred in
sending proxies and proxy material to the beneficial owners of shares held by
them.
You may revoke your proxy at any time prior to its use by giving written
notice to the Secretary of the Corporation, by executing a revised proxy at a
later date or by attending the Meeting and voting in person. Proxies in the
form enclosed, unless previously revoked, will be voted at the Meeting in
accordance with the specifications made by you thereon or, in the absence of
such specifications, in favor of the election of the nominees for directors
listed herein and in favor of the proposal to ratify the selection of Ernst &
Young LLP as independent auditors for the fiscal year ending June 30, 1997, and,
with respect to any other business which may properly come before the meeting,
in the discretion of the named proxies. If, in a proxy submitted on your behalf
by a person acting solely in a representative capacity, the proxy is marked
clearly to indicate that the shares represented thereby are not being voted with
respect to one or more proposals, then your proxy will not be counted as present
at the meeting with respect to such proposals. Proxies submitted with
abstentions as to one or more proposals will be counted as present for purposes
of establishing a quorum for such proposals.
All holders of record of the common stock, par value $.10 per share, of the
Corporation (the "Common Stock") at the close of business on September 4, 1996,
will be eligible to vote at the Meeting. Each share is entitled to one vote.
All share and option related information in this proxy statement has been
adjusted to reflect the 3-for-2 stock split, in the form of a stock dividend,
effected by the Company on February 22, 1996. As of September 4, 1996, the
Corporation had outstanding 7,997,609 shares of Common Stock. The presence, in
person or by proxy, of a majority of the issued and outstanding Common Stock
will constitute a quorum for the transaction of business at the Meeting. This
proxy statement and the enclosed proxy are first being mailed or given to
shareholders on or about September 30, 1996.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to each
person known to the Corporation, on the basis of filings made pursuant to Rule
13(d) or 13(g) under the Securities Exchange Act of 1934, to be the beneficial
owner of more than 5% of the issued and outstanding Common Stock as of August
8, 1996 or other date noted below. As of August 8, 1996, 8,069,574 shares of
Common Stock were outstanding.
Name and Address Amount and Nature of Percentage of
of Beneficial Owner Beneficial Ownership Outstanding
of Common Stock (1) Shares of
Common Stock Owned (1)
- ---------------------- -------------------- ----------------------
Peter B. Cannell & 1,291,157 (2) 16.0%
Co., Inc. ("Cannell")
919 Third Avenue
New York, NY 10022
Paul M. Cook 576,660 (3)(4) 7.1%
PMC Assoc.
c/o SRI
P.O. Box 880
Menlo Park, CA 94026-0880
Dimensional Fund 455,850 (5) 5.6%
Advisors Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
(1) The shares owned, and the shares included in the total number of shares
outstanding, have been adjusted, and the percentage owned has been computed, in
accordance with Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, as
amended, and includes, options to the extent called for by such rule, with
respect to shares of Common Stock that can be exercised on or before October 7,
1996. Except as set forth in the footnotes below, such shares are beneficially
owned with sole investment and sole voting power.
(2) Based upon information provided to the Corporation by Cannell as of July
31, 1996. Consists entirely of shares of Common Stock of the Corporation owned
by investment advisory clients of Cannell, principals of Cannell, and The Peter
B. Cannell 401(k) Plan. Cannell disclaims beneficial ownership of all such
shares. The 1,291,157 shares of Common Stock listed as beneficially owned by
Cannell as of August 8, 1996, includes 92,951 shares of Common Stock
subsequently sold by Cannell to the Company. (See Certain Transactions.)
(3) Assumes that options covering 60,000 shares are exercised.
(4) Includes 516,660 shares held by the Paul and Marcia Cook Living Trust,
as to which Mr. Cook and his wife share voting and investment power as co-
trustees.
(5) Based upon information as of June 30, 1996 provided to the Corporation
by Dimensional Fund Advisors. Consists entirely of shares of Common Stock owned
by portfolios of DFA Investment Dimensions Group, Inc., a registered open-end
investment company, or in series of The DFA Investment Trust Company, a Delaware
business trust, or the DFA Group Trust and the DFA Participating Group Trust,
investment vehicles for qualified employee benefit plans, all of which
Dimensional Fund Advisors Inc. serves as investment manager. Dimensional
Fund Advisors does not have voting power with respect to 162,900 of such shares.
Dimensional Fund Advisors disclaims beneficial ownership of all 455,850 shares.
ELECTION OF DIRECTORS
Nominees for Election as Directors
The Board of Directors has set the number of Board members at six for the
upcoming year. Each director is elected to hold office until the next annual
meeting of shareholders, or special meeting in lieu thereof, and until their
respective successors are duly elected and qualified. The Board has nominated
all of the current members of the Board for reelection. The affirmative vote of
a plurality of the shares of Common Stock present at the Meeting, in person or
by proxy, is required for the reelection of the members of the Board.
