<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT
OF 1934
Filed by the Registrant X
Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
RAYCHEM CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
RAYCHEM CORPORATION
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:(A)
(4) Proposed maximum aggregate value of transaction:
[ ] 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:
(A) Set forth the amount on which the filing fee is
calculated and state how it was determined.
<PAGE> 2
LOGO
RAYCHEM CORPORATION
300 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025-1164
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 1, 1996
10:00 A.M.
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Raychem
Corporation, a Delaware corporation (the "Company"), will be held at the
Company's principal office, 300 Constitution Drive, Menlo Park, California, on
Friday, November 1, 1996, at 10:00 a.m. local time, for the following purposes:
1. To elect directors;
2. To approve amendments to the Company's Amended and Restated 1984
Employee Stock Purchase Plan and Amended and Restated 1985 Supplemental
Employee Stock Purchase Plan to provide additional shares;
3. To approve amendments to the Company's Amended and Restated 1984
Employee Stock Purchase Plan and Amended and Restated 1985 Supplemental
Employee Stock Purchase Plan to modify the requisite vote for
stockholder approval to conform to the Company's other employee benefit
plans;
4. To approve amendments to the Company's Amended and Restated 1990
Incentive Plan to provide additional shares;
5. To approve amendments to the Company's Amended and Restated 1990
Incentive Plan to increase the limit on the number of shares that may be
granted to any participant in any one-year period, and to include
performance shares within that limit;
6. To approve the adoption of the Company's 1996 Directors Stock Option
Plan;
7. To approve the adoption of the Company's Officer Variable Pay Plan;
8. To ratify the appointment by the Company's Board of Directors of Price
Waterhouse LLP to audit the accounts of the Company and its subsidiaries
for the 1997 fiscal year; and
9. To consider and transact such other business as may properly come before
the meeting.
The Board of Directors has fixed the close of business on September 9,
1996, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the meeting and at any adjournment or postponement of
the meeting.
By Order of the Board of Directors
RICHARD A. KASHNOW
Chairman of the Board,
President and Chief Executive Officer
Menlo Park, California
September 19, 1996
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY SIGN THE ACCOMPANYING PROXY AND
MAIL IT IN THE ENCLOSED POSTAGE PRE-PAID ENVELOPE.
<PAGE> 3
RAYCHEM CORPORATION
------------------------
PROXY STATEMENT
------------------------
TO THE STOCKHOLDERS:
The enclosed proxy is solicited on behalf of the Board of Directors of
Raychem Corporation, a Delaware corporation (the "Company"), for use at the
annual meeting of stockholders to be held at the Company's principal office on
November 1, 1996, at 10:00 a.m. local time, or any adjournment or postponement
thereof, at which stockholders of record at the close of business on September
9, 1996, will be entitled to vote. On August 19, 1996, the Company had issued
and outstanding 44,801,889 shares of Common Stock, par value $1.00 per share
("Common Stock").
Holders of Common Stock are entitled to one vote for each share held. A
majority of the outstanding shares of Common Stock is required for a quorum.
Abstentions will be counted towards the tabulation of votes cast on matters
presented to the stockholders and will have the same effect as negative votes.
Broker nonvotes occur when nominee recordholders do not vote on specific issues
because they did not receive specific instructions on such matters from the
beneficial owners of such shares. Broker nonvotes are counted towards a quorum,
but are not counted for any purpose in determining whether a matter has been
approved.
Any person giving a proxy in the form accompanying this proxy statement has
the power to revoke it at any time before its exercise. It may be revoked by
filing with the Secretary of the Company at the Company's principal office, 300
Constitution Drive, Menlo Park, California 94025-1164, an instrument of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the meeting and voting in person.
The Company will bear the entire cost of solicitation, including
preparation, assembly, printing, and mailing of this proxy statement, the proxy,
and any additional material furnished to stockholders. Copies of solicitation
material will be furnished to brokerage houses, fiduciaries, and custodians
holding in their names shares that are beneficially owned by others to forward
to such beneficial owners. Raychem will reimburse brokerage houses, fiduciaries,
and custodians for their expense in forwarding solicitation material to such
beneficial owners. The original solicitation of proxies by mail may be
supplemented by one or more of telephone, telegram, or personal solicitation by
directors, officers, or employees of the Company. No additional compensation
will be paid for any such services.
The Company intends to mail this proxy statement on or about September 19,
1996.
<PAGE> 4
NOMINATION AND ELECTION OF DIRECTORS
GENERAL
Each director to be elected will hold office until the next annual meeting
of stockholders and until his successor is elected and has qualified, or until
his death, resignation, or removal. There are eight nominees for the eight
positions on the Board of Directors. All of the nominees are currently directors
of the Company, and all except Dr. Chang-Lin Tien were elected by the
stockholders at the 1995 Annual Meeting of Stockholders. Dr. Tien was elected to
the Board effective August 16, 1996, to fill the vacancy created by Mr. Paul M.
Cook's retirement. Each person nominated for election has agreed to serve if
elected, and management has no reason to believe that any nominee will be
unavailable to serve.
On August 16, 1996, Mr. Paul M. Cook retired from the Board of Directors.
Mr. Cook is the founder of the Company and served as a director since its
inception in 1957. He retired as Chief Executive Officer on April 1, 1990 and as
Chairman of the Board on October 1, 1995. In recognition of his unique
contributions to the development of the Company, the Board of Directors has
awarded him the honorary title of Founder and Director Emeritus.
NOMINEES
Set forth below is information regarding the nominees, including
information furnished by them as to their principal occupations for the last
five years, certain directorships, and their ages as of June 30, 1996.
<TABLE>
<CAPTION>
DIRECTOR
AGE SINCE
--- --------
<S> <C> <C>
Richard Dulude is the retired Vice Chairman of Corning Incorporated and was a
director of Dow Corning Corporation and Corning Incorporated. He is also
the retired Chairman and Chief Executive Officer of Corning Vitro
Corporation and a former director of Grumman Corporation. He is a director
of AMBAC, Inc., Landec Corporation, and HCIA Inc. ......................... 63 1991
James F. Gibbons is Special Counsel to the President, Stanford University. He
was the Dean of the School of Engineering at Stanford University from 1984
to 1996. He has been a professor of electronics at Stanford since 1964. He
is the Chairman of Amati Communications Corporation and a director of
Lockheed-Martin Corporation, Cisco Systems Inc., Centigram Communications
Corporation and El Paso Natural Gas........................................ 64 1987
Richard A. Kashnow is Chairman of the Board, President and Chief Executive
Officer of the Company. From 1991 to 1995, he was President of Schuller
International Group, a wholly owned subsidiary of Manville Corporation,
which he joined in 1987. Dr. Kashnow is a director of Applied Power,
Inc. ...................................................................... 54 1995
John P. McTague has been a Vice President of Ford Motor Company since 1986,
and has held the position of Vice President of Technical Affairs for Ford
Motor Company since 1990................................................... 57 1994
Dean O. Morton is a retired Executive Vice President, Director and Chief
Operating Officer of Hewlett-Packard Company. He is currently a director of
ALZA Corporation, Tencor Instruments, Centigram Communications Corporation,
State Street Research Portfolios, Inc., Metropolitan Series Fund, Inc. and
The Clorox Company. He is also a trustee of the State Street Research
Mutual Funds Group......................................................... 64 1989
Isaac Stein is the President of Waverley Associates, Inc. From 1990 to 1992,
he served as Chairman of the Board of Esprit de Corp, and from 1991 to
1992, was its acting President and Chief Executive Officer. Mr. Stein is a
director of ALZA Corporation and the Benham Group of mutual funds.......... 49 1993
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
DIRECTOR
AGE SINCE
--- --------
<S> <C> <C>
Chang-Lin Tien is Chancellor of the University of California, Berkeley, and
also holds the professorial title of A. Martin Berlin Chair in Mechanical
Engineering. Dr. Tien is a director of the Carnegie Foundation for the
Advancement of Teaching, the Asia Foundation, and Wells Fargo Bank......... 61 1996
Cyril J. Yansouni is Chairman and Chief Executive Officer of Read-Rite
Corporation. Prior to March 1991, he was Executive Vice President and
President of the Computer Systems Product Group of Unisys Corporation. Mr.
Yansouni is a director of PeopleSoft, Inc. and Informix Software Inc. ..... 54 1994
</TABLE>
STOCK OWNERSHIP
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of June 30, 1996, (i) by each person
known by the Company to own beneficially more than 5% of the outstanding Common
Stock, (ii) by each director and nominee for director, (iii) by each executive
officer named in the Summary Compensation Table herein, and (iv) by all
executive officers and directors as a group. Each person has sole investment and
voting power with respect to the shares indicated, subject to applicable laws.
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE
COMMON STOCK OF COMMON
BENEFICIALLY STOCK
NAME AND ADDRESS OWNED(a)(b) OUTSTANDING(c)
- ---------------------------------------------------------------- ------------ --------------
<S> <C> <C>
FMR Corporation................................................. 5,544,200(d) 12.4%
82 Devonshire Street
Boston, Massachusetts 02109
State Farm Insurance Companies.................................. 2,726,500(e) 6.1%
1 State Farm Plaza
Bloomington, Illinois 61710
Paul M. Cook.................................................... 213,316
Richard Dulude.................................................. 6,343
James F. Gibbons................................................ 18,105
Richard A. Kashnow.............................................. 24,855
John P. McTague................................................. 4,688
Dean O. Morton.................................................. 12,427
Isaac Stein..................................................... 29,370
Chang-Lin Tien.................................................. 0
Cyril J. Yansouni............................................... 3,688
Robert J. Saldich............................................... 198,380
Michael T. Everett.............................................. 107,318
Ralph H. Harnett................................................ 46,879
Raymond J. Sims................................................. 23,065
Joseph G. Wirth................................................. 44,500
All executive officers and directors as a group (22 persons).... 968,395 2.1%
</TABLE>
- ---------------
(a) The figures include options to purchase shares of Common Stock exercisable
within 60 days following June 30, 1996, and held by: Mr. Cook, 5,626 shares;
Mr. Dulude, 5,593 shares; Dr. Gibbons, 18,105 shares; Dr. Kashnow, 0 shares;
Mr. McTague, 1,688 shares; Mr. Morton, 6,376 shares; Mr. Stein, 26,563
shares; Mr. Yansouni, 1,688 shares; Mr. Saldich, 181,000 shares; Mr.
