-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UfZIl5jdW8v9bgWAQ23ARqid1o6udZ+0dSNEAelTjUg3R4uB05Gqk93yCnEK1qcR u4XmJsCSI650YcwzmKsr2g== 0000912057-96-015495.txt : 19960729 0000912057-96-015495.hdr.sgml : 19960729 ACCESSION NUMBER: 0000912057-96-015495 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960726 FILED AS OF DATE: 19960726 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHERER R P CORP /DE/ CENTRAL INDEX KEY: 0000855106 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 133523163 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 033-30999 FILM NUMBER: 96599268 BUSINESS ADDRESS: STREET 1: 2075 W BIG BEAVER RD STREET 2: SUITE 700 CITY: TROY STATE: MI ZIP: 48084 BUSINESS PHONE: 3136490900 FORMER COMPANY: FORMER CONFORMED NAME: RPS CORP DATE OF NAME CHANGE: 19920218 DEF 14A 1 SCH 14-A 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 [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 R.P. SCHERER CORPORATION (Name of Registrant as specified in its charter) N/A (Name of person(s) filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) of Schedule 14A. [ ] $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 (Set forth the amount on which the filing fee is calculated and state how it was determined): 4) Proposed maximum aggregate value of transaction: 5) Total fee paid: [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount previously paid: 2) Form, Schedule, or Registration Statement No.: 3) Filing party: 4) Date filed: R.P. SCHERER CORPORATION 2075 WEST BIG BEAVER ROAD P.O. BOX 7060 TROY, MI 48007-7060 July 26, 1996 Dear Shareholder: Your Board of Directors joins me in extending to you a cordial invitation to attend the 1996 Annual Meeting of Stockholders which will be held on September 11, 1996 at The Regency Hotel, 540 Park Avenue at 61st Street, New York, New York. Please note that this year's meeting will start promptly at 11:00 a.m. local time. We sincerely hope you will be able to attend and participate in the meeting. We will report on the Company's continued progress and respond to questions you may have about the Company's business. In addition, we will vote on the matters included in the enclosed proxy statement. Whether or not you plan to attend, it is important that your shares be represented and voted at the meeting and, therefore, we urge you to complete, sign, date and return the enclosed proxy card in the envelope provided for this purpose. Sincerely yours, /s/ Aleksandar Erdeljan Aleksandar Erdeljan Chairman, President and Chief Executive Officer - -------------------------------------------------------------------------------- TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. - -------------------------------------------------------------------------------- R.P. SCHERER CORPORATION 2075 WEST BIG BEAVER ROAD P.O. BOX 7060 TROY, MICHIGAN 48007-7060 (810) 649-0900 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS September 11, 1996 The Annual Meeting of Stockholders of R.P. Scherer Corporation will be held on September 11, 1996 at The Regency Hotel, 540 Park Avenue at 61st Street, New York, New York, beginning at 11:00 a.m. local time for the following purposes: 1. To elect directors of the Company to serve until the next Annual Meeting and until their respective successors shall be elected and shall qualify; 2. To ratify the appointment of Arthur Andersen LLP as independent auditors of the Company for the fiscal year ending March 31, 1997; and 3. To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on July 15, 1996 as the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting or any adjournment thereof. Whether or not you plan to be present at the meeting in person, please fill in, date and sign the enclosed proxy and return it promptly in the self-addressed envelope. It does not require postage if mailed in the United States. By Order of the Board of Directors, Nicole S. Williams CORPORATE SECRETARY July 26, 1996 R.P. SCHERER CORPORATION 2075 WEST BIG BEAVER ROAD P. O. BOX 7060 TROY, MICHIGAN 48007-7060 (810) 649-0900 PROXY STATEMENT The accompanying proxy is solicited on behalf of the Board of Directors of R.P. Scherer Corporation (the "Company") for use at the Annual Meeting of Stockholders to be held on September 11, 1996 at The Regency Hotel, 540 Park Avenue at 61st Street, New York, New York, beginning at 11:00 a.m. local time. It is expected that this Proxy Statement and the accompanying proxy will be mailed commencing July 29, 1996 to each stockholder entitled to vote. Proxies delivered pursuant to this solicitation are revocable at the option of the persons executing the same, prior to their exercise, by attendance and voting at the Annual Meeting or by written notice delivered to the Corporate Secretary of the Company prior to the meeting. Unless previously revoked, all proxies representing shares entitled to vote which are delivered pursuant to this solicitation will be voted at the meeting by the named attorneys-in-fact and agents, to the extent authorized, in accordance with the directions contained therein. If no such directions are given, the shares represented by such proxies will be voted in favor of the election of directors, the ratification of the appointment of auditors, and in accordance with the discretion of the named attorneys-in-fact and agents on any other matters that may properly come before the meeting. On July 15, 1996, the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting, the Company had outstanding 23,464,503 shares of common stock (the "Common Stock"), and there were no outstanding shares of any other class of stock. Each holder of the Common Stock is entitled to one vote for each share of such stock held. A majority of the outstanding shares, whether present in person or by proxy, is required to constitute a quorum to transact business at the meeting. 1 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT The following table sets forth information as of June 30, 1996, regarding the beneficial ownership of Common Stock of the Company by principal holders, by each director of the Company beneficially owning Common Stock and by all officers and directors of the Company as a group. NUMBER OF COMMON NAME AND ADDRESS SHARES PERCENT - ---------------- ------ ------- Thomas W. Smith/Thomas N. Tryforos (1) 323 Railroad Avenue Greenwich, CT 06830 1,183,680 5.0% UBS Asset Management (2) 1211 Avenue of the Americas New York, NY, 10036 1,222,000 5.2% John P. Cashman 689,813 2.9% Aleksandar Erdeljan 760,813 3.2% Nicole S. Williams 53,372 0.2% Thomas J. Stuart 27,779 0.1% Louis Lasagna 8,000 - Robert H. Rock 12,000 0.1% R.P. Scherer Corporation(3) 2075 West Big Beaver Road Troy, Michigan 48084 All officers and directors as a group(3) 1,384,451 6.2% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) As reported in Schedule 13D filed with the Securities and Exchange Commission (the "SEC") jointly by Mr. Smith and Mr. Tryforos on February 22, 1996. Mr. Smith through direct ownership exercised as of that date sole voting and dispositive power with respect to 250,880 shares, and, in conjunction with Mr. Tryforos, shared voting and dispositive power with respect to 930,400 shares, which were beneficially owned by both Mr. Smith and Mr. Tryforos in their capacity as general partners of three limited partnerships and trustees of a profit-sharing plan. Mr. Tryforos also through direct ownership exercised as of that date sole voting and dispositive power with respect to 2,400 shares. (2) As reported in Schedule 13G filed on January 26, 1996, with the SEC by UBS Asset Management (New York) Inc. ("UBS"), UBS exercised as that date voting and dispositive power with respect to 336,800 shares, and dispositive power only with respect to 885,200 shares. (3) Each of the named individuals has (or will have upon the exercise of options exercisable within sixty days) voting and investment power with respect to all shares shown as beneficially owned by such person. The shareholdings listed include shares subject to options granted pursuant to the Company's stock plans exercisable within sixty days held as of June 30, 1996, as follows: Mr. Cashman - 643,671 shares; Mr. Erdeljan - 643,671 shares; Ms. Williams - 53,372 shares; Mr. Stuart - 27,679 shares; Mr. Lasagna - 8,000 shares; and Mr. Rock - 12,000 shares. 