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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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(as permitted by Rule 14a-6(e)(2))
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[ ] Soliciting Material Pursuant to Section 240.14a-12
INGERSOLL-RAND COMPANY
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[INGERSOLL RAND LOGO]
INGERSOLL-RAND COMPANY 200
Chestnut
Ridge
Road
Woodcliff Lake, NJ
07677
NOTICE OF 2001 ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Ingersoll-Rand Company will be held
on Wednesday, May 2, 2001, at 11:00 a.m., local time, at the Company's executive
offices, 200 Chestnut Ridge Road, Woodcliff Lake, New Jersey, for the following
purposes:
1. To elect three directors of the Second Class to hold office for three
years.
2. To amend the Incentive Stock Plan of 1998.
3. To approve the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for 2001.
4. To conduct such other business properly brought before the Annual
Meeting.
Only shareholders of record at the close of business on March 5, 2001 are
entitled to notice of and to vote at the Annual Meeting.
Directions to the meeting can be found on page 23 of the attached Proxy
Statement.
By Order of the Board of Directors
R.G. HELLER
Vice President and Secretary
Dated: March 16, 2001
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE PROVIDE YOUR PROXY BY EITHER CALLING THE
TOLL-FREE TELEPHONE NUMBER, USING THE INTERNET, OR
FILLING IN, SIGNING, DATING, AND PROMPTLY MAILING
THE ACCOMPANYING PROXY CARD IN THE ENCLOSED
ENVELOPE.
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TABLE OF CONTENTS
INFORMATION CONCERNING VOTING AND SOLICITATION.............. 1
Who Can Vote.............................................. 1
How You Can Vote.......................................... 1
How to Vote Under Our Employee Plans...................... 1
Revocation of Proxies..................................... 2
Quorum and Required Votes................................. 2
Solicitation.............................................. 2
Other Matters to be Acted Upon............................ 2
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 3
ITEM 1. ELECTION OF DIRECTORS.............................. 4
Nominees for Election for a Three-Year Term Expiring in
2004................................................... 4
Directors Continuing in Office until 2002................. 5
Directors Continuing in Office until 2003................. 5
Compensation of Directors................................. 6
Board Committees.......................................... 6
Audit Committee........................................ 6
Compensation and Nominating Committee.................. 7
Corporate Affairs Committee............................ 7
Finance Committee...................................... 7
Executive Compensation.................................... 7
Report of Compensation and Nominating Committee........ 7
Summary of Cash and Certain Other Compensation......... 11
Stock Options.......................................... 13
Option/SAR Grants in 2000............................ 13
Aggregated Option/SAR Exercises in 2000 and December
31, 2000 Option/SAR Value........................... 14
Long-Term Incentive Plan Awards........................ 14
Long Term Incentive Plan Awards in 2000.............. 14
Retirement Plans....................................... 15
Approximate Annual Pension upon Retirement at Age 65
before Offset....................................... 15
Other Post-Employment Arrangements..................... 15
Change in Control Arrangements......................... 16
Performance Graph...................................... 17
ITEM 2. APPROVAL OF AMENDMENT OF INCENTIVE STOCK PLAN OF
1998...................................................... 17
Description of 1998 Plan.................................. 18
Stock Options and Stock Appreciation Rights............... 18
Outside Director Stock Options............................ 19
Stock Awards.............................................. 19
Dividend Equivalents...................................... 19
Adjustment and Change in Control Provisions............... 19
Administration and Amendment.............................. 19
Federal Income Tax Consequences........................... 20
ITEM 3. APPROVAL OF APPOINTMENT OF INDEPENDENT
ACCOUNTANTS............................................... 21
Audit Committee Report.................................... 21
Audit and Related Fees.................................... 21
TRANSACTIONS WITH MANAGEMENT................................ 22
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 22
SHAREHOLDER PROPOSALS AND NOMINATIONS....................... 22
DIRECTIONS TO THE MEETING................................... 23
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS.... A-1
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[INGERSOLL RAND LOGO]
INGERSOLL-RAND COMPANY 200
Chestnut
Ridge
Road
Woodcliff Lake, NJ
07677
PROXY STATEMENT
INFORMATION CONCERNING VOTING AND SOLICITATION
The IR Board of Directors is soliciting proxies to be used at the May 2,
2001 Annual Meeting of Shareholders. You are invited to attend the annual
meeting and vote your shares directly. Even if you do not attend, you may vote
by proxy, which allows you to direct another person to vote your shares at the
meeting on your behalf. This proxy statement and the accompanying proxy card are
being distributed beginning on or about March 16, 2001.