Everett, 100,500 shares; Mr. Harnett, 37,300 shares; Mr. Sims, 17,000
shares; Dr. Wirth, 44,500 shares; and all executive officers and directors
as a group, 646,719 shares.
(b) The figures include restricted shares awarded on July 17, 1996, and held by:
Mr. Harnett, 1,000; Mr. Sims, 1,000; and all executive officers and
directors as a group, 8,400 shares.
3
<PAGE> 6
(c) Percentages of less than 1.00% are not shown.
(d) This information was obtained from a letter dated July 23, 1996, from FMR
Corporation.
(e) This information was obtained from a letter dated July 24, 1996, from State
Farm Insurance Companies.
BOARD COMMITTEES AND MEETINGS
The Board of Directors has standing audit, compensation, and organization
committees. In addition, during fiscal year 1996, the Board of Directors had
nominating and executive committees, which were combined into a newly formed
organization committee of the Board effective July 1, 1996.
The functions of the audit committee are as follows: to review and report
to the Board with respect to the annual audit by the Company's independent
accountants, including the scope and general extent of their examination, the
audit procedures that will be utilized by the independent accountants, and the
compensation of the independent accountants; to review and report to the Board
on the general policies and procedures utilized by the Company with respect to
internal auditing, accounting, and financial controls; and to review and report
to the Board on the subject of the retention of the Company's independent
accountants. Messrs. Dulude and Stein and Dr. Gibbons were the members of the
audit committee in fiscal year 1996.
The functions of the compensation committee are to determine the general
compensation policies of the Company, establish compensation plans, and
determine senior management compensation. The members of the compensation
committee in fiscal year 1996 were Messrs. Dulude, Morton, and Yansouni. A
Report of the Compensation Committee on Executive Compensation is included
herein.
Effective July 1, 1996, the Board combined the executive committee and the
nominating committee of the Board, the functions of which are described below,
into an organization committee of the Board. The organization committee of the
Board focuses on board membership and the general operation of the Board.
Messrs. Stein, Dulude, and Morton and Dr. Gibbons are the members of the
organization committee.
In fiscal year 1996, the functions of the executive committee were to focus
on the Ericsson Raynet joint venture, management succession within Raychem, and
the general operation of the Board. Messrs. Stein, Morton, and Saldich and Dr.
Kashnow, who replaced Mr. Saldich in October 1995, were members of the executive
committee in fiscal year 1996.
In fiscal year 1996, the functions of the nominating committee were to
recommend candidates for election to the Board of Directors and to develop
policies for the size and composition of the Board. The members of the
nominating committee in fiscal year 1996 were Dr. Gibbons and Mr. Morton.
Stockholder proposals for Board nominees will be accepted by the
organization committee and will be given due consideration for recommendation to
the Board in light of the nominees' qualifications. Stockholder nominees for
future years should be submitted in writing to the organization committee in
care of the Corporate Secretary by August 1 or 90 days prior to the annual
meeting of stockholders, whichever is earlier.
During the fiscal year ended June 30, 1996, the Board of Directors held
nine meetings, the audit committee held three meetings, the compensation
committee held seven meetings, the nominating committee held two meetings, and
the executive committee held eight meetings. Each director attended at least 75%
of the aggregate number of Board meetings and meetings of committees of which he
was a member that were held during the fiscal year.
4
<PAGE> 7
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table shows compensation paid by the Company for services
rendered in all capacities during the latest three fiscal years ending June 30
by the Chief Executive Officer, each of the other four most highly compensated
executive officers, and Mr. Saldich who served as Chief Executive Officer during
part of fiscal year 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
--------------------------------------
ANNUAL COMPENSATION SECURITIES
---------------------------------------------- RESTRICTED UNDERLYING
NAME AND OTHER ANNUAL STOCK OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(a) AWARDS(b) SARS(c) COMPENSATION
- ------------------------- ----- -------- -------- --------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard A. Kashnow....... 1996 $486,000(d) $200,000 $ 0 $1,650,000 212,500 $865,000(e)
Chairman, President and
Chief Executive Officer
Robert J. Saldich........ 1996 $391,000 $ 50,000 $ 0 $ 0 0 $243,784(f)
Retired President and 1995 649,000 160,000 0 0 50,000 0
Chief Executive Officer 1994 549,000 220,000 0 0 36,000 0
Michael T. Everett....... 1996 $309,000 $ 60,000 $ 0 $ 0 16,000 $233,000(g)
Sr. Vice President 1995 310,000 60,000 0 0 14,000 101,269(g)
1994 320,000 120,000 0 0 12,000 164,271(g)
Ralph H. Harnett......... 1996 $284,000 $ 75,000 $ 0 $ 61,875 16,000 $ 0
Sr. Vice President 1995 284,000 10,000 0 0 14,795 0
1994 258,000 40,000 0 0 13,289 0
Raymond J. Sims.......... 1996 $284,000 $ 75,000 $ 0 $ 61,875 31,000 $ 0
Sr. Vice President and 1995 284,000 110,000 0 0 12,000 0
Chief Financial Officer 1994 249,000 60,000 0 0 12,000 0
Joseph G. Wirth.......... 1996 $304,000 $ 60,000 $ 0 $ 0 12,000 $ 0
Sr. Vice President and 1995 304,000 66,000 0 0 12,000 0
Chief Technical Officer 1994 294,000 75,000 0 0 12,000 0
</TABLE>
- ---------------
(a) In accordance with Securities and Exchange Commission regulations,
perquisites less than the lesser of (a) $50,000 or (b) 10% of the total of
annual salary and bonus are not shown. Accordingly, amounts previously
reported for mortgage differential payments are not shown.
(b) 37,500 shares of restricted stock were awarded to Dr. Kashnow on October 1,
1995. The fair market value on the date of the award was $45.00 per share. A
par value payment equal to $1.00 per share was paid by Dr. Kashnow in
connection with the award. Restrictions as to 18,750 shares lapsed on
December 8, 1995, and as to the remaining 18,750 shares on February 8, 1996.
Dr. Kashnow received 64 shares of restricted stock in lieu of dividends
payable on the original award; restrictions on these shares lapsed ratably
with the original award. 1,000 shares of restricted stock were awarded to
each of Mr. Harnett and Mr. Sims on July 17, 1996. The fair market value on
the date of the awards was $62.875 per share. Par value payments equal to
$1.00 per share were paid by Messrs. Harnett and Sims in connection with the
awards. Dividends on these shares are paid in cash. Restrictions will lapse
as to these shares on July 17, 1999 if the recipients are still employed by
the Company on that date. As of July 17, 1996, restricted stock was held as
follows: Dr. Kashnow, 0 shares; Mr. Harnett, 1,000 shares; Mr. Sims, 1,000
shares.
(c) Options/SARs for Mr. Harnett include 1,289 shares in fiscal year 1994 and
795 shares in fiscal year 1995, awarded to Mr. Harnett in lieu of bonus
payments of $41,254 and $24,000 for fiscal years 1993 and 1994,
respectively, pursuant to the Company's Amended and Restated Bonus Deferral
Plan.
(d) This amount represents salary for employment commencing October 1, 1995.
5
<PAGE> 8
(e) This amount represents a transition payment to offset forfeited compensation
and benefits from a prior employer.
(f) This amount represents imputed income of $139,151 on a portion of the
retirement benefit for Mr. Saldich and six months of salary continuation per
Mr. Saldich's Consulting/Employment Agreement dated June 7, 1995 in the
amount of $104,633.
(g) This amount represents a special allowance paid to Mr. Everett to cover
additional costs of living overseas.
STOCK OPTIONS
The following table shows for each executive officer named in the Summary
Compensation Table certain information regarding options granted during fiscal
year 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR(a)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
--------------------------------------------------------- REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL
NUMBER OF TOTAL RATES OF STOCK
SECURITIES OPTIONS/SARS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(c)
OPTION/SARS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED(b) FISCAL YEAR ($/SHARE) DATE 5% 10%
- ----------------------- ------------ ------------ --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Kashnow..... 212,500 15.1% $45.000 10/01/05 $6,013,805 $15,240,162
Robert J. Saldich...... 0 0.0% -- -- $ 0 $ 0
Michael T. Everett..... 16,000 1.1% $47.375 11/01/05 $ 476,702 $ 1,208,057
Ralph H. Harnett....... 16,000 1.1% $47.375 11/01/05 $ 476,702 $ 1,208,057
Raymond J. Sims........ 16,000 1.1% $47.375 11/01/05 $ 476,702 $ 1,208,057
15,000 1.1% $73.250 04/18/06 $ 690,998 $ 1,751,125
Joseph G. Wirth........ 12,000 0.9% $47.375 11/01/05 $ 357,527 $ 906,043
</TABLE>
- ---------------
(a) No grants of Stock Appreciation Rights were made to any named executive
officer during the fiscal year ended June 30, 1996.
(b) All options granted to executive officers in fiscal 1996 become exercisable
in four equal annual installments commencing on the first anniversary of the
grant date. Exercisability of options may be accelerated by the Board of
Directors. At the time of exercise, the exercise price may be paid in cash,
by delivery of shares already owned (subject to certain conditions), by a
secured loan from the Company, or by cashless exercise. The option plan
permits withholding of shares to satisfy tax obligations upon exercise.
(c) Potential Realizable Value is based on the assumed annual share price
appreciation for the ten-year option term. The actual value, if any, that an
executive may realize will depend on the excess of the stock price over the
exercise price on the date the option is exercised.
