SCHEDULE 14A INFORMATION
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Chemfab Corporation
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CHEMFAB CORPORATION
701 DANIEL WEBSTER HIGHWAY
MERRIMACK, NEW HAMPSHIRE 03054
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF CHEMFAB CORPORATION:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders
of Chemfab Corporation will be held at the Corporation's principal executive
office, 701 Daniel Webster Highway, Merrimack, New Hampshire, on Thursday,
October 29, 1998 at 9:00 A.M. (local time) for the following purposes:
(a) To elect directors of the Corporation; and
(b) To consider and vote upon a proposal to ratify the selection
by the Board of Directors of the firm of Ernst & Young LLP as
independent auditors of the Corporation for the fiscal year ending
June 30, 1999; and
(c) To transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.
The Board of Directors has fixed September 2, 1998 as the record date
for the determination of shareholders entitled to notice of, and to vote at,
the 1998 Annual Meeting of Shareholders. Accordingly, only shareholders of
record at the close of business on September 2, 1998 will be entitled to
notice of, and to vote at, such meeting or any adjournments thereof.
By order of the Board of Directors
Thomas C. Platt III
Secretary
September 23, 1998
NOTE: THE BOARD OF DIRECTORS SOLICITS THE EXECUTION AND PROMPT RETURN OF
THE ACCOMPANYING PROXY. A RETURN ENVELOPE IS ENCLOSED.
CHEMFAB CORPORATION
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of Chemfab
Corporation (the "Corporation") for use at the 1998 Annual Meeting of
Shareholders on October 29, 1998 and at any adjournments or postponements
thereof (the "Meeting").
The Corporation's principal executive office is located at 701 Daniel
Webster Highway, P.O. Box 1137, Merrimack, New Hampshire 03054.
The cost of soliciting proxies by mail, telephone, telegraph or in
person will be borne by the Corporation. The Corporation has retained the
services of W.F. Doring & Company, a proxy solicitation firm based in New
Jersey, to whom the Corporation will pay a fee of $1,500 plus reimbursement
for mailing and out-of-pocket expenses. In addition to solicitation by
mail, the Corporation will reimburse brokerage houses and other nominees for
their expenses incurred in sending proxies and proxy material to the
beneficial owners of shares held by them.
You may revoke your proxy at any time prior to its use by giving
written notice to the Secretary of the Corporation, by executing a revised
proxy at a later date or by attending the Meeting and voting in person.
Proxies in the form enclosed, unless previously revoked, will be voted at
the Meeting in accordance with the specifications made by you thereon or, in
the absence of such specifications, in favor of the election of the nominees
for directors listed herein, and in favor of the proposal to ratify the
selection of Ernst & Young LLP as independent auditors for the fiscal year
ending June 30, 1999, and, with respect to any other business which may
properly come before the meeting, in the discretion of the named proxies.
If, in a proxy submitted on your behalf by a person acting solely in a
representative capacity, the proxy is marked clearly to indicate that the
shares represented thereby are not being voted with respect to one or more
proposals, then your proxy will not be counted as present at the meeting
with respect to such proposals. Proxies submitted with abstentions as to
one or more proposals will be counted as present for purposes of
establishing a quorum for such proposals.
All holders of record of the common stock, par value $.10 per share,
of the Corporation (the "Common Stock") at the close of business on
September 2, 1998, will be eligible to vote at the Meeting. Each share is
entitled to one vote. As of September 2, 1998, the Corporation had
outstanding 7,818,300 of Common Stock. The presence, in person or by proxy,
of a majority of the issued and outstanding Common Stock will constitute a
quorum for the transaction of business at the Meeting. This proxy statement
and the enclosed proxy are first being mailed or given to shareholders on or
about September 23, 1998.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to
each person known to the Corporation to be the beneficial owner of more than
5% of the issued and outstanding Common Stock as of August 10, 1998 or other
date noted below. As of August 10, 1998, 7,817,900 shares of Common Stock
were outstanding.
AMOUNT AND NATURE OF PERCENTAGE OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP OUTSTANDING SHARES OF
OF BENEFICIAL OWNER OF COMMON STOCK COMMON STOCK OWNED
- ------------------- ---------------- -------------------
Peter B. Cannell & 935,362 (1) 12.0%
Co., Inc. ("Cannell")
919 Third Avenue
New York, NY 10022
Dimensional Fund Adv. Inc. 451,150 (2) 5.8%
1299 Ocean Ave.,
11th Floor
Santa Monica, CA 90401
- ------------------------
(1) Based upon information provided to the Corporation by Cannell as of
August 3, 1998. Consists entirely of shares of Common Stock of the
Corporation owned by investment advisory clients of Cannell, principals
of Cannell, and The Peter B. Cannell 401(k) Plan. Cannell disclaims
beneficial ownership of all such shares.
(2) Based upon information as of June 30, 1998 provided to the Corporation
by Dimensional Fund Advisors Inc. Consists entirely of shares of
Common Stock owned by portfolios of DFA Investment Dimensions Group,
Inc., a registered open-end investment company, or in series of The DFA
Investment Trust Company, a Delaware business trust, or the DFA Group
Trust and the DFA Participating Group Trust, investment vehicles for
qualified employee benefit plans, all of which Dimensional Fund
Advisors Inc. serves as investment manager. Of such shares,
Dimensional Fund Advisors Inc. does not have voting power with respect
to 163,200 shares. Dimensional Fund Advisors Inc. disclaims beneficial
ownership of all 451,150 shares.
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
The Board of Directors has set the number of Board members at seven
for the upcoming year. Each director is elected to hold office until the
next annual meeting of shareholders, or special meeting in lieu thereof, and
until their respective successors are duly elected and qualified. The Board
has nominated all of the current members of the Board for reelection. The
affirmative vote of a plurality of the shares of Common Stock present at the
Meeting, in person or by proxy, is required for the election of the members
of the Board.