Unless authority to do so is withheld, the persons named in each proxy
(and/or their substitutes) will vote the shares represented thereby "FOR" the
election of the director nominees named below. If for any reason any nominee is
not a candidate (which is not now expected), a new nominee will be designated by
the Board to fill such vacancy, unless the Board of Directors shall reduce the
number of directors in accordance with the By-Laws of the Corporation.
Information as to Directors and Nominees for Director
There is shown below for each director and nominee for director, as
reported to the Corporation, the name, age and family relationship, if any, with
any other director or officer, the principal occupation and employment over at
least the last five years, the position, if any, with the Corporation, the
period of service as a director of the Corporation, and certain other
directorships held.
Name Age Office Held Director Since
- ---- --- ----------- --------------
Paul M. Cook 72 Director March 1976
Warren C. Cook 51 Director September 1976
Robert E. McGill, III 65 Director October 1995
James E. McGrath 62 Director October 1993
Duane C. Montopoli 47 President, February 1986
Chief Executive
Officer and Director
Nicholas Pappas 66 Director May 1991
PAUL M. COOK has served as Chief Executive Officer and Chairman of the
Board of Diva Systems Corporation since June 1995. He is also Chairman of the
Board of Directors of SRI International, Menlo Park, California, a position he
has held since December 1993. Mr. Cook has also served as Chairman of the Board
of Directors of CellNet Data Systems, Inc. (formerly Domestic Automation
Company) of San Carlos, California since June 1990 and served as Chief Executive
Officer of that company from August 1990 through August 1994. Mr. Cook is a
member of the Board of Directors of Raychem Corporation, Menlo Park, California,
which he founded in 1957 and of which he served as President until 1982 and
Chief Executive Officer until April 1990. Mr. Cook is the uncle of Mr. Warren
Cook, also a director of the Corporation.
WARREN C. COOK is President and is a member of the board of directors of
Sugarloaf Mountain Corporation. Prior to his resignation in June 1986, Mr. Cook
was President and Chief Executive Officer of the Corporation. Mr. Cook is the
nephew of Mr. Paul Cook, also a director of the Corporation.
ROBERT E. McGILL, III served as Executive Vice President of The Dexter
Corporation, Windsor Locks, Connecticut from 1989 through 1994 and also served
as Director from 1983 through April 1995. Prior to his appointment as Executive
Vice President, Mr. McGill served as Vice President and Senior Vice President of
Finance and Administration from 1975 through 1989. He is currently a member of
the Board of Directors of CN Biosciences, Inc. and Connecticut Surety
Corporation. Mr. McGill is also a Trustee for Travelers Mutual and Variable
Annuity Funds.
JAMES E. McGRATH, Ph.D., is the Ethyl Chaired Professor of Chemistry and
Director of the National Science Foundation's Science and Technology Center for
High Performance Polymer Adhesives and Composites at Virginia Polytechnic
Institute and State University ("VPI"). Prior to his appointment as Director of
the Science and Technology Center in February 1989, Dr. McGrath served as
Director of the Materials Institute at VPI. Dr. McGrath also held various
positions as a research scientist and chemist during his 17 years in private
industry with several companies, including Union Carbide and Goodyear Tire and
Rubber Co.
DUANE C. MONTOPOLI is President and Chief Executive Officer of the
Corporation. He has held these positions since June 1986. From December 1983
until January 1990, Mr. Montopoli was a partner in Oak Grove Ventures, Menlo
Park, California. Prior to that time, he was a partner in Arthur Young &
Company (a predecessor firm of Ernst & Young LLP).
NICHOLAS PAPPAS, Ph.D., is Vice Chairman of the Board of Directors of
Rollins Environmental Services, Inc., Wilmington, Delaware. Prior to his
appointment as Vice Chairman, Mr. Pappas served as President and Chief Operating
Officer from July 1991 through September 1995. Dr. Pappas was employed by the
Du Pont Company in various capacities from 1956 until his retirement in December
1990. Dr. Pappas served as Executive Vice President of Du Pont from 1988 to
December 1990, and was Group Vice President - Polymer Products from 1983 to
1988. He is also a director of Yenkin-Majestic Corp. of Dayton, Ohio, Nova
Corporation, a Canadian company, TCIM Services of Wilmington, Delaware, and
Biotraces Inc. of Fairfax, Virginia.
As compensation for service as director, each non-employee director
receives cash compensation and annual stock option grants. The Corporation pays
to each non-employee director $1,000 for every meeting of the Board of Directors
attended in person by such director, and $250 for every telephonic meeting of
the Board of Directors (or committee thereof) in which such director
participates. In addition, pursuant to the Corporation's Second Amended and
Restated 1991 Stock Option Plan, the non-employee directors of the Corporation
receive annual automatic grants of options to purchase shares of Common Stock
(not to exceed an aggregate of 60,000 shares per person). During fiscal 1996,
each of the non-employee directors received an automatic grant of options under
the Second Amended and Restated 1991 Stock Option Plan to purchase 6,000 shares
of the Common Stock at fair market value as of the date of grant ($12.33 per
share), and such options became fully vested over the course of that fiscal
year. The Board of Directors met eight times last year. Each director
attended at least 75% of the aggregate of the total number of such meetings of
the Board of Directors and the total number of meetings held by all committees
on which he served, with the exception of Warren Cook, who attended 73% of
such meetings.