WHO CAN VOTE
Shareholders of record of our common stock at the close of business on
March 5, 2001 may vote at the annual meeting.
On March 5, 2001, 160,259,428 shares of our common stock were outstanding.
Each shareholder has one vote for each share of common stock owned of record at
the close of business on the record date.
HOW YOU CAN VOTE
Shareholders of record can give a proxy to be voted at the meeting in any
one of the following ways:
- over the telephone by calling the toll-free number identified on the
attached proxy card,
- over the Internet, or
- by completing, signing and returning the enclosed proxy card.
Shareholders who hold their shares through a broker (in "street name") must
vote their shares in the manner prescribed by their brokers.
The telephone and Internet voting procedures have been set up for your
convenience. These procedures are designed to authenticate your identity, to
allow you to give voting instructions, and to confirm that those instructions
have been recorded properly. If you are a shareholder of record and you would
like to vote by telephone or by using the Internet, please refer to the specific
instructions contained on the enclosed proxy card. If you wish to vote using the
enclosed proxy card, please sign and return your signed proxy to us before the
annual meeting, and we will vote your shares as you direct.
Whether you vote by telephone, over the Internet or by mail, you can
specify whether your shares should be voted for all, some or none of the
nominees for director (Item 1 on the proxy card). You can also specify whether
you approve, disapprove, or abstain from the other proposals presented at the
meeting.
IF YOU DO NOT SPECIFY ON YOUR PROXY CARD (OR WHEN GIVING YOUR PROXY BY
TELEPHONE OR OVER THE INTERNET) HOW YOU WANT TO VOTE YOUR SHARES, WE WILL VOTE
THEM "FOR" THE ELECTION OF ALL NOMINEES FOR DIRECTOR AS SET FORTH UNDER ITEM 1
AND "FOR" ITEMS 2 AND 3.
HOW TO VOTE UNDER OUR EMPLOYEE PLANS
If you participate in the IR Savings and Stock Investment Plan, the
IR/Clark Leveraged Employee Stock Ownership Plan, the Ingersoll-Rand/Thermo King
Savings and Stock Investment Plan, the IR Savings Plan for Bargaining Unit
Employees, or the Dresser-Rand Company Retirement Savings Plans, then you may be
receiving these materials because of shares held for you in those plans. In that
case, you may use the enclosed proxy card to instruct the plan trustees of those
plans how to vote your shares, or give those instructions over the telephone or
the Internet. They will vote the shares in accordance with your instructions and
the terms of the plan.
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If you do not provide voting instructions for shares held for you in any of
these plans, they will vote these shares in the same ratio as the shares for
which voting instructions are provided.
REVOCATION OF PROXIES
You may revoke your proxy at any time before it is exercised in any of
following ways:
- by notifying IR's corporate secretary in writing;
- by submitting another proxy by telephone, via the Internet or by mail
that is received later and, if by mail, that is properly signed; or
- by voting in person at the meeting.
You may not revoke a proxy merely by attending the meeting. To revoke a
proxy, you must take one of the actions described above.
QUORUM AND REQUIRED VOTES
The presence, in person or by proxy, of the holders of a majority of all
outstanding shares of our common stock is necessary to constitute a quorum.
In voting for the election of directors, shareholders have cumulative
voting rights. Accordingly, you may cumulate your voting power and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of your votes, or distribute your votes on the same
principle among two or more candidates, as you see fit. The enclosed proxy
grants discretionary authority for the exercise of such cumulative voting
rights. In the election of directors, persons receiving the highest number of
"FOR" votes will be elected.
The affirmative vote of a majority of shares present in person or
represented by proxy at the meeting and entitled to vote, and voting on the
matter presented, is required to approve each proposal other than the election
of directors.