2 DIRECTORS Set forth below are the name, age and employment history, including all positions held concurrently or successively in the past five years, of each of the Company's directors. PRESENT PRINCIPAL OCCUPATION OF EMPLOYMENT ------------------------------------------ NAME AGE AND FIVE-YEAR EMPLOYMENT HISTORY (1) - ---- --- ------------------------------------ Aleksandar Erdeljan 46 Chairman and Chief Executive of the Company since March 1996. President of the Company since August 1991 and Director of the Company since June 1990. President and Director of R.P. Scherer International Corporation from 1989 to February 1995. President of Pharmaphil Group, Inc. from January 1987 to June 1989. Director of Corporate Development of the Company from June 1985 to January 1987. Lori G. Koffman 37 Director of the Company since September 1989, and of R.P. Scherer International from September 1989 through February 1995. Assistant Secretary of the Company from December 1989 to May 1996. Managing Director, CIBC Wood Gundy Capital since April 1995. Senior Vice President, Lehman from 1990 to December 1994. Frederick Frank 64 Director of the Company since June 1990, and of R.P. Scherer International Corporation from August 1988 through February 1995. Vice Chairman of Lehman Brothers. Also a director of Applied Bioscience International, Inc. and Physicians Computer Network. James A. Stern 45 Director of the Company since June 1990, and of R.P. Scherer International Corporation from June 1990 through February 1995. Chairman of The Cypress Group LLC, a private merchant bank, since April 1994. Managing Director of Lehman and head of its Merchant Banking Group from 1989 to 1994. Also a director of Noel Group, Inc., K & F Industries Inc., Lear Corporation, Infinity Broadcasting Corporation, and Cinemark USA, Inc. Louis Lasagna, M.D 73 Director of the Company since September 1991, and of R.P. Scherer International Corporation from June 1992 through February 1995. Dean for Scientific Affairs, Tufts University School of Medicine, since 1995. Dean, Sackler School of Graduate Biomedical Sciences, Tufts University; Professor of Psychiatry and Professor of Pharmacology, Tufts University, in each case since 1984. Independent consultant since 1965. Director of Tufts University Center for the Study of Drug Development since 1975. Chairman of the Board of Astra USA. Member of the Board of Trustees of International Life Sciences Institute/Nutrition Foundation since 1980 and Chairman since 1991. Director of the Foundation for Nutritional Advancement since 1980. Robert H. Rock 46 Director of the Company since September 1991, and of R.P. Scherer International Corporation from June 1992 through February 1995. Chairman of Metroweek Corporation since December 1988. President of MLR Holdings LLC since October 1987. Chairman and Chief Executive Officer of the Hay Group from October 1986 to October 1987. Also a director of Hunt Manufacturing Company, Alberto-Culver Company, Quaker Chemical Corporation, and the Wistar Institute. 3 John E. Avery 67 Director of the Company since January 1995. Chairman of the Americas Society and Council of the Americas since 1993, and Director since 1991. Assistant to the Chairman of Johnson & Johnson from 1992 to 1993. Company Group Chairman, Johnson & Johnson, from 1979 to 1992. Also a director of the Argentine-American Chamber of Commerce. Member of the Dean's Council at the Yale University School of Medicine, the Advisory Board of the Yale School of Organization and Management, the Board of Governors of the Foreign Policy Association, and the Council on Foreign Relations. BOARD MEETINGS AND COMMITTEES The Board of Directors met six times during the Company's fiscal year ended March 31, 1996. No member of the Board attended fewer than 75% of the aggregate number of meetings of the Board and the committees on which he or she served during the period. The Board of Directors has three standing committees: an Audit Committee, an Executive Committee and a Compensation Committee. The Audit Committee consists of Directors John E. Avery (Chairman), Louis Lasagna, James A. Stern and Robert H. Rock. The principal functions of the Audit Committee are to (i) review the scope and services of the Company's independent auditors, (ii) review the Company's internal control policies and procedures, (iii) make recommendations to the full Board concerning the selection of auditors and the scope of their audit services, (iv) annually review the Company's audited financial statements and the qualifications and fees of the independent auditors of the Company, and (v) perform such other functions from time to time as requested by the full Board. The Audit Committee met three times during the 1996 fiscal year. The Executive Committee consists of Directors John P. Cashman, Aleksandar Erdeljan, and James A. Stern (Chairman). The Committee exercises all of the powers of the Board of Directors, except as limited by Delaware Law or by the Company's By-Laws, in the management of the business and the affairs of the Company during intervals between meetings of the Board of Directors. The Executive Committee met one time during the 1996 fiscal year. The Compensation Committee consists of Directors Frederick Frank, Robert H. Rock (Chairman) and James A. Stern. The Compensation Committee, subject to final approval of the full Board, reviews and approves salaries and other benefits of officers and employees and administers the Incentive Compensation Plan, the 1992 Stock Option Plan and the Company's other compensation plans for officers and key employees. The Compensation Committee met five times during the 1996 fiscal year. COMPENSATION OF OUTSIDE DIRECTORS Directors who are not officers or employees of the Company or any of its subsidiaries ("Outside Directors") are currently paid an annual retainer of $18,000 and $1,000 for each Board meeting attended, and an additional annual retainer of $3,000 for serving as chairman of any committee of the Board of Directors. In addition, pursuant to separate option agreements, each Outside Director is initially granted options to purchase 12,000 shares of Common Stock at a price which reflects the market value at the time of grant; such options become exercisable three years from the date of grant, and expire seven years after the date of vesting. 4 EXECUTIVE COMPENSATION, RETIREMENT PLANS AND OTHER TRANSACTIONS COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Company's Compensation Committee (the "Committee") is comprised of three non-employee directors: Robert H. Rock, James A. Stern and Frederick Frank. The Committee makes recommendations to the Board of Directors concerning the remuneration plans for senior management. In addition, the Committee exercises administrative powers with respect to the Company's remuneration plans, including incentive compensation, stock option and retirement benefit plans. During fiscal 1996, the Board of Directors has neither rejected nor modified any recommendation made by the Committee. COMPENSATION PHILOSOPHY Compensation for executive officers of the Company is designed to: 1. Reinforce the attainment of annual performance goals while also encouraging a long-term perspective toward sustained profitable growth by providing for a substantial portion of executive officers' total compensation to be based upon the increase in economic value of the Company. 2. Align the interests of executive officers with those of the shareholders through programs that provide a portion of annual compensation in options to purchase Common Stock of the Company, thus allowing for the accumulation of an equity interest in the Company and linking compensation with increased stock value. 3. Enable the Company to attract and retain capable management by providing a competitive total compensation opportunity. COMPENSATION VEHICLES The primary components of executive compensation are an annual salary, an incentive compensation plan for certain executives, and a stock option plan. ANNUAL SALARY Executive officers are provided with an annual salary which is intended to fall within the median to 75th percentile of base compensation for equivalent positions with industrial employers with revenues in a range comparable to those of the Company. Annual salaries for all executives are monitored and compensation guidelines are adjusted annually as of June 1st on the basis of comparison to compensation surveys, changes in responsibilities and other information. If compensation levels are deemed appropriate, then an increase reflecting the current annual inflation rate is made. The increase to adjust for inflation was 3.8%, effective as of June 1, 1996. 5 INCENTIVE COMPENSATION PLAN The R.P. Scherer Corporation Management Incentive Compensation Plan ("Incentive Compensation Plan"), which was ratified by the shareholders in fiscal 1993, has as its purpose to provide certain management employees other than the Chairman and President an annual incentive specifically related to increases in economic value of the Company. Under the Incentive Compensation Plan, incentive compensation is directly linked to return generated through the employment of capital. This return, which is defined as "Economic Value Added" ("EVA"), is measured individually for each of the Company's major business divisions, as well as for the Company on a consolidated basis. EVA equals the operating profit generated less taxes and the cost of capital (based upon net operating assets) employed to generate such profit. The EVA Incentive Compensation Plan is designed to provide an incentive award generally equivalent to 40% of salary for the participants, based on objectives for increased EVA as approved by the Board of Directors. In addition to the EVA-based award, the Committee may, at the recommendation of the Chairman and President, grant to each participant an award, which is a function of their performance against qualitative objectives. The EVA objectives set for Fiscal 1996 were not achieved due to weaker than expected financial results. Financial results in Fiscal 1996 were impacted primarily by the poor sales performance in the Company's non-pharmaceutical markets, particularly in Europe, as well as by higher infrastructure costs related to increased staffing and upgrading of the Company's dedicated pharmaceutical manufacturing facilities in Europe. Accordingly, incentive compensation awards for most participants were significantly below those earned in Fiscal 1995. For those executive officers listed in the accompanying compensation tables, no EVA awards were earned for Fiscal 1996, and the bonus amounts indicated represent awards based on qualitative performance criteria determined by the Committee. A portion of the Fiscal 1996 awards must be used to purchase stock options, as described below, and the remainder was paid as cash bonuses. 