Committees
From July 1995 through October 1995, the Audit Committee of the Board of
Directors consisted of Mr. Paul M. Cook and Dr. James E. McGrath, and from
October 1995 through the remainder of fiscal 1996, consisted of Mr. McGrath and
Mr. McGill. This committee met twice in fiscal 1996. The functions of the
Audit Committee include: (1) making recommendations to the Board of Directors
with respect to the engagement of the independent auditors; (2) reviewing the
audit plans developed by the independent auditors for the annual audit of the
Corporation's books and records and the results of such audit; (3) reviewing the
annual financial statements; (4) reviewing the professional services provided by
the independent auditors and the auditors' independence; and (5) reviewing the
adequacy of the Corporation's system of internal controls and the responses to
management letters issued by the independent auditors.
During fiscal 1996, the Option/Compensation Committee of the Board of
Directors consisted of Mr. Paul M. Cook, Mr. Warren C. Cook and Dr. Nicholas
Pappas. This committee met three times in fiscal 1996. The principal functions
of the Option/Compensation Committee are to review and approve salary plans and
bonus awards, as well as other forms of compensation, and to administer the
Corporation's stock option plans pursuant to the terms of such plans. In July
1996, Dr. Pappas resigned as a member of the Option/Compensation Committee in
light of his then pending Consulting Agreement with the Corporation (see
"CERTAIN TRANSACTIONS").
Ownership of Equity Securities by Management
The table below sets forth information as of August 8, 1996, as reported to
the Corporation, as to the beneficial ownership of the Common Stock of the
Corporation by each director, each nominee for election as a director, and each
named executive officer, and by all directors and executive officers as a group.
Amount and Nature of Percentage of
Beneficial Ownership Outstanding Shares of
Name of Common Stock (1) Common Stock Owned (1)
- --------------------- --------------------- ----------------------
Paul M. Cook 576,660 (2) 7.09%
Warren C. Cook 190,827 (3) 2.35%
James C. Manocchi 70,125 .86%
Robert E. McGill, III 7,000 .09%
James E. McGrath 18,000 .22%
Duane C. Montopoli 197,750 (4) 2.39%
Gabriel P. O'Gara 47,640 .59%
Nicholas Pappas. 36,000 .44%
Charles Tilgner III 24,047 .30%
John W. Verbicky 17,063 .21%
All directors and executive
officers as a group (12 persons) 1,217,175 14.12%
(1) Except as set forth in the footnotes below, each stockholder has sole
investment and voting power with respect to the shares beneficially owned.
Includes options with respect to shares of Common Stock that can be exercised on
or before October 7, 1996. Assumes exercise of options covering 60,000 shares
for Mr. Paul Cook, 60,000 shares for Mr. Warren Cook, 70,125 shares for Mr.
Manocchi, 6,000 shares for Mr. McGill, 18,000 shares for Dr. McGrath, 193,250
shares for Mr. Montopoli, 47,625 shares for Mr. O'Gara, 30,000 shares for Dr.
Pappas, 17,250 shares for Mr. Tilgner, 17,063 shares for Dr. Verbicky, and
551,376 shares for all directors and executive officers as a group.
(2) Includes 516,660 shares held by the Paul and Marcia Cook Living Trust,
as to which Mr. Cook and his wife share voting and investment power as co-
trustees.
(3) Includes 85,500 shares held in trust for the benefit of Mr. Warren
Cook's two children, as to which Mr. Cook has no voting or investment power and
disclaims beneficial ownership.
(4) Includes 4,500 shares held by Mr. Montopoli as custodian for his two
children, as to which Mr. Montopoli disclaims beneficial ownership.
EXECUTIVE COMPENSATION
Summary Compensation Table
The table below sets forth certain compensation information for the fiscal
years ended June 30, 1996, 1995 and 1994 with respect to the Corporation's Chief
Executive Officer and those four other executive officers of the Corporation who
were the most highly paid for fiscal 1996.