Unless authority to do so is withheld, the persons named in each
proxy (and/or their substitutes) will vote the shares represented thereby
"FOR" the election of the director nominees named below. If for any reason
any nominee is not a candidate (which is not now expected), a new nominee
will be designated by the Board to fill such vacancy, unless the Board of
Directors shall reduce the number of directors in accordance with the By-
Laws of the Corporation.
INFORMATION AS TO DIRECTORS AND NOMINEES FOR DIRECTOR
There is shown below for each director and nominee for director, as
reported to the Corporation, the name, age and family relationship, if any,
with any other director or officer, the principal occupation and employment
over at least the last five years, the position, if any, with the
Corporation, the period of service as a director of the Corporation, and
certain other directorships held.
NAME AGE OFFICE HELD DIRECTOR SINCE
Paul M. Cook 74 Director March 1976
Warren C. Cook 53 Director September 1976
Robert E. McGill, III 67 Director October 1995
James E. McGrath 64 Director October 1993
Duane C. Montopoli 49 Director February 1986
Nicholas Pappas 68 Director May 1991
John W. Verbicky 46 President, October 1997
Chief
Executive Officer
and Director
- -----------------------------
PAUL M. COOK has served as Chief Executive Officer and Chairman of
the Board of Diva Systems Corporation since June 1995. He served as
Chairman of the Board of Directors of SRI International, Menlo Park,
California, from December 1993 through July 1998. Mr. Cook also served as
Chairman of the Board of Directors of CellNet Data Systems, Inc. (formerly
Domestic Automation Company) of San Carlos, California from June 1990
through November 1997 and served as Chief Executive Officer of that company
from August 1990 through August 1994. Mr. Cook continues to be a director
of both SRI International and CellNet Data Systems, Inc. Mr. Cook was a
member of the Board of Directors of Raychem Corporation ("Raychem"), Menlo
Park, California, from the time he founded the company in 1957 through
August 1996, and served as Chairman of the Board of Directors from April
1990 through October 1995. Mr. Cook is the uncle of Mr. Warren Cook, also a
director of the Corporation.
WARREN C. COOK is Senior Vice President and Chief Operating Officer
of American Skiing Company. He has held these positions since June 1997 and
August 1998, respectively. Between June 1994 and June 1996, Mr. Cook served
as Vice President of S.K.I. Ltd. Prior to that time, he served as
President, Chief Executive Officer and Chairman of the Board of Sugarloaf
Mountain Corporation from April 1986 through June 1996. He also served as
Managing Director of Sugarloaf Mountain Corporation from June 1996 through
July 1998. Prior to his resignation in June 1986, Mr. Cook was President
and Chief Executive Officer of the Corporation. Mr. Cook is the nephew of
Mr. Paul Cook, also a director of the Corporation.
ROBERT E. McGILL, III has been Managing Director of the Berkshires
Management Company L.L.C., the general partner of the Berkshires Capital
Investors Limited Partnership, since February 1997. From 1989 through
December 1994, Mr. McGill served as Executive Vice President - Finance and
Administration of The Dexter Corporation, Windsor Locks, Connecticut and
also served as a director of The Dexter Corporation from 1983 through April
1995. Prior to his appointment as Executive Vice President, Mr. McGill
served as Vice President and Senior Vice President of Finance and
Administration from 1975 through 1989. He is currently a member of the
Board of Directors of CN Biosciences, Inc. and Connecticut Surety
Corporation. Mr. McGill is also a Trustee for Travelers Mutual and Variable
Annuity Funds.
JAMES E. McGRATH, Ph.D., is the Ethyl Chaired Professor of Chemistry
and Director of the National Science Foundation's Science and Technology
Center for High Performance Polymer Adhesives and Composites at Virginia
Polytechnic Institute and State University ("VPI"). Prior to his
appointment as Director of the Science and Technology Center in February
1989, Dr. McGrath served as Director of the Materials Institute at VPI. Dr.
McGrath also held various positions as a research scientist and chemist
during his 17 years in private industry with several companies, including
Union Carbide and Goodyear Tire and Rubber Co.
DUANE C. MONTOPOLI is President, Chief Executive Officer and Director
of Medical Resources Imaging, Inc. which is headquartered in Hackensack, New
Jersey. From June 1986 until January 1998, Mr. Montopoli was President and
Chief Executive Officer of the Corporation. From December 1983 until
January 1990, he was a partner in Oak Grove Ventures, Menlo Park,
California. Prior to that time, he was employed by Arthur Young & Company
(now Ernst & Young LLP) where he was a general partner from October 1982
through December 1983.
NICHOLAS PAPPAS, Ph.D., is retired Vice Chairman of the Board of
Directors of Rollins Environmental Services, Inc., Wilmington, Delaware.
Prior to his appointment as Vice Chairman, Mr. Pappas served as President
and Chief Operating Officer from July 1991 through September 1995. Dr.
Pappas was employed by the Du Pont Company in various capacities from 1956
until his retirement in December 1990. Dr. Pappas served as Executive Vice
President of Du Pont from 1988 to December 1990, and was Group Vice
President - Polymer Products from 1983 to 1988. He is also a director of
Yenkin-Majestic Corp. of Dayton, Ohio, Nova Corporation, a Canadian company,
Witco Corporation of Greenwich, Connecticut, and Biotraces Inc. of Fairfax,
Virginia. In October 1997, the Board of Directors named Dr. Pappas to the
newly created position of Chairman of the Board of Directors of the
Corporation effective January 1998.
JOHN W. VERBICKY, Ph.D., is President and Chief Executive Officer of
the Corporation. He has held these positions since January 1998. Between
March 1996 and January 1998, Dr. Verbicky served as Executive Vice President
and Chief Operating Officer of the Corporation. Prior to that time, he
served as Vice President - Research & Development from January 1993 to April
1994, and as Vice President - U.S. Business Group from April 1994 to March
1996. From November 1990 until the commencement of his employment with the
Corporation, Dr. Verbicky was employed by General Electric ("GE") as manager
of the Environmental Technology Laboratory at GE's Research and Development
Center. He previously served as manager of the Chemical Synthesis
Laboratory after joining GE in 1979.