1992 STOCK OPTION PLAN The Stock Option Plan of R.P. Scherer Corporation and Subsidiaries ("1992 Stock Option Plan"), which was ratified by the shareholders in fiscal 1993, is designed to provide executives stock options as an additional incentive to maximize shareholder value through improved Company financial performance. Under the 1992 Stock Option Plan, 25% of the EVA award (or such other amount designated by the Committee) earned by participants through the Incentive Compensation Plan is applied each year to purchase options for shares of Common Stock at a cost per share option as determined under the provisions of the 1992 Stock Option Plan. Options purchased in any given year are not a function of prior holdings. The exercise price of such purchased option is the beginning of year average stock price net of the purchase cost, increased by a 10% annual rate compounded over five years. Hence, the market value of the Company's Common Stock must increase at a correspondingly higher rate before such options become in-the-money. For each purchased share option, the participants in the 1992 Stock Option Plan receive a granted option to purchase an additional share of Common Stock which is exercisable at an 6 average stock price for the beginning of the year. Options may be exercised in whole or in part, but may only be exercised for an equal number of shares issuable upon the exercise of purchased options and granted options. The granted options provide an added incentive for participants to achieve results which enhance shareholder value. 7 CEO COMPENSATION The compensation structure for Messrs. Cashman and Erdeljan (co-chief executive officers in Fiscal 1996) was established prior to the initial public offering of Common Stock in October 1991. Changes in Messrs. Cashman's and Erdeljan's total compensation levels have been primarily dependent upon the economic value of the Company; an increase or a decrease in the economic value of the Company has been reflected in an increase or decrease in Messrs. Cashman's and Erdeljan's total compensation. In effect, the cash compensation paid during Fiscal 1996 reflects the performance of the Company during the prior year. Consequently, the increase of 13% in Fiscal 1996 cash compensation over that paid during Fiscal 1995 compares with the 36% increase in consolidated economic value in the Company during Fiscal 1995. As in prior years, a portion of the at-risk compensation for the coming fiscal year is to be used to purchase stock options as established by the Committee. The number of options purchased by Mr. Erdeljan for Fiscal 1996, as reflected on the table OPTION GRANTS FOR FISCAL YEAR 1996 is only 51% of the number of options purchased last year. See Summary Compensation Table for Fiscal Year 1996. CEO COMPENSATION FOR FUTURE FISCAL YEARS In light of Mr. Cashman's decision to step down from his position of Chairman and co-CEO and the decision by the Board to appoint Mr. Erdeljan to the positions of Chairman, President and CEO, it was decided by the Compensation Committee that a new compensation structure should be put in place for Mr. Erdeljan. This new compensation structure will reflect the additional responsibilities and a more traditional structure than had existed previously. An analysis was conducted of executive base salaries paid in companies of similar size as Scherer, as well as an analysis of the Peer Group (as defined below) to determine an appropriate base salary level that would place Mr. Erdeljan in the median to 75th percentile of base salaries for similar positions of such companies. This resulted in the establishment of a base salary for Fiscal 1997 of $550,000. Mr. Erdeljan will also be a participant in the EVA Incentive Compensation Plan, which will determine his cash bonus and stock options for Fiscal 1997. PERFORMANCE GRAPH The graph set forth below compares the cumulative total shareholder return on the Company's Common Stock for the period commencing October 11, 1991 (the date of the initial public offering of the Common Stock) with the Standard and Poor's 500 Index and peer group companies. The following self-selected group of peer companies represents companies against whom the Company competes and against whose performance the Company is often compared by financial analysts: Alza Corporation, IVAX Corporation, Forest Laboratories, Inc., Elan Corporation, plc, and The West Company (the "Peer Group"). The Peer Group data has been weighted according to the respective company's stock market capitalization. Since the initial public offering in October 1991, the market value of the Company's Common Stock has more than doubled through the end of fiscal 1996, outperforming both the S&P 500 Index and the Company's Peer Group. 8 - -------------------------------------------------------------------------------- COMPARISON OF 54 MONTH CUMULATIVE TOTAL RETURN Among R.P. Scherer Corporation, The S&P 500 Index and a Peer Group - -------------------------------------------------------------------------------- [Graph] NOTE: REPRESENTS $100 INVESTED ON OCTOBER 11, 1991 IN THE COMPANY'S AND ITS PEER GROUP'S COMMON STOCK AND ON SEPTEMBER 30, 1991 IN THE STANDARD & POOR'S INDEX. TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS. THE COMPENSATION COMMITTEE Frederick Frank Robert H. Rock James A. Stern 9 Sheet 1 RP SCHERER CORPORATION CCS PERFORMANCE GRAPH 7/22/96 FOR 1996 PROXY
DEC-91 JUN-92 DEC-92 10/91 3/92 9/92 3/93 R.P. Scherer Corporation $ 100 $ 168 $ 153 $ 130 $ 166 $ 211 $ 149 Peer Group $ 100 $ 144 $ 125 $ 119 $ 116 $ 133 $ 108 S&P 500 $ 100 $ 110 $ 107 $ 109 $ 113 $ 118 $ 124 JUN-93 DEC-93 JUN-94 DEC-94 9/93 3/94 9/94 R.P. Scherer Corporation $ 155 $ 182 $ 207 $ 201 $ 181 $ 228 $ 249 Peer Group $ 103 $ 98 $ 120 $ 102 $ 93 $ 99 $ 93 S&P 500 $ 124 $ 127 $ 130 $ 125 $ 126 $ 132 $ 132 JUN-95 DEC-96 3/95 9/95 3/96 R.P. Scherer Corporation $ 275 $ 232 $ 238 $ 269 $ 240 Peer Group $ 105 $ 109 $ 117 $ 118 $ 128 S&P 500 $ 145 $ 159 $ 171 $ 182 $ 191
SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 1996 ----------------------------------------------- The following table sets forth information concerning all cash compensation paid by the Company for services rendered in all capacities during the three most recent fiscal years ended March 31, to each of its five most highly compensated corporate executive officers.
ANNUAL COMPENSATION LONG TERM COMPENSATION -------------------------------- -------------------------------------- AWARDS (#) PAYOUTS ------------------------ ---------- SECURITIES NAME AND FISCAL RESTRICTED UNDERLYING ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS OTHER STOCK OPTIONS LTIP COMPENSATION - ---------------------------- ----- --------- -------- ------- -------- --------- ------- ------------ (1) (2) (2) (2) (2, 3) John P. Cashman (5) 1996 $706,270 - - $10,470 Retired Chairman and 1995 625,697 - 77,702 9,951 Co-Chief Executive Officer 1994 582,584 - 82,458 9,736 Aleksandar Erdeljan 1996 706,270 - 39,868 - Chairman, President and 1995 625,697 - 77,702 - Chief Executive Officer 1994 582,584 - 82,458 - Nicole S. Williams 1996 220,389 $ 48,783 16,200 - Executive Vice President, 1995 212,487 135,437 36,562 - Finance, Chief Financial 1994 205,667 109,397 21,390 - Officer, and Secretary Thomas J. Stuart 1996 132,053 31,141 10,342 - Senior Vice President 1995 125,625 81,152 21,908 - 1994 113,125 60,174 11,766 - Dennis R. McGregor (4) 1996 105,436 23,338 7,750 - Treasurer and Director of 1995 101,833 64,795 17,492 - Tax Operations 1994 64,423 35,267 6,896 N/A
------------------------------------------------------------------------ ------------------------------------------------------------------------ (1) Messrs. Cashman and Erdeljan are not participants in the Company's bonus program. (2) The Company does not have restricted stock award plans, long term incentive plans ("LTIPs") or stock appreciation rights ("SARs"). Other annual compensation is below the level where disclosure would be required. (3) Represents contributions on behalf of Mr. Cashman to a defined contribution retirement plan. See EXECUTIVE COMPENSATION PURSUANT TO PLANS - EMPLOYMENT AGREEMENTS. Such contributions are in lieu of Mr. Cashman's participation in the Company's defined benefit pension plan. (4) Mr. McGregor began employment with the Company in August, 1993. (5) Mr. Cashman stepped down as Chairman effective March 31, 1996. 10 OPTION GRANTS FOR FISCAL YEAR 1996 The following table provides information on option grants for the Company's common stock in fiscal year 1996 to the named executive officers.
