SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
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ENGELHARD CORPORATION
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(Name of Registrant as Specified in Its Charter)
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ENGELHARD [Logo]
101 WOOD AVENUE, ISELIN, NEW JERSEY 08830
BARRY W. PERRY
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
March 28, 2002
Dear Shareholder:
You are cordially invited to attend the 2002 Annual Meeting of
Shareholders, which will be held at 10 a.m., Eastern Daylight Savings Time, on
Thursday, May 2, 2002, at The Sheraton at Woodbridge Place, 515 Route 1 South,
Iselin, NJ 08830-3010.
The enclosed Notice and Proxy Statement contain information about matters
to be considered at the Annual Meeting, at which the business and operations of
Engelhard will also be reviewed. Discussions at our Annual Meeting have
generally been interesting and useful, and we hope that you will be able to
attend. If you plan to attend, please check the box provided on the proxy card
and an admission ticket will be sent to you. Only shareholders and their proxies
will be permitted to attend the Annual Meeting.
Whether or not you plan to attend, we urge you to complete, sign and return
the enclosed proxy card or to vote over the Internet or by telephone, so that
your shares will be represented and voted at the Annual Meeting.
Sincerely yours,
/s/ Barry W. Perry
ENGELHARD CORPORATION
101 WOOD AVENUE
ISELIN, NEW JERSEY 08830
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NOTICE OF THE 2002 ANNUAL MEETING OF SHAREHOLDERS
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To our Shareholders:
March 28, 2002
The Annual Meeting of Shareholders of Engelhard Corporation, a Delaware
corporation, will be held on Thursday, May 2, 2002 at 10 a.m., Eastern Daylight
Savings Time, at The Sheraton at Woodbridge Place, 515 Route 1 South, Iselin, NJ
08830-3010, for the following purposes:
(1) To elect two Directors;
(2) To approve the Engelhard Corporation 2002 Long Term Incentive
Plan; and
(3) To transact such other business as may properly come before the
meeting.
The record date for the determination of the shareholders entitled to vote
at the meeting or at any adjournment thereof is close of business on March 15,
2002.
A list of shareholders entitled to vote at the Annual Meeting will be open
to the examination of any shareholder, for any purpose germane to the meeting,
at the offices of our Transfer Agent and Registrar, Mellon Investor Services
LLC, 120 Broadway, New York, New York 10271, during ordinary business hours for
ten days prior to the meeting.
By Order of the Board of Directors
Arthur A. Dornbusch, II
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
SHAREHOLDERS ARE URGED TO MARK, SIGN AND RETURN PROMPTLY
THE ACCOMPANYING PROXY IN THE ENCLOSED RETURN ENVELOPE OR TO VOTE OVER
THE INTERNET OR BY TELEPHONE
ENGELHARD CORPORATION
101 WOOD AVENUE
ISELIN, NEW JERSEY 08830
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PROXY STATEMENT FOR THE 2002
ANNUAL MEETING OF SHAREHOLDERS
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ABOUT THE MEETING
WHY AM I RECEIVING THESE MATERIALS?
The Board of Directors of Engelhard Corporation (sometimes referred to as
"Engelhard" or "we" or "our") is providing these proxy materials for you in
connection with our Annual Meeting of Shareholders which will take place on
Thursday, May 2, 2002. You are invited to attend the Annual Meeting and are
requested to vote on the proposals described in this proxy statement.
WHO IS ENTITLED TO VOTE?
Holders of Common Stock as of the close of business on March 15, 2002 will
be entitled to vote. On such date there were outstanding and entitled to vote
129,915,302 shares of Common Stock of Engelhard, each of which is entitled to
one vote with respect to each matter to be voted on at the Meeting.
WHAT CONSTITUTES A QUORUM?
The presence at the Annual Meeting in person or by proxy of the holders of
a majority of the outstanding shares of Common Stock entitled to vote shall
constitute a quorum for the transaction of business. Proxies marked as
abstaining on any matter to be acted upon by shareholders will be treated as
present at the meeting for purposes of determining a quorum. If you hold your
shares in "street name" through a broker or other nominee, shares represented by
"broker non-votes" will be counted in determining whether there is a quorum.
HOW DO I VOTE?
If you complete and properly sign the accompanying proxy card and return it
to Engelhard, it will be voted as you direct. If you are a registered
shareholder and attend the meeting, you may deliver your completed proxy card in
person. "Street name" shareholders who wish to vote at the meeting will need to
obtain a proxy form from the institution that holds their shares.
If you are a record holder of Common Stock (that is, if you hold Common
Stock in your own name in Engelhard's stock records maintained by our transfer
agent, Mellon Investor Services
1
LLC), you may vote through the Internet or by using a toll-free telephone number
by following the instructions included with your proxy card. If you are not a
record holder of Common Stock (that is, if you hold Common Stock in "street
name" through a broker or other nominee), you may vote your shares by following
the instructions included with your proxy card. Please be aware that if you vote
over the Internet, you may incur costs such as telephone and Internet access
charges for which you will be responsible. The Internet and telephone voting
facilities for shareholders of record will close at 4 p.m. Eastern Daylight
Savings Time on May 1, 2002.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD OR AFTER I VOTE ELECTRONICALLY
OR BY TELEPHONE?
Yes. After you have submitted a traditional proxy card, you may change your
vote at any time before the proxy is exercised by submitting either a notice of
revocation or a duly executed proxy bearing a later date. If you previously
submitted your proxy through the Internet or by telephone, you may revoke that
proxy simply by voting again prior to the time at which such facilities close,
by following the same procedures used in casting your prior vote; in that event
the later submitted vote will be recorded and the earlier vote revoked.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
Unless you give other instructions on your proxy card, the persons named as
proxy holders on the proxy card will vote in accordance with the recommendations
of the Board of Directors. The Board's recommendation is set forth together with
the description of each item in this proxy statement. In summary, the Board
recommends a vote:
o for election of the nominated slate of Directors (see page 5); and
o for approval of the Engelhard Corporation 2002 Long Term Incentive Plan
(see page 28).
With respect to any other matter that properly comes before the meeting,
the proxy holders will vote as recommended by the Board of Directors or, if no
recommendation is given, in their own discretion.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
Each item to be voted on at the Annual Meeting requires the affirmative
vote of the holders of a majority of the votes cast with respect to such item. A
properly executed proxy marked "ABSTAIN" and a broker non-vote with respect to
any such matter will not be treated as a vote cast, although it will be counted
for purposes of determining whether there is a quorum.
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WHO WILL BEAR THE EXPENSE OF SOLICITING PROXIES?
The cost of soliciting proxies in the form enclosed will be borne by
Engelhard. In addition to the solicitation by mail, proxies may be solicited
personally or by telephone, by our employees. We have also engaged D.F. King &
Co., Inc., 77 Water Street, New York, New York 10005, to assist in such
solicitation at an estimated fee of $14,000 plus disbursements. Engelhard may
reimburse brokers holding Common Stock in their names or in the names of their
nominees for their expenses in sending proxy material to the beneficial owners
of such Common Stock.
3
INFORMATION AS TO CERTAIN SHAREHOLDERS
WHO ARE THE LARGEST OWNERS OF ENGELHARD'S COMMON STOCK?
Set forth below is certain information with respect to the only persons
known to us who owned beneficially more than five percent (5%) of our voting
securities as of March 1, 2002.
AMOUNT
BENEFICIALLY PERCENT OF
OWNED CLASS
------------ ----------
Wellington Management Company, LLP (1) (3) ............................... 16,532,885 12.75%
75 State Street
Boston, Massachusetts 02109
Vanguard Windsor Funds--Vanguard Windsor Fund (2) (3) .................... 10,454,200 8.06%
100 Vanguard Boulevard
Malvern, Pennsylvania 19355
Citigroup Inc. (4) ....................................................... 9,744,408 7.52%
399 Park Avenue
New York, New York 10043
Dodge & Cox (5) .......................................................... 7,367,400 5.68%
One Sansome Street
35th Floor
San Francisco, California 94104
- ----------
(1) As reported by Wellington Management Company, LLP on Schedule 13G filed
with the Securities and Exchange Commission on February 12, 2002.
(2) As reported by Vanguard Windsor Funds--Vanguard Windsor Fund on Schedule
13G filed with the Securities and Exchange Commission on February 12, 2002.
(3) Wellington Management Company, LLP reports that, as investment adviser, it
shares beneficial ownership with one of its clients, Vanguard Windsor
Funds. Consequently, the same shares may be shown as beneficially owned by
both Wellington Management Company, LLP and Vanguard Windsor Funds.
(4) As reported by Citigroup Inc. and its wholly-owned subsidiaries Salomon
Smith Barney Inc., Salomon Brothers Holding Company Inc. and Salomon Smith
Barney Holdings Inc. on Schedule 13G filed with the Securities and Exchange
Commission on January 24, 2002. The Schedule 13G reports that Citigroup
Inc. and its wholly-owned subsidiaries Salomon Smith Barney Inc., Salomon
Brothers Holding Company Inc. and Salomon Smith Barney Holdings Inc. have
shared beneficial ownership of the shares reported as owned by them.
(5) As reported by Dodge & Cox on Schedule 13G filed with the Securities and
Exchange Commission on February 8, 2002.
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1. ELECTION OF DIRECTORS
Our Board of Directors consists of three classes, Class I, Class II and
Class III, each class serving for a full three-year term. Mr. Perry and Mr.
Watson are nominees for election as Class III Directors at the Annual Meeting.
If elected, they will serve until 2005. The Class I Directors will be considered
for reelection at our 2003 Annual Meeting. The Class II Directors will be
considered for reelection at our 2004 Annual Meeting. Reuben F. Richards and
Orin R. Smith, Class III Directors, will not stand for re-election to the Board
of Directors after the expiration of their term of office in May 2002 and the
Board of Directors will reduce the number of seats on the Board from eight to
six and Mr. Watson, who is currently a Class I Director, will become a Class III
Director.
Mr. Perry has been a member of the Board of Directors since 1997, Mr.
Antonini since 1985, Mr. Napier since 1986, Mrs. Pace since 1987 and Mr. Watson
since 1991. Mr. Slack joined the Board of Directors in 1981, resigned on May 21,
1999 and was re-elected to the Board of Directors as a Class I Director on June
3, 1999.
Directors will be elected by the affirmative vote of a majority of the
votes cast at the Meeting.
The persons named as proxies in the accompanying proxy intend to vote,
unless you instruct otherwise in your proxy, "FOR" the election of Mr. Perry and
Mr. Watson as Class III Directors.
INFORMATION WITH RESPECT TO NOMINEES AND
DIRECTORS WHOSE TERMS CONTINUE
The following table sets forth the name and age of each nominee and
Director whose term continues, all other positions and offices, if any, now held
by him or her with Engelhard and his or her principal occupation during the last
five years.
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NOMINEES FOR REELECTION AT THIS MEETING,
AGES, PRINCIPAL BUSINESS EXPERIENCE DURING THE
PAST FIVE YEARS, BOARD MEMBERSHIPS (CLASS III)
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BARRY W. PERRY
Age 55. Chairman and Chief Executive Officer of Engelhard since January 2001;
President and Chief Operating Officer from 1997 until 2001; previously
Group Vice President and General Manager of the Appearance and Performance
Technologies Group (formerly the Pigments and Additives Group).
Mr. Perry is also a director of Arrow Electronics, Inc. and Cookson Group plc.
DOUGLAS G. WATSON
Age 57. Chief Executive Officer of Pittencrieff Glen Associates, a management
consulting firm, since June 1999. President and Chief Executive Officer of
ValiGen N.V., a biotechnology company, from June 2000 to September 2001.
President, Chief Executive Officer and Director of Novartis Corporation, a
life sciences company, from January 1997 to May 1999.
Mr. Watson is also a director of Dendreon Corporation.
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DIRECTORS WITH TERMS EXPIRING MAY 2003,
AGES, PRINCIPAL BUSINESS EXPERIENCE DURING THE
PAST FIVE YEARS, BOARD MEMBERSHIPS (CLASS I)
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MARION H. ANTONINI
Age 71. Principal of Kohlberg & Co., a private merchant banking firm, since
March 1998. Chairman and Chief Executive Officer of Welbilt Corporation
from prior to 1997 to 1998.
Mr. Antonini is also a director of Scientific-Atlanta, Inc. and Color Spot
Nurseries, Inc.
HENRY R. SLACK
Age 52. Chairman of Task (USA) Inc., a private investment company, since June
1999. Chief Executive of Minorco, an international natural resources
company, from prior to 1997 to June 1999.
Mr. Slack is also a director of Terra Industries Inc. and South African
Breweries plc.
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DIRECTORS WITH TERMS EXPIRING MAY 2004,
AGES, PRINCIPAL BUSINESS EXPERIENCE DURING THE
PAST FIVE YEARS, BOARD MEMBERSHIPS (CLASS II)
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JAMES V. NAPIER
Age 65. Chairman of Scientific-Atlanta, Inc., a communications manufacturing
company, from prior to 1997 to November 2000.
Mr. Napier is also a director of Intelligent Systems Corporation, Vulcan
Materials Company, McKesson Corporation, Personnel Group of America, Inc.
and Wabtec Corporation.
NORMA T. PACE
Age 80. Partner, Paper Analytics Associates, a planning and consulting
company, from prior to 1997.
Mrs. Pace is also a director of Hasbro, Inc.
8
SHARE OWNERSHIP OF DIRECTORS AND OFFICERS
HOW MUCH COMMON STOCK DO ENGELHARD'S DIRECTORS AND EXECUTIVE OFFICERS OWN?
Set forth in the following table is the beneficial ownership of Common
Stock as of March 1, 2002 for all nominees, Directors, each of the Executive
Officers listed on the Summary Compensation Table and all Directors and
Executive Officers as a group. No Director or Executive Officer owns more than
1% of the total outstanding shares (including exercisable options) other than
Mr. Smith, who owns 1.1%. All Directors and Executive Officers as a group own
approximately 3.1% of the total outstanding shares (including exercisable
options).