As compensation for service as director, each non-employee director
receives cash compensation and annual stock option grants. The Corporation
pays to each non-employee director $1,000 for every meeting of the Board of
Directors attended in person by such director, and $250 for every telephonic
meeting of the Board of Directors (or committee thereof) in which such
director participates. In addition, pursuant to the Corporation's Third
Amended and Restated 1991 Stock Option Plan (the "1991 Plan"), the non-
employee directors of the Corporation receive annual automatic grants of
options to purchase shares of Common Stock. During fiscal 1998, each of the
non-employee directors received an automatic grant of options under the 1991
Plan to purchase 6,000 shares of the Common Stock at fair market value as of
the date of grant ($21.125 per share), and such options became fully vested
over the course of that fiscal year. The Board of Directors met 9 times
last year. Each director attended at least 75% of the aggregate of the
total number of such meetings of the Board of Directors and the total number
of meetings held by all committees on which he served, with the exception of
Dr. McGrath, who attended 67% of such meetings.
In addition to his regular compensation as a Director, Dr. Pappas
received additional compensation during fiscal 1998 for services rendered as
a consultant. Pursuant to an arrangement approved and recommended by the
Option/Compensation Committee (with Dr. Pappas absent and not
participating), and adopted unanimously by the full Board (with Dr. Pappas
absent and not participating), Dr. Pappas earned $30,000 in consulting fees
during the 1998 fiscal year and the award of options under the 1991 Plan to
purchase 20,000 shares of the Common Stock at fair market values as of the
date of the grant ($21.125 per share), which options vest at the rate of 25%
per year, commencing with 25% on October 30, 1997 and 25% on each
anniversary for the next three years thereafter.
COMMITTEES
During fiscal 1998, the Audit Committee of the Board of Directors
consisted of Mr. Warren Cook, Mr. McGill and Dr. Pappas. This committee met
two times in fiscal 1998. The functions of the Audit Committee include: (1)
making recommendations to the Board of Directors with respect to the
engagement of the independent auditors; (2) reviewing the audit plans
developed by the independent auditors for the annual audit of the
Corporation's books and records and the results of such audit; (3) reviewing
the annual financial statements; (4) reviewing the professional services
provided by the independent auditors and the auditors' independence; and (5)
reviewing the adequacy of the Corporation's system of internal controls and
the responses to management letters issued by the independent auditors and
(6) reviewing any related party contracts brought to its attention.
During fiscal 1998, the Option/Compensation Committee of the Board of
Directors consisted of Mr. Paul M. Cook, Mr. Warren C. Cook, and Dr. James
E. McGrath. This committee met two times in fiscal 1998. The principal
functions of the Option/Compensation Committee are to review and approve
salary plans and bonus awards, as well as other forms of compensation, and
to administer the Corporation's stock option plans pursuant to the terms of
such plans.
During fiscal 1998, the Board of Directors established an
Environmental, Health and Safety (EHS) Committee, which consisted of Drs.
Pappas and McGrath and Mr. Warren Cook. The Committee met once in fiscal
1998. The principal functions of the EHS Committee are to review and
approve the Corporation's safety programs and safety record, and to monitor
and make recommendations to the Corporation's management on safety, health,
environmental and corporate compliance matters.
OWNERSHIP OF EQUITY SECURITIES BY MANAGEMENT
The table below sets forth information as of August 10, 1998, as
reported to the Corporation, as to the beneficial ownership of the Common
Stock of the Corporation by each director, each nominee for election as a
director, and each named executive officer, and by all directors and
executive officers as a group.
AMOUNT AND NATURE OF PERCENTAGE OF
BENEFICIAL OWNERHIP OUTSTANDING SHARES OF
NAME OF COMMON STOCK (1) COMMON STOCK OWNED
- -------- -------------------- --------------------
Paul M. Cook (2)............. 323,560 4.11%
Warren C. Cook (3)........... 187,627 2.38%
Michael P. Cushman (4)....... 21,172 *
Robert E. McGill, III (5) 19,000 *
James E. McGrath ............ 25,500 *
Duane C. Montopoli (6)....... 180,250 2.26%
Moosa E. Moosa .............. 28,250 *
Nicholas Pappas ............. 53,000 *
Thomas C. Platt III.......... 10,400 *
Charles Tilgner III (7)...... 23,697 *
John W. Verbicky ............ 79,938 1.01%
All directors and executive
officers as a group (12 persons) 959,074 11.53%
.............................
- ------------------------
* Indicates less than 1%
(1) Except as set forth in the footnotes below, each stockholder has sole
investment and voting power with respect to the shares beneficially
owned. Includes options with respect to shares of Common Stock that
can be exercised on or before October 9, 1998. Assumes exercise of
options covering 54,000 shares for Mr. Paul Cook, 54,000 shares for Mr.
Warren Cook, 20,938 shares for Mr. Cushman, 12,000 shares for Mr.
McGill, 18,000 shares for Dr. McGrath, 155,750 shares for Mr.
Montopoli, 23,750 shares for Mr. Moosa, 47,000 shares for Dr. Pappas,
10,000 shares for Mr. Platt, 20,900 shares for Mr. Tilgner, 77,438
shares for Dr. Verbicky, and 500,276 shares for all directors and
executive officers as a group.
(2) Consists of 269,560 shares held by the Paul and Marcia Cook Living
Trust, as to which Mr. Cook and his wife share voting and investment
power as co-trustees.
(3) Includes 86,300 shares held in trust for the benefit of Mr. Warren
Cook's two children, as to which Mr. Cook has no voting or investment
power and disclaims beneficial ownership.
(4) Includes 224 shares held by his two children, as to which Mr. Cushman
disclaims beneficial ownership.
(5) Includes 7,000 shares held in a trust of which Mr. McGill is a
beneficiary and over which Mr. McGill shares voting control.
(6) Includes 4,500 shares held by Mr. Montopoli as custodian for his two
children, as to which Mr. Montopoli disclaims beneficial ownership.