Abstentions are counted as "shares present" at the meeting for the purposes
of determining whether a quorum exists. However, since abstentions are not votes
in favor of or against any matter, they will not affect the outcome of the vote.
Proxies submitted by brokers that do not indicate a vote for some or all of the
proposals because they do not have discretionary voting authority and have not
received instructions as to how to vote on those proposals (so-called "broker
nonvotes") are also considered "shares present," but also will not affect the
outcome of any vote.
SOLICITATION
We have hired Georgeson Shareholder Communications Inc. to assist in the
distribution of proxy materials and the solicitation of proxies for a fee
estimated at $10,000, plus out-of-pocket expenses. Proxies will be solicited on
behalf of the Board of Directors by mail, in person and by telephone. We will
bear the cost of soliciting proxies. We will also reimburse brokers and other
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses
for forwarding proxy materials to the persons for whom they hold shares.
OTHER MATTERS TO BE ACTED UPON
We do not know of any other matters to be presented or acted upon at the
meeting. Under our bylaws, shareholders may only bring business before an annual
meeting if it is submitted to our corporate secretary in a timely manner. (The
deadline for timely proposals for future meetings is discussed under
"Shareholder Proposals and Nominations" on page 22 of this proxy statement.) If
any other matter is presented at the meeting on which a vote may properly be
taken, the shares represented by proxies will be voted in accordance with the
judgment of the person or persons voting those shares.
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COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of February 28, 2001, the beneficial
ownership of our common stock by (i) each director and nominee for director of
the Company, (ii) each executive officer of the Company named in the Summary
Compensation Table below, and (iii) all directors and executive officers of the
Company as a group:
SHARES OF LESOP AND DEFERRED
COMMON SSIP EXERCISABLE SHARE
NAME STOCK(a) SHARES(b) OPTIONS(c) UNITS(d)
- ---- --------------- -------------- ----------- --------------
D. W. Devonshire..................... -- 2,458 104,999 26,000
J. P. Flannery....................... 1,500 -- 4,500 17,504
P. C. Godsoe......................... 3,000 -- 2,250 7,044
H. L. Henkel......................... 3,000 2,872 291,665 83,762
C. J. Horner......................... 829 -- 2,250 32,865
B. D. Jellison....................... 1,080 11,588 200,498 39,866
H. W. Lichtenberger.................. 3,500 -- 11,250 9,730
G. A. Mapp........................... 3,834 2,498 51,666 9,242
S. T. Martin......................... 3,759(e) 7,738 61,666 7,686
T. E. Martin......................... 760 -- 6,750 7,858
O. R. Smith.......................... 4,500 -- 11,250 11,906
R. J. Swift.......................... 750 -- 6,750 7,562
T. L. White.......................... 750 -- 6,750 7,588
All directors and executive officers
as a group (20 persons)(f)......... 69,163 41,207 1,127,075 167,141
- ---------------
(a) Unless otherwise indicated, all shares are held directly. No director or
executive officer of the Company owns as much as 1% of the outstanding
common stock.
(b) Represents shares held by the trustee under the Company's Leveraged Employee
Stock Ownership Plan ("LESOP") and Savings and Stock Investment Plan
("SSIP") for the benefit of executive officers.
(c) Represents shares as to which directors and executive officers had
exercisable options under the Company's Incentive Stock Plans.
(d) In the case of non-employee directors these amounts represent shares earned
and vested under the Director Deferral Plan (referred to below under the
heading "Compensation of Directors"). In the case of executive officers
these amounts represent (i) shares earned and vested under the Company's
Executive Deferred Compensation and Stock Bonus Plan (the "Executive
Deferral Plan") and (ii) shares in respect of vested stock awards deferred
at the election of the executives.
(e) Includes 3,897 shares owned by Mr. S.T. Martin's wife and Mr. S.T. Martin
disclaims beneficial ownership of such shares.
(f) The shares of common stock beneficially owned by all directors and executive
officers as a group (including shares issuable under exercisable options)
aggregated approximately 1% of the total outstanding common stock. This
includes the 3,897 shares of common stock owned by Mr. S.T. Martin's wife.