NAME SHARES
---------- ---------
Marion H. Antonini 89,601(1)(3)(4)
Arthur A. Dornbusch, II 594,527(2)
John C. Hess 187,448(2)
Peter B. Martin 94,224(2)
Michael A. Sperduto 177,496(2)
James V. Napier 51,604(1)(3)(4)
Norma T. Pace 58,763(1)(3)(4)
Barry W. Perry 979,171(2)
Reuben F. Richards 59,764(1)(3)
Henry R. Slack 13,867(1)(3)
Orin R. Smith 1,419,839(2)(3)
Douglas G. Watson 67,675(1)(3)(4)
All Directors and Executive Officers as a group 3,981,423(1)(2)(3)(4)
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(1) Includes 13,500 shares of Common Stock subject to options granted to each
of Messrs. Antonini, Napier, Richards and Watson and Mrs. Pace and 2,250
shares of Common Stock subject to options granted to Mr. Slack under our
Directors Stock Option Plan, which options may be exercised within 60 days
from March 1, 2002.
(2) Includes 851,501, 447,746, 159,748, 147,521, 73,364, 1,411,114 and
3,246,615 shares of Common Stock subject to options granted to Messrs.
Perry, Dornbusch, Hess, Sperduto, Martin, Smith and all Directors and
Executive Officers as a group, respectively, under our Stock Option Plan of
1991 (the "Stock Option Plan") and the Directors Stock Option Plan, which
options may be exercised within 60 days from March 1, 2002, and also
includes 1,000 shares owned by family members in which persons in the group
disclaim any beneficial interest.
(3) Includes 19,738, 15,130, 21,141, 1,494, 615, 7,729 and 18,133 non-voting
deferred stock units earned by Messrs. Antonini, Napier, Richards, Slack,
Smith and Watson and Mrs. Pace under the Deferred Stock Plan for
Nonemployee Directors. Each deferred stock unit will be converted into a
share of Common Stock upon termination of service.
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(4) Includes 42,768, 12,451, 14,256 and 18,525 non-voting deferred stock units
held by Messrs. Antonini, Napier and Watson and Mrs. Pace under the
Deferred Compensation Plan for Directors of Engelhard. Each deferred stock
unit will be converted into a share of Common Stock at a future date based
on the prior written request of each respective Director as prescribed by
the plan.
BOARD OF DIRECTORS' MEETINGS, COMMITTEES AND FEES
HOW OFTEN DID THE BOARD OF DIRECTORS MEET DURING 2001?
Our Board of Directors held a total of six meetings during 2001. During
2001 all of our Directors attended more than 75% of the meetings of the Board
and meetings of committees of the Board on which they served.
WHAT COMMITTEES DOES THE BOARD OF DIRECTORS HAVE?
Among the standing committees of the Board of Directors are the Audit
Committee, the Compensation Committee and the Stock Option/Stock Bonus
Committee. The Board does not have a nominating committee.
AUDIT COMMITTEE
The members of the Audit Committee are Mr. Watson (Chairman), Mrs. Pace and
Mr. Richards, all of whom are Nonemployee Directors. The Audit Committee
periodically reviews our accounting policies, internal accounting controls and
the scope and results of the independent accountants' audit of our financial
statements. The Audit Committee held four meetings during 2001. See "Report of
Audit Committee" on page 26 for more information.
COMPENSATION COMMITTEE
The members of the Compensation Committee are Messrs. Antonini (Chairman),
Napier and Slack, all of whom are Nonemployee Directors. The Compensation
Committee determines the appropriate level of compensation for the Officers and
employees of Engelhard. The Compensation Committee held four meetings during
2001.
STOCK OPTION/STOCK BONUS COMMITTEE
The members of the Stock Option/Stock Bonus Committee are Messrs. Antonini
(Chairman), Napier and Slack, all of whom are Nonemployee Directors. The Stock
Option/Stock Bonus Committee administers our stock option and stock bonus plans
and determines the terms and conditions for the issuance of stock options and
stock bonus awards to our Officers and employees. The Stock Option/Stock Bonus
Committee held four meetings during 2001.
HOW ARE DIRECTORS COMPENSATED?
Directors who are not our employees each received a retainer at the annual
rate of $40,000 in 2001. In addition, Nonemployee Directors received a $1,350
fee for each Board meeting
10
attended in 2001. During 2001, Nonemployee Directors also received a $1,350 fee
for each committee meeting attended; a $5,000 annual retainer for each committee
on which they served; and the chairman of each committee received an additional
$5,000 annual retainer. Directors who are employed by us do not receive any
Directors' fees or retainers.
Pursuant to our Deferred Stock Plan For Nonemployee Directors (the
"Deferred Stock Plan") each Nonemployee Director is credited with deferred stock
units, each of which evidences the right to receive a share of Common Stock of
Engelhard upon the Director's termination of service. Deferred stock units were
credited to the accounts of the Nonemployee Directors on May 6, 1999 and will be
credited annually on each May 31 with an amount of deferred stock units
calculated by dividing an amount equal to 40% of the annual retainer payable to
such Nonemployee Director then in effect by the average daily closing price per
share of Common Stock of Engelhard for the 20 trading days prior to such date.
When a regular cash dividend is paid on the Common Stock, the dividend
equivalent on deferred stock units is reinvested in additional deferred stock
units using the common stock price for the 20 trading days prior to the dividend
payment date. The entire balance of a Nonemployee Director's account under the
Deferred Stock Plan will be paid to the Nonemployee Director, in either a lump
sum or installments at the election of such Nonemployee Director, in shares of
our Common Stock upon the Nonemployee Director's termination of service. If a
"change in control" occurs and the Nonemployee Director ceases to be a Director
or the Deferred Stock Plan is terminated, the entire balance of the account will
be payable in a lump sum within 30 days.
Pursuant to our Stock Bonus Plan for Nonemployee Directors (the "Directors
Stock Bonus Plan"), each person who becomes a Nonemployee Director prior to June
30, 2006 shall be awarded 7,593 shares of our Common Stock effective as of such
person's election to our Board of Directors. Such shares will tentatively vest
in equal increments over a ten-year period. Directors are entitled to receive
cash dividends on and to vote shares which are the subject of an award prior to
their distribution or forfeiture. Upon termination of the Director's service as
a Nonemployee Director, the Director (or, in the event of his or her death, his
or her beneficiary) shall be entitled, in the discretion of the committee formed
to administer the Directors Stock Bonus Plan, to receive the shares awarded to
such Director which have tentatively vested up to the date of such termination
of service. Shares may be received prior to such date if there has been a
"change in control." If receipt of shares is accelerated due to a change in
control, an additional payment will be made to compensate for the loss of the
tax deferral.
Pursuant to our Directors Stock Option Plan each Nonemployee Director in
office on the date of the regular meeting of the Board in December of each year
will automatically be granted an option to purchase 3,000 shares of Common Stock
with an exercise price equal to the fair market value of such shares at the date
of grant. Each option becomes exercisable in four equal installments, commencing
on the first anniversary of the date of grant and annually thereafter. Each
option terminates on the tenth anniversary of the date of grant. Each option
held by a director which was granted more than one year before his or her
termination of service as a director shall become fully exercisable upon
termination if such termination is a result of disability, death or retirement
11
after attaining age 65; options may become exercisable prior to such date if
there has been an "acquisition of a control interest."
Pursuant to our Deferred Compensation Plan for Directors, Nonemployee
Directors may elect to defer payment of all or a designated portion of their
compensation for services as a Director. Under our Deferred Compensation Plan
for Directors, deferred amounts will be paid at time of a "change in control" if
the participant has made an advance election to that effect. In the event
distribution of deferred amounts is so accelerated, an additional payment will
be made in order to compensate for the loss of tax deferral resulting from the
accelerated payment.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our Executive
Officers and Directors and persons who own more than 10% of a registered class
of Engelhard's equity securities to file initial reports of ownership and
changes in ownership with the Securities and Exchange Commission ("SEC") and the
New York Stock Exchange. Such Executive Officers, Directors and shareholders are
required by SEC regulations to furnish us with copies of all Section 16(a) forms
they file. Based solely on a review of the copies of such forms furnished to us
and written representations from our Executive Officers and Directors, all
persons subject to the reporting requirements of Section 16(a) filed the
required reports on a timely basis for 2001.
CERTAIN TRANSACTIONS
Citibank, N.A. , a subsidiary of Citigroup Inc., which reports beneficial
ownership of more than 5% of our Common Stock, participated with other lenders
in lines of credit available to Engelhard under revolving credit facilities.
Citibank's total commitment is $38 million, none of which was drawn in 2001. In
2001, Citibank received an initial fee of $57,000 and annual facility fees of
$35,000 for these facilities. We use subsidiaries of Citigroup, as well as other
firms, to provide letters of credit and cash management services to Engelhard.
Fees to subsidiaries of Citigroup for these services aggregated less than
$60,000 in 2001. In the ordinary course of business, Engelhard engages in
foreign exchange and commodities transactions with subsidiaries of Citigroup as
well as other firms, all of which are negotiated at arms-length as principals in
competitive markets.
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EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the compensation paid by us for services
rendered in all capacities during each of the last three fiscal years to our
Chief Executive Officer and our other four most highly compensated Executive
Officers.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS (1)
---------------------------------------- --------------------------
OTHER ANNUAL RESTRICTED ALL OTHER
COMPENSATION STOCK COMPENSATION
YEAR SALARY ($) BONUS ($) ($) AWARD(S)($)(2) OPTIONS(#) ($)(1)(3)
---- ---------- --------- ------------ -------------- ---------- ------------
Barry W. Perry ............... 2001 750,000 1,180,000 95,667(4) 1,223,357 337,424 333,467
Director, Chairman 2000 500,000 790,000 -- 507,247 67,184 --
and Chief Executive 1999 428,660 687,600 -- 289,716 334,236 --
Officer
Arthur A. Dornbusch, II ...... 2001 307,395 192,500 -- 126,239 65,416 98,366
Vice President, 2000 297,000 290,000 -- 240,090 31,796 7,731
General Counsel and 1999 284,936 277,100 -- 149,812 127,822 6,624
Secretary
John C. Hess ................. 2001 236,320 146,518 -- 81,364 40,376 48,552
Vice President, 2000 224,000 182,750 -- 134,881 17,860 --
Human Resources 1999 205,878 168,300 -- 84,857 66,894 --
Michael A. Sperduto .......... 2001 223,679 155,750 -- 93,666 45,868 26,277
Vice President, 2000 197,000 120,000 -- 78,935 10,456 --
Chief Financial Officer 1999 190,704 111,800 -- 49,119 37,459 --
Peter B. Martin .............. 2001 216,300 105,000 -- 50,887 24,672 28,011
Vice President, 2000 210,000 120,000 -- 79,841 10,564 --
Investor Relations 1999 199,157 117,000 -- 52,951 39,683 --
- ----------
(1) Our Key Employees Stock Bonus Plan, our Stock Option Plan and our
Restricted Cash Incentive Compensation Plan provide for acceleration of
vesting in the event of a "change in control." For information on what
constitutes a "change in control," see "Employment Contracts, Termination
of Employment and Change in Control Arrangements" on page 17.
(2) As of December 31, 2001, Messrs. Perry, Dornbusch, Hess, Sperduto and
Martin held 48,579, 19,721, 10,723, 8,327 and 8,286 unvested shares,
respectively, of stock which were awarded pursuant to our Key Employees
Stock Bonus Plan having a market value of $1,344,667, $545,877, $296,813,
$230,491 and $229,356, respectively. The foregoing amounts do not include
the reported grants which were made in January and February 2002 for
services rendered during 2001. Restricted stock awards of Engelhard's
Common Stock granted under the Key Employees Stock Bonus Plan vest in five
equal annual installments commencing on February 1 in the year following
the grant (or in the case of the January 2002 award of 29,300 shares to Mr.
Perry, such award vests entirely on the fifth anniversary of the date of
grant). Vesting will be accelerated upon the occurrence of a "change in
control." We pay dividends on restricted stock, if and to the extent paid
on Common Stock generally, but pay no dividends on stock options. For
information on what constitutes a "change in control," see "Employment
Contracts, Termination of Employment and Change in Control Arrangements" on
page 17.
(3) Represents payouts in 2001 pursuant to restricted cash awards made in 2000
under the Restricted Cash Incentive Compensation Plan and, for Mr.
Dornbusch, includes interest of $8,997, $7,731 and $6,624 accrued during
2001, 2000 and 1999, respectively, in excess of 120% of the applicable
federal interest rate with respect to salary deferrals.
(4) During 2001, amounts include a $25,000 allowance for life insurance and
$47,068 for supplemental disability insurance coverage.
13
The following table sets forth information concerning individual grants of
stock options made under the Stock Option Plan in February 2002 for services
rendered during 2001 by each of the named Executive Officers.
OPTION GRANTS FOR SERVICES RENDERED DURING 2001
GRANT DATE
INDIVIDUAL GRANTS VALUE
- -------------------------------------------------------------------------------------------- -----------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES FOR EXERCISE OR GRANT DATE
OPTIONS SERVICES RENDERED BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED(#)(1) DURING 2001 ($/SH) DATE ($) (2)
- ------------------------------- ------------- ----------------- ----------- ---------- -------------
Barry W. Perry ................ 170,584 13% $26.90 12/13/11 1,511,374
84,000 7% 28.75 1/07/12 800,573
82,840 7% 27.96 2/13/12 762,956
Arthur A. Dornbusch, II ....... 37,940 3% 26.90 12/13/11 336,148
27,476 2% 27.96 2/13/12 253,054
John C. Hess .................. 22,652 2% 26.90 12/13/11 200,697
17,724 1% 27.96 2/13/12 163,238
Michael A. Sperduto ........... 25,484 2% 26.90 12/13/11 225,788
20,384 2% 27.96 2/13/12 187,737
Peter B. Martin ............... 13,592 1% 26.90 12/13/11 120,425
11,080 1% 27.96 2/13/12 102,047
- ----------
(1) Options have a ten-year term and vest in four equal annual installments
beginning on the first anniversary of the date of grant. Vesting will be
accelerated upon the occurrence of a "change in control." For information
as to what constitutes a "change in control," see "Employment Contracts,
Termination of Employment and Change in Control Arrangements" on page 17.