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATE OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM ------------------------------------------------ -------------------------------- SECURITIES % OF EXERCISE UNDERLYING TOTAL OR BASE OPTIONS 0PTION PRICE EXPIRATION NAME GRANTED (#) GRANTS FOR ($/SHARE) DATE 5% ($) 10% ($) THE YEAR - ----------------------- ------------- ----------- --------- ------------ --------- ---------- (1) (2) (2) John P. Cashman (1): Purchased Portion - - - N/A - - Granted Portion - - - N/A - - Aleksandar Erdeljan: Purchased Portion 19,934 8.96% $72.44 June 16, $ $211,699 2003 (247,979) Granted Portion 19,934 8.96% 47.17 June 16, 255,753 715,431 2003 Nicole S. Williams: Purchased Portion 8,100 3.64% 72.44 June 16, (100,764) 86,022 2003 Granted Portion 8,100 3.64% 47.17 June 16, 103,923 290,709 2003 Thomas J. Stuart: Purchased Portion 5,171 2.33% 72.44 June 16, (64,327) 54,916 2003 Granted Portion 5,171 2.33% 47.17 June 16, 66,344 185,587 2003 Dennis R. McGregor: Purchased Portion 3,875 1.74% 72.44 June 16, (48,205) 41,153 2003 Granted Portion 3,875 1.74% 47.17 June 16, 49,716 139,074 2003
------------------------------------------------------------------------ ------------------------------------------------------------------------ (1) The purchased option cost is set at a price in accordance with the 1992 Stock Option Plan, as amended. The purchased option exercise price is set at a beginning average market price per share, net of the purchase cost, increased by a 10% annual rate compounded over five years. The granted option exercise price is set at the beginning average market price per share. See EXECUTIVE COMPENSATION PURSUANT TO PLANS - STOCK OPTION PLANS. Purchased and granted options both vest three years from the date of grant. Options may only be exercised for an equal number of purchased portion shares and granted portion shares. (2) Based upon market value of $42.63 per share at date of grant. (3) Mr. Cashman stepped down as Chairman effective March 31, 1996, and received no option grants for fiscal 1996. 11 OPTION EXERCISES IN FISCAL YEAR 1996 AND FISCAL YEAR END OPTION VALUE The following table provides information on option exercises in fiscal year 1996 by the named executive officers and the value of such officers' options at March 31, 1996.
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT FISCAL YEAR END FISCAL YEAR END --------------------------------- -------------------------- SHARES VALUE NOT NOT ACQUIRED ON REALIZED ($) EXERCISABLE EXERCISABLE EXERCISABLE ($) EXERCISABLE NAME EXERCISE (#) (#) (#) ($) - --------------------- -------------- --------- -------------------------- -------------------------- (1) (2) (2) John P. Cashman N/A N/A 643,671 160,160 $21,443,079 $825,817 Aleksandar Erdeljan N/A N/A 643,671 200,028 21,443,079 825,817 Nicole S. Williams N/A N/A 52,372 74,152 1,018,658 214,221 Thomas J. Stuart N/A N/A 27,679 44,016 515,000 117,836 Dennis R. McGregor N/A N/A - 32,138 - 69,063
------------------------------------------------------------------------ ------------------------------------------------------------------------ (1) A substantial majority of the options now exercisable for Messrs. Cashman and Erdeljan were granted in connection with their interests in the leveraged buy-out of the Company in June, 1989. (2) Based upon market value of $43.88 per share at March 31, 1996. EXECUTIVE COMPENSATION PURSUANT TO PLANS The Company maintains certain compensation plans, programs and arrangements for the Company's executive officers and key employees. Set forth below is a brief description of each such plan, program or arrangement under which compensation or other benefits were paid to named executive officers during fiscal 1996 or are proposed to be paid in the future. In addition, set forth below is a brief description of termination of employment and change of control arrangements. EMPLOYMENT AGREEMENTS In June 1994, the Company entered into employment agreements with Mr. Erdeljan and Ms. Williams. The agreements each provide for an initial term of employment of one year, automatically renewable thereafter for successive one year periods, unless terminated by either party to the agreement. The annual salary for Mr. Erdeljan under the agreements was established at $632,286 as of June 1, 1994, and the annual salary of Ms. Williams at $213,625. The Compensation Committee may adjust the salary of Mr. Erdeljan or Ms. Williams for subsequent years. Mr. Erdeljan and Ms. Williams are entitled to participate in stock option plans which have been adopted by the Company (as described below) and in retirement and welfare benefit plans that are in effect or which may be adopted by the Company. In addition, Mr. Erdeljan and Ms. Williams are eligible to participate in the Incentive Compensation Plan as described elsewhere herein. 12 Pursuant to each of these employment agreements, if the Company terminates the employment of Mr. Erdeljan or Ms. Williams without cause or if Mr. Erdeljan or Ms. Williams terminate for good reason (as set forth in each employment agreement) or if the Company properly notifies Mr. Erdeljan or Ms. Williams of its intention to terminate their employment agreement on the termination date of the term of employment then in effect, the Company must pay the employee a monthly amount for twenty-four consecutive months after termination equal to one-twelfth of the employee's annual average salary for the prior twenty-four months, and also provide welfare plan benefits for twenty-four months in accordance with plan terms. The agreements further provide that in the event of physical or mental disability of Mr. Erdeljan or Ms. Williams (as set forth in each employment agreement), the Company may terminate their employment and shall be obligated for similar benefits; however, such amount will be reduced by any amount received by Mr. Erdeljan, or Ms. Williams, as the case may be, in respect of his or her disability from any employee benefit or disability plans maintained by the Company. Pursuant to their respective contracts, Mr. Erdeljan and Ms. Williams have agreed to keep confidential all proprietary information relating to the Company's business obtained in the course of employment, and have agreed not to compete with the Company for a period of two years after termination of their respective employment. Mr. Cashman also entered into an employment agreement with the Company in June 1994, which was subsequently amended and restated in April 1996. Mr. Cashman's amended and restated employment agreement provides for an employment term ending on May 31, 1998. Mr. Cashman's monthly salary under the agreement is $56,389.71, which sum includes up to $5,000 as a reimbursement of monthly office and other expenses related to services Mr. Cashman provides, exclusive of travel expenses. While Mr. Cashman will not receive any stock options during his employment term, he is entitled to participate in certain of the Company's welfare plans currently maintained by the Company or its affiliates to the extent of his eligibility. Mr. Cashman made an election to waive irrevocably his participation in the R.P. Scherer Corporation Employees' Retirement Income Plan (the "Retirement Income Plan" described below). In lieu of participation in the Retirement Income Plan, the Company contributes annually an amount to a defined contribution retirement plan on behalf of Mr. Cashman, as set forth in the SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 1996. Mr. Cashman's amended and restated employment agreement also provides that in the event he should become disabled, the Company may terminate his employment, but shall be obligated to pay Mr. Cashman his salary through the end of the employment term; however, such payment will be reduced by any amount received by Mr. Cashman, in respect of his disability from any employee benefit or disability plans maintained by the Company or any affiliate. The agreement does not explicitly provide for the Company terminating Mr. Cashman's employment without cause. RETIREMENT PLANS RETIREMENT INCOME PLAN The Retirement Income Plan, a noncontributory qualified pension plan, provides for a defined benefit based on years of service and the employee's highest consecutive five-year average annual compensation. The Retirement Income Plan covers essentially all United States employees of the Company not represented by a collective bargaining agent for which a pension plan has been the subject of good faith bargaining and who meet certain eligibility requirements. 13 Contributions to the Retirement Income Plan are made by the Company based upon the Participants' annual salaries, plus all other forms of cash compensation (including overtime, bonuses and commissions), and certain actuarial assumptions with regard to funding. During fiscal 1996, the Company accrued aggregate contributions for the Retirement Income Plan in an amount approximating 3.8% of such total compensation. SUPPLEMENTAL PLAN In 1994, the limits on the amount of annual compensation that can legally be taken into account for purposes of determining pension benefits under the Retirement Income Plan were significantly reduced (originally $150,000 in 1994, now adjusted for inflation to $157,305, as opposed to $235,840 which was in effect for 1993), and impacted the pensions of key management employees. In order to provide retirement benefits for key management employees based on annual compensation limits in effect prior to 1994, increased thereafter for cost of living, in 1994 the Company adopted the Supplemental Benefit Plan for Key Employees of R.P. Scherer Corporation (the "Supplemental Plan"), a nonqualified benefit plan. The Supplemental Plan provides benefits to key management employees only as designated by the Compensation Committee. Benefits under the Supplemental Plan will be provided pursuant to the same terms as the Retirement Income Plan, provided that the limit on compensation taken into account to determine benefits under the Supplemental Plan will be set at a base of approximately $242,000 in fiscal 1994, thereafter adjusted by a percentage based on cost of living increases, not to exceed 4% annually (the 1996 limit is $254,086). A key management employee's Supplemental Plan benefits will not be subject to Internal Revenue Code limits on annual additions applicable to qualified plans, but are offset by benefits payable to that employee under the Retirement Income Plan. BENEFITS PAYABLE UNDER THE PLANS The following table shows annual pension benefits payable on a straight life annuity basis, in various remuneration and years of service classifications, to employees under the Retirement Income Plan and the Supplemental Plan (jointly, the "Plans"), assuming retirement at age 65 in calendar 1996. Benefit amounts are not subject to reduction for Social Security payments. Benefit amounts may be offset by payments made under a prior plan of the Company or a plan sponsored by a foreign subsidiary or affiliate.