(7) Includes 15 shares owned by Mr. Tilgner's wife, as to which Mr. Tilgner
disclaims beneficial ownership.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below sets forth certain compensation information for the
fiscal years ended June 30, 1998, 1997 and 1996 with respect to the
Corporation's Chief Executive Officers and those four other executive
officers of the Corporation who were the most highly paid for fiscal 1998.
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ------------------- --------------- COMPENSATION($)(2)
- ---------------------------- ---- SALARY($)(1) BONUS($) OPTIONS(#) ------------------
-------- -------- ---------------
Duane C. Montopoli (3) 1998 $121,122 $0 7,000 $ 22,825 (4)
President, Chief Executive 1997 $229,000 $53,000 14,000 $ 7,067
Officer and Director 1996 $225,000 $85,000 18,000 $ 6,828
John W. Verbicky (5) 1998 $212,000 $84,500 (6) 80,000 $ 6,562
President, Chief Executive 1997 $180,000 $44,000 0 $ 1,531
Officer and Director 1996 $151,000 $57,000 98,250 $16,050 (7)
Michael P. Cushman (8) 1998 $130,000 $44,000 6,000 $ 3,061
Vice President - Americas 1997 $112,000 $16,000 16,000 $ 718
Business Group 1996 $ 96,000 $20,000 2,250 $ 792
Moosa E. Moosa (9) 1998 $143,000 $44,000 5,000 $ 2,668
Vice President - Finance, 1997 $129,000 $31,500 45,000 $11,250 (10)
Treasurer and Chief
Financial Officer
Thomas C. Platt III (11) 1998 $115,000 $37,000 40,000 $ 1,069
Vice President -
General Counsel
Charles Tilgner III 1998 $115,000 $35,000 4,000 $ 6,453
Vice President and 1997 $111,000 $25,000 5,300 $ 5,881
Director of U.S Operations 1996 $107,000 $40,000 6,000 $ 4,294
& Engineering
- ------------------------
(1) Salary includes amounts deferred pursuant to the Corporation's 401(k)
Plan.
(2) All Other Compensation includes (i) the Corporation's matching
contributions, and discretionary payments made by the Corporation,
under the Corporation's 401(k) Plan, and (ii) life insurance premiums
paid by the Corporation on behalf of the named executive officer.
(3) Served as President and Chief Executive Officer through January 2,
1998. Thereafter, Mr. Montopoli served only as a Director.
(4) Also includes payment for unused vacation.
(5) Served as Executive Vice President and Chief Operating Officer through
January 2, 1998. Since that date, Dr. Verbicky has served as President
and Chief Executive Officer and served as a Director from October 30,
1997.
(6) Pursuant to the terms of Dr. Verbicky's employment agreement, the
Corporation has forgiven $10,000 of indebtedness owed by Dr. Verbicky
to the Corporation during 1998.
(7) Pursuant to the terms of Dr. Verbicky's employment agreement, the
Corporation has forgiven $15,000 of indebtedness owed by Dr. Verbicky
to the Corporation for fiscal 1996.
(8) Mr. Cushman became an officer of the Corporation as of July 1, 1997.
(9) Mr. Moosa joined the Corporation in July 1996.
(10) Pursuant to the terms of Mr. Moosa's employment agreement, the
Corporation paid Mr. Moosa a $10,000 signing bonus at the commencement
of his employment.
(11) Mr. Platt joined the Corporation in July 1997.
Option Grants in Last Fiscal Year
The following table discloses information regarding stock options granted
during the fiscal year ended June 30, 1998 pursuant to the Corporation's Third
Amended and Restated 1991 Stock Option Plan to the individuals listed in the
Summary Compensation Table. In accordance with Securities and Exchange
Commission rules, also shown are the hypothetical gains or "option spreads," on
a pre-tax basis, that would exist for the respective options. These gains are
based on assumed rates of annual compound stock price appreciation of 0%, 5% and
10% from the date the options were granted over the full option term of ten (10)
years.
INDIVIDUAL GRANTS
----------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES OF
OPTIONS GRANTED STOCK PRICE APPRECIATION FOR
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION OPTION TERM
NAME GRANTED(#)(1) IN FY 1998 PRICE (PER SH) DATE 0% 5% 10%
Duane C. Montopoli 7,000 2.56% $19.9375 8/5/07 $ 0 $87,770 $222,427
John W. Verbicky 8,000 2.92 $19.9375 8/5/07 $ 0 $100,309 $254,202
John W. Verbicky 72,000 26.29% $21.1250 9/8/07 $ 0 $956,549 $2,424,082
Michael P. Cushman 6,000 2.19% $19.9375 8/5/07 $ 0 $75,232 $190,651
Moosa E. Moosa 5,000 1.83% $19.9375 8/5/07 $ 0 $62,693 $158,876
Thomas C. Platt II 40,000 14.60% $19.5625 7/28/07 $ 0 $492,110 $1,247,103
Charles Tilgner III 4,000 1.46% $19.9375 8/5/07 $ 0 $50,154 $127,101
(1) Each option grant is exercisable, cumulatively, in increments of 25% on
each of the first four anniversaries of the grant date. Options granted
to executive officers provide for accelerated vesting in the event of a
change in control of the Corporation.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information as to options exercised during
the fiscal year ended June 30, 1998, and unexercised options held at the end of
such fiscal year, by the individuals listed in the Summary Compensation Table.
VALUE OF UNEXERCISED
NUMBERS OF UNEXERCISED IN-THE MONEY OPTIONS
SHARES ACQUIRED VALUE OPTIONS AT 6/30/98(#) AT 6/30/98($)
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ---- ------------ ------------ ------------------------- -----------------------------
Duane C. Montopoli 0 0 143,000/29,500 1,576,750/203,094
John W. Verbicky 0 0 54,126/131,374 447,069/419,733
Michael P. Cushman 11,250 118,887 13,939/20,061 140,653/109,097
Moosa E. Moosa 0 0 11,250/38,750 76,641/234,297
Thomas C. Platt III 0 0 0/40,000 0/50,000
Charles Tilgner III 0 0 17,075/10,975 143,158/58,520
- --------------------
(1) Value is based on the closing sale price of $20.8125 per share of the
Common Stock as of June 30, 1998 (the last trading date during fiscal 1998)
minus the exercise price.