(2) The Black-Scholes option pricing model was chosen to estimate the grant
date present value of the options set forth in this table. Our use of this
model should not be construed as an endorsement of its accuracy at valuing
options. All stock option valuation models, including the Black-Scholes
model, require a prediction about the future movement of the stock price.
The real value of the options in this table depends upon the actual changes
in the market price of the Common Stock during the applicable period. The
model assumes:
(a) an option term of 5 years, which represents anticipated exercise trends
for the named Executive Officers;
(b) an interest rate of 3.8% that represents the current yield curves as of
the grant dates;
(c) an average volatility of approximately 36% calculated using average
weekly stock prices for the five years prior to the grant date; and
(d) a dividend yield of 1.49%, 1.39% or 1.43% (the dividend yield on the
applicable grant date).
14
The following table sets forth information concerning each exercise of
stock options during 2001 by each of the named Executive Officers and the value
of unexercised options at December 31, 2001.
AGGREGATE OPTION EXERCISES IN 2001 AND VALUES AT DECEMBER 31, 2001
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE DECEMBER 31, 2001 (#) DECEMBER 31, 2001 ($)
EXERCISE REALIZED ------------------------- --------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ----------- -------- ----------- ------------- ----------- -------------
Barry W. Perry .............. 0 0 775,547 533,924 $6,852,162 $3,328,178
Arthur A. Dornbusch, II ..... 0 0 408,141 191,891 3,712,574 1,371,941
John C. Hess ................ 0 0 136,818 106,939 1,246,449 750,780
Michael A. Sperduto ......... 0 0 134,173 73,401 1,184,018 435,284
Peter B. Martin ............. 0 0 59,460 63,571 549,717 445,942
15
PENSION PLANS
The following table shows estimated annual pension benefits payable to a
covered participant at normal retirement age under our qualified defined benefit
pension plan, as well as the non-qualified supplemental pension plan. This
non-qualified plan provides benefits that would otherwise be denied participants
by reason of certain Internal Revenue Code limitations on qualified plan
benefits and provides enhanced benefits for certain named key executives,
including the individuals named in the Summary Compensation Table, based on
remuneration that is covered under the plans and years of service with Engelhard
and its subsidiaries.
PENSION PLAN TABLE
YEARS OF SERVICE
-------------------------------------------------------------------
FINAL AVERAGE PAY 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ------------------------------- -------- -------- -------- -------- --------
$ 200,000 ................. 62,772 86,772 110,772 134,772 134,772
400,000 ................. 134,772 182,772 230,772 278,772 278,772
600,000 ................. 206,772 278,772 350,772 422,772 422,772
800,000 ................. 278,772 374,772 470,772 566,772 566,772
1,000,000 ................. 350,772 470,772 590,772 710,772 710,772
1,200,000 ................. 422,772 566,772 710,772 854,772 854,772
1,400,000 ................. 494,772 662,772 830,772 998,772 998,772
1,600,000 ................. 566,772 758,772 950,772 1,142,772 1,142,772
1,800,000 ................. 638,772 854,772 1,070,772 1,286,772 1,286,772
2,000,000 ................. 710,772 950,772 1,190,772 1,430,772 1,430,772
2,200,000 ................. 782,772 1,046,772 1,310,772 1,574,772 1,574,772
2,400,000 ................. 854,772 1,142,772 1,430,772 1,718,772 1,718,772
A participant's remuneration covered by our pension plans is his or her
average monthly earnings, consisting of base salary and regular cash bonuses, if
any (as reported in the Summary Compensation Table), for the highest 60
consecutive calendar months out of the 120 completed calendar months next
preceding termination of employment. With respect to each of the individuals
named in the Summary Compensation Table on page 13, credited years of service
under the plans as of December 31, 2001 are as follows: Mr. Perry, 13 years; Mr.
Dornbusch, 25 years; Mr. Hess, 17 years; Mr. Sperduto, 18 years; and Mr. Martin,
5 years. Benefits shown are computed as a straight line single life annuity
beginning at age 65 and the benefits listed in the Pension Plan Table are not
subject to any deduction for Social Security or other offset amounts.
16
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL ARRANGEMENTS
Engelhard entered into an employment agreement with Mr. Perry dated as of
August 2, 2001. The initial term of the employment agreement extends until
December 31, 2003 and, commencing on December 31, 2003, and on each December 31
thereafter, Mr. Perry's employment agreement shall automatically be extended for
successive periods so that the remaining term shall always be twelve months,
unless notice of intention not to extend shall have been given in writing twelve
months prior to the expiration of the original term or any extended term. The
agreement will terminate no later than December 31, 2011. The agreement provides
for an annual salary of not less than $750,000 for calendar year 2001, $900,000
for calendar year 2002 and $1,000,000 for calendar year 2003, with increases
thereafter to be determined by the Compensation Committee of the Board of
Directors. In addition, the employment agreement provides for participation in
Engelhard's annual Management Incentive Program with target award amounts (not
less than one-third of which shall be in the form of a cash bonus) of 75% of the
annual salary for 2001, 100% of the annual salary for 2002 and 125% of the
annual salary for 2003 and thereafter. The agreement also provides for a
formula-based grant of additional equity awards for 2001 if Engelhard's average
closing stock price for 2001 exceeds $25 and the total return on Engelhard's
Common Stock during calendar year 2001 exceeds the total return of the All S&P
Chemicals Index. Since these conditions were met, Mr. Perry was eligible for and
received the equity awards set forth in "Summary Compensation Table" on page 13
and "Compensation Committee Report on Executive Compensation" on page 20. Mr.
Perry is also entitled to participate in the benefit plans of Engelhard and is
entitled to certain other perquisites.
In the event Engelhard terminates Mr. Perry's employment other than for
cause (as defined in the agreement) or in the event Mr. Perry terminates his
employment for good reason (as defined in the agreement), the employment
agreement provides that Mr. Perry will receive an amount equal to two times the
lesser of (i) 4.5 times his then current annual base salary or (ii) the average
for the three calendar years preceding such calculation (or such lesser number
of calendar years beginning with the calendar year 2001) of the sum of Mr.
Perry's annual base salary, annual bonus and the grant date cash value of equity
based awards. Amounts payable pursuant to this termination provision will be
reduced by certain severance amounts paid to Mr. Perry under the Change in
Control Agreements described below. Upon any such termination, Mr. Perry will
also be entitled to continued benefits for two years following such termination.
Pursuant to our Change in Control Agreements, we will provide severance
benefits in the event of a termination of an Executive (as defined), except a
termination:
(1) because of death,
(2) because of "Disability,"
(3) by Engelhard for "Cause," or
(4) by the Executive other than for "Good Reason,"
17
within the period beginning on the date of a "Potential Change in Control" (as
such terms are defined in the Change in Control Agreement) or "change in
control" (as defined below) and ending on the third anniversary of the date on
which a "change in control" occurs. The severance benefits include:
(1) the payment of salary to the Executive through the date of termination
of employment together with salary in lieu of vacation accrued;
(2) an amount equal to a pro-rated incentive pool award under our
Incentive Compensation Plan, determined as set forth in the Agreement;
(3) an amount equal to two times the sum of the highest annual salary and
incentive pool award in effect during any of the preceding 36 months,
determined as set forth in the Agreement;
(4) continued coverage under our life, disability, health, dental and
other employee welfare benefit plans for up to two years;
(5) continued participation and benefit accruals under our Supplemental
Retirement Program for two years following the date of termination;
and
(6) an amount sufficient, after taxes, to reimburse the Executive for any
excise tax under Section 4999 of the Internal Revenue Code of 1986, as
amended.
Each of Messrs. Perry, Dornbusch, Hess, Sperduto and Martin is defined as
an Executive.
For purposes of our Change in Control Agreements, a "change in control" is
triggered if one of the following occurs:
(1) twenty-five percent or more of our outstanding securities entitled to
vote in the election of directors shall be beneficially owned,
directly or indirectly, by any person or group of persons, other than
the groups presently owning the same, or
(2) a majority of our Board of Directors ceases to consist of the existing
membership or successors approved by the existing membership or their
similar successors, or
(3) shareholders approve a reorganization or merger with respect to which
the persons who were the beneficial owners of our outstanding voting
securities immediately prior thereto do not, following the
reorganization or merger, beneficially own more than 60% of the
outstanding voting securities of the corporation resulting from the
reorganization or merger in substantially the same proportions as
their ownership of our voting securities immediately prior thereto, or
(4) shareholder approval of either:
(a) a complete liquidation or dissolution of Engelhard or
18
(b) a sale or other disposition of all or substantially all of the
assets of Engelhard, other than to a corporation, with respect to
which following such sale or other disposition, more than 60% of
Engelhard's outstanding securities entitled to vote generally in
the election of directors are thereafter beneficially owned, in
substantially the same proportions, by all or substantially all
of the individuals and entities who were the beneficial owners of
such securities prior to such sale or other disposition.
Our Key Employees Stock Bonus Plan, our Stock Option Plans and our 2002
Long Term Incentive Plan, in which all of the Executive Officers participate,
provide for the acceleration of vesting of awards granted in the event of an
acquisition of a control interest. If vesting of awards under the Key Employees
Stock Bonus Plan is accelerated, an additional payment will be made to
compensate for the loss of tax deferral. A participant under these plans and the
2002 Long Term Incentive Plan will, subject to such other conditions, if any, as
the Committee may impose, receive accelerated vesting of awards granted in the
event of a "change in control," as defined above, except that a "change in
control" is triggered by twenty percent, rather than twenty-five percent,
beneficial ownership of Engelhard's outstanding securities entitled to vote in
the election of directors, directly or indirectly, by any person or group of
persons, other than the groups presently owning the same.
Unless a contrary advance election is made, amounts deferred under our
Deferred Compensation Plan for Key Employees will be paid in a lump sum upon a
"change in control" (a "change in control" for this purpose will occur if either
(1) or (2) in the above definition of "change in control" occurs). If payments
are so accelerated, an additional payment will be made in order to compensate
for the loss of tax deferral. Under our Directors and Executives Deferred
Compensation Plans, which provided for elective deferrals of compensation earned
for years from 1986 through 1993, deferred amounts will be paid at the time of
an "acquisition of a control interest" if the participant has made an advance
election to that effect. In the event distribution of deferred amounts is so
accelerated, an additional payment will be made in order to compensate for the
loss of tax deferral resulting from the accelerated payment. In addition,
certain supplemental retirement benefits under our Supplemental Retirement
Program will vest upon a "change in control" (defined as described above in the
case of the Change in Control Agreements).
Our Restricted Cash Incentive Compensation Plan, which is provided to all
of the Executive Officers, provides for the acceleration of vesting of awards
granted in the event of the occurrence of a change in control. A participant
under this plan will, subject to such other conditions, if any, as the
Compensation Committee may impose, receive accelerated vesting of awards in the
event of a "change in control," as defined above, except that a "change in
control" is triggered by twenty percent, rather than twenty-five percent,
beneficial ownership of Engelhard's outstanding securities entitled to vote in
the election of directors, directly or indirectly, by any person or group of
persons, other than the persons presently owning the same.
19
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Under the overall direction of the Compensation Committee and the Stock
Option/Stock Bonus Committee of the Board of Directors and in accordance with
our Stock Option Plans and Stock Bonus Plan approved by our shareholders, we
have developed and implemented compensation programs designed to:
o Attract and retain key employees who can build and continue to grow a
successful company;
o Provide incentive to achieve high levels of company, business, and
individual performance; and
o Maintain and enhance alignment of employee and shareholder interests.
The Compensation and Stock Option Plan/Stock Bonus Committees are composed
entirely of Nonemployee Directors individually noted as signatories to this
report.
The Compensation Committee is responsible for overseeing the development
and for review and approval of:
o Overall compensation policy;
o Salaries for the Chief Executive Officer and for approximately 18 other
senior managers worldwide; and
o Aggregate cash incentive awards for Engelhard and specific individual
cash awards under the annual plan for the Chief Executive Officer and
approximately 18 other senior managers worldwide.
The Stock Option/Stock Bonus Committee is responsible for overseeing the
development and for review and approval of:
o Plan design and policies related to senior management and employee awards
of options and restricted stock; and
o Individual grants under the Stock Option Plans and restricted stock
awards under the Key Employees Stock Bonus Plan to the Chief Executive
Officer and other senior employees worldwide.
In exercising those responsibilities and in determining the compensation in
particular of Mr. Perry and in general of other senior managers individually
reviewed, the Committees examine and set:
1. BASE SALARY
The Compensation Committee reviews salaries annually against industry
practices as determined by professional outside consultants who conduct
annual surveys. Our current competitive target is to pay somewhat above the
median for positions of comparable level. This target is being achieved on
average for the professional, technical, and managerial salaried
20
work force. Salary structures are set each year based on our target and its
actual competitive position. The structure was adjusted upward by 3% for
2002. Likewise merit budgets are established based on a competitive target,
actual competitive position, and our desire to recognize and reward
individual contribution. For international employees and non-exempt
salaried employees in the United States, structure adjustments and merit
budgets are determined based on local market conditions.
Individual merit adjustments are based upon the managers' quantitative
and qualitative evaluation of individual performance, including feedback
from customers served, against business objectives such as earnings, return
on capital, market share, new customers, and development of new commercial
products. Performance is also considered in the context of expectations for
behavior and the individuals' positions in their respective salary-ranges.
The better the performance and the lower the position in range, the greater
the percentage base salary increase. Conversely, the lower the performance
is evaluated and the higher the position in range, the lower the percentage
base salary increase.