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The following table sets forth each shareholder which, as of February 28,
2001, is known by us to be the beneficial owner of more than five percent of the
outstanding Common Stock of the Company:
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------------ -------------------- ----------
Chase Manhattan Corporation................................. 9,662,583(a) 6.03%
270 Park Avenue
New York, New York 10017
FMR Corp.................................................... 20,510,346(b) 12.80%
82 Devonshire Street
Boston, Massachusetts 02109
- ---------------
(a) These shares are held as trustee under a Master Trust Agreement covering
certain Company employee benefit plans for the benefit of participants in
such plans.
(b) FMR Corp. (including its affiliates) has sole investment power as to all of
such shares. In addition, as to 1,998,735 shares, FMR Corp. (including its
affiliates) has sole voting power.
ITEM 1. ELECTION OF DIRECTORS
Our Board of Directors is divided into three classes for purposes of
election. One class is elected at each annual meeting of shareholders to serve
for a three-year term.
Directors elected at the 2001 annual meeting will hold office for a
three-year term expiring in 2004. Other directors are not up for election this
year and will continue in office for the remainder of their terms. The nominees
for election at the 2001 annual meeting are Peter C. Godsoe, Constance J. Horner
and Orin R. Smith.
If a nominee is unavailable for election, proxy holders will vote for
another nominee proposed by the Board or, as an alternative, the Board may
reduce the number of directors to be elected at the meeting.
The Board of Directors held nine meetings during 2000. Each incumbent
director attended 75% or more of the total number of meetings of the Board and
the committees on which he or she served.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING IN 2004
PETER C. GODSOE -- age 62, director since 1998
- Chairman of the Board and Chief Executive Officer of the Bank of Nova
Scotia since 1995.
- Deputy Chairman of the Board, President and Chief Executive Officer of
the Bank of Nova Scotia from 1993 to 1995.
- Director of Empire Company Limited.
CONSTANCE J. HORNER -- age 59, director since 1994
- Guest Scholar at the Brookings Institution since 1993.
- Commissioner of U.S. Commission on Civil Rights from 1993 to 1998.
- Assistant to the President and Director of Presidential Personnel from
1991 to 1993.
- Deputy Secretary, U.S. Department of Health and Human Services from 1989
to 1991.
- Director of:
- Foster Wheeler Corporation
- Pfizer Inc.
- The Prudential Insurance Company of America
ORIN R. SMITH -- age 65, director since 1995
- Chairman and Chief Executive Officer of Engelhard Corporation (provider
of specialty chemical products, engineered materials and industrial
commodities management services for various industries) from 1995 until
retirement effective December 31, 2000.
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- President and Chief Executive Officer of Engelhard Corporation from 1984
to 1995.
- Director of:
- Applera Corporation
- Engelhard Corporation
- Vulcan Materials Company
DIRECTORS CONTINUING IN OFFICE UNTIL 2002
HERBERT L. HENKEL -- age 52, director since 1999
- Chairman of the Board (since May 2000) and President and Chief Executive
Officer (since October 1999) of the Company.
- President and Chief Operating Officer of the Company from April 1999 to
October 1999.
- Chief Operating Officer of Textron Inc. (a multi-industry company with
operations in aircraft, automotive, industrial and finance) from 1998 to
March 1999.
- Vice President of Textron Inc. responsible for Textron Industrial
Products Segment from 1993 to 1998.
- Director of Pitney-Bowes, Inc.
H. WILLIAM LICHTENBERGER -- age 65, director since 1995
- Chairman and Chief Executive Officer of Praxair, Inc. (an industrial
gases company) from 1992 until retirement effective December 1, 2000.
- Director of Arch Chemicals, Inc.
TONY L. WHITE -- age 54, director since 1997
- Chairman, President and Chief Executive Officer of Applera Corporation (a
developer, manufacturer and marketer of life science systems and genomic
information products) since 1995.
- Executive Vice President of Baxter International Inc. from 1993 to 1995.
- Director of C.R. Bard, Inc.
DIRECTORS CONTINUING IN OFFICE UNTIL 2003
JOSEPH P. FLANNERY -- age 68, director since 1986
- Chairman, President and Chief Executive Officer of Uniroyal Holding, Inc.