<TABLE>
<S><C>
Long Term
Compensation
Annual Compensation Awards All Other
Name and Principal Position Year Salary($)(1) Bonus($) Options(#) Compensation($)(2)
- -------------------------------- ---- ----------------------- ---------- ------------------
Duane C. Montopoli 1996 $225,000 $85,000 18,000 $6,828
President, Chief Executive 1995 $219,000 $66,000 12,000 $5,666
Officer and Director 1994 $217,600 $12,000 12,000 $5,271
James C. Manocchi 1996 $135,000 $42,000 9,000 $3,345
Vice President-Asia 1995 $130,000 $25,000 24,000 $3,303
Pacific Business Group 1994 $129,000 $ 8,000 11,250 $3,086
Gabriel P. O'Gara 1996 $134,000 $57,000 12,750 $2,001
Vice President-European 1995 $126,891 $34,000 9,000 $1,740
Business Group 1994 $106,090 $9,000 6,000 $1,438
Charles Tilgner III 1996 $107,000 $40,000 6,000 $4,294
Vice President and Director of 1995 $103,000 $23,000 0 $4,166
U.S. Operations and Engineering 1994 $105,000 $ 4,000 0 $3,883
John W. Verbicky 1996 $151,000 $57,000 98,250 $16,050 (3)
Executive Vice President 1995 $130,000 $24,000 9,000 $15,892 (3)
and Chief Operating Officer 1994 $124,912 $ 4,000 0 $15,627 (3)
</TABLE>
(1) Salary includes amounts deferred pursuant to the Corporation's 401(k)
Plan.
(2) All Other Compensation includes (i) the Corporation's matching
contributions, and discretionary payments made by the Corporation, under the
Corporation's 401(k) Plan, and (ii) life insurance premiums paid by the
Corporation on behalf of the named executive officer.
(3) Pursuant to the terms of Dr. Verbicky's employment agreement, the
Corporation has forgiven $15,000 of indebtedness owed by Dr. Verbicky to the
Corporation during each of fiscal 1994; 1995 and 1996.
Option Grants in Last Fiscal Year
The following table discloses information regarding stock options granted
during the fiscal year ended June 30, 1996 pursuant to the Corporation's Second
Amended and Restated 1991 Stock Option Plan to the individuals listed in the
Summary Compensation Table. In accordance with Securities and Exchange
Commission rules, also shown are the hypothetical gains or "option spreads," on
a pre-tax basis, that would exist for the respective options. These gains are
based on assumed rates of annual compound stock price appreciation of 0%, 5%
and 10% from the date the options were granted over the full option term of
ten (10) years.
<TABLE>
<S><C>
Individual Grants
------------------------------------------------------------ Potential Realizable Value at
% of Total Assumed Annual Rates of
Options Granted Stock Price Appreciation for
Options to Employees Exercise Expiration Option Term
Name Granted(#)(1) in FY 1996 Price (per sh) Date 0% 5% 10%
- ------------------- -------------- -------------- -------------- ------------ -----------------------------
Duane C. Montopoli 18,000 6.72% $11.33 08/03/05 $ 0 $128,160 $ 325,080
James C. Manocchi 9,000 3.36% $11.33 08/03/05 $ 0 $ 64,080 $ 162,540
Gabriel P. O'Gara 12,750 4.76% $11.33 08/03/05 $ 0 $ 90,780 $ 230,265
Charles Tilgner III 6,000 2.24% $11.33 08/03/05 $ 0 $ 42,720 $ 108,360
John W. Verbicky 14,250 5.32% $11.33 08/03/05 $ 0 $101,460 $ 257,355
John W. Verbicky 84,000 31.34% $13.33 02/01/06 $ 0 $703,920 $1,784,160
</TABLE>
(1) Each option grant is exercisable, cumulatively, in increments of 25% on
each of the first four anniversaries of the grant date. Options granted to
executive officers provide for accelerated vesting in the event of a change in
control of the Corporation.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table sets forth information as to options exercised during
the fiscal year ended June 30, 1996, and unexercised options held at the end of
such fiscal year, by the individuals listed in the Summary Compensation Table.
<TABLE>
<S><C>
Value of Unexercised
Numbers of Unexercised In-the-Money Options
Shares Acquired Value Options at 6/30/96(#) at 6/30/96($)
Name on Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
- -------------------- --------------- ----------- ------------------------- -------------------------
Duane C. Montopoli 32,500 $375,046 179,000 / 36,750 1,236,657 / 171,750
James C. Manocchi 20,063 $ 97,406 60,000 / 35,437 60,000 / 191,247
Gabriel P. O'Gara 0 -- 39,187 / 24,000 157,090 / 109,250
Charles Tilgner III 0 -- 15,187 / 6,563 48,934 / 19,566
John W. Verbicky 24,750 $ 93,750 11,250 / 116,250 63,750 / 205,000
</TABLE>
(1) Value is based on the closing sale price of $14.00 per share of the Common
Stock as of June 28, 1996 (the last trading date during fiscal 1996) minus the
exercise price.
Defined Benefit Plan
Defined Benefit Plan--United States
The Corporation maintains a defined benefit pension plan (the "Defined
Benefit Plan") for its U.S. employees. The following table shows the estimated
annual benefit payable at age 65 upon retirement to participants in the
Corporation's Defined Benefit Plan at the specified compensation and years-of-
service classifications.