6
<PAGE> 9
OPTION EXERCISES AND VALUATION
The following table shows for each executive officer named in the Summary
Compensation Table certain information regarding option exercises during fiscal
year 1996 and options outstanding as of June 30, 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES(a)
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(b)(c)
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------- ----------- ---------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
Richard A. Kashnow........ 0 $ 0 0/212,500 $ 0/$5,710,938
Robert J. Saldich......... 80,000 $2,895,041 161,000/ 63,000 $6,233,125/$2,259,375
Michael T. Everett........ 58,500 $1,844,058 93,875/ 35,625 $3,351,969/$1,098,281
Ralph H. Harnett.......... 48,808 $1,992,776 32,300/ 34,000 $1,238,938/$1,032,875
Raymond J. Sims........... 40,964 $1,117,436 12,000/ 48,000 $ 439,500/$ 999,000
Joseph G. Wirth........... 20,000 $ 851,200 38,375/ 30,125 $1,547,844/$ 946,281
</TABLE>
- ---------------
(a) No Stock Appreciation Rights were outstanding at June 30, 1996, nor were any
grants of Stock Appreciation Rights made to any named executive officer
during the year ended June 30, 1996.
(b) The market value of the underlying securities at the fiscal year-end minus
the exercise price of in-the-money options. The market value as of June 30,
1996, was $71.875 per share (closing price on June 28, 1996).
(c) The average per-share exercise price of all options outstanding for each
named executive officer is: Dr. Kashnow, $45.00; Mr. Saldich, $33.96; Mr.
Everett, $37.51; Mr. Harnett, $37.61; Mr. Sims, $48.24; and Dr. Wirth,
$35.46.
EMPLOYMENT/CONSULTING AGREEMENTS WITH EXECUTIVE OFFICERS
In August 1995, the Company entered into an agreement with Dr. Kashnow, who
became President, Chief Executive Officer, and Chairman of the Board of
Directors on October 1, 1995. This agreement is more fully described below in
the Report of the Compensation Committee of the Board of Directors on Executive
Compensation.
Mr. Saldich retired as President and Chief Executive Officer of the Company
as of September 30, 1995. On June 7, 1995, the Company entered into a
Consulting/Employment Agreement with Mr. Saldich. The purpose of the agreement
was to retain Mr. Saldich's services as Chief Executive Officer and then as a
consultant until June 7, 1998. The agreement replaced any other severance
benefits to which he might otherwise have been entitled. Mr. Saldich will
receive compensation through June 7, 1998, at an annual rate of $650,000, less
the annual pension benefit that would have otherwise been payable had he elected
not to take a lump sum retirement. Mr. Saldich's executive benefits will
continue until June 7, 1998, including vesting of his stock options. He has
agreed to hold himself available for up to 20% of his time for consulting until
June 7, 1998. The Company will provide Mr. Saldich with an office and a
secretary through June 7, 1998. Mr. Saldich agreed not to compete with the
Company during the term of the agreement. A lump sum retirement payment was made
to him in January 1996. For fiscal year 1996, he received a bonus of $50,000
reflecting the Board of Directors' assessment of his performance during the
transition to the new Chief Executive Officer and the Company's performance.
DIRECTORS' FEES AND STOCK OPTIONS
During fiscal year 1996, directors not employed by the Company (all
directors except Dr. Kashnow and Mr. Saldich prior to his retirement) were paid
an annual retainer of $20,000 plus $1,000 for each Board and committee meeting
attended in person. In addition, the chair of the audit committee received an
annual retainer of $8,750; the chair of the nominating committee received an
annual retainer of $16,000; the chair of
7
<PAGE> 10
the compensation committee received an annual retainer of $5,000; and the chair
of the executive committee received an annual retainer of $25,000.
Effective July 1, 1996, directors, except Dr. Kashnow, will receive an
annual retainer of $27,500, a fee of $1,000 for each Board and committee meeting
attended in person, and a fee of $500 for each meeting attended by telephone.
The chair of each of the audit, organization and compensation committees will
receive an annual retainer of $5,000.
During fiscal year 1996, Mr. Cook and Mr. Stein received additional
compensation for providing consulting services to the Company or its
subsidiaries or affiliates. Mr. Cook provided advice to the Company with respect
to technologies and management development. Mr. Stein provided advice to the
Company with respect to financing alternatives and other Company issues.
The Company entered into a consulting agreement with Mr. Cook upon his
retirement on April 1, 1990, providing for an annual retainer of $100,000,
payment of one-half of his office rent, and the assignment of a Company employee
as his secretary. The agreement includes a commitment from Mr. Cook to consult
for the Company on an as-needed basis and not to consult or work for a
competitor of the Company during the term of the agreement. The agreement will
terminate at the end of fiscal year 1997.
The Company entered into a consulting agreement with Mr. Stein effective as
of July 1, 1994, providing for Waverley Associates, Inc. to receive a retainer
of $30,000 per month and an option grant to Mr. Stein of 25,000 shares. An
option to purchase an additional 25,000 shares was granted to Mr. Stein at the
beginning of fiscal year 1996. The agreement included a commitment from Waverley
Associates, Inc. to hold Mr. Stein available for up to 50% of his time for
consulting to the Board of Directors and the Chief Executive Officer, in
addition to his normal Board responsibilities. Mr. Stein also received $25,000
per fiscal year to act as chair of the executive committee. In addition, the
Company agreed to reimburse customary out-of-pocket expenses and paid Waverley
Associates, Inc. $5,000 per month as a contribution to rental and secretarial
expenses. This agreement was amended as of July 1, 1996 to delete the monthly
retainer. Mr. Stein will now provide services upon request of the Company at a
per diem rate of $3,000.
Under the 1987 Directors Stock Option Plan, each director who is not an
employee of the Company receives an option to purchase 3,000 shares of Common
Stock on the date he or she first serves as a director. Thereafter, each
non-employee director receives an option to purchase 750 shares of Common Stock
upon re-election at the annual meeting of stockholders. A total of 150,000
shares of Common Stock have been reserved for issuance under this plan. The
exercise price of options granted under this plan is the fair market value of
the Common Stock on the grant date. For the fiscal year ended June 30, 1996,
each director (except Dr. Kashnow and Mr. Saldich, who were not eligible)
received an option to purchase 750 shares of Common Stock at a grant price of
$47.375 per share. The 1987 Directors Stock Option Plan expires in May 1997. The
Board of Directors has adopted, subject to stockholder approval, the 1996
Directors Stock Option Plan, the terms of which are described below.
The Board of Directors considers stock ownership in the Company by
directors to be of utmost importance. Such ownership enhances directors'
commitment to the future of the Company and further aligns their interests with
those of the Company's stockholders. In keeping with this philosophy, the Board
has established minimum stock ownership guidelines for directors. These
guidelines state that within a three-year period from the later of August 1995
or the director's nomination, each director should own Common Stock having a
value of at least five times the director's annual retainer.
REPORT OF THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The compensation committee of the Board of Directors (the "Compensation
Committee") determines the general compensation policies of the Company,
establishes compensation plans, and sets specific compensation levels for
executive officers. During the 1996 fiscal year, the Compensation Committee was
composed of Messrs. Morton (Chairman), Dulude, and Yansouni. All of the
Compensation Committee members were "disinterested" as that term was defined
under the Securities and Exchange Commission's
8
<PAGE> 11
Rule 16b-3 then in effect and "outside directors" as that term is defined under
Section 162(m) of the Internal Revenue Code of 1986, as amended ("the Code").
The Compensation Committee reviews executive compensation matters not less
than annually. At the request of the Compensation Committee, the Company's Human
Resources Department presents analyses and recommendations on executive
compensation for the next fiscal year. The Compensation Committee thereafter
makes specific determinations for each executive officer.
Executive officer compensation typically consists of three components: base
salary, an annual cash bonus award, and long-term incentives in the form of
stock options and restricted stock awards. Individual salaries, along with
"target" levels for cash bonuses, stock option grants, and restricted stock
awards are established by the Compensation Committee based on competitive market
levels indicated in pay surveys and other information obtained by the Company
regarding select U.S. companies of similar size, complexity, and quality to the
Company.
The Compensation Committee believes that officers' interests should be
closely aligned with those of the Company's stockholders. The Compensation
Committee therefore encourages and expects officers to have a meaningful
ownership stake. To support this objective, and consistent with the director
ownership guidelines established in August 1995, officer ownership guidelines
were established in fiscal year 1996. The guidelines state that the Chief
Executive Officer should own shares having a value of at least four times annual
salary, senior vice presidents should own shares having a value of at least two
times annual salary, and vice presidents should own shares having a value of at
least one time annual salary. Each officer will have three years to reach the
designated ownership level.
BASE SALARIES. For fiscal year 1996, as for recent prior years, the
Compensation Committee obtained an independent consultant's report summarizing
executive salary levels at over 25 comparison companies. Included were prominent
electronics, telecommunications, computer software and hardware, and industrial
manufacturing companies, representing organizations with whom the Company
competes for talent and/or which have market capitalization or other attributes
similar to the Company. Publicly available surveys and salary data reported in
proxy statements were used to provide supplementary information. In setting
salary levels, competitive data is adjusted to reflect relative sales volume and
differences in business unit size, as appropriate. Additionally, the
Compensation Committee considers each executive officer's individual experience
and sustained performance, as well as salary levels of others within the
Company.
Upon reviewing the survey data for fiscal year 1996, the Compensation
Committee determined that existing officer salaries generally were in line with
median competitive salary levels and reflected individual performance
contributions. Given the Company's efforts to control costs and to further
emphasize pay for performance, it was the Compensation Committee's decision to
freeze officer salaries for fiscal year 1996. Salary adjustments for fiscal year
1997 were made for officers effective July 1, 1996.