ANNUAL BENEFIT FOR YEARS OF SERVICE INDICATED --------------------------------------------- HIGHEST CONSECUTIVE FIVE YEAR AVERAGE ANNUAL TEN TWENTY THIRTY FORTY COMPENSATION YEARS YEARS YEARS YEARS - --------------------------- ------- ------- ------- ------- $125,000 $17,400 $34,800 $52,200 $67,150 150,000 21,150 42,300 63,450 81,525 175,000 24,900 49,800 74,700 95,900 200,000 28,650 57,300 85,950 110,275 225,000 32,400 64,800 97,200 124,650 250,000(1) 34,908 69,816 104,725 134,265 300,000(1) 34,908 69,816 104,725 134,265 350,000(1) 34,908 69,816 104,725 134,265 400,000(1) 34,908 69,816 104,725 134,265 450,000(1) 34,908 69,816 104,725 134,265 500,000(1) 34,908 69,816 104,725 134,265
------------------------------------------------------------------------ ------------------------------------------------------------------------ (1) The Retirement Income Plan has been amended effective January 1, 1994, as required by law, to limit compensation that may be taken into account by such plan after 1993 to $150,000 annually, as adjusted 14 for cost-of-living increases. Accordingly, the Supplemental Plan provides additional benefits based on annual compensation limits in effect prior to the reduction of includible compensation to $150,000, but as increased for cost of living ($254,086 for calendar 1996). Credited service in the Plans for those individuals listed in SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 1996 who are active participants is as follows: Mr. Erdeljan, 14.7 years (including years credited for service from 1978 to 1987 and from 1989 to the present); Ms. Williams, 3.9 years; Mr. Stuart, 5.7 years; and Mr. McGregor, 2.4 years. Mr. Cashman has elected not to participate in the Retirement Income Plan. For purposes of the Plans, the final average compensation of such individuals as of January 1, 1996 was approximately as follows: Mr. Erdeljan, $235,348; Ms. Williams, $235,119; Mr. Stuart, $169,395, and Mr. McGregor, $154,291. 401(K) PLAN Eligible employees may also participate in a tax-qualified cash or deferred profit sharing plan known as the R.P. Scherer Corporation Savings Plan (the "401(k) Plan"). Under the 401(k) Plan, employees who have met eligibility standards may elect to reduce their annual compensation by up to 15%, to a maximum of $9,240 for the 1996 calendar year, and have the amount of the reduction contributed to the 401(k) Plan. The Company also contributes to the 401(k) Plan on behalf of each participant an additional amount equal to 50% of each participant's pretax contributions, but not to exceed $500. All contributions are fully vested. INCENTIVE COMPENSATION PLAN The purpose of the Incentive Compensation Plan is to provide certain key employees of the Company an incentive to promote the maximization of shareholder value over the long term. The Incentive Compensation Plan is administered by the Committee in conjunction with the full Board of Directors. Under the Incentive Compensation Plan, incentive compensation is directly linked to return generated through the employment of capital. This return, or EVA (as previously defined), is measured individually for each of the Company's major business divisions (each a "Unit") and equals the operating profit generated by each Unit less taxes and the cost of capital employed to generate such profit. The Incentive Compensation Plan rewards designated management employees in each Unit for increases in EVA and penalizes such employees for any decreases in EVA by deducting amounts from an employee's Bonus Bank, as described below. Management employees who are designated as participants ("Participants") by the Chairman and President of the Company and approved by the Committee are eligible to participate in the Incentive Compensation Plan. Currently approximately 18 employees are Participants in the Incentive Compensation Plan. The Participant(s) of each Unit are eligible to receive an EVA-based award (the "EVA Award") based on the performance of their Unit. The EVA Award each year for a Unit is comprised of two elements: the "Base Award" and the "Improvement Award." The Base Award is equal to a pre-determined percentage of the aggregate annual salary of a Unit's Participants and is earned for an applicable year if the prior year's EVA level for the Unit is achieved. The Improvement Award is based on a percentage of the increase or decrease in EVA from the prior year's EVA. Improvement Awards which exceed a pre-determined percentage of a Participant's base salary are deferred and credited to the Participant's account ("Bonus Bank"). These amounts are subject to loss if subsequent performance deteriorates. One-third of the balance in a Participant's Bonus Bank (if it is positive) is paid out each succeeding year in which a Participant earns a new bonus under the Incentive Compensation Plan. The relationship between EVA achievement and percentages of salary awarded as EVA Award is determined by the Committee. 15 The Incentive Compensation Plan provides that 25% (or such other percentage set by the Compensation Committee) of the EVA Award for each current year, subject to certain limits, is used to purchase stock options under the Company's 1992 Stock Option Plan (as described below). Once options have been purchased from such portion of a year's EVA Award, and to the extent that options remain available for purchase under the Stock Option Plan, then up to 25% of additional amounts distributed from the Bonus Bank, if any, will be used to purchase such options. The Board of Directors may amend, suspend or terminate the Incentive Compensation Plan upon the recommendation of the Committee and, as required, with stockholder approval, provided that no such change in the Incentive Compensation Plan will be effective to eliminate or diminish the distribution of any award that has been allocated to a Participant's Bonus Bank prior to the date of such change. DISCRETIONARY AWARDS In addition to the EVA Award under the Incentive Compensation Plan, the Committee may, at the recommendation of the Chairman and President, grant to key members of management a discretionary award, generally up to 10% of salary, which is a function of their performance against a pre-determined set of primarily qualitative objectives. The discretionary award is paid in cash following the year in which it is earned. STOCK OPTION PLANS 1992 STOCK OPTION PLAN The purpose of the 1992 Stock Option Plan is to aid the Company in retaining and attracting capable management employees and to provide an inducement to such employees to promote the best interests of the Company by enabling and encouraging them to acquire stock ownership in the Company. The 1992 Stock Option Plan is administered by the Committee, which has the authority to grant options and set the terms and conditions of each grant. The 1992 Stock Option Plan authorizes a total of 1,800,000 shares of Common Stock to be issued upon exercise of options granted thereunder. Under the terms of the 1992 Stock Option Plan any management employee of the Company who is eligible to receive a bonus under the Incentive Compensation Plan or such other management employee designated by the Committee is eligible to receive options under the 1992 Stock Option Plan. Currently, there are 24 participants in the 1992 Stock Option Plan ("Optionee"). The Committee also has the authority to ensure that the 1992 Stock Option Plan complies with foreign law and practices. Each option grant under the 1992 Stock Option Plan represents the right to purchase a number of shares of Common Stock of the Company and consists of two portions: a purchased portion and a granted portion. The purchased portion for a participating management employee is determined by applying 25% (or such other percentage set by the Committee) of such employee's bonus under the Company's Incentive Compensation Plan (or such other compensation designated by the Committee to be applied to purchase options), to purchase stock options at a cost per share option as determined under the provisions of the Plan. The designated stock price equals the average market value per share of the Common Stock over a two month period which includes the first month of the fiscal year in which the option is granted and the last month of the preceding fiscal year (the 16 "Average Stock Price"). The exercise price for the purchased portion is fixed on the grant date and equals the Average Stock Price, net of the purchase cost, increased at a 10% annual rate compounded over five years. The granted portion represents the right to purchase an additional number of shares equal to the number of shares which make up the purchased portion and is exercisable at the Average Stock Price. Options may be exercised in whole or in part, but may only be exercised for an equal number of purchased portion shares and granted portion shares. Options become exercisable on the third anniversary of the date of their grant, provided that the Committee may accelerate the time at which any option may be exercised. Each option granted under the 1992 Stock Option Plan will expire on the day following the seventh anniversary of the date when granted, unless such option shall have expired earlier under the provisions of the Plan or the Committee shall have extended the time in which such options may be exercisable. The Board of Directors may amend or terminate the 1992 Stock Option Plan, but may not (i) without the consent of the Optionees, alter or impair any rights or obligations under any option theretofore granted, or (ii) make any alternation in the 1992 Stock Option Plan that would cause the 1992 Stock Option Plan to fail to comply with any requirement of applicable law or regulation, if such revision or amendment were not approved by the stockholders of the Company, unless and until stockholder approval of such revision or amendment is obtained. Options to purchase a total of 222,239 shares are to be granted under the 1992 Stock Option Plan for fiscal 1996. For such fiscal 1996 grants, the purchased portion, costing $2.19 each, is exercisable at $72.44 per share, and the granted portion is exercisable at $47.17 per share. For persons named in the SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 1996 and all executive officers as a group, the following options were granted under the 1992 Stock Option Plan (as amended), all for fiscal 1996: Aleksandar Erdeljan, 39,868 shares; Nicole S. Williams, 16,200 shares; Thomas J. Stuart, 10,342 shares; Dennis R. McGregor, 7,750 shares; and all executive officers as a group, 74,160 shares. No options were granted to Mr. Cashman in fiscal 1996. A total of 148,079 share options were granted to other non-executive officer employees for fiscal 1996. No compensation expense was recorded by the Company in connection with the 1992 Stock Option Plan for fiscal 1996. A total of 59,716 options for common stock remain available for future grant under the 1992 Stock Option Plan. As of July 22, 1996, the last sale price of the Common Stock on the New York Stock Exchange was $40.88 per share. 