(a holding company) since 1986.
- Director of:
- ArvinMeritor Inc.
- K Mart Corporation
- Newmont Mining Corporation
- The Scotts Company
THEODORE E. MARTIN -- age 61, director since 1996
- President and Chief Executive Officer of Barnes Group Inc. (manufacturer
and distributor of precision springs and custom metal parts) from 1995
until retirement in 1998.
- Director of:
- Applera Corporation
- Unisys Corporation
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RICHARD J. SWIFT -- age 56, director since 1995
- Chairman, President and Chief Executive Officer of Foster Wheeler
Corporation (provider of design, engineering, construction,
manufacturing, management and environmental services) since 1994.
- Director of Public Service Enterprise Group.
COMPENSATION OF DIRECTORS
Directors who are not our employees receive an annual retainer of $30,000
and $1,000 for attendance at each board or committee meeting, except that
committee chairs receive $2,000 per committee meeting. In addition, each
non-employee director is annually granted options to purchase 2,250 shares of
our common stock.
Under our Directors Deferred Compensation and Stock Award Plan (the
"Director Deferral Plan"), each non-employee director is credited annually with
units representing 600 shares of our common stock. The units are credited to an
account maintained for each non-employee director (a "Deferred Compensation
Account"). Directors who are not employees may also defer all or a portion of
the retainer and meeting fees to which they are entitled. If a director defers
his or her fees and elects to have the deferred fees invested in common stock
units we credit an additional 20% of the retainer and meeting fees that are
deferred to the director's Deferred Compensation Account. Each director is fully
vested in amounts credited to the director's Deferred Compensation Account,
except that the additional 20% contributions in respect of deferred fees are not
vested until five years after crediting or, if earlier, the cessation of the
director's service on the Board of Directors by reason of death or normal
retirement (i.e., age 70 or 15 years of Board service). All distributions of
amounts invested in common stock are made in the form of shares of our common
stock equal to the number of units credited to the director's Deferred
Compensation Account.
BOARD COMMITTEES
AUDIT COMMITTEE
Members: Richard J. Swift (Chair)
Joseph P. Flannery
Peter C. Godsoe
H. William Lichtenberger
Orin R. Smith
Tony L. White
Number of Meetings in 2000: 4
Functions:
- Review annual audited financial statements with management and the
independent accountants.
- Review significant issues regarding accounting and auditing principles
and practices, as well as the adequacy of internal controls.
- Recommend to the Board the public accounting firm to be appointed our
independent accountants and review the performance of the independent
accountants.
- Review the scope of the audit and the findings of the accountants.
- Satisfy itself as to the independence of the independent accountants and
insure receipt of their annual independence statement.
A complete list of all the functions of the Audit Committee is included in
the charter of the committee attached to this proxy statement as Appendix A. The
members of the Audit Committee are all "independent" as defined in the New York
Stock Exchange listing standards.
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COMPENSATION AND NOMINATING COMMITTEE
Members: Joseph P. Flannery (Chair)
H. William Lichtenberger
Orin R. Smith
Richard J. Swift
Number of Meetings in 2000: 5
Functions:
- Establish executive compensation policies.
- Approve compensation of officers and key employees.
- Review and recommend changes in employee benefit programs.
- Review and recommend changes in management succession plans.
- Recommend nominees for election as directors and officers and members of
Board committees.
CORPORATE AFFAIRS COMMITTEE
Members: Constance Horner (Chair)
Theodore E. Martin
Orin R. Smith
Tony L. White
Number of Meetings in 2000: 2
Functions:
- Review policies on public issues having broad social significance.
- Review the implementation of those policies.
- Review compliance by employees with ethical and legal standards.
FINANCE COMMITTEE
Members: H. William Lichtenberger (Chair)
Joseph P. Flannery
Peter C. Godsoe
Constance Horner
Theodore E. Martin
Number of Meetings in 2000: 4
Functions:
- Approve the appointment and review the performance of investment managers
under employee benefit plans.
- Review proposed borrowings and issuances of securities.
- Recommend to the Board the dividends to be paid on our common stock.