ANNUAL BONUSES. Awards are made to executives under a variable cash bonus
plan that aligns the interests of officers and other employees with stockholders
by putting a significant portion of annual compensation at risk based on the
achievement of predetermined financial performance goals. Award opportunities
are intended to be in the upper quartile of competitive total cash compensation
when superior financial results are achieved. In fiscal year 1996, financial
measures were constructed to reflect a highly simplified economic value-added
type of model where officers and other employees share in Company profits above
the estimated cost of capital and in after-tax profit growth over the prior
year. There are two formula-derived components to the plan: a corporate
component and a business unit component.
For fiscal year 1996, awards based on the corporate component were
significantly below competitive levels even though there was sizable improvement
in the Company's reported profit after tax as compared to fiscal year 1995. As
required by Statement of Financial Accounting Standards No. 109, tax benefits
were reported by the Company which related to income that will more likely than
not arise in future years. The Compensation Committee believes that these tax
benefits recognized in fiscal year 1996 were not entirely related to management
performance in that single year, so they were excluded from profit after tax for
purposes of determining bonus. Restructuring charges for discontinuing
businesses and realigning manage-
9
<PAGE> 12
ment decreased reported profit after tax; however, the Compensation Committee
believes that management should be fully accountable for the restructuring
charges recognized during the year, so these charges were included for the
purpose of determining performance awards.
Individual awards for the current Chief Executive Officer and his
predecessor are discussed in the following section on "Chief Executive Officer
Compensation." Awards for Dr. Wirth and Mr. Sims were based on corporate
performance. Mr. Harnett's award includes a business unit component for the
telecommunications segment, which he manages, as well as a corporate component.
Mr. Everett's award includes a component for the Asia business unit, as well as
a corporate component.
LONG-TERM INCENTIVES. Until recently, stock option grants were the only
form of long-term incentive used by the Company. The Compensation Committee
believes that stock options play an important role in attracting, retaining, and
motivating executives. Stock options also provide executives with a means of
increasing Company stock ownership, which is a key objective of the executive
compensation program. The Compensation Committee's practice is to grant options
annually at 100% of the fair market value of the Company's Common Stock at the
date of grant. Options typically vest at a rate of 25% per year over four years.
The Compensation Committee determines option grant levels for executive
officers based on competitive data gathered from relevant comparison companies
by independent consultants, and uses competitive practice as a guideline for
determining appropriate grant levels. The Compensation Committee also considers
the aggregate stock option shares granted throughout the Company, individual
experience and performance of recipients, and past individual grant amounts in
determining individual grant levels.
For fiscal year 1996, additional discretionary options were granted to
selected key executives whose continued contributions were deemed to be critical
to the Company's future success. Mr. Sims' award includes a special stock option
grant for his individual contributions. On July 17, 1996, modest restricted
stock grants were also made for retention of key individuals, including Messrs.
Sims and Harnett, who each received 1,000 shares.
CHIEF EXECUTIVE OFFICER COMPENSATION. Mr. Saldich retired as Chief
Executive Officer during fiscal year 1996. He received his regular salary for
the portion of the year that he held that position, at the same $650,000
annualized rate as in effect during fiscal year 1995. The Compensation Committee
determined that this salary rate was at approximately the competitive median for
comparable Chief Executive Officer positions. In addition, Mr. Saldich received
a discretionary annual bonus of $50,000 for his performance during the portion
of fiscal year 1996 that he served as Chief Executive Officer and for his
contribution to the smooth transition of leadership. He did not receive a stock
option grant for his services during fiscal year 1996. As recognition for these
services, he received a supplemental retirement benefit calculated as if he had
retired at age 65. He will also continue to receive executive benefits until
reaching age 65.
Dr. Kashnow joined the Company as Chief Executive Officer on October 1,
1995. His employment followed an extensive search conducted under the direction
of the Board of Directors. The Company entered into an agreement with Dr.
Kashnow on August 11, 1995. The Compensation Committee deemed the compensation
package in that agreement to be effective in aligning Dr. Kashnow's interests
with those of the Company's stockholders, to be reasonable based on competitive
standards, and to be consistent with the Company's pay-for-performance
philosophy.
Dr. Kashnow's initial annual salary was set at the same $650,000 median
competitive level as his predecessor's and was pro-rated for the portion of the
year that he was employed by the Company. He was guaranteed an annual bonus for
fiscal year 1996 at 40% of earned salary. In addition, Dr. Kashnow received an
initial grant of an option to purchase 212,500 shares of the Company's Common
Stock (of which 12,500 were granted outside of existing plans) and 37,500
restricted shares effective on his hire date. The stock options carried the same
terms and conditions, including vesting, as those granted to other employees.
The restricted shares had performance-accelerated vesting at the sooner of (1)
five years or (2) 50% when the Company's average closing stock price was above
$50 for at least 30 consecutive trading days, and the remaining 50% when the
average closing stock price was above $60 for at least 30 consecutive trading
days. Both the $50 and
10
<PAGE> 13
$60 stock-price performance criteria were achieved during fiscal year 1996,
resulting in the full vesting of the restricted shares.
The Compensation Committee also recognized that, upon joining the Company,
Dr. Kashnow would forfeit accrued cash bonuses and unvested restricted shares
from his prior employment. Furthermore, he would have to relocate from Denver to
the relatively higher-cost San Francisco Bay Area. The Compensation Committee
consequently agreed to pay him a transition payment of $865,000 to offset his
forfeited compensation and benefits and to extend an interest-free loan for $1
million to purchase a principal residence, with a $200,000 annual cash bonus to
repay the loan beginning in fiscal year 1997, and extending for five years
subject to his continued employment with the Company. The agreement with Dr.
Kashnow also calls for an adjustment in Dr. Kashnow's pension benefits to
compensate for the loss of pension benefits from his prior employment. In a
supplemental agreement with Dr. Kashnow dated February 5, 1996, the Company
agreed that all of Dr. Kashnow's transition payment will be deferred pursuant to
the Company's Executive Deferred Compensation Plan.
OFFICER SEVERANCE BENEFITS. Raychem provides severance benefits for all
employees whose employment is terminated due to a reduction in force. Since
fiscal year 1995, there has been a separate Compensation Committee-approved
program for officers. Each eligible officer is, upon execution of a release
agreement, guaranteed one full year of base salary and selected benefit
continuation upon involuntary termination for other than cause. Up to a second
year of base salary and benefit continuation may be paid, provided the officer
is not employed. If, in the second year, the officer is employed but is paid a
lower base salary than the officer received while employed at the Company, the
officer is eligible to receive a salary differential.
COMPANY POLICY TOWARD DEDUCTIBILITY OF EXECUTIVE OFFICER
COMPENSATION. Section 162(m) of the Code places a $1 million per person limit
on the deduction that a publicly held corporation may take for compensation paid
to certain officers (generally the Chief Executive Officer and its four other
highest-paid executive officers) unless, in general, the compensation is exempt
as "performance-based." Compensation resulting from the exercise of stock
options or upon award of performance shares will be treated as
"performance-based" and excluded from the limit on deductibility if, among other
things, the plan under which the awards are granted specifies limits on the
number of shares issuable to any participant under the plan and these limits are
approved by the issuer's stockholders. In the case of performance shares, the
stockholders must also approve the performance goals for the awards.
In adopting and administering executive compensation plans and
arrangements, the Compensation Committee considers whether the deductibility of
such compensation will be limited under Section 162(m) of the Code and, in
appropriate cases, strives to structure such compensation so that any such
limitation will not apply. At its August 1996 meeting, the Compensation
Committee adopted an Officer Variable Pay Plan that provides for the award of
incentives to executives and is intended to comply with Section 162(m). If
approved by the stockholders at the 1996 annual meeting, the plan will be
effective as of July 1, 1996.
In fiscal year 1995, pursuant to Section 162(m) of the Code, the Company
adopted and the stockholders approved an amendment to the Company's Amended and
Restated 1990 Incentive Plan ("1990 Incentive Plan") to limit individual option
grants to 200,000 shares per year. As a result of this amendment, gains realized
by officers upon exercise of Company stock options granted under the 1990
Incentive Plan should not be included in the compensation subject to the $1
million deductibility limit.
In addition, the Company is seeking stockholder approval of amendments to
the 1990 Incentive Plan to increase the number of shares that may be granted to
an individual in any one-year period to 500,000 and to include performance
shares in that limit. If the amendments are approved, the tax deduction for
compensation realized from stock option grants and performance share awards
under the 1990 Incentive Plan should not be subject to the $1 million limit on
deductibility under Section 162(m) of the Code.
[SIGNED:] Messrs. Dulude, Morton (Chair), and Yansouni
11
<PAGE> 14
STOCK PERFORMANCE CHART
The chart below compares the Company's cumulative total stockholder return
(overall market performance with reinvested dividends) during the five-year
period ended June 30, 1996, against the Standard & Poor's 500 Stock Index and
the Standard & Poor's Electrical Equipment Index, both of which are established
and well-known indices. The Company is a broadly diversified materials science
business and is not easily categorized within any specific industry index.
RAYCHEM CORPORATION
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN(a)
<TABLE>
<CAPTION>
S&P Elec
Measurement Period Equip Index
(Fiscal Year Covered) Raychem S&P 500 (b)
<S> <C> <C> <C>
30-Jun-91 100 100 100
30-Jun-92 122.99 120.54 124.13
30-Jun-93 152.80 143.98 173.09
30-Jun-94 139.64 152.52 190.50
30-Jun-95 148.78 199.42 259.36
30-Jun-96 280.12 258.02 399.00
- --------------------------------------------------------------------------------
30-JUN-91 30-JUN-92 30-JUN-93 30-JUN-94 30-JUN-95 30-JUN-96
- -------------------------------------------------------------------------------------------------
Raychem $100.00 $122.99 $152.80 $139.64 $148.78 $280.12
- -------------------------------------------------------------------------------------------------
S&P 500 $100.00 $120.54 $143.98 $152.52 $199.42 $258.02
- -------------------------------------------------------------------------------------------------
S&P Elec Equip Index $100.00 $124.13 $173.09 $190.50 $259.36 $399.00
</TABLE>
- --------------------------------------------------------------------------------
(a) Total return assumes reinvestment of dividends. Assumes $100 invested June
30, 1991.