Mr. Perry's salary was increased 20% for 2002 in accordance with the
terms of his employment agreement and based on competitive practice and
business results, which included earnings results while funding investments
in capital expansion, research and development, joint ventures, and
acquisitions. Base salary continues to be less than one-fourth of total
compensation for Mr. Perry and generally less than one-half of total
compensation for other senior management. This reflects our emphasis on
non-fixed compensation which varies with Engelhard performance and on other
equity vehicles which are closely aligned with shareholder interests.
2. ANNUAL CASH AND LONG TERM EQUITY INCENTIVE COMPENSATION
Our Management Incentive Plan integrates incentive compensation
vehicles (including cash bonus award, restricted stock and stock options)
to link total compensation for the participant with both competitive
practice and the performance of Engelhard and/or the applicable business
unit and the individual. The plan facilitates clarity of performance
expectations and encourages the identification and commitment to
"breakthrough" results. Overall incentive pools are established for cash,
restricted stock, and stock options. The pools are determined by a formula
based on competitive total compensation for comparable performance; desired
compensation mix among cash, restricted stock and options; and on the
actual performance of Engelhard and its business units against specific
predetermined levels of earnings targets. A threshold level is established
below which incentives will not normally be paid. The Committees may adjust
these pools up or down based on the economic climate or other special
circumstances. Individual awards are determined based on performance
against specific objectives within the limits of the pools.
Our overall results decreased against the results that served as the
basis for 2000's Management Incentive Plan awards by 31.1%. As provided
under this plan, the level of the pool generated for Engelhard overall and
each business group depends upon that group's
21
actual performance against targets established at the beginning of 2001.
Once each group's pool was established, individual performance based awards
were made as described below.
a. ANNUAL CASH INCENTIVE PROGRAM
This program is designed to provide focus on expected annual results
and recognition of accomplishment for the year.
For 2001, actual cash payments determined under the Management
Incentive Plan, including the cash incentive payments to all Executive
Officers, were 101.3% of the competitively defined pool as factored for
performance.
For the year 2001, Mr. Perry received a cash incentive award of
$930,000, compared with $790,000 for 2000. The 2001 award also reflects Mr.
Perry's promotion to Chairman and Chief Executive Officer on January 1,
2001. This was consistent with the plan design considering performance and
targets and the payout for Engelhard overall. Total cash compensation paid
to eligible participants reflects competitive practice for results achieved
and is projected to be around the 75th percentile of competitive
practice--higher in lower level positions and lower in higher level
positions.
After assessing Mr. Perry's 2001 performance, the Committees awarded a
special, additional cash bonus of $250,000 in recognition of the
appreciable increase in shareholder value created since he became Chairman
and Chief Executive Officer.
b. RESTRICTED STOCK
Providing for vesting of shares in equal amounts over a period of five
years, the Key Employees Stock Bonus Plan is designed to align key employee
and shareholder long-term interests by providing designated employees an
equity interest in Engelhard. Eligible employees are reviewed annually for
award grants determined in the manner previously described.
The total equity value awarded under the Management Incentive Plan to
Executive Officers and other participants for 2001 was 101% of the plan
generated pool. The Committee determines the amount of the equity pool for
the year, which is then converted to a combination of restricted stock and
stock options. Approximately one-third of the value of this equity pool,
using present value methodologies, awarded for 2001 was in the form of
restricted stock.
For the year 2001, Mr. Perry received a restricted stock award of
9,965 shares pursuant to the Management Incentive Plan. He received a
restricted stock award of 22,395 shares in 2000 and 17,105 shares in 1999.
As mentioned above, one-third of the Management Incentive Plan equity pool
was converted to restricted stock in 2001. In 2000, one-half of this equity
pool was converted to restricted stock. In 1999, one-third of this equity
pool was converted to restricted stock.
In accordance with the terms of his employment agreement, Mr. Perry
was also awarded a special restricted stock award of 29,300 shares that do
not vest until the fifth anniversary of
22
the award, when they vest entirely. See "Employment Contracts, Termination
of Employment and Change in Control Arrangements" on page 17. After
assessing Mr. Perry's 2001 performance, the Committees awarded an
additional restricted stock award of 3,640 shares in recognition of the
appreciable increase in shareholder value created since he became Chairman
and Chief Executive Officer. Neither of these awards was considered as part
of the total equity award under the Management Incentive Plan described
above.
c. STOCK OPTIONS
Our Stock Option Plans have been designed to link employee
compensation growth directly to growth in share price. In conjunction with
restricted stock, options are the major driver of senior management
compensation aligning their reward with shareholder interests. As noted
above, approximately two-thirds of the compensation value of the equity
pool was paid in the form of stock options. Utilizing actuarial and
financial Black-Scholes models, the value of an option was calculated to be
approximately one-third of the value of a restricted share award.
In addition, senior managers worldwide including all the Executive
Officers are reviewed for annual stock option grants determined under the
Management Incentive Plan in the manner previously described. Options vest
in equal increments over four years and normally have a ten-year life.
Options granted for 2001 under the Management Incentive Plan were 101% of
the pool generated.
For the year 2001, Mr. Perry received stock option awards under the
Management Incentive Plan totaling 231,268 options pursuant to the
Management Incentive Plan. He received 67,184 stock options in 2000 (Mr.
Perry and other participants in the Management Incentive Plan also received
restricted cash awards in 2000 which replaced the value of option grants
which would otherwise have been made) and 334,236 stock options in 1999.
In accordance with the terms of his employment agreement, Mr. Perry
was also awarded a special stock option award of 84,000 options. See
"Employment Contracts, Termination of Employment and Change in Control
Arrangements" on page 17. After assessing Mr. Perry's 2001 performance, the
Committees awarded additional options to purchase 22,156 shares of common
stock in recognition of the appreciable increase in shareholder value since
he became Chairman and Chief Executive Officer. Neither of these awards was
considered as part of the total equity award under the Management Incentive
Plan described above.
The Committees direct the purchase of compensation survey information from
several independent professional consultants in order to renew the base, annual
cash incentive, and total compensation of Mr. Perry and other individual senior
managers and employee groups.
The Committees are satisfied that relevant competitive data and
achievements of Engelhard against its targets in the context of the economic and
competitive environment in which Engelhard has operated support the objectives
of attracting and retaining key talent, providing incentives for superior
performance, and aligning employee and shareholder interests. Nevertheless, the
23
Committees may reevaluate the current compensation program design as part of
their ongoing process of oversight on such matters.
Section 162(m) of the Internal Revenue Code generally limits the deductible
amount of annual compensation paid to certain individual executive officers
(i.e., the chief executive officer and the four other most highly compensated
executive officers of Engelhard) to no more than $1 million each. Considering
the current structure of executive officer compensation and the availability of
deferral opportunities, the Committee believes that we will not be denied any
significant tax deductions for 2001. The Committee will continue to review tax
consequences as well as other relevant considerations in connection with
compensation decisions.
24
COMPENSATION COMMITTEE
STOCK OPTION/STOCK BONUS COMMITTEE
Marion H. Antonini Henry R. Slack James V. Napier
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG ENGELHARD CORPORATION, S&P 500 INDEX
AND ALL S&P CHEMICALS
[The following table represents a line chart in the printed piece.]
DECEMBER 31,
-------------------------------------------------------
1996 1997 1998 1999 2000 2001
------- ------- ------- ------- ------- -------
Engelhard Corporation .. 100.00 92.59 106.11 104.89 115.91 159.96
S&P 500 ................ 100.00 133.36 171.48 207.56 188.66 166.24
All S&P Chemicals ...... 100.00 121.12 108.79 128.50 112.14 113.04
- ----------
* Assumes $100 invested on December 31, 1996 in each referenced group with
reinvestment of dividends.
25
REPORT OF AUDIT COMMITTEE
GENERAL
The Audit Committee acts under a written charter adopted and approved by
the Board of Directors on June 1, 2000. Each of the members of the Audit
Committee is "independent" as defined by the New York Stock Exchange listing
standards.
Based on the Audit Committee's review of the audited financial statements
as of and for the fiscal year ended December 31, 2001 and its discussions with
management regarding such audited financial statements, its receipt of written
disclosures and the letter from the independent auditors required by
Independence Standards Board Standard No. 1 (INDEPENDENCE DISCUSSIONS WITH AUDIT
COMMITTEES), its discussions with the independent auditors regarding such
auditor's independence, the matters required to be discussed by the Statement on
Auditing Standards 61 (COMMUNICATION WITH AUDIT COMMITTEES) and other matters
the Audit Committee deemed relevant and appropriate, the Audit Committee
recommended to the Board of Directors that the audited financial statements as
of and for the fiscal year ended December 31, 2001 be included in Engelhard's
Annual Report on Form 10-K for such fiscal year. In addition, the Audit
Committee considered whether the provision of non-audit services by Arthur
Andersen LLP ("AA") is compatible with maintaining auditor independence.
FEES BILLED TO ENGELHARD BY ARTHUR ANDERSEN LLP DURING FISCAL YEAR ENDED
DECEMBER 31, 2001
AUDIT FEES
The aggregate fees billed to Engelhard by AA for professional services
rendered in connection with the audit of Engelhard's financial statements
included in Engelhard's Annual Report on Form 10-K for Fiscal Year 2001, as well
as for the review of Engelhard's financial statements included in Engelhard's
Quarterly Reports on Form 10-Q during the fiscal year ended December 31, 2001,
totaled $2,038,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
The aggregate fees billed to Engelhard by AA during the fiscal year ended
December 31, 2001 for financial information systems implementation fees totaled
$395,000.
ALL OTHER FEES
The aggregate fees billed to Engelhard by AA during the fiscal year ended
December 31, 2001, other than those described above, related to tax, internal
audit and other audit-related services and totaled $834,000.
AUDIT COMMITTEE
Douglas G. Watson Norma T. Pace Reuben F. Richards
26
INDEPENDENT PUBLIC ACCOUNTANTS
On February 14, 2000, the Audit Committee and the Board of Directors
determined that PriceWaterhouseCoopers LLP ("PWC") should be dismissed as our
independent accountants as soon as a new accounting firm was engaged.
The report of PWC on our financial statements for the fiscal year ended
December 31, 1998 contained no adverse opinion or disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope or accounting
principle. During our fiscal years ended December 31, 1998 and December 31,
1999, and during the subsequent interim period, there were no disagreements with
PWC on matters of accounting principles or practices, financial statement
disclosure or auditing scope or procedure which, if not resolved to the
satisfaction of PWC, would have caused PWC to make reference to the matter in
their report. During our fiscal years ended December 31, 1998 and 1999, and
during the subsequent interim period, there have been no reportable events (as
defined in Regulation S-K Item 304(a)(1)(v)) except for the following:
Our Chief Financial Officer (the "CFO"), who retired from Engelhard on
February 18, 2000, was formerly a partner in the firm of Coopers & Lybrand,
LLP ("Coopers") and served in a number of senior positions within Coopers,
including as a member of its Executive Committee. The CFO retired from
Coopers on April 30, 1997, prior to Coopers' merger with Price Waterhouse,
LLP, and, as a result of his service at Coopers, was entitled to certain
retirement benefits from PWC. The CFO joined Engelhard as our chief
financial officer on May 1, 1997.
On February 3, 2000, PWC advised the Audit Committee that issues
existed which PWC believed affected PWC's independence. The issues related
to the structure of the CFO's retirement benefits from PWC and a
disagreement between PWC and the CFO relating to whether the CFO was
entitled to certain additional retirement payments pursuant to a 1998
program of PWC to benefit certain Coopers' partners who had retired prior
to the merger of Coopers and Price Waterhouse, LLP.
On February 9, 2000, PWC advised us that, as a result of discussions
between the CFO and representatives of PWC regarding the CFO's entitlement
to the additional retirement benefits, PWC believed that, in addition to
the issues concerning the independence of PWC, information had come to its
attention which had led PWC to no longer be able to rely on the
representations of the CFO.
On February 14, 2000, the Audit Committee and the Board of Directors
determined that, in order to address any potential independence or other
concerns resulting from or arising out of the structure and amount of the
CFO's retirement benefits from PWC and related communications between PWC
and the CFO, and to avoid the delay and uncertainty which PWC advised would
be involved in seeking to resolve the issues in order to enable PWC to
continue as our independent auditors, PWC should be dismissed as our
certifying accountant as soon as a new accounting firm was engaged to audit
our financial statements for the fiscal year ended December 31, 1999. We
have authorized PWC to respond fully to the new
27
accountant regarding any matters relating to PWC's audit of our financial
statements, the disagreement and communications with the CFO, or any other
matter.
The Board of Directors, based on the recommendation of the Audit Committee,
voted to engage Arthur Andersen LLP ("AA") as our independent accountants on
February 22, 2000. During the two most recent fiscal years and the subsequent
interim period preceding the engagement of AA, neither we nor anyone on our
behalf has consulted AA regarding: (i) the application of accounting principles
to a specific completed or proposed transaction, or the type of audit opinion
that might be rendered on our financial statements, which consultation resulted
in the providing of a written report or oral advice concerning the same to us
that AA concluded was an important factor considered by us in reaching a
decision as to the accounting, auditing or financial reporting issue; or (ii)
any matter that was either the subject of a disagreement (as defined in Rule
304(a)(1)(iv) of Regulation S-K promulgated under the Securities Act of 1933, as
amended) or a reportable event (as defined in Rule 304(a)(1)(v) of Regulation
S-K).
The Board of Directors, based on the recommendation of the Audit Committee,
voted to retain AA to serve as Engelhard's independent public accountants for
the year 2002. However, in light of recent, well-publicized events involving AA,
Engelhard is reviewing that firm's engagement and has determined not to seek
shareholder ratification of AA's selection as Engelhard's independent public
accountants. The Board of Directors and the Audit Committee will monitor
developments and evaluate AA's ability to provide high-quality, professional
services to Engelhard and may, in their discretion, direct the appointment of a
new independent accounting firm at any time during the year if the Board of
Directors believes that such a change would be in the best interests of
Engelhard and its shareholders.
AA expects to have a representative at the meeting who will have the
opportunity to make a statement and who will be available to answer appropriate
questions.