DEFINED BENEFIT PLAN
The Corporation maintains a defined benefit pension plan (the "Defined
Benefit Plan") for its U.S. employees. The following table shows the estimated
annual benefit payable at age 65 upon retirement to participants in the
Corporation's Defined Benefit Plan at the specified compensation and years-of-
service classifications.
Years of Service
----------------------------
10 15 20 25 and over
---------------- ---------------- ---------------- ----------------
Range of Officer Range of Officer Range of Officer Range of Officer
Average Birth Dates Birth Dates Birth Dates Birth Dates
Remuneration* 1960 1935 1960 1935 1960 1935 1960 1935
---- ---- ---- ---- ---- ---- ---- ----
$100,000 $ 9,700 $11,700 $14,500 $17,500 $19,400 $23,300 $24,200 $29,100
125,000 13,200 15,100 19,700 22,700 26,300 30,300 32,900 37,800
150,000 16,600 18,600 25,000 27,900 33,300 37,200 41,600 46,500
175,000 20,100 22,100 30,200 33,100 40,200 44,200 50,300 55,200
200,000 23,600 25,600 35,400 38,300 47,200 51,100 59,000 63,900
225,000 27,100 29,000 40,600 43,500 54,100 58,100 67,700 72,600
250,000 30,500 32,500 45,800 48,800 61,100 65,000 76,300 81,300
275,000 34,000 36,000 51,000 54,000 68,000 72,000 85,000 90,000
- --------------------
* Represents the average annual compensation paid during the sixty (60) months
preceding retirement.
Compensation for purposes of computing retirement benefits under the
Defined Benefit Plan includes salary and only those bonuses paid under the
Corporation's sales incentive program. For the purpose of computing
retirement benefits under the Defined Benefit Plan, compensation for fiscal
1998, reported to the pension trustee in August 1998, for Mr. Montopoli was
$138,032, for Dr. Verbicky was $212,394 for Mr. Cushman was $130,000, for
Mr. Moosa was $143,394, for Mr. Platt was $115,385, and for Mr. Tilgner was
$115,221.
Benefits are computed on a straight-life annuity basis and, in general,
are payable monthly commencing at age 65. Early retirement is permitted
between the ages of 55 and 65, but at a considerably reduced benefit and
subject to certain restrictions. Benefits are not subject to any reduction
for social security or other offset amounts.
For the purpose of computing retirement benefits under the Defined
Benefit Plan, on June 30, 1998 Mr. Cushman had 20 years of credited service;
Mr. Montopoli had 12 years; Mr. Moosa, 2 years; Mr. Platt, 1 year; Mr.
Tilgner, 20 years; and Dr. Verbicky, 5 years.
EXECUTIVE EMPLOYMENT AGREEMENTS
The Corporation entered into an employment agreement with Duane C.
Montopoli, the President and Chief Executive Officer of the Corporation, as
of May 29, 1992 (the "Montopoli Employment Agreement"). Mr. Montopoli's
former annual base salary under the Montopoli Employment Agreement was
$235,000, subject to annual review and increase by the Board of Directors of
the Corporation. Under the Montopoli Employment Agreement as amended, Mr.
Montopoli was eligible to participate in the Chemfab Corporate Officer Bonus
Plan and may receive an annual cash bonus depending on the Corporation's
financial performance for the year. Furthermore, Mr. Montopoli was entitled
to fringe benefits under the Montopoli Employment Agreement, including life
insurance, health insurance and a company car. (See Option/Compensation
Committee Reports.) Mr. Montopoli resigned as President and Chief Executive
Officer of the Corporation effective as of January 2, 1998. He has
continued to serve as a director of the Corporation since that date.
In planning for Mr. Montopoli resignation, the Board of Directors named
Dr. John W. Verbicky, the Executive Vice President and Chief Operating
Officer of the Corporation, to succeed Mr. Montopoli as the Corporation's
President and Chief Executive Officer as of January 2, 1998. Effective
September 8, 1997, the Corporation's Option/Compensation Committee increased
Dr. Verbicky's annual base salary to $220,000 and granted him options to
purchase 72,000 shares of the Corporation's Common Stock at a price of
$21.125 per share that will vest at the rate of 25% per year.
Under Dr. Verbicky's current employment agreement with the Corporation
(the "Verbicky Employment Agreement"), Dr. Verbicky's annual base salary is
subject to annual review and increase by the Board of Directors of the
Corporation. Dr. Verbicky is also eligible to participate in the Chemfab
Corporate Officer Bonus Plan and may receive an annual cash bonus depending
on the Corporation's financial performance for the year. Furthermore, Dr.
Verbicky is entitled to fringe benefits under the Verbicky Employment
Agreement, including life insurance, health insurance and a company car.
(See Option/Compensation Committee Reports.)
The Verbicky Employment Agreement also provides that Dr. Verbicky's
employment with the Corporation may be terminated by either Dr. Verbicky or
the Corporation, at any time and for any reason whatsoever, by giving up to
ninety (90) days' written notice of termination. If the Corporation
terminates Dr. Verbicky's employment under certain specified circumstances,
the Corporation will continue to pay Dr. Verbicky's base salary and fringe
benefits for a period of nine (9) months following such termination. These
payments would be subject to offset by the amount of any salary or bonus
received by Dr. Verbicky from subsequent employment (unless such termination
occurs after a sale of the Corporation). The Verbicky Employment Agreement
contains similar compensation provisions in the event that Dr. Verbicky's
employment with the Corporation terminates as a result of his death or
disability, except that, in the case of Dr. Verbicky's disability, the
compensation payable by the Corporation to Dr. Verbicky is expected to be
funded, in part, from disability insurance coverage maintained by the
Corporation.