(b) S&P Electrical Equipment Index includes AMP, Emerson Electric, General
Electric, General Signal, W.W. Grainger, Honeywell, Raychem, Thomas & Betts
and Westinghouse Electric.
PENSION PLANS
The Company has a defined benefit pension plan that provides retirement
benefits to eligible United States employees. Subject to certain exceptions, for
each year of credited service after 1995, each eligible employee accrues an
annual benefit equal to 1.375% of compensation plus 0.625% of compensation in
excess of Social Security compensation. In addition, the plan provides for a
past service benefit of the sum of 1.375% of the average compensation of a
participant for the three highest consecutive years of compensation prior to
1996 plus 0.625% of such average compensation in excess of 1996 Social Security
compensation, multiplied by the years of credited service prior to 1996. Years
of credited service are limited to a total of 35 years, and these years comprise
the 35 consecutive years over which the highest pension amount is accrued. The
benefits
12
<PAGE> 15
payable to any employee are payable upon retirement from the Company at age 65
and are subject to certain limitations established by applicable law and the
plan. An employee who retires after age 65 receives the greater of the benefit
at age 65 increased by 1/180 per month for each month of service thereafter or
the benefit for all years of service.
The Company has adopted a supplemental executive retirement plan for all
United States employees whose benefits under the Company's pension plan are
limited by United States federal tax laws. The plan provides these employees
with benefits equivalent to those not paid under the pension plan because of the
federal tax law limitations. However, the supplemental retirement plan limits
years of credited service to 35, and no benefits are payable under the plan
subsequent to the participant's engaging in any activity in competition with the
Company. The plan authorizes the Board of Directors of the Company, in its
discretion, to accelerate the payment of benefits or establish a trust fund for
participants upon a change in control of the Company.
The estimated annual aggregate benefit payable under the plans upon
retirement from the Company at age 65 to each of the executive officers named in
the Summary Compensation Table (assuming that each person's covered compensation
in future years remains at its 1995 calendar year-end annualized level) is
$146,127 for Dr. Kashnow, $157,181 for Mr. Everett, $178,421 for Mr. Harnett,
$169,786 for Mr. Sims, and $51,899 for Dr. Wirth. Mr. Saldich took his pension
in a single lump-sum distribution in January 1996, in the total dollar amount of
$4,596,053.
COMPANY LOANS TO DIRECTORS AND EXECUTIVE OFFICERS
In connection with option exercises and the purchase of its Common Stock
under equity incentive plans, the Company has made available to employees,
including directors and executive officers, deferred payment arrangements and
advances to cover income tax liabilities. The indebtedness resulting from such
arrangements has a five-year term and bears interest, which accrues at rates
ranging from 5.32% to 7.96% per year, payable in annual installments. The
maximum amount of such indebtedness outstanding during the fiscal year ended
June 30, 1996, together with the amount outstanding at June 30, 1996, for each
person who was a director or executive officer during the fiscal year and for
whom the principal amount exceeded $60,000 at any time during such period, is as
follows: $132,347 and $132,347 for John McGraw.
The Company has also extended to certain executive officers loans on a
secured basis for relocation expense. The loans are interest free and generally
repayable over five years. As of June 30, 1996, the maximum amount of such
indebtedness outstanding during the 1996 fiscal year, together with the amount
outstanding at June 30, 1996, for each such executive officer for whom the
principal amount exceeded $60,000 at any time during such period was as follows:
Dr. Kashnow, $1,000,000 and $1,000,000; Andrew Roake, $1,000,000 and $0; and Dr.
Wirth, $600,000 and $0.
13
<PAGE> 16
AMENDMENTS TO EMPLOYEE STOCK PURCHASE PLANS
BACKGROUND
The Company maintains an Amended and Restated 1984 Employee Stock Purchase
Plan and an Amended and Restated 1985 Supplemental Employee Stock Purchase Plan
("Stock Purchase Plans") that permit United States employees and employees of
certain domestic and foreign subsidiaries to purchase the Company's Common Stock
at a discounted price. These plans are designed to encourage and assist a broad
spectrum of employees of the Company and participating subsidiaries to acquire
an equity interest in the Company through the purchase of Common Stock. They are
also intended to provide to United States employees participating in the Stock
Purchase Plans the tax benefits available under Section 421 of the Code. At June
30, 1996, approximately 4,210 of 7,851 eligible employees were participants in
the plans. A summary of the principal provisions of the Stock Purchase Plans is
set forth below.
The Board of Directors has adopted, subject to stockholder approval, an
amendment to each of the Stock Purchase Plans to increase the aggregate number
of shares issuable under both plans by 1,000,000 shares. The increase, if
approved, will bring to 16,000,000 the total number of shares that have been
authorized for issuance under the Stock Purchase Plans since their inception in
1984. As of August 1, 1996, approximately 831,749 shares remained available for
issuance under the Stock Purchase Plans. If the amendments are approved by
stockholders, approximately 1,831,749 shares would be available for future
issuance under the Stock Purchase Plans. Management expects this share increase
to be sufficient for all stock purchases under the Stock Purchase Plans for at
least two years.
The Board of Directors has also adopted, subject to stockholder approval,
an amendment to each of the Stock Purchase Plans to change the required vote for
stockholder approval of amendments from the current requirement of a majority of
the outstanding shares to a majority of the votes cast at a duly held
stockholder meeting at which a quorum of the voting power is represented. If
approved by the stockholders, these amendments will bring the Stock Purchase
Plans into conformity with the Company's other stock plans and the vote required
by applicable law.
DESCRIPTION OF STOCK PURCHASE PLANS
All regular employees (including executive officers and directors who are
employees) who are customarily employed more than 15 hours per week and more
than five months per year by the Company or a participating subsidiary are
eligible to participate in the Stock Purchase Plans as of the first quarterly
enrollment date following employment. Participants may elect to make
contributions up to a maximum of 15% of base earnings. On the last trading date
of each period, the Company applies the funds then in each participant's account
to the purchase of shares of Common Stock. The purchase dates are the last
trading day of January, April, July, and October. The cost of each share
purchased is 85% of the lower of the closing prices for Common Stock on (i) the
first trading day in the enrollment period in which the purchase is made and
(ii) the purchase date. (The closing price of Common Stock on the New York Stock
Exchange composite tape on August 19, 1996, was $68.25 per share. The closing
price of Common Stock on the New York Stock Exchange is generally treated as the
"fair market value" on a particular grant date for purposes of the Company's
employee stock plans.) The length of the enrollment period may not exceed 12
months. Enrollment dates are the first trading day of February, May, August, and
November. The Board has limited the maximum number of shares that may be
purchased by a participant during any enrollment period, and no participant's
right to acquire shares may accrue at a rate exceeding $25,000 of fair market
value of Common Stock (determined as of the first trading day in an enrollment
period) in any calendar year.
The Board of Directors administers the Stock Purchase Plans but has
delegated routine administrative matters to management committees. The Board of
Directors may amend or terminate the Stock Purchase Plans at any time and may
provide for an adjustment in the purchase price and the number and kind of
securities available under the Stock Purchase Plans in the event of a
reorganization, recapitalization, stock split, or other similar event. However,
any amendments that would increase the number of shares reserved for purchase,
materially increase the benefits to participants, or materially modify the
requirements for participa-
14
<PAGE> 17
tion under the Stock Purchase Plans require stockholder approval. Shares
available under these Stock Purchase Plans may be either outstanding shares
repurchased by the Company or newly issued shares.
FEDERAL INCOME TAX CONSEQUENCES
In general, participants who are citizens or residents of the United States
("U.S. Participants") will not have taxable income or loss under the Stock
Purchase Plans until they sell or otherwise dispose of shares acquired under the
Stock Purchase Plans (or die holding such shares). If the shares have been held,
as of the date of sale or disposition, for (i) longer than two years after the
beginning of the enrollment period during which the shares were purchased, and
(ii) longer than one year following purchase, a U.S. Participant will have
taxable ordinary income equal to 15% of the fair market value of the shares on
the first day of the enrollment period (but not in excess of the gain on the
sale). Any additional gain from the sale will be long-term capital gain. The
Company is not entitled to an income tax deduction if the holding periods are
satisfied.
If the shares are disposed of within either of the foregoing holding
periods (a "disqualifying disposition"), a U.S. Participant will have taxable
ordinary income equal to the excess of the fair market value of the shares on
the purchase date over the purchase price. In addition, the U.S. Participant
will have taxable capital gain (or loss) measured by the difference between the
sale price and the U.S. Participant's purchase price plus the amount of ordinary
income recognized, which gain (or loss) will be long-term if the shares have
been held as of the date of sale for more than one year. The Company is entitled
to an income tax deduction equal to the amount of ordinary income taxable to a
U.S. Participant in a disqualifying disposition.
Special rules apply to U.S. Participants who are directors or officers. The
consequences to non-U.S. Participants are governed by foreign laws, which
typically do not offer the same tax advantages as United States law.
PROPOSED AMENDMENTS
At the annual meeting, the Company's stockholders will be asked to approve
amendments to increase the aggregate number of shares of Common Stock authorized
under the Stock Purchase Plans by 1,000,000 shares and will be asked to modify
the voting requirements for approval of future amendments to the Stock Purchase
Plans to require the affirmative vote of a majority of the votes cast at a duly
held stockholder meeting at which a quorum is represented.
15
<PAGE> 18
The following table shows the "Dollar Value" and number of shares purchased
by the named individuals and groups under the Stock Purchase Plans during the
fiscal year ended June 30, 1996. The "Dollar Value" is the difference between
the fair market value of the stock at the date of purchase and the participant's
purchase price for the stock.