2. 2002 LONG TERM INCENTIVE PLAN
The Board of Directors Recommends a Vote "FOR" the Approval of the
Engelhard Corporation 2002 Long Term Incentive Plan.
The Board of Directors has adopted the Engelhard Corporation 2002 Long Term
Incentive Plan (the "Plan"), subject to shareholder approval.
We now ask the shareholders to approve the adoption of the Plan. The
following summary of the Plan is qualified in its entirety by reference to the
Plan, which is attached as Appendix A to this Proxy Statement.
The Plan will give us continuity and flexibility in offering long term
incentive compensation to attract, retain and motivate managers and directors.
The Plan, and related actions by the Board, are designed to address the
interests and concerns of shareholders with several features, including:
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o The Plan provides for awards using up to 6,000,000 shares. Subject to
approval of the Plan, the Board has also reduced shares available under
the existing Key Employee Stock Bonus Plan to 1,500,000, a reduction of
approximately 5,360,000 shares and eliminated re-grants of forfeited
awards. This combination reflects both:
-- our shift away from full value compensation, such as restricted stock
awards, towards compensation, such as stock options, that aligns
incentives more closely with the interest of the shareholder; and
-- our concern with the total shares authorized for compensation and
potential dilution.
o Stock options may not be granted with an exercise price below market
value and the exercise price may not be changed after grant without
shareholder approval.
o No more than 500,000 full value awards, such as restricted stock, may be
made under the Plan.
The Board of Directors Recommends a Vote "FOR" the Approval of the
Engelhard Corporation 2002 Long Term Incentive Plan.
GENERAL
The Plan is intended to provide incentives to attract, retain and motivate
employees and directors in order to achieve Engelhard's long-term growth and
profitability objectives. The Plan will provide for the grant to eligible
employees and directors of stock options, share appreciation rights ("SARs"),
restricted shares, restricted share units, performance shares, performance
units, and other share-based awards (the "Awards"). An aggregate of 6,000,000
shares of Common Stock has been reserved for issuance under the Plan, of which
no more than 500,000 shares may be issued in connection with awards other than
options and SARs. In addition, during a calendar year: (i) the maximum number of
shares with respect to which options and SARs may be granted to an eligible
participant under the Plan will be 1,000,000 shares and (ii) the maximum number
of shares with respect to which Awards intended to qualify as performance-based
compensation other than options and SARs may be granted to an eligible
participant under the Plan will be 100,000 shares. These share amounts are
subject to anti-dilution adjustments in the event of certain changes in
Engelhard's capital structure, as described below. Shares issued pursuant to the
Plan will be either authorized but unissued shares or treasury shares.
ELIGIBILITY AND ADMINISTRATION
Officers and other employees of Engelhard and its subsidiaries and
affiliates and directors of Engelhard will be eligible to be granted Awards
under the Plan. The Plan will be administered by the Stock Option/Stock Bonus
Committee or such other Board committee (or the entire Board) as may be
designated by the Board (the "Committee"). The Committee will consist of two or
more non-employee directors within the meaning of Rule 16b-3 of the Security
Exchange Act of 1934 (the "Exchange Act"). The Committee will determine which
eligible employees and directors receive
29
Awards, the types of Awards to be received and the terms and conditions thereof.
The Committee will have authority to waive conditions relating to an Award or
accelerate vesting of Awards. All employees of the Company and its subsidiaries
will be eligible to participate in the Plan. The practice of the Company under
predecessor plans has been to grant awards to approximately 400 employees each
year. Seven Non-Employee Directors are currently eligible to participate in the
Plan.
The Chief Executive Officer shall have the power and authority, subject to
the Plan, to make awards under the Plan to executives not subject to Section 16
of the Exchange Act, subject to limitations imposed by the Committee.
Except for certain antidilution adjustments, unless the approval of
shareholders of Engelhard is obtained, options and SARs issued under the Plan
will not be amended to lower their exercise price and options and SARs issued
under the Plan will not be exchanged for other Options or SARs with lower
exercise prices.
AWARDS
Incentive stock options ("ISOs") intended to qualify for special tax
treatment in accordance with the Code and nonqualified stock options not
intended to qualify for special tax treatment under the Code may be granted for
such number of shares of Common Stock as the Committee determines. The Committee
will be authorized to set the terms relating to an option, including exercise
price and the time and method of exercise. However, the exercise price of
options will not be less than the fair market value of the shares on the date of
grant, and the term will not be longer than ten years from the date of grant of
the options.
An SAR will entitle the holder thereof to receive with respect to each
share subject thereto, an amount equal to the excess of the fair market value of
one share of Common Stock on the date of exercise (or, if the Committee so
determines, at any time during a specified period before or after the date of
exercise) over the exercise price of the SAR set by the Committee as of the date
of grant. However, the exercise price of the SARs will not be less than the fair
market value of the shares on the date of grant, and the term will not be longer
than ten years from the date of grant of the SARs. Payment with respect to SARs
may be made in cash or shares of Common Stock as determined by the Committee.
Awards of restricted shares will be subject to such restrictions on
transferability and other restrictions, if any, as the Committee may impose.
Such restrictions will lapse under circumstances as the Committee may determine,
including upon the achievement of performance criteria referred to below. Except
as otherwise determined by the Committee, eligible employees granted restricted
shares will have all of the rights of a stockholder, including the right to vote
restricted shares and receive dividends thereon, and unvested restricted shares
will be forfeited upon termination of employment during the applicable
restriction period.
A restricted share unit will entitle the holder thereof to receive shares
of Common Stock or cash at the end of a specified deferral period. Restricted
share units will also be subject to such restrictions
30
as the Committee may impose. Such restrictions will lapse under circumstances as
the Committee may determine, including upon the achievement of performance
criteria referred to below. Except as otherwise determined by the Committee,
restricted share units subject to deferral or restriction will be forfeited upon
termination of employment during any applicable deferral or restriction period.
Performance shares and performance units will provide for future issuance
of shares or payment of cash, respectively, to the recipient upon the attainment
of corporate performance goals established by the Committee over specified
performance periods. Except as otherwise determined by the Committee,
performance shares and performance units will be forfeited upon termination of
employment during any applicable performance period. Prior to payment of
performance shares or performance units, the Committee will certify that the
performance objectives were satisfied. Performance objectives may vary from
person to person and will be based upon one or more of the following performance
criteria as the Committee may deem appropriate: appreciation in value of the
shares; total shareholder return; earnings per share; operating income; net
income; pretax earnings; pretax earnings before interest, depreciation and
amortization; pro forma net income; return on equity; return on designated
assets; return on capital; economic value added; earnings; revenues; expenses;
operating profit margin; operating cash flow; free cash flow; cash flow return
on investment; operating margin; net profit margin; or any of the above criteria
as compared to the performance of a published or special index deemed applicable
by the Committee, including, but not limited to, the Standard & Poor's 500 Stock
Index. The Committee may revise performance objectives if significant events
occur during the performance period which the Committee expects to have a
substantial effect on such objectives.
The Committee is authorized, subject to limitations under applicable law,
to grant such other Awards that may be denominated in, valued in, or otherwise
based on, shares of Common Stock, as deemed by the Committee to be consistent
with the purposes of the Plan.
NONTRANSFERABILITY
Unless otherwise set forth by the Committee in an award agreement, Awards
(except for vested shares) will generally not be transferable by the participant
other than by will or the laws of descent and distribution and will be
exercisable during the lifetime of the participant only by such participant or
his or her guardian or legal representative.
CHANGE IN CONTROL
In the event of a change in control, all Awards granted under the Plan then
outstanding but not then exercisable (or subject to restrictions) shall become
immediately exercisable, all restrictions shall lapse, and any performance
criteria shall be deemed satisfied, unless otherwise provided in the applicable
Award agreement. For information as to what constitutes a "change in control,"
see "Employment Contracts, Termination of Employment and Change in Control
Arrangements" on page 17, except that a "change in control" is triggered by
twenty percent, rather than twenty-five
31
percent, beneficial ownership of Engelhard's outstanding securities entitled to
vote in the election of directors, directly or indirectly, by any person or
group of persons, other than the persons presently owning the same.
CAPITAL STRUCTURE CHANGES
If the Committee determines that any dividend, recapitalization, share
split, reorganization, merger, consolidation, spin-off, repurchase, or other
similar corporate transaction or event affects the Common Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of eligible participants under the Plan, then the Committee is authorized
to make such equitable changes or adjustments as it deems appropriate, including
adjustments to (i) the number and kind of shares which may thereafter be issued
under the Plan, (ii) the number and kind of shares, other securities or other
consideration issued or issuable in respect of outstanding Awards and (iii) the
exercise price, grant price or purchase price relating to any Award.
AMENDMENT AND TERMINATION
The Plan may be amended, suspended or terminated by the Board of Directors
at any time, in whole or in part. However, any amendment for which stockholder
approval is required by Section 422 of the Code will not be effective until such
approval has been obtained. In addition, no amendment, suspension, or
termination of the Plan may materially and adversely affect the rights of a
participant under any Award theretofore granted to him or her without the
consent of the affected participant. The Committee may waive any conditions or
rights, amend any terms, or amend, suspend or terminate, any Award granted,
provided that, without participant consent, such amendment, suspension or
termination may not materially and adversely affect the rights of such
participant under any Award previously granted to him or her.
EFFECTIVE DATE AND TERM
The Plan is effective as of March 7, 2002, subject to shareholder approval
at the May 2, 2002 meeting. Unless earlier terminated, the Plan will expire on
March 7, 2012, and no further awards may be granted thereunder after such date.
MARKET VALUE
The per share closing price of the Common Stock on March 15, 2002 was
$30.23.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the federal income tax consequences of the
Plan, based upon current provisions of the Code, the Treasury regulations
promulgated thereunder and administrative and judicial interpretation thereof,
and does not address the consequences under any state, local or foreign tax
laws.
32
STOCK OPTIONS
In general, the grant of an option will not be a taxable event to the
recipient and it will not result in a deduction to Engelhard. The tax
consequences associated with the exercise of an option and the subsequent
disposition of shares of Common Stock acquired on the exercise of such option
depend on whether the option is a nonqualified stock option or an ISO.
Upon the exercise of a nonqualified stock option, the participant will
recognize ordinary taxable income equal to the excess of the fair market value
of the shares of Common Stock received upon exercise over the exercise price.
Engelhard will generally be able to claim a deduction in an equivalent amount.
Any gain or loss upon a subsequent sale or exchange of the shares of Common
Stock will be capital gain or loss, long-term or short-term, depending on the
holding period for the shares of Common Stock.
Generally, a participant will not recognize ordinary taxable income at the
time of exercise of an ISO and no deduction will be available to Engelhard,
provided the option is exercised while the participant is an employee or within
three months following termination of employment (longer, in the case of
disability or death). If an ISO granted under the Plan is exercised after these
periods, the exercise will be treated for federal income tax purposes as the
exercise of a nonqualified stock option. Also, an ISO granted under the Plan
will be treated as a nonqualified stock option to the extent it (together with
other ISOs granted to the participant by Engelhard) first becomes exercisable in
any calendar year for shares of Common Stock having a fair market value,
determined as of the date of grant, in excess of $100,000.
If shares of Common Stock acquired upon exercise of an ISO are sold or
exchanged more than one year after the date of exercise and more than two years
after the date of grant of the option, any gain or loss will be long-term
capital gain or loss. If shares of Common Stock acquired upon exercise of an ISO
are disposed of prior to the expiration of these one-year or two-year holding
periods (a "Disqualifying Disposition"), the participant will recognize ordinary
income at the time of disposition, and Engelhard will generally be entitled to a
deduction, in an amount equal to the excess of the fair market value of the
shares of Common Stock at the date of exercise over the exercise price. Any
additional gain will be treated as capital gain, long-term or short-term,
depending on how long the shares of Common Stock have been held. Where shares of
Common Stock are sold or exchanged in a Disqualifying Disposition (other than
certain related party transactions) for an amount less than their fair market
value at the date of exercise, any ordinary income recognized in connection with
the Disqualifying Disposition will be limited to the amount of gain, if any,
recognized in the sale or exchange, and any loss will be a long-term or
short-term capital loss, depending on how long the shares of Common Stock have
been held.
If an option is exercised through the use of shares of Common Stock
previously owned by the participant, such exercise generally will not be
considered a taxable disposition of the previously owned shares and, thus, no
gain or loss will be recognized with respect to such previously owned shares
upon such exercise. The amount of any built-in gain on the previously owned
shares generally will not be recognized until the new shares acquired on the
option exercise are disposed of in a sale or other taxable transaction.
33
Although the exercise of an ISO as described above would not produce
ordinary taxable income to the participant, it would result in an increase in
the participant's alternative minimum taxable income and may result in an
alternative minimum tax liability.
RESTRICTED STOCK
A participant who receives shares of restricted stock will generally
recognize ordinary income at the time that they "vest", i.e., either when they
are not subject to a substantial risk of forfeiture or when they are freely
transferable. The amount of ordinary income so recognized will generally be the
fair market value of the Common Stock at the time the shares vest, less the
amount, if any, paid for the stock. This amount is generally deductible for
federal income tax purposes by Engelhard. Dividends paid with respect to Common
Stock that is nonvested will be ordinary compensation income to the participant
(and generally deductible by Engelhard). Any gain or loss upon a subsequent sale
or exchange of the shares of Common Stock, measured by the difference between
the sale price and the fair market value on the date restrictions lapse, will be
capital gain or loss, long-term or short-term, depending on the holding period
for the shares of Common Stock. The holding period for this purpose will begin
on the date following the date restrictions lapse.
In lieu of the treatment described above, a participant may elect immediate
recognition of income under Section 83(b) of the Code. In such event, the
participant will recognize as income the fair market value of the restricted
stock at the time of grant (determined without regard to any restrictions other
than restrictions which by their terms will never lapse), and Engelhard will
generally be entitled to a corresponding deduction. Dividends paid with respect
to shares as to which a proper Section 83(b) election has been made will not be
deductible to Engelhard. If a Section 83(b) election is made and the restricted
stock is subsequently forfeited, the participant will not be entitled to any
offsetting tax deduction.