The Verbicky Employment Agreement contains provisions for an interest-
free loan by the Corporation to Dr. Verbicky in the amount of $50,000, which
loan is to be forgiven over a five-year period in equal annual amounts and
completely if the Corporation terminates Dr. Verbicky's employment under
certain specified circumstances.
The Corporation also has employment agreements with two other corporate
officers, Mr. Moosa E. Moosa, Vice President - Finance, Treasurer and Chief
Financial Officer, and Thomas C. Platt III, Vice President - General Counsel
and Administration, and Secretary. If the Corporation terminates Mr.
Moosa's or Mr. Platt's employment under certain specified circumstances, the
Corporation will continue to pay Mr. Moosa's or Mr. Platt's base salary and
fringe benefits, as the case maybe, for a period of six (6) months following
such termination. These payments would be subject to offset by the amount
of any salary or bonus received by Mr. Moosa or Mr. Platt from subsequent
employment (unless such termination occurs after a sale of the Corporation).
OPTION/COMPENSATION COMMITTEE REPORT
ON EXECUTIVE OFFICER COMPENSATION
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Corporation's executive officer compensation consists of three
primary components: base salary, annual bonuses, and grants of stock
options. Each component is intended to further the Corporation's overall
compensation philosophy, and to achieve the compensation objectives of the
Corporation. The Corporation's compensation philosophy is that executive
officer compensation should reflect the value created and protected for
shareholders, while furthering the Corporation's short and long-term
strategic goals and values by aligning compensation with business objectives
and individual performance. Short and long-term compensation should
motivate and reward high levels of performance and are geared to attract and
retain qualified executive officers.
The Corporation's executive officer compensation program is based on
the following principles and objectives:
o Competitive, Fair and Balanced Compensation
The Corporation is committed to providing an executive officer
compensation program that helps attract and retain highly qualified
executive officers. To ensure that compensation is competitive, the
Corporation compares its compensation practices with those of other
companies and compensation for similar positions in the market. The
Corporation also seeks to achieve a balance of the compensation paid to
a particular individual and the compensation paid to other executive
officers inside the Corporation, and strives to achieve a balance
between the fixed and variable components, and between the short and
long-term components, of each executive officer's compensation.
o Performance
Executive officers are rewarded based upon both corporate and
individual performance. Corporate performance is evaluated by
reviewing the extent to which strategic and business plan goals are
met. Individual performance is evaluated by reviewing the achievement
of specified individual objectives and the degree to which the
executive officer contributed to the overall success of the Corporation
and the management team.
In evaluating each executive officer's performance, the Corporation
generally follows the process described below:
o Prior to or shortly after the beginning of each fiscal year, the
Corporation's goals and objectives are set through the preparation
of the annual plan, which is reviewed with, and ultimately
approved by, the full Board of Directors. Dr. Verbicky reports to
the Board on the Corporation's progress toward achieving its
strategic goals and operating plan throughout the year at
quarterly Board meetings and at other times as necessary.
o In conjunction with the August Board meeting, the
Option/Compensation Committee (the "Committee") meets with Dr.
Verbicky to review the performance of each executive officer other
than Dr. Verbicky during the fiscal year just ended, with
particular emphasis on the contribution made toward the attainment
of the Corporation's goals and objectives for that year. At that
time, Dr. Verbicky makes specific salary, bonus and option award
recommendations to the Committee for each executive officer.
Based upon all the information available, including the
performance of the individual officer and compensation information
for individuals holding similar positions in other companies, the
Committee makes the final determination of the salary, bonus and
option awards for each executive officer.
o At the same time, the Committee also addresses certain aspects of
Dr. Verbicky's compensation. Since his base salary level is set
by his Employment Agreement (see "EXECUTIVE COMPENSATION --
Executive Employment Agreement" above), this annual determination
by the Committee relates only to his annual salary increase, if
any, the discretionary portion of his annual bonus and stock
option grants.
COMPENSATION FOR FISCAL 1998
Salary
As described above, the Committee sets the base salary for executive
officers after reviewing the Chief Executive Officer's recommendations and
evaluations of performance, compensation for competitive positions in the
market and the historical compensation levels of the executive officers. In
Dr. Verbicky's case, this process applies only to any annual increase in his
base salary under the Verbicky Employment Agreement. At its August 1997
meeting, the Committee reviewed the salaries of the Corporation's executive
officers, including Dr. Verbicky, and the Corporation's financial
performance for fiscal year ended June 30, 1997. Based upon this review,
the Committee concluded that increases ranging from 2.2% to 22.2% were
appropriate for some of the executive officers.
Bonus Awards
For fiscal 1998, the Corporation's executive officers, including Dr.
Verbicky, were eligible to receive bonuses pursuant to the terms of the
Chemfab Corporate Officer Bonus Plan (the "Plan"), which was approved by the
Committee early in fiscal 1998. Under the terms of the Plan, executive
officer bonuses are paid from a bonus pool which is funded based upon a
formula tied to the Corporation's consolidated pretax profit for the year.
The individual's total bonus opportunity is divided into two components: 60%
of the opportunity is tied to the individual's annualized base pay as of
July 1, 1997 (except for Dr. Verbicky whose base was as of September 9, 1997
and Mr. Platt's whose base was as of his employment date) and 40% is
variable based upon an assessment by the Committee of the individual's
achievements and contributions to the success of the business during the
year.
Based upon the Corporation's actual pretax profit for fiscal 1998, the
total bonus pool created under the Chemfab Corporate Officer Bonus Plan was
$274,000, which represented approximately 33.4% of the base salaries of the
executive officer group as a whole. The bonus payment to Dr. Verbicky for
fiscal 1998 was $84,480, which represented approximately 38% of his base
pay. The other four most highly paid executive officers received bonus
payments equal to approximately 32% of their base pay in the aggregate.
These amounts were paid in August 1998.