PLAN BENEFITS
AMENDED AND RESTATED 1984 EMPLOYEE STOCK PURCHASE PLAN AND
AMENDED AND RESTATED 1985 SUPPLEMENTAL EMPLOYEE STOCK PURCHASE PLAN(a)
<TABLE>
<CAPTION>
DOLLAR NUMBER
NAME AND POSITION VALUE OF SHARES
- --------------------------------------------------------------------- ----------- ---------
<S> <C> <C>
Richard A. Kashnow................................................... $ 8,098 378
Chairman, President and Chief Executive Officer
Robert J. Saldich.................................................... $ 1,581 267
Retired President and Chief Executive Officer
Michael T. Everett................................................... $ 18,076 739
Senior Vice President
Ralph H. Harnett..................................................... $ 17,549 762
Senior Vice President
Raymond J. Sims...................................................... $ 18,378 783
Senior Vice President and Chief Financial Officer
Joseph G. Wirth...................................................... $ 0 0
Senior Vice President and Chief Technical Officer
Executive Officers as a Group (14 persons)........................... $ 180,194 8,606
Non-Executive Director Group(b)...................................... $ 0 0
Non-Executive Officer Employee Group................................. $15,210,771 758,365
</TABLE>
- ---------------
(a) Future benefits or amounts received cannot be calculated as they are
dependent on each individual's decision as to the amount of salary to be
deducted for stock purchases and the stock price in effect at the time of
purchase.
(b) Non-employee members of the Board of Directors are ineligible to participate
in these plans.
RECOMMENDATIONS
The Board of Directors believes that the proposed amendments to the Stock
Purchase Plans are in the best interests of the Company, its stockholders, and
its employees and unanimously recommends a vote "FOR" approval. Approval of the
amendments requires the affirmative vote of a majority of the Company's
outstanding shares of Common Stock.
16
<PAGE> 19
AMENDMENTS TO AMENDED AND RESTATED 1990 INCENTIVE PLAN
BACKGROUND
In order to attract, retain, and motivate selected employees of, and
consultants to, the Company and its subsidiaries and affiliates, the Board of
Directors adopted, and the stockholders approved, the 1990 Incentive Plan. The
1990 Incentive Plan provides for the discretionary award of options, restricted
stock, performance share awards, or any combination of these (collectively, the
"awards") to eligible employees, including executive officers, and consultants.
The 1990 Incentive Plan is administered by the Board of Directors. The Board may
delegate its authority to a committee and may delegate routine matters to
management.
Addition of Shares. A total of 4,950,000 shares of Common Stock is
reserved for issuance under the 1990 Incentive Plan. No award may be granted
under the 1990 Incentive Plan after October 31, 2000, but outstanding awards may
vest and be exercisable beyond that date.
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the 1990 Incentive Plan to increase the aggregate number of shares
issuable under the plan by 2,800,000 shares to 7,750,000 shares. As of June 30,
1996, approximately 565,416 shares remained available for issuance under the
1990 Incentive Plan. If approved by stockholders, approximately 3,365,416 shares
would be available for issuance. Management expects this share increase to be
sufficient for all grants made under the 1990 Incentive Plan for at least two
years.
Limit on Number of Shares. Section 162(m) of the Code generally places a
$1 million per person limit on the deduction that a publicly held corporation
may take for compensation paid to certain officers (generally, the Chief
Executive Officer and the four most highly compensated executive officers). The
limit applies in the year in which the compensation is paid, so it could apply
to income derived from the exercise of certain stock options or upon receipt of
other awards. Options granted prior to February 17, 1993, are not subject to the
deduction limitation under this law.
"Performance-based" compensation is excluded from compensation counted
toward the $1 million deduction limit if certain conditions are met.
Compensation resulting from the exercise of stock options or upon award of
performance shares will be treated as "performance-based" and excluded from the
limit on deductibility if, among other things, the plan under which the awards
are granted specifies limits on the number of shares issuable to any participant
under the plan and these limits are approved by the issuer's stockholders. In
the case of performance shares, the stockholders must also approve the
performance goals for the awards.
In fiscal year 1995, in response to Section 162(m) of the Code, the Board
of Directors adopted and the stockholders approved an amendment to the 1990
Incentive Plan to limit the number of shares with respect to which options may
be granted to no more than 200,000 shares to any one participant in any one-year
period.
In order to exclude from the $1 million deduction limit compensation
resulting from the award of performance shares, and to provide additional
flexibility with respect to awards, in August 1996 the Board of Directors
adopted, subject to stockholder approval, an amendment to the 1990 Incentive
Plan to increase the limit on awards and to include performance shares in that
limit. If approved by the stockholders, the Company will be able to issue
options or performance shares of up to 500,000 shares in the aggregate to any
one participant in any one-year period.
DESCRIPTION OF PLAN
Awards under the 1990 Incentive Plan may be granted in the form of stock
options, restricted stock, or performance shares (as defined in the 1990
Incentive Plan). A variety of forms of awards was included in the 1990 Incentive
Plan in order to provide the Board with sufficient flexibility to respond to
such circumstances as changes in accounting rules or tax laws, a different
competitive environment for attracting and retaining employees, or unforeseen
conditions. Since the 1990 Incentive Plan was approved by the stockholders in
1990, the Board has granted only stock option awards and restricted stock
awards. The Board has broad discretion to determine the amount and type of
awards and the terms and conditions of awards. An award may be granted
17
<PAGE> 20
either alone or in addition to other awards granted under the 1990 Incentive
Plan. The Board may condition the grant of an award upon the attainment of
specified Company, group, division, or subsidiary performance goals or other
criteria, which need not be the same for all participants, and may adjust the
performance goals and measurements applicable to awards. The Board also may
waive, subject to certain restrictions, in whole or in part, any or all
restrictions, conditions, vesting, or forfeiture with respect to any outstanding
award.
The consideration payable in connection with an award (including any
related tax withholding) may, as authorized by the Board, be paid by promissory
note of the participant or by delivery of other property, including securities
of the Company. Except as provided in the 1990 Incentive Plan or in an award
agreement, awards generally terminate 90 days after termination of a
participant's employment, with the following exceptions: if the employment
termination is due to the participant's death, disability, or retirement (and,
in the case of retirement, the award was made prior to August 2, 1991), then the
award may be exercised for two years after the date of termination. For awards
made on or after August 2, 1991, but prior to August 12, 1994, if termination
was due to retirement, then the award may be exercised for three years after the
date of termination. For awards made on or after August 12, 1994, if termination
was due to retirement, then the award may be exercised for five years after the
date of termination. Death, disability, or retirement does not, however, extend
the exercisability of any award beyond its original termination date.
The Board may amend, alter, or discontinue the 1990 Incentive Plan or any
award at any time, except that the consent of a participant is required if the
participant's existing rights under an outstanding award would be impaired. The
Board may not amend outstanding options to lower the exercise price except in
limited circumstances. In addition, to the extent required under applicable tax
and securities laws and regulations, the stockholders of the Company must
approve any amendment, alteration, or discontinuance of the 1990 Incentive Plan
that would (i) increase the total number of shares reserved under the 1990
Incentive Plan, (ii) permit incentive stock options to be exercisable at less
than fair market value on the date of grant, (iii) extend the maximum option
exercise period, (iv) change the class of employees or consultants eligible to
participate in the 1990 Incentive Plan, or (v) materially increase the benefits
accruing to participants under the 1990 Incentive Plan.
The 1990 Incentive Plan is an unfunded plan for incentive and deferred
compensation. Although it has not done so, the Board may establish trusts or
other arrangements to meet the obligations under the 1990 Incentive Plan to
deliver stock or make payments.
Options. Stock Options granted under the 1990 Incentive Plan may be
incentive stock options ("ISOs") under Section 422 of the Code or non-qualified
stock options ("NQOs"). The exercise price of ISOs may not be less than the fair
market value of the shares subject to the option on the date of grant. The
exercise price of NQOs must be at least 85% of the fair market value on the date
of grant. Except with respect to up to 5% of the stock covered by the 1990
Incentive Plan, options may not be granted at less than fair market value unless
the discount below fair market value is expressly granted in lieu of a
reasonable amount of salary or cash bonus; provided, however, that this
restriction does not apply to the first 4,950,000 shares reserved under the
plan. The term of any ISO granted under the 1990 Incentive Plan may not exceed
ten years, and the term of any NQO may not exceed fifteen years. Certain other
limitations are also applicable to ISOs in order to take advantage of tax
treatment that may be favorable to holders of ISOs. Currently, no participant
may receive grants of options to purchase more than 200,000 shares of Common
Stock under the 1990 Incentive Plan in any one-year period. If the proposed
amendment is approved by the stockholders, this limit will be increased to
500,000 shares and include performance shares as well as options. The Board may
substitute new options for previously granted options having higher exercise
prices or may lower the exercise prices of outstanding options only where such
substitution or amendment, when taken together with all options granted at less
than fair market value and all restricted stock with vesting periods of less
than the three years (one year in the case of performance-based awards), would
cover less than 5% of the shares covered by the 1990 Incentive Plan; provided,
however, that this restriction does not apply to the first 4,950,000 shares
reserved for grants under the 1990 Incentive Plan.
Restricted Stock. Restricted Common Stock awards consist of
nontransferable shares of Common Stock of the Company. The Board may provide for
the lapse of the transfer restrictions over a period of not more than ten years.
Except with respect to up to 5% of the shares covered by the 1990 Incentive
Plan, the lapse of
18
<PAGE> 21
transfer restrictions may be over a period of not less than three years, unless
the restriction is performance-based, in which event the restriction period may
be not less than one year; provided, however, that this restriction does not
apply to the first 4,950,000 shares reserved for grants under the 1990 Incentive
Plan or to restricted stock grants prior to June 1996. Within these limits, the
Board may accelerate or waive restrictions on the stock, in whole or in part,
based on service, performance, or other criteria.