SARS AND OTHER AWARDS
With respect to SARs, restricted share units, performance shares,
performance units, dividend equivalents and other Awards under the Plan not
described above, generally, when a participant receives payment with respect to
any such Award granted to him or her under the Plan, the amount of cash and the
fair market value of any other property received will be ordinary income to such
participant and will be allowed as a deduction for federal income tax purposes
to Engelhard.
PAYMENT OF WITHHOLDING TAXES
Engelhard may withhold, or require a participant to remit to Engelhard, an
amount sufficient to satisfy any federal, state or local withholding tax
requirements associated with Awards under the Plan.
DEDUCTIBILITY LIMIT ON COMPENSATION IN EXCESS OF $1 MILLION
Section 162(m) of the Code generally limits the deductible amount of annual
compensation paid (including, unless an exception applies, compensation
otherwise deductible in connection with Awards granted under the Plan) by a
public company to each "covered employee" (i.e., the chief
34
executive officer and four other most highly compensated executive officers of
Engelhard) to no more than $1 million. Engelhard currently intends to structure
stock options granted under the Plan to comply with an exception to
nondeductibility under Section 162(m) of the Code. See "Compensation Committee
Report on Executive Compensation" on page 20.
NEW PLAN BENEFITS
No benefits have been received or allocated to any employee or director
under the Plan, and therefore a "New Plan Benefits" table has not been included.
FUTURE SHAREHOLDER PROPOSALS
HOW DO I MAKE A PROPOSAL FOR THE 2003 ANNUAL MEETING?
The deadline for you to submit a proposal pursuant to Rule 14a-8 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") for inclusion
in our proxy statement and form of proxy for the 2003 Annual Meeting of
Shareholders (the "2003 Annual Meeting") is November 25, 2002. The date after
which notice of a shareholder proposal submitted outside of the processes of
Rule 14a-8 of the Exchange Act is considered untimely is November 25, 2002. Any
shareholder proposal submitted outside of the processes of Rule 14a-8 of the
Exchange Act must be received by us after December 24, 2002 and before January
23, 2002. If received by us after January 23, 2002, then our proxy for the 2003
Annual Meeting may confer discretionary authority to vote on such matter without
any discussion of such matter in the proxy statement for the 2003 Annual
Meeting.
HOUSEHOLDING
The Securities and Exchange Commission recently adopted amendments to its
rules regarding delivery of proxy statements and annual reports to stockholders
sharing the same address. We may now satisfy these delivery rules by delivering
a single proxy statement and annual report to an address shared by two or more
of our stockholders. This delivery method is referred to as "householding" and
also can result in significant cost savings for us. In order to take advantage
of this opportunity, we have delivered only one proxy statement and annual
report to multiple stockholders who share an address, unless we received
contrary instructions from the impacted stockholders prior to the mailing date.
We undertake to deliver promptly, upon written or oral request, a separate copy
of the proxy statement or annual report, as requested, to any stockholder at the
shared address to which a single copy of those documents was delivered. If you
prefer to receive separate copies of a proxy statement or annual report, either
now or in the future, send your request in writing to us at the following
address: Investor Relations Department, Engelhard Corporation, 101 Wood Avenue,
Iselin New Jersey 08830.
If you are currently a stockholder sharing an address with another
stockholder and wish to have your future proxy statements and annual reports
householded (i.e., receive only one copy of each document for your household)
please contact us at the above address.
35
ELECTRONIC DELIVERY OF PROXY MATERIALS
As an alternative to receiving printed copies of these materials in future
years, we are pleased to offer stockholders the opportunity to receive proxy
mailings electronically. Electronic delivery saves us money by reducing printing
and mailing costs. It will also make it convenient for you to receive your proxy
materials and to vote your shares online. To request electronic delivery, please
vote via the Internet at www.eproxy.com/ec and, when prompted, enroll to receive
or access proxy materials electronically in future years. You may discontinue
electronic delivery at any time.
OTHER MATTERS
At the date of this proxy statement, the Board of Directors has no
knowledge of any business other than that described herein which will be
presented for consideration at the meeting. In the event any other business is
presented at the meeting, the persons named in the enclosed proxy will vote such
proxy thereon in accordance with their judgment in the best interests of
Engelhard.
By Order of the Board of Directors
ARTHUR A. DORNBUSCH, II
VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
March 28, 2002
36
APPENDIX A
ENGELHARD CORPORATION
2002 LONG TERM INCENTIVE PLAN
1. PURPOSES.
The purposes of the 2002 Long Term Incentive Plan are to advance the
interests of Engelhard Corporation and its shareholders by providing a means to
attract, retain, and motivate employees and directors of the Company upon whose
judgment, initiative and efforts the continued success, growth and development
of the Company is dependent.
2. DEFINITIONS.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Board or the Committee as a
participating employer under the Plan, provided that the Company directly
or indirectly owns at least 20% of the combined voting power of all classes
of stock of such entity or at least 20% of the ownership interests in such
entity.
(b) "Award" means any Option, SAR, Restricted Share, Restricted Share
Unit, Performance Share, Performance Unit, or Other Share-Based Award
granted to an Eligible Person under the Plan.
(c) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
(d) "Beneficiary" means the person, persons, trust or trusts which
have been designated by an Eligible Person in his or her most recent
written beneficiary designation filed with the Company to receive the
benefits specified under this Plan upon the death of the Eligible Person,
or, if there is no designated Beneficiary or surviving designated
Beneficiary, then the person, persons, trust or trusts entitled by will or
the laws of descent and distribution to receive such benefits.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code shall be deemed to
include successor provisions thereto and regulations thereunder.
(g) "Committee" means the Stock Option/Stock Bonus Committee of the
Board, or such other Board committee (which may include the entire Board)
as may be designated by the Board to administer the Plan; PROVIDED,
HOWEVER, that unless otherwise determined by the Board, the Committee shall
consist of two or more directors of the Company, each of whom is
A-1
a "non-employee director" within the meaning of Rule 16b-3 under the
Exchange Act, to the extent applicable, and each of whom is an "outside
director" within the meaning of Section 162(m) of the Code, to the extent
applicable; and provided further that the mere fact that the Committee
shall fail to qualify under either of the foregoing requirements shall not
invalidate any Award made by the Committee which Award is otherwise validly
made under the Plan.
(h) "Company" means Engelhard Corporation, a corporation organized
under the laws of Delaware, or any successor corporation.
(i) "Director" means a member of the Board who is not an employee of
the Company, a Subsidiary or an Affiliate.
(j) "Eligible Person" means (i) an employee of the Company, a
Subsidiary or an Affiliate, including any director who is an employee, or
(ii) a Director.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time. References to any provision of the Exchange Act
shall be deemed to include successor provisions thereto and regulations
thereunder.
(l) "Fair Market Value" means, with respect to Shares or other
property, the fair market value of such Shares or other property determined
by such methods or procedures as shall be established from time to time by
the Committee. If the Shares are listed on any established stock exchange
or a national market system, unless otherwise determined by the Committee
in good faith, the Fair Market Value of Shares shall mean the mean between
the high and low selling prices per Share on the immediately preceding date
(or, if the Shares were not traded on that day, the next preceding day that
the Shares were traded) on the principal exchange on which the Shares are
traded, as such prices are officially quoted on such exchange.
(m) "ISO" means any option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(n) "NQSO" means any Option that is not an ISO.
(o) "Option" means a right, granted under Section 5(b), to purchase
Shares.
(p) "Other Share-Based Award" means a right, granted under Section
5(g), that relates to or is valued by reference to Shares.
(q) "Participant" means an Eligible Person who has been granted an
Award under the Plan.
(r) "Performance Share" means a performance share granted under
Section 5(f).
(s) "Performance Unit" means a performance unit granted under Section
5(f).
(t) "Plan" means this 2002 Long Term Incentive Plan.
(u) "Restricted Shares" means an Award of Shares under Section 5(d)
that may be subject to certain restrictions and to a risk of forfeiture.
A-2
(v) "Restricted Share Unit" means a right, granted under Section 5(e),
to receive Shares or cash at the end of a specified deferral period.
(w) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(x) "SAR" or "Share Appreciation Right" means the right, granted under
Section 5(c), to be paid an amount measured by the difference between the
exercise price of the right and the Fair Market Value of Shares on the date
of exercise of the right, with payment to be made in cash, Shares, or
property as specified in the Award or determined by the Committee.
(y) "Shares" means common stock, $1.00 par value per share, of the
Company.
(z) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns
shares possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
3. ADMINISTRATION.
(a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the
Committee, and the Committee shall have full and final authority to take
the following actions, in each case subject to and consistent with the
provisions of the Plan:
(i) to select Eligible Persons to whom Awards may be granted;
(ii) to designate Affiliates;
(iii) to determine the type or types of Awards to be granted to
each Eligible Person;
(iv) to determine the type and number of Awards to be granted,
the number of Shares to which an Award may relate, the terms and
conditions of any Award granted under the Plan (including, but not
limited to, any exercise price, grant price, or purchase price, any
restriction or condition, any schedule for lapse of restrictions or
conditions relating to transferability or forfeiture, exercisability,
or settlement of an Award, and waiver or accelerations thereof, and
waivers of performance conditions relating to an Award, based in each
case on such considerations as the Committee shall determine), and all
other matters to be determined in connection with an Award;
(v) to determine whether, to what extent, and under what
circumstances an Award may be settled, or the exercise price of an
Award may be paid, in cash, Shares, other Awards, or other property,
or an Award may be canceled, forfeited, exchanged, or surrendered;
(vi) to determine whether, to what extent, and under what
circumstances cash, Shares, other Awards, or other property payable
with respect to an Award will be deferred either automatically, at the
election of the Committee, or at the election of the Eligible Person;
A-3
(vii) to prescribe the form of each Award Agreement, which need
not be identical for each Eligible Person;
(viii) to adopt, amend, suspend, waive, and rescind such rules
and regulations and appoint such agents as the Committee may deem
necessary or advisable to administer the Plan;
(ix) to correct any defect or supply any omission or reconcile
any inconsistency in the Plan and to construe and interpret the Plan
and any Award, rules and regulations, Award Agreement, or other
instrument hereunder;
(x) to accelerate the exercisability or vesting of all or any
portion of any Award or to extend the period during which an Award is
exercisable;
(xi) to determine whether uncertificated Shares may be used in
satisfying Awards and otherwise in connection with the Plan; and
(xii) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem
necessary or advisable for the administration of the Plan.
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. The Committee shall
have sole discretion in exercising its authority under the Plan. Any action
of the Committee with respect to the Plan shall be final, conclusive, and
binding on all persons, including the Company, Subsidiaries, Affiliates,
Eligible Persons, any person claiming any rights under the Plan from or
through any Eligible Person, and shareholders. The express grant of any
specific power to the Committee, and the taking of any action by the
Committee, shall not be construed as limiting any power or authority of the
Committee. Notwithstanding any provision of the Plan to the contrary, the
Chief Executive Officer of the Company shall have the power and authority,
subject to the terms and conditions of the Plan, to make awards under the
Plan to executives who are not officers or directors of the Company for
purposes of Section 16(b) of the Securities Exchange Act of 1934, as
amended; PROVIDED, HOWEVER, that the authority of the Chief Executive
Officer to make such awards shall be subject to limitations as may be
imposed from time to time by the Committee.
(c) LIMITATION OF LIABILITY. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other
information furnished to him or her by any officer or other employee of the
Company or any Subsidiary or Affiliate, the Company's independent certified
public accountants, or other professional retained by the Company to assist
in the administration of the Plan. No member of the Committee, nor any
officer or employee of the Company acting on behalf of the Committee, shall
be personally liable for any action, determination, or interpretation taken
or made in good faith with respect to the Plan, and all members of the
Committee and any officer or employee of the Company acting on their behalf
shall, to the extent permitted by law, be fully indemnified and protected
by the Company with respect to any such action, determination, or
interpretation.
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(d) LIMITATION ON COMMITTEE'S DISCRETION. Anything in this Plan to the
contrary notwithstanding, in the case of any Award which is intended to
qualify as "performance-based compensation" within the meaning of Section
162(m)(4)(C) of the Code, if the Award Agreement so provides, the Committee
shall have no discretion to increase the amount of compensation payable
under the Award to the extent such an increase would cause the Award to
lose its qualification as such performance-based compensation.
(e) NO OPTION OR SAR REPRICING WITHOUT SHAREHOLDER APPROVAL. Except as
provided in the first sentence of Section 4(c) hereof relating to certain
antidilution adjustments, unless the approval of shareholders of the
Company is obtained, Options and SARs issued under the Plan shall not be
amended to lower their exercise price and Options and SARs issued under the
Plan will not be exchanged for other Options or SARs with lower exercise
prices.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to adjustment as provided in Section 4(c) hereof, (i) the
total number of Shares reserved for issuance in connection with Awards
under the Plan shall be 6,000,000 and (ii) the total number of Shares
reserved for issuance in connection with Awards other than Options and SARs
(I.E., Restricted Share, Restricted Unit, Performance Share, Performance
Unit and Other Share-Based Awards) shall be 500,000. No Award may be
granted if the number of Shares to which such Award relates, when added to
the number of Shares previously issued under the Plan, exceeds the number
of Shares reserved under the applicable provision of the preceding
sentence. If any Awards are forfeited, canceled, terminated, exchanged or
surrendered or such Award is settled in cash or otherwise terminates
without a distribution of Shares to the Participant, any Shares counted
against the number of Shares reserved and available under the Plan with
respect to such Award shall, to the extent of any such forfeiture,
settlement, termination, cancellation, exchange or surrender, again be
available for Awards under the Plan. Upon the exercise of any Award granted
in tandem with any other Awards, such related Awards shall be canceled to
the extent of the number of Shares as to which the Award is exercised.