- Review cash management policies.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION AND NOMINATING COMMITTEE
The Company's executive compensation program is administered by the
Compensation and Nominating Committee of the Board of Directors (the
"Compensation Committee"), which is composed solely of
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independent non-employee directors. The Compensation Committee has
responsibility for the Company's executive officer compensation program,
including the approval of salary increases and annual bonuses, and the granting
of stock options and stock awards, in accordance with the terms of the
respective plans governing such grants, to executive officers who are not also
directors of the Company. It also has responsibility for making recommendations
to the non-employee members of the Board of Directors regarding salary
increases, the payment of annual bonuses, and the granting of stock options and
stock awards to executive officers who also are directors of the Company.
Compensation Policies Applicable to Executive Officers
The Compensation Committee's executive officer compensation policies are
based on the belief that the interests of the Company's executive officers
should be aligned with those of the Company's shareholders. The policies relate
compensation to both short-term (annual) and long-term financial performance of
the Company, as well as to long-term shareholder investment returns. Executive
officer compensation policies provide that executive pay be both contingent and
variable based upon company financial and operational performance.
The objectives which guide policy development are to (a) provide a total
compensation package that will attract, motivate and retain as senior management
exceptionally talented individuals who are essential for building shareholder
value on a long-term basis, (b) establish annual incentives for members of
senior management that are directly tied to the overall financial performance of
the Company and to their respective individual performances and (c) create
long-term incentives to focus executives on managing from the viewpoint of an
owner with an equity stake in the business, thereby aligning executive
compensation with the returns realized by the Company's shareholders. While many
compensation determinations are based upon objective criteria, certain of such
determinations include subjective elements.
The objectives described above are generally accomplished through a mix of
compensation components, targeted degrees of competitiveness and direct linkages
to Company financial performance. The value of the variable compensation
components (annual cash incentive payments plus stock options and stock awards)
is directly linked to the financial performance of the Company and to the value
of the Company's common stock. Thus, alignment of the interests of the
shareholders and of the executives is achieved.
The Compensation Committee periodically reviews and evaluates its executive
officer compensation practices against the practices and pay levels of other
similar companies. These comparisons are conducted continuously throughout the
year through a variety of methods such as direct analysis of peer company proxy
statements, compilation of survey data published by several independent
consulting firms, and customized compensation surveys performed by independent
consulting firms. The companies included in these compensation surveys are not
necessarily the same as those comprising the Standard & Poor's
Machinery-Diversified Index referred to below under the caption "Performance
Graph," although some of the companies comprising such Index are included in the
compensation surveys.
Salary increases normally are granted annually to executive officers by the
Compensation Committee based upon individual performance, the Compensation
Committee's evaluation of general U.S. industry salary trends derived from
surveys and various business publications and the salaries paid for comparable
positions at the surveyed corporations referred to above. Weighing of these
salary determination factors varies because each salary determination is based
upon an individual's particular circumstances.
Executive officers with direct responsibility for business unit operations
may receive annual bonuses under the terms of written performance agreements
established early each year. The agreements for 2000 provided that a bonus equal
to 35-50% of salary would be payable if their respective group operations met
certain pre-established sales, operating income, cash flow and return on
invested capital targets, and an additional 30-45% of salary would be payable
for substantially exceeding those targets. In addition, a discretionary bonus of
up to 30% of salary would be payable based upon subjective criteria applicable
to the respective operations managed by these executive officers.
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Other executive officers, including those responsible for staff functions,
may receive annual bonuses based upon both the Company's and their individual
performance during each such year. The determination of the amount of any bonus
payable to these other executive officers is subjective. In fixing such bonus
awards, the Compensation Committee considers not only the Company's earnings per
share performance in the particular year compared to the preceding year and to
the earnings per share goal established at the start of the particular year, but
also the individual's contribution to such performance. In addition, the general
economic environment in which the Company operated during such year is taken
into account as are the prevailing pay levels for similar positions in similar
companies.
The Company's Senior Executive Performance Plan (the "Performance Plan")
limits the bonuses that may be awarded to participants in the Performance Plan,
who consist of the chief executive officer plus the four other highest
compensated executive officers (as determined under Securities Exchange Act
regulations). Bonuses to Performance Plan participants are limited to their
respective allocated shares of the Performance Plan's bonus pool for the year in
question.