<TABLE>
<S><C>
Years of Service
-------------------------------------------------------------------------
10 15 20 25 and over
---------------- ---------------- ---------------- ----------------
Range of Officer Range of Officer Range of Officer Range of Officer
Average Birth Dates Birth Dates Birth Dates Birth Dates
Renumeration* 1957 1935 1957 1935 1957 1935 1957 1935
- ------------- ---------------- --------------- --------------- ----------------
$100,000 $ 9,900 $11,700 $14,800 $17,500 $19,800 $23,400 $24,700 $29,200
125,000 13,400 15,200 20,100 22,700 26,700 30,300 33,400 37,900
150,000 16,800 18,600 25,300 27,900 33,700 37,300 42,100 46,600
175,000 20,300 22,100 30,500 33,200 40,600 44,200 50,800 55,300
200,000 23,800 25,600 35,700 38,400 47,600 51,200 59,500 63,900
225,000 27,300 29,100 40,900 43,600 54,500 58,100 68,200 72,600
250,000 30,700 32,500 46,100 48,800 61,500 65,100 76,900 81,300
275,000 34,200 36,000 51,300 54,000 68,400 72,000 85,500 90,000
</TABLE>
- ----------------
* Represents the average annual compensation paid during the sixty (60) months
preceding retirement.
Compensation for purposes of computing retirement benefits under the
Defined Benefit Plan includes salary and only those bonuses paid under the
Corporation's sales incentive program. For the purpose of computing retirement
benefits under the Defined Benefit Plan, compensation for fiscal 1996, reported
to the pension trustee in August 1996, for Mr. Montopoli was $226,000, for Mr.
Manocchi was $136,000, for Mr. Tilgner was $108,000, and for Dr. Verbicky was
$140,000. Mr. O'Gara does not participate in the Defined Benefit Plan.
Benefits are computed on a straight-life annuity basis and, in general, are
payable monthly commencing at age 65. Early retirement is permitted between the
ages of 55 and 65, but at a considerably reduced benefit and subject to certain
restrictions. Benefits are not subject to any reduction for social security or
other offset amounts.
For the purpose of computing retirement benefits under the Defined Benefit
Plan, on June 30, 1996 Mr. Montopoli had 10 years of credited service; Mr.
Manocchi, 5 years; Mr. Tilgner, 18 years; and Dr. Verbicky, 3 years.
Defined Benefit Plan--Ireland
One of the Corporation's wholly-owned subsidiaries maintains a defined
benefit plan (the "Irish Pension Plan") for its Irish employees. Monthly
pension benefits are based on the participant's number of years of service at
the time of retirement at age 65 (not to exceed 40 years) multiplied by 1.67% of
average pensionable salary as defined in the Irish Pension Plan. Additional
benefits may be payable upon retirement in the event that a participant
contributes voluntarily to the Irish Pension Plan in excess of the compulsory
contributions described below.
Under the Irish Pension Plan, participating employees contribute 5% of
pensionable salary while the Corporation's subsidiary contributes the balance of
the funding which is required to ensure sound funding of the Irish Pension
Plan. In addition to the compulsory employee contributions referred to above,
employees may also voluntarily defer up to 15% of their gross salary to a
separate account in their name under the Irish Pension Plan in order to
supplement the defined benefit.
Full time employees of the Irish subsidiary (including Mr. Gabriel P.
O'Gara, an executive officer of the Corporation) are eligible to participate in
the Irish Pension Plan upon having attained age 24 and one year of service as of
the first day of the relevant plan year (March 1). Early retirement is
permitted between the ages of 50 and 65, but at a considerably reduced benefit.
Executive Employment Agreement
The Corporation entered into an employment agreement with Duane C.
Montopoli, the President and Chief Executive Officer of the Corporation, as of
May 29, 1992 (the "Employment Agreement"). Mr. Montopoli's current annual base
salary under the Employment Agreement is $230,000, subject to annual review and
increase by the Board of Directors of the Corporation. Under the Employment
Agreement as amended, Mr. Montopoli is eligible to participate in the Chemfab
Corporate Officer Bonus Plan and may receive an annual cash bonus depending on
the Corporation's financial performance for the year. (See Compensation
Committee Report.) Furthermore, Mr. Montopoli is entitled to fringe benefits
under the Employment Agreement, including life insurance, health insurance and a
company car.
The Employment Agreement provides that Mr. Montopoli's employment with the
Corporation may be terminated by either Mr. Montopoli or the Corporation, at any
time and for any reason whatsoever, by giving thirty (30) days' written notice
of termination. If the Corporation terminates Mr. Montopoli's employment under
certain specified circumstances, the Corporation will continue to pay Mr.
Montopoli's base salary and fringe benefits for a period of nine (9) months
following such termination, subject to offset by the amount of any salary or
bonus received by Mr. Montopoli from subsequent employment (unless such
termination occurs after a sale of the Corporation). The Employment Agreement
contains similar compensation provisions in the event that Mr. Montopoli's
employment with the Corporation terminates as a result of his death or
disability, except that, in the case of Mr. Montopoli's disability, the
compensation payable by the Corporation to Mr. Montopoli is expected to be
funded, in part, from disability insurance coverage maintained by the
Corporation.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE OFFICER COMPENSATION
Compensation Philosophy and Objectives
The Corporation's executive officer compensation consists of three primary
components: base salary, annual bonuses, and grants of stock options. Each
component is intended to further the Corporation's overall compensation
philosophy, and to achieve the compensation objectives of the Corporation. The
Corporation's compensation philosophy is that executive officer compensation
should reflect the value created and protected for shareholders, while
furthering the Corporation's short and long-term strategic goals and values by
aligning compensation with business objectives and individual performance.