1990 STOCK OPTION PLANS The Company implemented three Stock Option Plans in November 1990: the 1990 Nonqualified Stock Option Plan, the 1990 Nonqualified Performance Stock Option Plan A, and the 1990 Nonqualified Performance Stock Option Plan B (collectively, the "1990 Stock Option Plans") A total of 1,239,612 options for shares of Common Stock were authorized for issuance to key management personnel under the 1990 Stock Option Plans. As a group, all current executive officers hold 998,186 options under the 1990 Stock Option Plans. The 1990 Stock Option Plans are administered by the Committee. Each option granted under the 1990 Stock Option Plans will expire no later than the day following the 10th anniversary of the date granted, unless such option shall have expired earlier under the provisions of the 1990 Stock Option Plans. Options granted under the 1990 Stock Option Plans, as amended, may be transferred by an Optionee to a grantor trust under certain conditions, if the transfer is approved by the Compensation Committee. The Board of 17 Directors may alter or amend the 1990 Plans or alter or amend any and all Option Agreements thereunder; provided, that no such action may alter the provisions of any outstanding Stock Option Agreement to the detriment of an Optionee without the Optionee's consent. During fiscal 1996, no options were granted, and 50,142 options were exercised, leaving 1,034,841 options outstanding at year-end. All options granted under the 1990 Stock Option Plans have an exercise price of $5.49 per share. No commitments exist to exercise any options granted under the 1990 Stock Option Plans and the Company has no present plans to grant the remaining Options authorized for the 1990 Stock Options Plans. No compensation expense was recorded for the 1990 Stock Option Plans in fiscal 1996. As of July 22, 1996, the last sale price of the Common Stock on the New York Stock Exchange was $40.88 per share. FEDERAL INCOME TAX CONSEQUENCES OF THE 1992 AND 1990 STOCK OPTION PLANS The following discussion is a general summary of the material U.S. federal income tax consequences to U.S. participants in the Company's stock option plans. The discussion is based on the Internal Revenue Code of 1986, as amended (the "Code"), regulations thereunder, rulings and decisions now in effect, all of which are subject to change. The summary does not discuss all aspects of federal income taxation that may be relevant to a particular participant in light of such participant's personal investment circumstances. The grant of an option generally will not result in taxable income to the Optionee at the time of grant. In general, upon the exercise of options by the payment of cash, the Optionee will recognize ordinary income (and the Company will be entitled to a deduction if certain withholding requirements are met, subject to deductible limits on executive compensation under Section 162(M) of the Internal Revenue Code, where applicable) in an amount equal to the excess of the fair market value of the shares of Common Stock on the date of exercise over the exercise price. Any subsequent disposition of the shares acquired pursuant to an option will result in gain or loss to the Optionee in an amount equal to the difference between the sale price and the Optionee's basis in the Common Stock at the date of exercise. An Optionee's basis for the Common Stock for purposes of determining his gain or loss on subsequent disposition of the shares generally will be the fair market value of the Common Stock on the date of exercise of the Option. Pursuant to the terms of the 1992 and 1990 Stock Option Plans, the time at which options may be exercised due to a merger, consolidation or other reorganization of the Company with or into another entity may be accelerated. Under certain circumstances, such acceleration may result in an excess parachute payment and the imposition of an excise tax payable by the Optionee and the loss of a deduction to the Company under Section 280(G) of the Internal Revenue Code with respect to any amounts which are deemed to be excess parachute payments. 18 MATTERS TO BE VOTED UPON ELECTION OF DIRECTORS There are currently seven members of the Board of Directors whose names and background information are described above under DIRECTORS. All of the current members of the Board of Directors are nominated to be re-elected to hold office until the next Annual Meeting of Stockholders and until their successors have been elected and have qualified. The persons named in the accompanying proxy will vote all shares for which they have received proxies for the election of the nominees unless contrary instructions are given. In the event that any nominee should become unavailable, shares will be voted for such other person or persons as may be nominated by management. Management has no reason to believe that nominees will be unable to serve. Directors are elected by plurality vote. RATIFICATION OF APPOINTMENT OF AUDITORS The Board of Directors has appointed Arthur Andersen LLP to audit the accounts of the Company for the fiscal year ending March 31, 1997, subject to the ratification of such appointment by the affirmative vote of holders of a majority of the outstanding shares entitled to vote at the Annual Meeting. Representatives of Arthur Andersen LLP are expected to be present at the Annual Meeting and will be afforded an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S AUDITORS FOR THE FISCAL YEAR ENDING MARCH 31, 1997. THE VOTE REQUIRED FOR SUCH RATIFICATION IS A FAVORABLE VOTE OF THE HOLDERS OF A MAJORITY OF ALL OUTSTANDING SHARES PRESENT IN PERSON OR BY PROXY AND ENTITLED TO BE VOTED AT THE ANNUAL MEETING. OTHER MATTERS The Company does not know of any business other than that described above to be presented for action to the stockholders at the meeting, but it is intended that the proxies will be exercised upon any other matters and proposals that may legally come before the meeting and any adjournments thereof in accordance with the discretion of the persons named therein as attorneys-in-fact and agents unless contrary instructions are received. The cost of this solicitation will be borne by the Company. Proxies may be solicited by personal interview, telephone and telegraph, as well as by use of the mails. Banks, brokerage houses and other custodians, nominees or fiduciaries will be requested to forward soliciting material to their principals and to obtain authorization for the execution of proxies, and will be reimbursed for their reasonable out-of-pocket expenses incurred in that connection. Employees of the Company participating in the solicitation of proxies will not receive any additional remuneration. The Annual Report of the Company for the fiscal year ending March 31, 1996, including certified financial statements, has been furnished to all persons who were stockholders of record of the Company on the record date for the Annual Meeting. A list of stockholders entitled to vote at the Annual Meeting will be open to examination by any stockholder during business hours, for any purpose germane to the meeting, from August 27, 1996 through September 12, 1996 at the World Headquarters of R.P. Scherer Corporation, 2075 West Big Beaver Road, Troy, Michigan 48084. 