The Company's executive officer compensation program provides for a
substantial component of total executive officer compensation to reflect the
returns realized by shareholders and the degree to which future performance
targets are met. This equates the long-term interests of the Company's executive
officers with those of the Company's shareholders and is accomplished through
the following long-term incentive programs:
- Stock options under the Company's Incentive Stock Plans generally have
been granted annually at an exercise price equal to the fair market value
of the common stock on the date of grant. Currently, options granted to
executive officers become exercisable in three equal annual installments
beginning one year from the date of grant and expire on the tenth
anniversary of the grant.
- Stock awards payable in the common stock periodically have been granted
under the Company's Incentive Stock Plans to executive officers and other
key employees of the Company. Awards to executive officers normally are
distributed at the conclusion of multi-year performance periods. Under
the terms of all awards granted to executive officers since 1997 (other
than certain awards to Messrs. Henkel and Devonshire as part of their
initial employment arrangements with the Company), distribution of 100%
of the shares awarded to executive officers is contingent upon the
Company's achievement of predetermined earnings, operating income and per
share objectives. In the event such objectives are not met, payouts are
made only at the discretion of the members of the Board of Directors who
do not participate in the executive compensation program.
- The Executive Deferred Compensation Plan (the "Executive Deferral Plan")
enables and encourages eligible executives to defer receipt of all or
part of their Company annual cash bonus in exchange for common stock
equivalents or mutual fund investments. The Executive Deferral Plan is
designed to increase stock ownership by executives. Certain participants
who agree to prescribed stock ownership guidelines which are expressed as
multiples of their annual salary are eligible for a 20% supplemental
amount on those deferrals invested in common stock equivalents. Vesting
of the 20% supplemental amount is generally subject to the completion of
five years of employment following the date of deferral. Such executives
may also elect to forego cash bonus payments in exchange for options to
purchase our common stock issued under the Company's Incentive Stock
Plan.
The number of stock options and stock awards granted are based upon the
position responsibility of each recipient and the long-term incentive practices
of the surveyed corporations referred to above. These factors are periodically
reevaluated by the Compensation Committee. The Compensation Committee seeks to
provide total opportunity, comprised of salary, annual incentives and long-term
incentives, for executive officers up to (approximately) the 75th percentile of
the pay levels for equivalent positions as determined through the survey
processes discussed above. This level of opportunity is earned only with
commensurate achievement of business results. The Compensation Committee uses
these guidelines in making its award grant determinations. New awards of both
stock options and stock grants are issued without regard to the options or
awards previously granted or still outstanding.
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2000 Chief Executive Officer Compensation
Effective May 1, 2000, Mr. Henkel's annual salary was increased to
$1,000,000. This promotional increase of 17.6% placed his salary at
approximately the median salary level for chief executive officers of comparable
companies.
In addition, the Compensation Committee recommended that the Board approve
a bonus to Mr. Henkel in an amount equal to 85% of his 2000 year-end salary.
This recommendation, as well as the Board's subsequent award of that bonus, was
based upon Mr. Henkel's contributions to the Company's 2000 operating results.
2000 Compensation of Other Named Executive Officers
During 2000, in accordance with the policies stated above, the executive
officers named in the Summary Compensation Table, other than Mr. Henkel, were
granted salary increases averaging approximately 21%. Bonus awards to Messrs.
Devonshire, Jellison, Martin and Mapp were granted pursuant to performance
agreements of the type described above. Since the operations or functions for
which Messrs. Devonshire, Jellison, Martin and Mapp were responsible exceeded
their respective 2000 operating income, cost improvement and asset management
goals and the Company achieved certain pre-established profit objectives, these
individuals were awarded bonuses averaging approximately 85% of year-end salary.
Where applicable, the bonus awards were in accordance with the Performance Plan.
The named executive officers were also granted stock options in respect of
the Company's common stock, as indicated in the Summary Compensation Table and
under the caption "Stock Options", and stock awards as indicated under the
caption "Long-Term Incentive Plan Awards," in each case in accordance with the
practices referred to above.