Performance Shares. Performance shares may also be granted under the 1990
Incentive Plan on the basis of the following incentives of performance: total
stockholder return; stock price; cash value added; economic value added;
operating margin; asset turnover; sales growth; asset growth; return on
investment; earnings per share; return on equity; return on assets; return on
capital; operating cash flow; cost of capital; net income; net operating profit;
customer satisfaction; and employee satisfaction. At the time a grant is made,
the compensation committee of the Board will determine the number of shares of
Common Stock to be awarded at the end of the performance period if and to the
extent that the specified performance targets are met. The compensation
committee of the Board will determine the performance period (which must be at
least two years and not more than six years), the performance objectives to be
used in granting the awards, and the extent to which awards have been earned.
Performance periods may overlap, and participants may be awarded performance
shares having different performance criteria. Performance share awards may be
payable in cash or stock, at the discretion of the Compensation Committee, and
may bear interest or earn dividends. The maximum number of performance shares
and option shares in the aggregate that may be awarded to any one participant in
any one-year period will be 500,000 shares.
Change in Control. In the event of a "change in control" of the Company,
as defined in the 1990 Incentive Plan, the Board may, in its discretion and
subject to certain limitations, elect to accelerate the vesting provisions of
awards or may cash out the awards. A "change in control" is defined to include
the acquisition of 20% or more of the voting power of the Company's outstanding
stock, a proxy solicitation for one or more directors without support of the
then-current Board, and certain mergers or reorganizations or other changes in
ownership of the Company's assets or stock.
FEDERAL INCOME TAX CONSEQUENCES
In general, U.S. Participants will not have taxable income (and the Company
will receive no deduction) upon the grant or exercise of an ISO. However,
exercise of an ISO by a U.S. Participant could give rise to liability for
alternative minimum tax.
A U.S. Participant generally will be entitled to long-term capital gain
treatment upon the sale of shares ("Option Shares") acquired upon the exercise
of an ISO if the shares have been held for more than two years after the grant
date and for more than one year after the exercise date. If the Option Shares
are disposed of before both of these holding periods have expired, the U.S.
Participant will have taxable ordinary income and/or capital gain (or loss) in
the year of sale determined as if the option had been a NQO (see below), except
that the amount of ordinary income will not exceed the actual gain on the sale,
and the Company will be entitled to a corresponding deduction.
In general, a U.S. Participant will not have taxable income upon the grant
of a NQO or performance share award. Upon exercise or conversion of either of
these instruments, the U.S. Participant will generally have ordinary income
subject to withholding taxes (and the Company will be entitled to a
corresponding deduction) in the amount by which the fair market value of the
stock at that time exceeds the purchase (or conversion) price. A U.S.
Participant will generally not have taxable income upon the grant of restricted
stock but will have taxable income upon the lapse of any restrictions. A U.S.
Participant receiving restricted stock, however, may make an election to be
taxable at grant on any excess of fair market value over the amount paid, in
which case the lapse of any restrictions will not be a taxable event. If shares
are held at least one year after the date the U.S. Participant has taxable
income from acquiring them, then upon sale of the shares the U.S Participant
will have long-term capital gain or loss equal to the difference between the
sale price and the fair market value of the shares on the date income is
recognized. Under current federal income tax law, long-term capital gain is
taxable at a maximum rate of 28%, while ordinary income is taxable at a maximum
stated rate of 39.6% (disallowances of deductions at certain income levels may
result in a higher implicit rate).
19
<PAGE> 22
The tax consequences to non-U.S. Participants are governed by foreign law,
which typically does not offer the same tax advantages as United States law.
Special rules apply to participants who are directors or officers.
PROPOSED AMENDMENTS
At the annual meeting, the Company's stockholders will be asked to approve
the proposal to amend the 1990 Incentive Plan to increase the number of shares
authorized under the plan by 2,800,000 shares to a total of 7,750,000 shares of
the Company's Common Stock. In addition, stockholders will be asked to approve a
proposal to amend the plan to increase the limit on the number of shares that
may be granted to any participant in any one-year period to 500,000 and to
include performance shares within that limit.
The following table shows the number of shares of Common Stock currently
issuable upon exercise of options granted to the named individuals and groups
under the 1990 Incentive Plan during the fiscal year ended June 30, 1996.
PLAN BENEFITS
AMENDED AND RESTATED 1990 INCENTIVE PLAN
<TABLE>
<CAPTION>
NUMBER OF
RESTRICTED
NUMBER OF SHARES
OPTION SHARES AVERAGE GRANTED
GRANTED IN EXERCISE IN
NAME AND POSITION FY96(a) PRICE FY96(b)
- ---------------------------------------------------------- -------------- -------- ---------
<S> <C> <C> <C>
Richard A. Kashnow........................................ 200,000 $45.00 37,500(c)
Chairman, President and Chief Executive Officer
Robert J. Saldich......................................... 0 $ 0.00 0
Retired President and Chief Executive Officer
Michael T. Everett........................................ 16,000 $47.38 0
Senior Vice President
Ralph H. Harnett.......................................... 16,000 $47.38 1,000
Senior Vice President
Raymond J. Sims........................................... 31,000 $59.90 1,000
Senior Vice President and Chief Financial Officer
Joseph G. Wirth........................................... 12,000 $47.38 0
Senior Vice President and Chief Technical Officer
Executive Officers as a Group (14 persons)................ 393,500 $49.29 45,900
Non-Executive Director Group(d)........................... 25,000 $42.13 0
Non-Executive Officer Employee Group...................... 994,950 $51.81 2,400
</TABLE>
- ---------------
(a) All options granted at fair market value as of date of grant.
(b) Par value payments equal to $1.00 per share were made by all restricted
stock recipients. All restricted shares other than Dr. Kashnow's were
awarded on July 17, 1996.
(c) Dr. Kashnow also received 64 shares of restricted stock in lieu of
dividends.
(d) Non-employee directors are not eligible to participate in the 1990 Incentive
Plan. The 25,000 shares represent an option granted to Mr. Stein in
connection with a consulting agreement.
The closing price of Common Stock on the New York Stock Exchange composite
tape on August 19, 1996, was $68.25 per share.
RECOMMENDATION
The Board of Directors believes that the proposed amendments are in the
best interests of the Company, its stockholders, and its employees and
unanimously recommends a vote "FOR" approval. Approval of the amendments
requires the affirmative vote of a majority of the votes cast at a duly held
stockholders meeting at which a quorum of the voting power is represented.
20
<PAGE> 23
ADOPTION OF 1996 DIRECTORS STOCK OPTION PLAN
BACKGROUND
The Board of Directors has adopted, subject to stockholder approval, the
1996 Directors Stock Option Plan ("1996 Directors Plan") with a reserve of
200,000 shares. The 1996 Directors Plan is intended to provide meaningful equity
incentives to attract and retain outside directors with outstanding abilities.
The plan replaces the 1987 Directors Stock Option Plan, which is due to expire
in May 1997. Effective upon stockholder approval of the 1996 Directors Plan, the
Board has authorized early termination of the 1987 Directors Stock Option Plan.
DESCRIPTION OF THE PLAN
The 1996 Directors Plan is administered by the Board of Directors. Under
the 1996 Directors Plan, each director who is not an employee of the Company or
of any subsidiary or affiliate of the Company automatically receives an option
to purchase 5,000 shares of Common Stock on the date he or she is first elected
to the Board. Thereafter, each eligible director then in office automatically
receives an option to purchase 1,250 shares of Common Stock upon re-election to
the Board at the Company's annual meeting of stockholders. The 1996 Directors
Plan also provides for the one-time grant of an option to purchase 2,000 shares
of Common Stock to each director then in office on the date of the Company's
1996 annual meeting.
A total of 200,000 shares is reserved for issuance under the 1996 Directors
Plan. The exercise price of options granted under the plan is the fair market
value of the Company's Common Stock on the grant date.
The term of all options granted under the 1996 Directors Plan is ten years.
Options become exercisable in four equal annual installments commencing on the
first anniversary of the grant date. Outstanding options become immediately
exercisable in full upon death, disability, or retirement of the director or
upon an unsuccessful attempt by the director to win re-election to the Board or
upon the adoption by the Company of a plan for a liquidation, dissolution,
merger or consolidation in which the Company is not the surviving entity or
other capital reorganization in which more than 50% of the shares of the Company
entitled to vote are exchanged. In all other cases, if a director's membership
on the Board terminates, options held at the date of termination may be
exercised only to the extent they are exercisable at termination. Regardless of
the reason for termination, exercisable options may only be exercised during the
one-year period immediately following termination. No option, however, may
extend beyond its original termination date. The exercise price of options
granted under the 1996 Directors Plan may be paid in cash, by promissory note or
by tender of property (including shares of Common Stock). The Board may amend
the 1996 Directors Plan at any time; provided, however, that any amendment to
increase the number of shares as to which options may be granted or to reduce
the exercise price below the price provided in the 1996 Directors Plan requires
stockholder approval. No other amendment to the 1996 Directors Plan requires
stockholder approval except to the extent (a) required by applicable laws,
regulations or rules or (b) the Board otherwise concludes that stockholder
approval is advisable. No amendment may, however, affect the rights of the
holder of any option, except with that holder's consent.
21
<PAGE> 24
The following table shows the number of options that may be granted to the
named individuals and groups under the 1996 Directors Plan over the ten-year
life of the 1996 Directors Plan, assuming that the Board continues to have
members who are not officers or employees of the Company and that none of the
named executive officers serves on the Board after ceasing to be an officer or
employee of the Company:
PLAN BENEFITS
1996 DIRECTORS STOCK OPTION PLAN
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS THAT
MAY BE
NAME AND POSITION GRANTED(a)
- --------------------------------------------------------------------------------- ------------
<S> <C>
Richard A. Kashnow............................................................... 0
Chairman, President and Chief Executive Officer
Robert J. Saldich................................................................ 0
Retired President and Chief Executive Officer
Michael T. Everett............................................................... 0
Senior Vice President
Ralph H. Harnett................................................................. 0
Senior Vice President
Raymond J. Sims.................................................................. 0
Senior Vice President and Chief Financial Officer
Joseph G. Wirth.................................................................. 0
Senior Vice President and Chief Technical Officer
Executive Officers as a Group (14 Persons)....................................... 0
Non-Executive Director Group(b).................................................. 200,000
Non-Executive Officer Employee Group............................................. 0
</TABLE>
- ---------------
(a) All options granted at fair market value as of date of grant.