19 PROPOSALS OF SECURITY HOLDERS A proposal by a security holder intended to be presented at the Company's next annual meeting of stockholders and to be included in the proxy statement therefor must be received at the Company's principal executive offices at 2075 West Big Beaver Road, Troy, Michigan 48084, to the attention of the Corporate Secretary, no later than April 24, 1997. AVAILABILITY OF FORM 10-K THE COMPANY WILL PROVIDE TO ANY STOCKHOLDER, WITHOUT CHARGE, UPON WRITTEN REQUEST OF SUCH STOCKHOLDER, A COPY OF THE ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. SUCH REQUESTS SHOULD BE ADDRESSED TO: NICOLE S. WILLIAMS, CORPORATE SECRETARY, R.P. SCHERER CORPORATION, 2075 WEST BIG BEAVER ROAD, P.O. BOX 7060, TROY, MICHIGAN 48007-7060. PLEASE DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED REPLY ENVELOPE TO WHICH NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES. 20 R.P. SCHERER CORPORATION ANNUAL MEETING OF SHAREHOLDERS P SEPTEMBER 11, 1996 R Revoking any prior appointment, the undersigned hereby appoints A. Erdeljan and N. Williams and each of them, attorneys-in-fact and O agents with power of substitution, to vote as Proxy for the undersigned as herein stated, at the Annual Meeting of Stockholders of R.P. Scherer X Corporation to be held at The Regency Hotel (Park at 61st Street), 540 Park Avenue, New York, New York on September 11, 1996, beginning at Y 11 A.M. local time, and at any adjournment thereof, with respect to the number of shares of common stock of R.P. Scherer Corporation the undersigned would be entitled to vote if personally present. Election of Directors, Nominees: John E. Avery, Aleksander Erdeljan, Frederick Frank, Lori G. Koffman, Louis Lasagna, Robert H. Rock, James A. Stern (change of address) ________________________________________ ________________________________________ ________________________________________ ________________________________________ (If you have written in the above space, please mark the corresponding box on the reverse side of this card.) You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance with the Board of Directors recommendations. The Proxies cannot vote your shares unless you sign and return this card. SEE REVERSE SIDE 21 /X/ Please mark your SHARES IN YOUR NAME votes as in this example. FOR WITHHELD / / / / 1. Election of Directors (see reverse) For, except vote withheld from the following nominee(s): ____________________________________ FOR AGAINST ABSTAIN / / / / / / 2. Ratification of the appointment of auditors for Fiscal 1997. FOR AGAINST ABSTAIN / / / / / / 3. In accordance with their discretion on any other matters which may properly come before the meeting. Change of / / Address Attend / / Meeting The undersigned acknowledges receipt of the Notice of Annual Meeting of Stockholders and the Proxy Statement dated July 26, 1996. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by an authorized person. SIGNATURE(S) ________________________________ DATE _____________ PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. SIGNATURE(S) ________________________________ DATE ________________ NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. 22 INDEX TO EXHIBITS EXHIBIT DESCRIPTION PAGE Exhibit 10.1 - Amended and Restated Employment Agreement dated as of April 1, 1996, between John P. Cashman and R.P. Scherer Corporation 23 EX-10.1 2 AMENDED AND RESTATED EMPLOYMENT AGREEMENT EXHIBIT 10.1 AMENDED AND RESTATED EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of April 1, 1996, between JOHN P. CASHMAN (the "Employee") and R.P. SCHERER CORPORATION, a Delaware corporation (the "Company"). WHEREAS, the Employee was serving as Chairman and Co-Chief Executive Officer of the Company and has been an officer of one or more of the Company's affiliates; and WHEREAS, the Company and the Employee have agreed that the Employee will change his employment status to that of a non-officer employee; and WHEREAS, the Employee possesses special knowledge and experience which is of continuing value to the Company and its affiliates; and WHEREAS, the Company desires to assure itself and its affiliates of the benefit of the Employee's continuing services and experience for a period of time and the Employee is willing to enter into an agreement to that end upon the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the premises and covenants herein contained, the parties hereto agree as follows: 1. TERM OF AGREEMENT. Subject to the terms and conditions hereof, this amended and restated Agreement shall become effective as of April 1, 1996, and the term of continued employment of the Employee under this amended and restated Agreement shall commence on April 1, 1996 and shall terminate on May 31, 1998. Such term of continued employment is hereinafter referred to as the "Employment Period." 2. SERVICES TO BE RENDERED. (a) During the term of employment of the Employee under this Agreement (and any renewals thereof) the Employee shall serve the Company and any affiliate of the Company designated by the Company and reasonably agreed to by the Employee (collectively, the "Employer"), as a non-officer employee, and, as requested by the Company, serve on one or more boards of directors of the Company and its affiliates. (b) The Employee agrees that he will, during the term of employment under this Agreement devote his time, attention and ability to continue to render services to the Employer with respect to ongoing business matters in which he has been participating and to any new business matters with respect to which the Chief Executive Officer of the Company wishes to consult with him. The Employee shall be required to devote that number of hours per month to his services hereunder as may be agreed between the Chief Executive Officer of the Company and him, from time to time. Employee further agrees that he shall faithfully serve the Company and its affiliates and shall exercise the powers and authorities and fulfill the responsibilities hereby conferred upon him honestly, diligently, in good faith and in the best interest of the Company and its affiliates and use his best efforts to promote their interests. The Employee shall not be precluded, other than pursuant to Section 7, from serving as a director, employee or consultant of any other corporation. (c) It is understood that the Employee may not, absent the express direction of the Chairman and Chief Executive Officer of the Company or the Chief Financial Officer of the Company, possess the authority to bind the Company or any of its affiliates to any material contract. 3. COMPENSATION. (a) In full payment for services rendered to the Company and its affiliates under this Agreement, the Employer shall pay the Employee a total amount of $56,389.71 per month during the Employment Period ("Monthly Payment"), which shall include up to $5,000 as reimbursement of office and other expenses related to the services provided hereunder exclusive of travel expenses, provided that the Employee must document such expenses in order to receive the reimbursement amount. The entities comprising the 24 Employer shall determine how such amount is to be allocated among them. To the extent the Employee is required to travel in performing services at the request of the Employer, the Employer shall reimburse his reasonable expenses incurred as part of his performance of those duties. (b) In addition to the compensation otherwise provided for in this Section 3, during the term of his employment hereunder, the Employee also shall be entitled to participate in those health, life insurance, disability insurance and retirement benefit plans currently maintained for him by the Company and its affiliates, as from time to time they may be in effect. (c) No stock options shall be granted to the Employee during the Employment Period. (d) The Company or an affiliate shall provide the Employee, during the Employment Period, with the use of the currently provided leased automobile, and will pay all taxes and insurance on said vehicle. 4. DISABILITY, DEATH AND TERMINATION. (a) In the event of the Employee's inability to perform his principal duties hereunder for any consecutive period of at least one year, the Company may terminate the Employee's employment hereunder. In the event of any such termination, the Employer shall be obligated (i) for compensation earned by the Employee hereunder, but not yet paid, prior to such termination, and (ii) to pay the Employee the Monthly Payment for the remainder of the Employment Period (the "Disability Benefit"); PROVIDED, HOWEVER, that the amount of the Disability Benefit shall be reduced by any amounts received by the Employee in respect of the Employee's disability from any employee benefit or disability plans maintained by the Company or any affiliate. (b) The obligations of the Employer under this Agreement shall terminate upon the death of the Employee ; EXCEPT THAT the Monthly Payment for the remainder of the Employment Period shall be payable to Employee's estate or heirs, over the remainder of the Employment Period. (c) If any of the following events should occur: (1) the Employee voluntarily terminates employment with the Employer, or (2) the Employer terminates the Employee's employment for Cause,the Employer's obligations hereunder shall terminate and no further payments of any kind (other than in respect of compensation, benefits or other rights accrued and earned by the Employee prior to such termination) shall thereafter be made by the Employer to the Employee hereunder. For purposes of the foregoing, "Cause" means: (i) any act or acts of the Employee constituting a felony (or its equivalent) under the laws of the United States, any state thereof or any foreign jurisdiction; (ii) any material breach by the Employee of any employment agreement with the Employer or the policies of the Employer or any of its subsidiaries or the willful and persistent (after written notice to the Employee) failure or refusal of the Employee to perform his duties of employment or comply with any lawful directives of the Board of Directors of the Company; (iii) a course of conduct amounting to gross neglect, willful misconduct or dishonesty; or (iv) any misappropriation of material property of the Employer by the Employee or any misappropriation of a corporate or business opportunity of the Employer by the Employee. 