Short and long-term compensation should motivate and reward high levels of
performance and are geared to attract and retain qualified executive officers.
The Corporation's executive officer compensation program is based on the
following principles and objectives:
o Competitive, Fair and Balanced Compensation
The Corporation is committed to providing an executive officer compensation
program that helps attract and retain highly qualified executive officers.
To ensure that compensation is competitive, the Corporation compares its
compensation practices with those of other companies and compensation for
similar positions in the market. The Corporation also seeks to achieve a
balance of the compensation paid to a particular individual and the
compensation paid to other executive officers inside the Corporation, and
strives to achieve a balance between the fixed and variable components, and
between the short and long-term components, of each executive officer's
compensation.
o Performance
Executive officers are rewarded based upon both corporate and individual
performance. Corporate performance is evaluated by reviewing the extent to
which strategic and business plan goals are met. Individual performance is
evaluated by reviewing the achievement of specified individual objectives
and the degree to which the executive officer contributed to the overall
success of the Corporation and the management team.
In evaluating each executive officer's performance, the Corporation
generally follows the process described below:
o Prior to or shortly after the beginning of each fiscal year, the
Corporation's goals and objectives are set through the preparation
of the annual plan, which is reviewed with, and ultimately approved
by, the full Board of Directors. Mr. Montopoli reports to the
Board on the Corporation's progress toward achieving its strategic
goals and operating plan throughout the year at quarterly Board
meetings and at other times as necessary.
o In conjunction with the August Board meeting, the Compensation
Committee meets with Mr. Montopoli to review the performance of
each executive officer other than Mr. Montopoli during the fiscal
year just ended, with particular emphasis on the contribution made
toward the attainment of the Corporation's goals and objectives for
that year. At that time, Mr. Montopoli makes specific salary,
bonus and option award recommendations to the Compensation
Committee for each executive officer. Based upon all the
information available, including the performance of the individual
officer and compensation information for individuals holding
similar positions in other companies, the Compensation Committee
makes the final determination of the salary, bonus and option
awards for each executive officer.
o At the same time, the Compensation Committee also addresses certain
aspects of Mr. Montopoli's compensation. Since his base salary
level is set by his Employment Agreement (see "EXECUTIVE
COMPENSATION -- Executive Employment Agreement" above), this annual
determination by the Compensation Committee relates only to his
annual salary increase, if any, the discretionary portion of his
annual bonus and stock option grants.
Compensation for Fiscal 1996
Salary
As described above, the Compensation Committee sets the base salary for
executive officers after reviewing the Chief Executive Officer's recommendations
and evaluations of performance, compensation for competitive positions in the
market and the historical compensation levels of the executive officers. In Mr.
Montopoli's case, this process applies only to any annual increase in his base
salary under his Employment Agreement. At its August 1995 meeting, the
Compensation Committee reviewed the salaries of the Corporation's executive
officers, including Mr. Montopoli, and the Corporation's financial performance
for the fiscal year ended June 30, 1995. Based upon this review, the Committee
concluded that increases ranging from 3.1% to 7.7% were appropriate for each
executive officer. Dr. Verbicky also received a 29% increase in March 1996, in
connection with his promotion to Executive Vice President and Chief Operating
Officer.
Bonus Awards
For fiscal 1996, the Corporation's executive officers, including Mr.
Montopoli, were eligible to receive bonuses pursuant to the terms of the Chemfab
Corporate Officer Bonus Plan (the "Plan") which was approved by the Compensation
Committee early in fiscal 1996. Under the terms of the Plan, executive officer
bonuses are paid from a bonus pool which is funded based upon a formula tied to
the Corporation's consolidated pretax profit for the year. The individual's
total bonus opportunity is divided into two components: 60% of the opportunity
is tied to the individual's base pay as of July 1, 1995 and 40% is variable
based upon an assessment by the Compensation Committee of the individual's
achievements and contributions to the success of the business during the year.
Based upon the Corporation's actual pretax profit for fiscal 1996, the
total bonus pool created under the Chemfab Corporate Officer Bonus Plan was
$320,000, which represented 40% of the base salaries of the executive officer
group as a whole. The bonus payment to Mr. Montopoli for fiscal 1996 was
$85,000, which represented 38.8% of his base pay. The other four most highly
paid executive officers received bonus payments equal to 39.4% of their base pay
in the aggregate. These amounts were paid in September 1996.