(b) Only non-employee directors are eligible to receive grants under the 1996
Directors Plan.
FEDERAL INCOME TAX CONSEQUENCES
All options granted under the 1996 Directors Plan are NQOs. An optionee
does not have taxable income as a result of the grant of a NQO. The optionee
will have taxable ordinary income in the amount of the excess of the fair market
value of the stock at the time of exercise over the purchase price of the stock.
The company is entitled to a deduction corresponding to the amount of ordinary
income taxable to an optionee. Upon the sale of option shares, the optionee will
have capital gain or loss to the extent of any difference between the sale price
and the fair market value of the shares on the date the option is exercised.
PROPOSAL
At the annual meeting, the Company's stockholders will be asked to approve
the adoption of the 1996 Directors Plan and the reservation of 200,000 shares of
the Company's Common Stock for issuance under the plan.
RECOMMENDATION
The Board of Directors believes the 1996 Directors Plan is in the best
interests of the Company, its stockholders, and its employees and unanimously
recommends a vote "FOR" approval. Approval of the adoption of the plan requires
the affirmative vote of a majority of the votes cast at a duly held stockholders
meeting at which a quorum of the voting power is represented.
22
<PAGE> 25
ADOPTION OF OFFICER VARIABLE PAY PLAN
BACKGROUND
The Board of Directors has adopted, subject to stockholder approval, the
Officer Variable Pay Plan ("Officer Plan"). The Officer Plan is intended to
align the interests of officers and stockholders by putting a significant
portion of officers' annual compensation at risk based on the achievement of
predetermined financial performance goals. If approved by the stockholders,
awards made under this plan will be exempt from the limits on deductibility of
compensation imposed by Section 162(m) of the Code.
DESCRIPTION OF THE PLAN
All officers are eligible to participate in the Officer Plan. Any officer
selected by the Board to participate in the Officer Plan in any given fiscal
year may receive a bonus up to a specified percentage of base salary. The
percentage is determined by position with the Company. Payments under the
Officer Plan will be made following the end of the fiscal year based on meeting
an after-tax profit target specified in advance by the Compensation Committee.
The Officer Plan has a minimum payout if 80% of the specified target is met, a
100% payout if the specified target is met, and a maximum payout if 120% of the
specified target is met. The maximum bonus that may be paid to any one
participant for any one year is $2,500,000, although the fiscal year 1997 payout
is anticipated to be substantially less. The bonus may be paid in cash, stock,
restricted stock, or other property, as determined in each case by the Board.
FEDERAL INCOME TAX CONSEQUENCES
Cash bonuses are taxable to the recipients as ordinary compensation income.
If the Officer Plan is approved by the stockholders, amounts payable under the
Officer Plan will be exempt from the limitation on deductibility of annual
individual compensation in excess of $1 million that is imposed by Section
162(m) of the Code.
PROPOSAL
At the annual meeting, the Company's stockholders will be asked to approve
the adoption of the Officer Plan.
RECOMMENDATION
The Board of Directors believes that the Officer Plan is in the best
interests of the Company, its stockholders, and employees and unanimously
recommends a vote "FOR" approval. Approval of the adoption of the plan requires
the affirmative vote of a majority of the votes cast at a duly held stockholders
meeting at which a quorum of the voting power is represented.
23
<PAGE> 26
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission ("SEC") and the New York Stock Exchange initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors, and greater than 10%
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, from July 1, 1995, through the fiscal year ended June 30,
1996, all Section 16(a) filing requirements applicable to its executive
officers, directors, and greater than 10% beneficial owners were complied with,
with the following exceptions: John D. McGraw, a Vice President of the Company,
failed to report options on a timely basis held by his wife, a Company employee,
on a Form 3 (Initial Statement of Beneficial Ownership) and two sales of stock
on Forms 4 (Statement of Changes in Beneficial Ownership); and Dean O. Morton, a
Director of the Company, failed to report on a timely basis a total of six
automatic reinvestments of dividends on his Common Stock during fiscal 1995 and
1996, through a dividend reinvestment plan provided by a brokerage firm. Mr.
McGraw subsequently amended his Form 3 and Forms 4, which were otherwise filed
on a timely basis. When Mr. Morton became aware of the need to report dividend
reinvestments, he filed a late report on Form 5 (Annual Statement of Beneficial
Ownership) for fiscal year 1995 and a timely Form 5 for fiscal year 1996.
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors recommends to the stockholders ratification of the
appointment of Price Waterhouse LLP as the Company's independent accountants.
Price Waterhouse LLP has been serving as the Company's independent accountants
since fiscal year 1984.
Representatives of Price Waterhouse LLP will be present at the meeting.
They do not expect to make any statement, but will have the opportunity to make
a statement if they so desire and will be available to respond to appropriate
questions.
CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH MANAGEMENT
Mr. Cook is a director and stockholder of Chemfab Corporation, a New
Hampshire company founded by Mr. Cook's brother and principally engaged in the
manufacture and sale of flexible, high-performance materials for use in severe
environments. Mr. Cook has been a director of Chemfab Corporation for many years
and has been a major stockholder since his brother's death in 1977. While
Chemfab is not in direct competition with Raychem, the company possesses wire
coating technology which may be useful to competitors of Raychem. Chemfab is
producing a composite film product which it sells to customers who use it to
manufacture wire and cable. At the present time, it does not appear likely that
Chemfab itself would compete directly with Raychem in the wire and cable
business. In the past, Chemfab has had discussions with Raychem concerning the
possibility of Chemfab and Raychem working together. The parties mutually
concluded that such a relationship was unlikely to be productive for either
company at that time.
ANNUAL REPORT
The Company's annual report for the 1996 fiscal year is being mailed with
this proxy statement to stockholders entitled to notice of the meeting.
24
<PAGE> 27
OTHER BUSINESS
The Board of Directors knows of no other business that will be presented
for consideration at the meeting. If other matters are properly brought before
the meeting, however, it is the intention of the persons named in the
accompanying proxy to vote the represented shares in their discretion on such
matters.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 1997 annual meeting of stockholders must be received by the Company no
later than May 22, 1997, in order to be considered for inclusion in the proxy
statement and proxy related to the meeting.
Stockholder proposals for nominees to the Board of Directors must be
submitted in writing to the nominating committee in care of the Corporate
Secretary by August 1, 1997, or 90 days prior to the annual meeting of
stockholders, whichever is earlier.
By Order of the Board of Directors
RICHARD A. KASHNOW
Chairman of the Board,
President and Chief Executive Officer
25
<PAGE> 28
PROXY PROXY
RAYCHEM CORPORATION
Proxy Solicited By The Board of Directors For The
Annual Meeting Of Stockholders -- November 1, 1996
Richard A. Kashnow and Karen O. Cottle, or either of them, each with
the power of substitution and revocation, are hereby authorized to represent
the undersigned, with all powers which the undersigned would possess if
personally present, to vote the Common Stock of the undersigned at the annual
meeting of stockholders of RAYCHEM CORPORATION to be held at the Company's
principal office, 300 Constitution Drive, Menlo Park, California 94025-1164, at
10:00 a.m. on Friday, November 1, 1996, and at any postponements or
adjournments of that meeting, as set forth below, and in their discretion upon
any other business that may properly come before the meeting.
This proxy will be voted as specified or, if no choice is specified,
will be voted FOR the election of the nominees named and FOR each of the other
proposals specified herein.
/ / Check here if you plan to attend the
meeting.
/ / Check here for address change.
New address:
----------------------
-----------------------------------
-----------------------------------
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE> 29
RAYCHEM CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
1. Nominees:
Richard Dulude, James F. Gibbons, Richard A. Kashnow, John P. McTague, Dean
O. Morton, Isaac Stein, Chang-Lin Tien and Cyril J. Yansouni
For Withheld For All
Except nominees written in below.
/ / / / / /
--------------------
Nominee Exception
2. To approve amendments to the Company's Amended and Restated 1984 Employee
Stock Purchase Plan and Amended and Restated 1985 Supplemental Employee
Stock Purchase Plan to provide additional shares.
For Against Abstain
/ / / / / /
3. To approve amendments to the Company's Amended and Restated 1984 Employee
Stock Purchase Plan and Amended and Restated 1985 Supplemental Employee Stock
Purchase Plan to modify the requisite vote for stockholder approval
to conform to the Company's other employee benefit plans.
For Against Abstain
/ / / / / /
4. To approve amendments to the Company's Amended and Restated 1990 Incentive
Plan to provide additional shares.
For Against Abstain
/ / / / / /
5. To approve amendments to the Company's Amended and Restated 1990 Incentive
Plan to increase the limit on the number of shares that may be granted to any
participant in any one-year period, and to include performance shares within
that limit.
For Against Abstain
/ / / / / /
6. To approve the adoption of the Company's 1996 Directors Stock Option Plan.
For Against Abstain
/ / / / / /
7. To approve the adoption of the Company's Officer Variable Pay Plan.
For Against Abstain
/ / / / / /
8. To ratify the appointment by the Company's Board of Directors of Price
Waterhouse LLP to audit the accounts of the Company and its subsidiaries for
the 1997 fiscal year.
For Against Abstain
/ / / / / /
SIGNATURE:
-------------------------------------------------------------
SIGNATURE (If held jointly):
-------------------------------------------
Date: , 1996
--------------------
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS. IF ACTING AS ATTORNEY, EXECUTOR,
TRUSTEE, OR IN REPRESENTATIVE CAPACITY, SIGN NAME AND INDICATE TITLE.