Stock Option Grants
The Committee believes that stock options have been and remain an
excellent vehicle for compensating employees. Because the option exercise
price for the employee is generally the fair market value of the stock on
the date of grant, employees recognize a gain only if the value of the stock
increases. Thus, employees with stock options are rewarded for their
efforts to improve long-term performance of the Corporation's stock. The
size of stock option grants is generally intended by the Committee to
reflect the executive officer's position with the Corporation and his other
contributions to the Corporation, while at the same time considering his
other prior equity holdings in the Corporation and the stock option awards
made to other executive officers of the Corporation. Grants to executive
officers under the stock option program typically involve a four-year
vesting period (subject to accelerated vesting upon a change of control of
the Corporation) to encourage key employees to continue in the employ of the
Corporation. At its August 1998 meeting, the Compensation Committee granted
stock options to the named officers as follows: Dr. Verbicky, 15,000 shares;
Mr. Cushman, 10,000 shares; Mr. Moosa, 12,000 shares; Mr. Platt, 7,000
shares; and Mr. Tilgner, 4,000 shares.
Conclusion
The Committee believes that the total fiscal 1998-related compensation
of the Chief Executive Officer and each of the other named officers, as
described above, including the bonus awards and stock option grants made in
August 1998, is fair, and is well within the range of compensation for
executive officers in similar positions at comparable companies.
Option/Compensation Committee
Paul M. Cook
Warren C. Cook
James E. McGrath
CERTAIN TRANSACTIONS
In February 1995, Gabriel P. O'Gara, who was an officer of the
Corporation until June 2, 1997 and who currently is a consultant to the
Corporation, acquired a 50% ownership interest in Fothergill Engineered
Fabrics ("FEF"), which is a commercial weaver of specialty fibers in
England. FEF is also a raw material supplier to the Corporation's U.K. and
Irish subsidiaries, and owns the site on which the U.K. subsidiary operates.
The Corporation has entered into a lease and related agreements with FEF
which provide for minimum annual payments by the Corporation to FEF of
approximately $65,000 for a period of at least five years. During the
fiscal year ended June 30, 1998, the Corporation's U.K. and Irish
subsidiaries purchased an aggregate of $1,351,000 of woven materials from
FEF and paid an aggregate of $542,000 for rent and shared services. At
June 30, 1998, the amount payable to FEF for material purchases and services
was an aggregate of $362,000.
On June 2, 1997, Gabriel O'Gara terminated his employment with
Chemfab Europe, resigned his offices of the Corporation and entered into a
consultancy agreement with the Corporation and its subsidiaries (the
"Consulting Agreement"). The Consulting Agreement requires that Mr. O'Gara
provide various consulting services to the Corporation and/or its
subsidiaries. In consideration for these services, the Corporation and/or
its subsidiaries have agreed to pay Mr. O'Gara consulting fees at the
average rate of IR Pounds 6,250 per month and provide him with certain other
benefits costing approximately IR Pounds 1,000 per month. The Consulting
Agreement terminates on December 31, 1999, unless sooner terminated by the
Corporation for cause or by Mr. O'Gara upon notice to the Corporation.
The Company's Board of Directors (with Dr. Pappas absent and
abstaining) negotiated and, upon recommendation of its Audit Committee,
approved entering into a consulting relationship with Dr. Nicholas Pappas,
who currently serves as Chairman of the Company's Board of Directors. On
October 30, 1997, the Company accordingly entered into a Consulting
Agreement with Dr. Pappas to reflect the terms negotiated and approved by
the Board. The Consulting Agreement requires that Dr. Pappas provide
various on-going strategic consulting services to the Company from and after
October 30, 1997. In consideration for these consulting services, Dr.
Pappas was awarded a one-time, non-qualified stock option to purchase 20,000
shares of the Company's Common Stock at a price of $21.125 per share (the
closing price on the date the Board of Directors approved the Consulting
Agreement). This option vests at a rate of 25% per year, commencing with
the first 25% on October 30, 1997 and continuing on each anniversary of that
date for the next three years. The Consulting Agreement also requires the
Company to pay Dr. Pappas $10,000 quarterly with the first payment being
made on December 30, 1997. The Consulting Agreement may be canceled by
either party with thirty days notice.
On December 1, 1997, the Company entered into a contract (the
"Contract") for a twelve-month research project with Virginia Polytechnic
Institute and State University and Virginia Tech Intellectual Properties
("VPI"). Under the terms of the Contract, the Company is required to pay
VPI $60,000 over twelve months to cover facilities and equipment costs and
the costs of time and materials for the research services rendered by VPI
graduate students supervised by Drs. McGrath and Wilkes (an associate of Dr.
McGrath). The agreement between the parties does not contemplate that any
compensation or any other consideration will be paid to Dr. McGrath or Dr.
Wilkes. The Company has the right under the Contract, upon payment of
additional consideration, to acquire exclusive license(s) for inventions and
other intellectual property conceived (in whole or in part) by VPI from this
Contract. Dr. McGrath is the Ethyl Chaired Professor of Chemistry at VPI
and serves as a Director of the Company. The Board of Directors (with Dr.
McGrath abstaining), upon the recommendation of its Audit Committee, found
that the Contract was negotiated at arm's length, and believes that the
Contract with VPI is in the Company's best interests, and has approved and
ratified its execution.
Each of the above transactions was negotiated at arms-length, and the
Company believes that each transaction was on terms no less favorable to the
Company than could have been obtained at arms-length negotiations with third
parties.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, as
amended, the Company's directors and certain of its officers and persons
holding more than ten percent of the Company's Common Stock are required to
report their ownership of the Common Stock and any changes in such ownership
to the Securities and Exchange Commission and the Company. Based on the
Company's review of copies of such reports, no untimely reports were made
during the fiscal year ended June 30, 1998.
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the performance of the Corporation's
Common Stock to the Russell 2000 Index and the Dow Jones Specialty Chemicals
Index since June 30, 1993. The graph assumes that the value of an investment
in the Corporation's Common Stock and each index was $100 at June 30, 1993
and that all dividends were reinvested. The total cumulative return
reflected in the graph below in respect of the fiscal year ended June 30,
1994 and June 30, 1995 has been computed based on the closing sale price of
the Corporation's Common Stock on June 29 and June 27, respectively, the
last trading days of the Corporation's Common Stock in such fiscal years.