Stock Option Grants
The Compensation Committee believes that stock options have been and remain
an excellent vehicle for compensating employees. Because the option exercise
price for the employee is generally the fair market value of the stock on the
date of grant, employees recognize a gain only if the value of the stock
increases. Thus, employees with stock options are rewarded for their efforts to
improve long-term performance of the Corporation's stock. The size of stock
option grants is generally intended by the Compensation Committee to reflect the
executive officer's position with the Corporation and his other contributions to
the Corporation, while at the same time considering his other prior equity
holdings in the Corporation and the stock option awards made to other executive
officers of the Corporation. Grants to executive officers under the stock
option program typically involve a four-year vesting period (subject to
accelerated vesting upon a change of control of the Corporation) to encourage
key employees to continue in the employ of the Corporation. At its August 1996
meeting, the Compensation Committee granted stock options to the named officers
as follows: Mr. Montopoli, 14,000 shares; Mr. Manocchi, 7,000 shares; Mr.
O'Gara, 13,000 shares; and Mr. Tilgner, 5,300 shares. No stock options were
granted to Dr. Verbicky in August 1996. On February 1, 1996, Dr. Verbicky was
granted options to purchase 84,000 shares in connection with his promotion to
Executive Vice President and Chief Operating Officer.
Conclusion
The Compensation Committee believes that the total fiscal 1996-related
compensation of the Chief Executive Officer and each of the other named
officers, as described above, including the bonus awards and stock option grants
made in August 1996, is fair, and is well within the range of compensation for
executive officers in similar positions at comparable companies.
Compensation Committee
Paul M. Cook
Warren C. Cook
CERTAIN TRANSACTIONS
In February 1995, Gabriel P. O'Gara, Vice President - European Business
Group, acquired a 50% ownership interest in Fothergill Engineered Fabrics
("FEF"), which is a commercial weaver of specialty fibers in England. FEF is
also a raw material supplier to the Company's U.K. and Irish subsidiaries, and
owns the site on which the U.K. subsidiary operates. The Corporation has entered
into a lease and related agreements with FEF which provide for minimum annual
payments by the Corporation to FEF of approximately $65,000 for a period of at
least five years. During the fiscal year ended June 30, 1996, the Company's
U.K. and Irish subsidiaries purchased an aggregate of $1,552,000 of woven
materials from FEF and paid an aggregate of $450,000 for rent and shared
services. At June 30, 1996, the amount payable to FEF for material purchases
and services was an aggregate of $365,000.
On August 2, 1996, the Company entered into a Consulting Agreement with
Nicholas Pappas, a director of the Company, pursuant to which Dr. Pappas shall
provide to the Company, on an as-needed basis, certain defined consulting
services. Pursuant to the agreement, the Company shall pay to Dr. Pappas
compensation in the amount of $7,500 per month, and shall reimburse his
reasonable expenses incurred in the performance of his consulting services.
Additionally, under certain circumstances, the Company may grant stock options
to Dr. Pappas in consideration for services rendered under the consulting
agreement. The consulting agreement terminates on November 30, 1996, unless
renewed or extended by the parties.
On August 16, 1996, pursuant to the Company's stock repurchase program, the
Company agreed to purchase from Peter B. Cannell & Co., Inc. ("Cannell"), a
holder of greater than 5% of the Company's Common Stock, 92,951 shares of Common
Stock at a purchase price of $13.25 per share. Cannell has informed the Company
that 13,200 of such shares were acquired by Cannell between January 4, 1995, and
May 21, 1996, at prices ranging from $8.62 to $13.38 per share. The price per
share paid to Cannell by the Company was determined by Mr. Montopoli on the
basis of the "asked" price of the shares, as quoted on the Nasdaq National
Market System on August 16, 1996, and the recent historical trading price range
of the Company's Common Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, as amended, the
Company's directors and certain of its officers and persons holding more than
ten percent of the Company's Common Stock are required to report their ownership
of the Common Stock and any changes in such ownership to the Securities and
Exchange Commission and the Company. Based on the Company's review of copies of
such reports, no untimely reports were made during the fiscal year ended June
30, 1996.
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the performance of the Corporation's Common
Stock to the Nasdaq Stock Market (U.S.) Index and to the S&P Manufacturing
(Diversified Industrial) Index since June 30, 1991. The graph assumes that the
value of an investment in the Corporation's Common Stock and each index was $100
at June 30, 1991 and that all dividends were reinvested. The total cumulative
return reflected in the graph below in respect of the fiscal year ended June 30,
1994 and June 30, 1995 has been computed based on the closing sale price of the
Corporation's Common Stock on June 29 and June 27, respectively, the last
trading days of the Corporation's Common Stock in such fiscal years.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN *
Cumulative Total Return
6/91 6/92 6/93 6/94 6/95 6/96
Chemfab Corp CMFB 100 59 44 49 66 86
NASDAQ STOCK MARKET -US INAS 100 120 151 153 204 261
S & P MFG (DVSFD INDUSTRIALS) IMNV 100 99 117 131 173 221
* $100 INVESTED ON 06/30/91 IN STOCK OR INDEX INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING JUNE 30.