5. CONFIDENTIALITY. For purposes of this Agreement, "proprietary information" shall mean any information relating to the business of the Company or any of its affiliates that has not previously been publicly released by duly authorized representatives of the Company 25 and shall include (but shall not be limited to) Company information encompassed in all research, product development, designs, plans, formulations and formulating techniques, proposals, marketing and sales plans, financial information, costs, pricing information, strategic business plans, customer information, and all methods, concepts, or ideas in or reasonably related to the business of the Company. The Employee agrees to regard and preserve as confidential all proprietary information pertaining to the Employer's business that has been or may be obtained by the Employee in the course of his employment with the Employer, whether he has such information in his memory or in writing or other physical form. The Employee will not, without prior written authority from the Employer to do so, use for his benefit or purposes, or disclose to any other person, firm, partnership, corporation or other entity, either during the term of his employment hereunder or thereafter, any proprietary information connected with the business or developments of the Employer, except as required in connection with the performance by the Employee of his duties and responsibilities as an employee of the Employer. This provision shall not apply after the proprietary information has been voluntarily disclosed to the public, independently developed and disclosed by others, or otherwise enters the public domain through lawful means. 6. REMOVAL OF DOCUMENTS OR OBJECTS. The Employee agrees not to remove from the premises of the Employer, except as an employee of the Employer in pursuit of the business of the Company or any of its affiliates, or except as specifically permitted in writing by the Company, any document (regardless of the medium on which it is recorded), object, computer program, computer source code, object code or data (the "Documents") containing or reflecting any proprietary information of the Employer. The Employee recognizes that all such Documents, whether developed by him or by someone else, are the exclusive property of the Employer. 7. NON-COMPETITION. The Employee agrees that during the term of his employment hereunder he will not in any way, directly or indirectly, manage, operate, control, solicit officers or employees of the Employer, accept employment, a directorship or a consulting position with or otherwise advise or assist or be connected with or own or have any other interest in or right with respect to (other than through ownership of not more than one percent of the outstanding shares of a corporation's stock which is listed on a national securities exchange) any enterprise which competes or shall compete with the Employer, by engaging in or otherwise carrying on the research, development, manufacture or sale of any product of any type developed, manufactured or sold by the Company or any subsidiary thereof, whether now or hereafter (to the extent that any such product is under consideration by the Board of Directors of the Company at the time the Employee's employment terminates or is terminated). 8. CORPORATE OPPORTUNITIES. The Employee agrees that during the Employment Period he will not take any action which might divert from the Company or any affiliate of the Company any opportunity which would be within the scope of any of the present or future businesses of the Company or any of its affiliates (which future businesses are then under consideration by the Board of Directors of the Company), the loss of which has or would have had, in the reasonable judgment of the Board of Directors of the Company, an adverse effect upon the Employer, unless the Board of Directors of the Company has given prior written approval. 9. RELIEF. It is understood and agreed by and between the parties hereto that the service to be rendered by the Employee hereunder, and the rights and privileges granted to the Employer by the Employee hereunder, are of a special, unique, extraordinary and intellectual character, which gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in any action at law, and that a breach by the Employee of any of the provisions contained in this Agreement will cause the Employer great irreparable injury and damage. The Employee hereby expressly agrees that the Company shall be entitled to the remedies of injunction, specific performance and other equitable relief to prevent a breach of 26 this Agreement by the Employee. The Employee further expressly agrees that in the event the Employee breaches the non-competition provisions of Section 7 of this Agreement or the confidentiality provisions of Section 5 of this Agreement, the balance of any payments due under this Agreement shall be forfeited by the Employee. The provisions of this Section 9 shall not, however, be construed as a waiver of any of the rights which the Company may have for damages or otherwise. 10. WARRANTY. The Employee hereby warrants that he is free to enter into this Agreement and to render his services pursuant hereto. 11. NON-ASSIGNABILITY. Except as otherwise provided herein, this Agreement may not be assigned by either the Company or the Employee. 12. MERGER OR CONSOLIDATION. In the event (a) the Company merges with or into, or consolidates with, another entity; (b) the Company sells, exchanges or otherwise disposes of all or substantially all of the assets of the Company; (c) 50% or more of the Company's then outstanding shares of voting stock is acquired by another corporation, person or entity; (d) the Company liquidates or dissolves; or (e) the Company recapitalizes or enters into any similar transaction, and as a result of which the common stock of the Company either (i) is no longer a voting equity security of the Company or (ii) is no longer listed on a national securities exchange or authorized for quotation on an inter- dealer quotation system of a national securities association (referred to collectively as a "Change in Control"), this Agreement may be assigned and transferred to such successor in interest as an asset of the Company upon such assignee assuming the Company's obligations hereunder, in which event the Employee agrees to continue to perform his duties and obligations according to the terms and conditions hereof for such assignee or transferee of this Agreement. 13. WITHHOLDING. The Employer shall have the right to withhold the amount of taxes, which in the determination of the Employer, are required to be withheld under law with respect to any amount due or paid under this Agreement. 14. NOTICES. All notices and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid: (a) If to the Employer, to the Company at: R.P. Scherer Corporation 2075 West Big Beaver Road Troy, Michigan 48084 Attention: Corporate Secretary (b) If to the Employee, to him at such address as set forth in the signature page hereof or as he shall otherwise have specified by notice in writing to the Company. 15. GOVERNMENTAL REGULATION. Nothing contained in this Agreement shall be construed so as to require the commission of any act contrary to law and wherever there is any conflict between any provision of this Agreement and any statute, law, ordinance, order or regulation, the latter shall prevail, but in such event any such provision of this Agreement shall be curtailed and limited only to the extent necessary to bring it within the legal requirements. 16. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan. Any suit, action or proceeding against the Employee with respect to this Agreement, or any judgment entered by any court in respect of any thereof, may be brought in any court of competent jurisdiction in the State of Michigan and the Employee hereby submits to the exclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment. The Employee hereby irrevocably waives any objections which he may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement brought in any court of competent jurisdiction in the State of Michigan, and 27 hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in any inconvenient forum. No suit, action or proceeding against the Employer with respect to this Agreement may be brought in any court, domestic or foreign, or before any similar domestic or foreign authority other than in a court of competent jurisdiction in the State of Michigan, and the Employee hereby irrevocably waives any right which he may otherwise have had to bring such an action in any other court, domestic or foreign, or before any similar domestic or foreign authority. The Employer hereby submits to the jurisdiction of such courts for the purpose of any such suit, action or proceeding. The Employee irrevocably waives his right to trial by jury with regard to any suit, action, or proceeding with respect to this Agreement; provided, however, that if such waiver of the right to jury trial shall be held unenforceable, the invalidity or unenforceability of this provision shall not impair the validity or enforceability of any other provision of this Agreement. 17. ENTIRE AGREEMENT; AMENDMENT. This Agreement sets forth the entire understanding of the parties in respect of the subject matter contained herein and supersedes all prior agreement, arrangements and understandings relating to the subject matter and may only be amended by a written agreement signed by both parties hereto or their duly authorized representatives. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. R.P. SCHERER CORPORATION /s/ Nicole S. Williams Title: Executive VP, Finance, Treasurer & CFO /s/ John P. Cashman John Cashman 40 Chestnut Park Toronto, Ontario Canada M4W 1W8 28 -----END PRIVACY-ENHANCED MESSAGE-----