CUMULATIVE TOTAL RETURN
---------------------------------
6/93 6/94 6/95 6/96 6/97 6/98
CHEMFAB CORPORATION CFA 100 112 150 195 293 290
RUSSELL 2000 IR20 100 104 125 155 181 215
DJ SPECIALTY CHEMICALS ICHS 100 101 131 144 172 185
RATIFICATION OF INDEPENDENT AUDITORS
Based upon the recommendation of its Audit Committee, the Board of
Directors has selected the firm of Ernst & Young LLP as the independent
auditors of the Corporation for the fiscal year ending June 30, 1999. Ernst
& Young LLP (together with one of its predecessor firms, Arthur Young &
Company) have acted in such capacity for the Corporation since the 1980
fiscal year. The Board will propose at the Meeting that the shareholders
ratify this selection.
Representatives of Ernst & Young LLP are expected to be present at
the Meeting and will be afforded the opportunity to make a statement if they
so desire and to respond to appropriate questions.
The affirmative vote of a majority of the shares of Common Stock
present at the Meeting, in person or by proxy, is required for the
ratification of the appointment of Ernst & Young LLP as the Corporation's
auditors. If the proposal to ratify the appointment of Ernst & Young LLP is
not approved, the Board of Directors will select and appoint an independent
accounting firm for the fiscal year ending June 30, 1999 without further
shareholder action.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE THE SELECTION OF ERNST & YOUNG LLP AS THE INDEPENDENT AUDITORS OF
THE CORPORATION FOR THE FISCAL YEAR ENDING JUNE 30, 1999, AND PROXIES
SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A SHAREHOLDER
HAS INDICATED OTHERWISE ON THE PROXY.
MISCELLANEOUS
OTHER MATTERS
The Board of Directors does not know of any other matters that may be
presented at the Meeting, except for routine matters. If other business
does properly come before the Meeting, however, the persons named on the
accompanying proxy intend to vote on such matters in accordance with their
best judgment.
1999 SHAREHOLDER PROPOSALS
In order for shareholder proposals to be presented at the
Corporation's 1998 annual meeting of shareholders, such proposals must be
received by the Secretary of the Corporation at the Corporation's principal
office in Merrimack, New Hampshire not later than May 26, 1999 for inclusion
in the proxy statement for that meeting, subject to the applicable rules of
the Securities and Exchange Commission. Delivery of such proposals should
be by Certified Mail, Return Receipt Requested.
ANNUAL REPORT ON FORM 10-K
The Corporation's Annual Report on Form 10-K (without exhibits) is
included in the Corporation's Annual Report to Shareholders, and is being
furnished to shareholders of record together with this Proxy Statement.
Requests for additional copies should be directed to: Secretary, Chemfab
Corporation, 701 Daniel Webster Highway, P.O. Box 1137, Merrimack, New
Hampshire 03054.
September 23, 1998
ANNEX
FORM OF PROXY CARD
{SIDE ONE}
CHEMFAB CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
1998 ANNUAL MEETING OF SHAREHOLDERS ON OCTOBER 29, 1998
The undersigned hereby appoints John W. Verbicky and Thomas C. Platt III
and each of them proxies, each with power of substitution, to vote at the 1998
Annual Meeting of Shareholders of CHEMFAB CORPORATION to be held on October 29,
1998 (including any adjournments or postponements thereof), with all the powers
the undersigned would possess if personally present, as specified on the reverse
side of this ballot on the election of directors, and the selection of auditors
and, in accordance with their discretion, on any other business that may come
before the meeting, and revokes all proxies previously given by the undersigned
with respect to the shares covered hereby.
(TO BE CONTINUED AND SIGNED ON THE OTHER SIDE)
{SIDE TWO}
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Shareholders
CHEMFAB CORPORATION
October 29, 1998
Please Detach and Mail in the Envelope Provided
A [X] PLEASE MARK YOUR
VOTE AS IN THIS
EXAMPLE.
FOR ALL NOMINEES WITHHOLD
LISTED AT RIGHT AUTHORITY
(EXCEPT AS WITHHELD IN (TO VOTE FOR
THE SPACE BELOW) NOMINEES LISTED
AT RIGHT) NOMINEES: Paul M. Cook
Warren C. Cook
1. ELECTION [ ] [ ] Robert E. McGill,III
OF James E. McGrath
DIRECTORS Duane C. Montopoli
Nicholas Pappas
John W. Verbicky
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S NAME IN
THE SPACE PROVIDED BELOW.
_____________________________________________
FOR AGAINST ABSTAIN
2. SELECTION OF AUDITORS: [ ] [ ] [ ]
The Board of Directors recommends a
vote FOR the proposal to Approve the
selection of Ernst & Young LLP as
independent auditors.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE SHAREHOLDER. IF NO CONTRARY SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED
FOR THE ELECTION OF THE NOMINEES OF THE BOARD OF DIRECTORS, AND FOR THE PROPOSAL
RESPECTING SELECTION OF THE AUDITORS AND UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING IN THE APPOINTED PROXIES' DISCRETION.
PLEASE DATE, SIGN AS NAME APPEARS HEREON, AND RETURN THIS PROXY IN THE ENCLOSED
ENVELOPE, WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING. YOU MAY NEVERTHELESS
VOTE IN PERSON IF YOU DO ATTEND.
THE UNDERSIGNED HEREBY ACKNOWLEDGE(S) RECEIPT OF A COPY OF THE ACCOMPANYING
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS AND RELATED PROXY STATEMENT.
SIGNATURE ______________ DATE ______ SIGNATURE ______________ DATE ______
NOTE: (Executors, administrators, trustees, custodians, etc. should indicate
capacity in which signing. When stock is held in the name of more than one
person, each person should sign the proxy.)