(b) Subject to adjustment as provided in Section 4(c) hereof, the
maximum number of Shares (i) with respect to which Options or SARs may be
granted during a calendar year to any Eligible Person under this Plan shall
be 1,000,000 Shares, and (ii) with respect to Performance Shares,
Performance Units, Restricted Shares or Restricted Share Units intended to
qualify as performance-based compensation within the meaning of Section
162(m)(4)(C) of the Code shall be the equivalent of 100,000 Shares during a
calendar year to any Eligible Person under this Plan.
(c) In the event that the Committee shall determine that any dividend
in Shares, recapitalization, Share split, reverse split, reorganization,
merger, consolidation, spin-off, combination, repurchase, or share
exchange, or other similar corporate transaction or event, affects the
Shares such that an adjustment is appropriate in order to prevent dilution
or enlargement of the rights of Eligible Persons under the Plan, then the
Committee shall make
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such equitable changes or adjustments as it deems appropriate and, in such
manner as it may deem equitable, adjust any or all of (i) the number and
kind of shares which may thereafter be issued under the Plan, (ii) the
number and kind of shares, other securities or other consideration issued
or issuable in respect of outstanding Awards, and (iii) the exercise price,
grant price, or purchase price relating to any Award; PROVIDED, HOWEVER, in
each case that, with respect to ISOs, such adjustment shall be made in
accordance with Section 424(a) of the Code, unless the Committee determines
otherwise. In addition, the Committee is authorized to make adjustments in
the terms and conditions of, and the criteria and performance objectives
included in, Awards in recognition of unusual or non-recurring events
(including, without limitation, events described in the preceding sentence)
affecting the Company or any Subsidiary or Affiliate or the financial
statements of the Company or any Subsidiary or Affiliate, or in response to
changes in applicable laws, regulations, or accounting principles;
PROVIDED, HOWEVER, that, if an Award Agreement specifically so provides,
the Committee shall not have discretion to increase the amount of
compensation payable under the Award to the extent such an increase would
cause the Award to lose its qualification as performance-based compensation
for purposes of Section 162(m)(4)(C) of the Code and the regulations
thereunder.
(d) Any Shares distributed pursuant to an Award may consist, in whole
or in part, of authorized and unissued Shares or treasury Shares including
Shares acquired by purchase in the open market or in private transactions.
5. SPECIFIC TERMS OF AWARDS.
(a) GENERAL. Awards may be granted on the terms and conditions set
forth in this Section 5. In addition, the Committee may impose on any Award
or the exercise thereof, at the date of grant or thereafter (subject to
Section 8(d)), such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall determine, including
terms regarding forfeiture of Awards or continued exercisability of Awards
in the event of termination of service by the Eligible Person.
(b) OPTIONS. The Committee is authorized to grant Options, which may
be NQSOs or ISOs, to Eligible Persons on the following terms and
conditions:
(i) EXERCISE PRICE. The exercise price per Share purchasable
under an Option shall be determined by the Committee; PROVIDED,
HOWEVER, that the exercise price per Share of an Option shall not be
less than the Fair Market Value of a Share on the date of grant of the
Option. Consistent with the foregoing, the Committee may, without
limitation, set an exercise price that is based upon achievement of
performance criteria if deemed appropriate by the Committee.
(ii) OPTION TERM. The term of each Option shall be determined by
the Committee; PROVIDED, HOWEVER, that such term shall not be longer
than ten years from the date of grant of the Option.
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(iii) TIME AND METHOD OF EXERCISE. The Committee shall determine
at the date of grant or thereafter the time or times at which an
Option may be exercised in whole or in part (including, without
limitation, upon achievement of performance criteria if deemed
appropriate by the Committee), the methods by which such exercise
price may be paid or deemed to be paid (including, without limitation,
broker-assisted exercise arrangements), the form of such payment
(including, without limitation, cash, Shares, notes or other
property), and the methods by which Shares will be delivered or deemed
to be delivered to Eligible Persons; PROVIDED, HOWEVER, that in no
event may any portion of the exercise price be paid with Shares
acquired either under an Award granted pursuant to this Plan, upon
exercise of a stock option granted under another Company plan or as a
stock bonus or other stock award granted under another Company plan
unless, in any such case, the Shares were acquired and vested more
than six months in advance of the date of exercise.
(iv) ISOS. The terms of any ISO granted under the Plan shall
comply in all respects with the provisions of Section 422 of the Code,
including but not limited to the requirement that the ISO shall be
granted within ten years from the earlier of the date of adoption or
shareholder approval of the Plan. ISOs may only be granted to
employees of the Company or a Subsidiary.
(c) SARS. The Committee is authorized to grant SARs (Share
Appreciation Rights) to Eligible Persons on the following terms and
conditions:
(i) RIGHT TO PAYMENT. An SAR shall confer on the Eligible Person
to whom it is granted a right to receive with respect to each Share
subject thereto, upon exercise thereof, the excess of (1) the Fair
Market Value of one Share on the date of exercise (or, if the
Committee shall so determine in the case of any such right, the Fair
Market Value of one Share at any time during a specified period before
or after the date of exercise) over (2) the exercise price per Share
of the SAR as determined by the Committee as of the date of grant of
the SAR (which shall not be less than the Fair Market Value per Share
on the date of grant of the SAR and, in the case of an SAR granted in
tandem with an Option, shall be equal to the exercise price of the
underlying Option).
(ii) OTHER TERMS. The Committee shall determine, at the time of
grant or thereafter, the time or times at which an SAR may be
exercised in whole or in part (which shall not be more than ten years
after the date of grant of the SAR), the method of exercise, method of
settlement, form of consideration payable in settlement, method by
which Shares will be delivered or deemed to be delivered to Eligible
Persons, whether or not an SAR shall be in tandem with any other
Award, and any other terms and conditions of any SAR. Unless the
Committee determines otherwise, an SAR (1) granted in tandem with an
NQSO may be granted at the time of grant of the related NQSO or at any
time thereafter and (2) granted in tandem with an ISO may only be
granted at the time of grant of the related ISO.
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(d) RESTRICTED SHARES. The Committee is authorized to grant Restricted
Shares to Eligible Persons on the following terms and conditions:
(i) ISSUANCE AND RESTRICTIONS. Restricted Shares shall be subject
to such restrictions on transferability and other restrictions, if
any, as the Committee may impose at the date of grant or thereafter,
which restrictions may lapse separately or in combination at such
times, under such circumstances (including, without limitation, upon
achievement of performance criteria if deemed appropriate by the
Committee), in such installments, or otherwise, as the Committee may
determine. Except to the extent restricted under the Award Agreement
relating to the Restricted Shares, an Eligible Person granted
Restricted Shares shall have all of the rights of a shareholder
including, without limitation, the right to vote Restricted Shares and
the right to receive dividends thereon. If the lapse of restrictions
is conditioned on the achievement of performance criteria, the
Committee shall select the criterion or criteria from the list of
criteria set forth in Section 5(f)(i). The Committee must certify in
writing prior to the lapse of restrictions conditioned on achievement
of performance criteria that such performance criteria were in fact
satisfied.
(ii) FORFEITURE. Except as otherwise determined by the Committee,
at the date of grant or thereafter, upon termination of service during
the applicable restriction period, Restricted Shares and any accrued
but unpaid dividends or dividend equivalents that are at that time
subject to restrictions shall be forfeited; PROVIDED, HOWEVER, that
the Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that restrictions
or forfeiture conditions relating to Restricted Shares will be waived
in whole or in part in the event of terminations resulting from
specified causes, and the Committee may in other cases waive in whole
or in part the forfeiture of Restricted Shares.
(iii) CERTIFICATES FOR SHARES. Restricted Shares granted under
the Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Shares are
registered in the name of the Eligible Person, such certificates shall
bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Restricted Shares, and the Company
shall retain physical possession of the certificate.
(iv) DIVIDENDS. Dividends paid on Restricted Shares shall be
either paid at the dividend payment date, or deferred for payment to
such date as determined by the Committee, in cash or in unrestricted
Shares having a Fair Market Value equal to the amount of such
dividends. Shares distributed in connection with a Share split or
dividend in Shares, and other property distributed as a dividend,
shall be subject to restrictions and a risk of forfeiture to the same
extent as the Restricted Shares with respect to which such Shares or
other property has been distributed.
(e) RESTRICTED SHARE UNITS. The Committee is authorized to grant
Restricted Share Units to Eligible Persons, subject to the following terms
and conditions:
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(i) AWARD AND RESTRICTIONS. Delivery of Shares or cash, as the
case may be, will occur upon expiration of the deferral period
specified for Restricted Share Units by the Committee (or, if
permitted by the Committee, as elected by the Eligible Person). In
addition, Restricted Share Units shall be subject to such restrictions
as the Committee may impose, if any (including, without limitation,
the achievement of performance criteria if deemed appropriate by the
Committee), at the date of grant or thereafter, which restrictions may
lapse at the expiration of the deferral period or at earlier or later
specified times, separately or in combination, in installments or
otherwise, as the Committee may determine. If the lapse of
restrictions is conditioned on the achievement of performance
criteria, the Committee shall select the criterion or criteria from
the list of criteria set forth in Section 5(f)(i). The Committee must
certify in writing prior to the lapse of restrictions conditioned on
the achievement of performance criteria that such performance criteria
were in fact satisfied.
(ii) FORFEITURE. Except as otherwise determined by the Committee
at date of grant or thereafter, upon termination of service (as
determined under criteria established by the Committee) during the
applicable deferral period or portion thereof to which forfeiture
conditions apply (as provided in the Award Agreement evidencing the
Restricted Share Units), or upon failure to satisfy any other
conditions precedent to the delivery of Shares or cash to which such
Restricted Share Units relate, all Restricted Share Units that are at
that time subject to deferral or restriction shall be forfeited;
PROVIDED, HOWEVER, that the Committee may provide, by rule or
regulation or in any Award Agreement, or may determine in any
individual case, that restrictions or forfeiture conditions relating
to Restricted Share Units will be waived in whole or in part in the
event of termination resulting from specified causes, and the
Committee may in other cases waive in whole or in part the forfeiture
of Restricted Share Units.
(f) PERFORMANCE SHARES AND PERFORMANCE UNITS. The Committee is
authorized to grant Performance Shares or Performance Units or both to
Eligible Persons on the following terms and conditions:
(i) PERFORMANCE PERIOD. The Committee shall determine a
performance period (the "Performance Period") of one or more years and
shall determine the performance objectives for grants of Performance
Shares and Performance Units. Performance objectives may vary from
Eligible Person to Eligible Person and shall be based upon one or more
of the following performance criteria as the Committee may deem
appropriate: appreciation in value of the Shares; total shareholder
return; earnings per share; operating income; net income; pretax
earnings; pretax earnings before interest, depreciation and
amortization; pro forma net income; return on equity; return on
designated assets; return on capital; economic value added; earnings;
revenues; expenses; operating profit margin; operating cash flow; free
cash flow; cash flow return on investment; operating margin; net
profit margin; or any of the above criteria as compared to the
performance of a published or special index deemed applicable by the
Committee,
A-9
including, but not limited to, the Standard & Poor's 500 Stock Index.
The performance objectives may be determined by reference to the
performance of the Company, or of a Subsidiary or Affiliate, or of a
division or unit of any of the foregoing. Performance Periods may
overlap and Eligible Persons may participate simultaneously with
respect to Performance Shares and Performance Units for which
different Performance Periods are prescribed.
(ii) AWARD VALUE. At the beginning of a Performance Period, the
Committee shall determine for each Eligible Person or group of
Eligible Persons with respect to that Performance Period the range of
number of Shares, if any, in the case of Performance Shares, and the
range of dollar values, if any, in the case of Performance Units,
which may be fixed or may vary in accordance with such performance or
other criteria specified by the Committee, which shall be paid to an
Eligible Person as an Award if the relevant measure of Company
performance for the Performance Period is met. The Committee must
certify in writing that the applicable performance criteria were
satisfied prior to payment under any Performance Shares or Performance
Units.
(iii) SIGNIFICANT EVENTS. If during the course of a Performance
Period there shall occur significant events as determined by the
Committee which the Committee expects to have a substantial effect on
a performance objective during such period, the Committee may revise
such objective; provided, however, that, if an Award Agreement so
provides, the Committee shall not have any discretion to increase the
amount of compensation payable under the Award to the extent such an
increase would cause the Award to lose its qualification as
performance-based compensation for purposes of Section 162(m)(4)(C) of
the Code and the regulations thereunder.
(iv) FORFEITURE. Except as otherwise determined by the Committee,
at the date of grant or thereafter, upon termination of service during
the applicable Performance Period, Performance Shares and Performance
Units for which the Performance Period was prescribed shall be
forfeited; PROVIDED, HOWEVER, that the Committee may provide, by rule
or regulation or in any Award Agreement, or may determine in an
individual case, that restrictions or forfeiture conditions relating
to Performance Shares and Performance Units will be waived in whole or
in part in the event of terminations resulting from specified causes,
and the Committee may in other cases waive in whole or in part the
forfeiture of Performance Shares and Performance Units.
(v) PAYMENT. Each Performance Share or Performance Unit may be
paid in whole Shares, or cash, or a combination of Shares and cash
either as a lump sum payment or in installments, all as the Committee
shall determine, at the time of grant of the Performance Share or
Performance Unit or otherwise, commencing as soon as practicable after
the end of the relevant Performance Period. The Committee must certify
in writing prior to the payment of any Performance Share or
Performance Unit that the performance objectives and any other
material terms were in fact satisfied.
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(g) OTHER SHARE-BASED AWARDS. The Committee is authorized, subject to
limitations under applicable law, to grant to Eligible Persons such other
Awards that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Shares, as deemed by
the Committee to be consistent with the purposes of the Plan, including,
without limitation, unrestricted shares awarded purely as a "bonus" and not
subject to any restrictions or conditions, other rights convertible or
exchangeable into Shares, purchase rights for Shares, Awards with value and
payment contingent upon performance of the Company or any other factors
designated by the Committee, and Awards valued by reference to the
performance of specified Subsidiaries or Affiliates. The Committee shall
determine the terms and conditions of such Awards at date of grant or
thereafter. Shares delivered pursuant to an Award in the nature of a
purchase right granted under this Section 5(g) shall be purchased for such
consideration, paid for at such times, by such methods, and in such forms,
including, without limitation, cash, Shares, notes or other property, as
the Committee shall determine. Cash awards, as an element of or supplement
to any other Award under the Plan, shall also be authorized pursuant to
this Section 5(g).
6. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) STAND-ALONE, ADDITIONAL, TANDEM AND SUBSTITUTE AWARDS. Awards
granted under the Plan may, in the discretion of the Committee, be granted
to Eligible Persons either alone or in addition to, in tandem with, or in
exchange or substitution for, any other Award granted under the Plan or any
award granted under any other plan or agreement of the Company, any
Subsidiary or Affiliate, or any business entity to be acquired by the
Company or a Subsidiary or Affiliate, or any other right of an Eligible
Person to receive payment from the Company or any Subsidiary or Affiliate.
Awards may be granted in addition to or in tandem with such other Awards or
awards, and may be granted either as of the same time as or a different
time from the grant of such other Awards or awards. Subject to the
provisions of Section 3(e) hereof prohibiting Option and SAR repricing
without shareholder approval, the per Share exercise price of any Option or
grant price of any SAR which is granted, in connection with the
substitution of awards granted under any other plan or agreement of the
Company or any Subsidiary or Affiliate or any business entity to be
acquired by the Company or any Subsidiary or Affiliate, shall be determined
by the Committee, in its discretion.
(b) TERM OF AWARDS. The term of each Award granted to an Eligible
Person shall be for such period as may be determined by the Committee;
provided, however, that in no event shall the term of any Option or SAR
exceed a period of ten years from the date of its grant (or such shorter
period as may be applicable under Section 422 of the Code).
(c) FORM OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan and
any applicable Award Agreement, payments to be made by the Company or a
Subsidiary or Affiliate upon the grant, maturation, or exercise of an Award
may be made in such forms as the Committee shall determine at the date of
grant or thereafter, including, without limitation, cash, Shares, notes or
other property, and may be made in a single payment or transfer, in
installments, or on a
A-11
deferred basis. The Committee may make rules relating to installment or
deferred payments with respect to Awards, including the rate of interest to
be credited with respect to such payments, and the Committee may require
deferral of payment under an Award if, in the sole judgment of the
Committee, it may be necessary in order to avoid nondeductibility of the
payment under Section 162(m) of the Code.
(d) NONTRANSFERABILITY. Unless otherwise set forth by the Committee in
an Award Agreement, Awards shall be transferable by an Eligible Person only
by will or the laws of descent and distribution (or pursuant to a
Beneficiary designation) and shall be exercisable during the lifetime of an
Eligible Person only by such Eligible Person or his guardian or legal
representative. An Eligible Person's rights under the Plan may not be
pledged, mortgaged, hypothecated, or otherwise encumbered, and shall not be
subject to claims of the Eligible Person's creditors.
7. CHANGE OF CONTROL PROVISIONS.
(a) ACCELERATION OF EXERCISABILITY AND LAPSE OF RESTRICTIONS. Unless
otherwise provided by the Committee at the time of the Award grant, in the
event of a Change of Control, (i) all outstanding Awards pursuant to which
the Participant may have rights the exercise of which is restricted or
limited, shall become fully exercisable at the time of the Change of
Control, and (ii) unless the right to lapse of restrictions is waived by a
Participant prior to such lapse, all restrictions on outstanding Awards
subject to restrictions under the Plan shall lapse, and all performance
criteria and other conditions to payment of Awards under which payments of
cash, Shares or other property are subject to conditions shall be deemed to
be achieved or fulfilled and shall be waived by the Company at the time of
the Change of Control.
(b) DEFINITION OF CHANGE OF CONTROL. For purposes of this Section 7,
"Change of Control" shall mean:
(i) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person"), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (1) the
then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (2) the combined voting power
of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding Company
Voting Securities"); PROVIDED, HOWEVER, that the following
acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company (other than by exercise of a
conversion privilege); (ii) any acquisition by the Company or any of
its subsidiaries; (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any of
its subsidiaries; (iv) any acquisition by any corporation with respect
to which, following such acquisition, more than 60% of, respectively,
the then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of
directors is then beneficially owned,
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directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such acquisition in substantially the
same proportions as their ownership, immediately prior to such
acquisition, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be; or (v) any acquisition
by a Person owning more than 25% of the Outstanding Company Common
Stock on the Effective Date; or
(ii) During any period of two consecutive years, individuals who,
as of the beginning of such period, constitute the Board of Directors
of the Company (the "Incumbent Board"), cease for any reason to
constitute at least a majority of the Board of Directors of the
Company; PROVIDED, HOWEVER, that any individual becoming a director
subsequent to the beginning of such period whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act); or
(iii) approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, with respect of
which all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately
prior to such reorganization, merger or consolidation, do not,
following such reorganization, merger or consolidation, beneficially
own, directly or indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such reorganization, merger or consolidation in
substantially the same proportions as their ownership, immediately
prior to such reorganization, merger or consolidation of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be; or
(iv) approval by the shareholders of the Company of (1) a
complete liquidation or dissolution of the Company or (2) a sale or
other disposition of all or substantially all of the assets of the
Company, other than to the corporation, with respect to which
following such sale or other disposition, more than 60% of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership,
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immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be.
8. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LEGAL AND TRADING REQUIREMENTS. The Plan, the
granting and exercising of Awards thereunder, and the other obligations of
the Company under the Plan and any Award Agreement, shall be subject to all
applicable federal and state laws, rules and regulations, and to such
approvals by any regulatory or governmental agency as may be required. The
Company, in its discretion, may postpone the issuance or delivery of Shares
under any Award until completion of such stock exchange or market system
listing or registration or qualification of such Shares or other required
action under any state or federal law, rule or regulation as the Company
may consider appropriate, and may require any Participant to make such
representations and furnish such information as it may consider appropriate
in connection with the issuance or delivery of Shares in compliance with
applicable laws, rules and regulations. No provisions of the Plan shall be
interpreted or construed to obligate the Company to register any Shares
under federal or state law.
(b) NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Neither the Plan nor
any action taken thereunder shall be construed as giving any employee or
director the right to be retained in the employ or service of the Company
or any of its Subsidiaries or Affiliates, nor shall it interfere in any way
with the right of the Company or any of its Subsidiaries or Affiliates to
terminate any employee's or director's employment or service at any time.
(c) TAXES. The Company or any Subsidiary or Affiliate is authorized to
withhold from any Award granted, any payment relating to an Award under the
Plan, including from a distribution of Shares, or any payroll or other
payment to an Eligible Person, amounts of withholding and other taxes due
in connection with any transaction involving an Award, and to take such
other action as the Committee may deem advisable to enable the Company and
Eligible Persons to satisfy obligations for the payment of withholding
taxes and other tax obligations relating to any Award. This authority shall
include authority to withhold or receive Shares or other property and to
make cash payments in respect thereof in satisfaction of an Eligible
Person's tax obligations; provided, however, that the amount of tax
withholding to be satisfied by withholding Shares shall be limited to the
minimum amount of taxes, including employment taxes, required to be
withheld under applicable Federal, state and local law.
(d) CHANGES TO THE PLAN AND AWARDS. The Board may amend, alter,
suspend, discontinue, or terminate the Plan or the Committee's authority to
grant Awards under the Plan without the consent of shareholders of the
Company or Participants, except that any such amendment, alteration,
suspension, discontinuation, or termination shall be subject to the
approval of the Company's shareholders to the extent such shareholder
approval is required under Section 422 of the Code; PROVIDED, HOWEVER,
that, without the consent of an affected Participant, no amendment,
alteration, suspension, discontinuation, or termination of the Plan may
materially and adversely affect the rights of such Participant under any
Award theretofore granted to him
A-14
or her. The Committee may waive any conditions or rights under, amend any
terms of, or amend, alter, suspend, discontinue or terminate, any Award
theretofore granted, prospectively or retrospectively; PROVIDED, HOWEVER,
that, without the consent of a Participant, no amendment, alteration,
suspension, discontinuation or termination of any Award may materially and
adversely affect the rights of such Participant under any Award theretofore
granted to him or her.
(e) NO RIGHTS TO AWARDS; NO SHAREHOLDER RIGHTS. No Eligible Person or
employee shall have any claim to be granted any Award under the Plan, and
there is no obligation for uniformity of treatment of Eligible Persons and
employees. No Award shall confer on any Eligible Person any of the rights
of a shareholder of the Company unless and until Shares are duly issued or
transferred to the Eligible Person in accordance with the terms of the
Award.
(f) UNFUNDED STATUS OF AWARDS. The Plan is intended to constitute an
"unfunded" plan for incentive compensation. With respect to any payments
not yet made to a Participant pursuant to an Award, nothing contained in
the Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company; PROVIDED, HOWEVER,
that the Committee may authorize the creation of trusts or make other
arrangements to meet the Company's obligations under the Plan to deliver
cash, Shares, other Awards, or other property pursuant to any Award, which
trusts or other arrangements shall be consistent with the "unfunded" status
of the Plan unless the Committee otherwise determines with the consent of
each affected Participant.
(g) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by
the Board nor its submission to the shareholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of options and other awards
otherwise than under the Plan, and such arrangements may be either
applicable generally or only in specific cases.
(h) NOT COMPENSATION FOR BENEFIT PLANS. No Award payable under this
Plan shall be deemed salary or compensation for the purpose of computing
benefits under any benefit plan or other arrangement of the Company for the
benefit of its employees or directors unless the Company shall determine
otherwise.
(i) NO FRACTIONAL SHARES. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in
lieu of such fractional Shares or whether such fractional Shares or any
rights thereto shall be forfeited or otherwise eliminated.
(j) GOVERNING LAW. The validity, construction, and effect of the Plan,
any rules and regulations relating to the Plan, and any Award Agreement
shall be determined in accordance with the laws of New Jersey without
giving effect to principles of conflict of laws thereof.
A-15
(k) EFFECTIVE DATE; PLAN TERMINATION. The Plan shall become effective
as of March 7, 2002 (the "Effective Date"), subject to approval by
shareholders of the Company. The Plan shall terminate as to future awards
on the date which is ten (10) years after the Effective Date.
(l) TITLES AND HEADINGS. The titles and headings of the sections in
the Plan are for convenience of reference only. In the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.
A-16
ENGELHARD
[Logo]
NOTICE OF
ANNUAL MEETING
OF
SHAREHOLDERS
AND PROXY
STATEMENT
May 2, 2002
ENGELHARD CORPORATION
101 WOOD AVENUE, ISELIN, NEW JERSEY 08830
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
FOR THE ANNUAL MEETING OF SHAREHOLDERS-MAY 2, 2002
P
R
O
X
Y
The undersigned hereby constitutes and appoints Barry W. Perry and
Arthur A. Dombusch, II, and each of them, his true and lawful agents
and proxies with full power of substitution in each, to represent the
undersigned at the Annual Meeting of Shareholders of ENGELHARD
CORPORATION to be held at The Sheraton at Woodbridge Place, 515 Route 1
South, Iselin, NJ 08830-3010 on Thursday, May 2, 2002 at 10:00 A.M.
Eastern Daylight Savings Time and at any adjournments thereof, on all
matters coming before said meeting.
(Change of Address/Comments)
--------------------------------
--------------------------------
--------------------------------
--------------------------------
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.
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
Dear Shareholder(s)
Enclosed you will find material relative to the Company's 2002 Annual
Meeting of Shareholders. The notice of the annual meeting and proxy statement
describe the formal business to be transacted at the meeting, as summarized on
the attached proxy card.
Whether or not you expect to attend the Annual Meeting, please complete
and return promptly on the reverse side the attached proxy card in the
accompanying envelope, which requires no postage if mailed in the United States.
Please remember that your vote is important to us.
ENGELHARD CORPORATION
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2.
Please mark
your vote as [X]
indicated in
this example
1. Election of Directors; (To withhold vote for any
01 Barry W. Perry individual nominee write
02 Douglas G. Watson that name below.)
----------------------------------------
FOR WITHHELD
[ ] [ ]
2. Approval of the Engelhard Corporation 2002 Long Term Incentive Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. In their discretion, upon other matters as they may properly come before
the meeting.
I PLAN TO ATTEND
THE MEETING. [ ]
By checking the box to the right, [_]
I consent to future delivery of
annual reports, proxy statements,
prospectuses and other materials
and shareholder communications
electronically via the Internet at
a webpage which will be disclosed
to me. I understand that the
Company may no longer distribute
printed materials to me from any
future shareholder meeting until
such consent is revoked. I
understand that I may revoke my
consent at any time by contacting
the Company's transfer agent,
Mellon Investor Services LLC,
Ridgefield Park, NJ and that costs
normally associated with electronic
delivery, such as usage and
telephone charges as well as any
costs I may incur in printing
documents, will be my
responsibility.
Please mark, sign and return
promptly using the enclosed envelope.
Executors, administrators, trustees,
etc. should give full title as such. If
the signer is a corporation, please
sign full corporate name by duly
authorized officer.
----------------------------------------
----------------------------------, 2002
Signatures Dated
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR
SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY
CARD.
- -------------------------------------- ---------------------------------- ---------------------------
INTERNET TELEPHONE MAIL
http://www.eproxy.com/ec 1-800-040-1208
Use the Internet to vote your proxy. Use any touch-tone telephone to Mark, sign and date your
Have your proxy card in hand when you vote your proxy. Have your proxy proxy card and return it in
access the website. You will be OR card in hand when you call. You OR the enclosed postage-paid
prompted to enter your control number, will be prompted to enter your envelope.
located in the box below, to create control number, located in the box
and submit an electronic ballot. below, and then follow the
directions given.
- -------------------------------------- ---------------------------------- ---------------------------
If you vote your proxy by Internet or by telephone, you do NOT need to
mail back your proxy card.