RATIFICATION OF INDEPENDENT AUDITORS
Based upon the recommendation of its Audit Committee, the Board of
Directors has selected the firm of Ernst & Young LLP as the independent auditors
of the Corporation for the fiscal year ending June 30, 1997. Ernst & Young LLP
(together with one of its predecessor firms, Arthur Young & Company) have acted
in such capacity for the Corporation since the 1980 fiscal year. The Board will
propose at the Meeting that the shareholders ratify this selection.
Representatives of Ernst & Young LLP are expected to be present at the
Meeting and will be afforded the opportunity to make a statement if they so
desire and to respond to appropriate questions.
The affirmative vote of a majority of the shares of Common Stock present at
the Meeting, in person or by proxy, is required for the ratification of the
appointment of Ernst & Young LLP as the Corporation's auditors. If the proposal
to ratify the appointment of Ernst & Young LLP is not approved, the Board of
Directors will select and appoint an independent accounting firm for the fiscal
year ending June 30, 1997 without further shareholder action.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE
SELECTION OF ERNST & YOUNG LLP AS THE INDEPENDENT AUDITORS OF THE CORPORATION
FOR THE FISCAL YEAR ENDING JUNE 30, 1997, AND PROXIES SOLICITED BY THE BOARD
WILL BE VOTED IN FAVOR THEREOF UNLESS A SHAREHOLDER HAS INDICATED OTHERWISE ON
THE PROXY.
MISCELLANEOUS
Other Matters
The Board of Directors does not know of any other matters that may be
presented at the Meeting, except for routine matters. If other business does
properly come before the Meeting, however, the persons named on the accompanying
proxy intend to vote on such matters in accordance with their best judgment.
1997 Shareholder Proposals
In order for shareholder proposals to be presented at the Corporation's
1997 annual meeting of shareholders, such proposals must be received by the
Secretary of the Corporation at the Corporation's principal office in Merrimack,
New Hampshire not later than May 30, 1997 for inclusion in the proxy statement
for that meeting, subject to the applicable rules of the Securities and Exchange
Commission. Delivery of such proposals should be by Certified Mail, Return
Receipt Requested.
Annual Report on Form 10-K
The Corporation's Annual Report on Form 10-K (without exhibits) is included
in the Corporation's Annual Report to Shareholders, and is being furnished to
shareholders of record together with this Proxy Statement. Requests for
additional copies should be directed to: Secretary, Chemfab Corporation, 701
Daniel Webster Highway, P.O. Box 1137, Merrimack, New Hampshire 03054.
September 30, 1996
ANNEX
FORM OF PROXY CARD
[SIDE ONE}
CHEMFAB CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
1996 ANNUAL MEETING OF SHAREHOLDERS ON OCTOBER 31, 1996
The undersigned hereby appoints Duane C. Montopoli and Moosa E. Moosa and
each of them proxies, each with power of substitution, to vote at the 1996
Annual Meeting of Shareholders of CHEMFAB CORPORATION to be held on October 31,
1996 (including any adjournments or postponements thereof), with all the powers
the undersigned would possess if personally present, as specified on the reverse
side of this ballot on the election of directors and the selection of auditors
and, in accordance with their discretion, on any other business that may come
before the meeting, and revokes all proxies previously given by the undersigned
with respect to the shares covered hereby.
(To Be Continued And Signed On The Other Side)
[SIDE TWO}
A [X] Please mark your
vote as in this
example.
FOR all nominees WITHHOLD
listed at right AUTHORITY Nominees:
(except as withheld in (to vote for
the space below) nominee(s) listed
at right) Paul M. Cook
Warren C. Cook
1. ELECTION [ ] [ ] Robert E. McGill, III
OF James E. McGrath
DIRECTORS Duane C. Montopoli
Nicholas Pappas
Instruction: To withhold authority to vote for any
individual nominee, write that nominee's name in
the space provided below. ___________________
_____________________________________________
2. SELECTION OF AUDITORS: FOR AGAINST ABSTAIN
The Board of Directors recommends [ ] [ ] [ ]
a vote FOR the proposal to Approve
the selection of Ernst & Young LLP
as independent auditors.
This proxy when properly executed will be voted in the manner directed herein by
the shareholder. If no contrary specification is made, this proxy will be voted
FOR the election of the nominees of the Board of Directors, and FOR the proposal
respecting selection of the auditors and upon such other business as may
properly come before the meeting in the appointed proxies' discretion.
Please date, sign as name appears hereon, and return this proxy in the enclosed
envelope, whether or not you expect to attend the meeting. You may nevertheless
vote in person if you do attend.
The undersigned hereby acknowledge(s) receipt of a copy of the accompanying
Notice of 1996 Annual Meeting of Shareholders and related Proxy Statement.
SIGNATURE ______________ DATE ______ SIGNATURE ______________ DATE ______
NOTE: (Executors, administrators, trustees, custodians, etc. should indicate
capacity in which signing. When stock is held in the name of more than one
person, each person should sign the proxy.)