Summary
The Compensation Committee believes the compensation program for the
Company's executive officers is competitive with the compensation programs
provided to similarly situated officers in the surveyed corporations. The
Compensation Committee believes the bonus payments made to the executive
officers named in the Summary Compensation Table below in respect of the year
2000 are appropriate and commensurate with the Company's 2000 financial and
strategic performance and their respective individual achievements during the
year. Based on information the Compensation Committee has been provided by
consultants relative to the compensation practices of surveyed corporations, it
believes the stock incentive compensation opportunities provided to these
officers, in the form of stock awards and stock options, are also appropriate
and are awarded in a manner fully consistent with the Company's strategy of
basing a substantial component of total executive officer compensation on the
total returns realized by the Company's shareholders.
COMPENSATION AND NOMINATING
COMMITTEE
Joseph P. Flannery (Chair)
H. William Lichtenberger
Orin R. Smith
Richard J. Swift
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SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the years ended December 31, 1998, 1999 and
2000, the cash compensation we paid, as well as certain other compensation paid
or accrued for those years, to the individuals named below:
SUMMARY COMPENSATION TABLE
Long-term Compensation
-----------------------------------
ANNUAL COMPENSATION AWARDS
---------------------------------- ------------------------- PAYOUTS
OTHER RESTRICTED SECURITIES ------- ALL
ANNUAL STOCK UNDERLYING LTIP OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS/SARs PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(a) ($)(b) (#) ($)(c) ($)(d)
- ------------------ ---- ------- --------- ------------ ---------- ------------ ------- ------------
H. L. Henkel..................... 2000 950,000 850,000(f) 3,417 187,410(f) 150,000 989,119(g) 85,000
Chairman of the Board 1999 581,731 1,000,000(f) 177,334 3,651,744(f) 350,000 -- 251,854
President & Chief
Executive Officer(e)
D. W. Devonshire................. 2000 500,000 410,000 -- -- 65,000 292,556(g) 41,484
Executive Vice President 1999 485,000 430,000 10,822 -- 35,000 266,963(g) 55,064
& Chief Financial Officer 1998 438,462 390,000 28,696 298,500 90,000 -- 482,735
B. D. Jellison................... 2000 500,000 419,040 -- 13,629 65,000 292,556(g) 47,693
Executive Vice President 1999 355,000 368,177 -- 12,554 65,000 266,963(g) 37,789
1998 294,417 239,500 -- 11,714 50,000 81,065(g) 40,083
S. T. Martin(h).................. 2000 500,000 416,160 -- 13,229 65,000 292,556 45,534
Executive Vice President 1999 355,000 325,000 -- 11,444 65,000 266,963 36,055
1998 295,833 292,820(f) -- 27,644(f) 50,000 49,755(g) 34,002
G. A. Mapp....................... 2000 358,000 201,540(i) 26,496 2,829 45,000 133,276(g) 59,154
Senior Vice President 1999 276,667 128,625(f) 25,353 21,010(f) 30,000 109,455 50,637
1998 252,611 265,000(f) 9,567 12,860(f) 10,000 -- 41,297
- ---------------
(a) These amounts represent that portion of relocation benefit payments which
compensated the named executive officers for the income taxes payable in
respect of relocation compensation. The relocation benefit amounts are
reflected in the column headed "All Other Compensation."
(b) The amounts reflected as Restricted Stock Awards are composed of the
following:
- the portion of stock awards granted to Mr. Devonshire in 1998 and Mr.
Henkel in 1999 to be issued subject to their continued employment with the
Company;
- the crediting of common stock equivalents to the accounts of the named
executives under our Management Incentive Unit ("MIU") Plan (in which of
the named individuals only Messrs. Jellison and Martin participate);
- amounts credited under the Executive Deferral Plan equal to 20% of the
cash bonuses deferred by the named executives; and
- the crediting of additional common stock equivalents to accounts of the
named executives under the Executive Deferral Plan arising from the
reinvestment of dividend equivalents under that plan.
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The total number and fair market value as of December 31, 2000 of all the
common stock equivalents credited to the accounts of the named executives
under the MIU Plan and the number of shares issuable contingent upon the
continued employment of the named executives are as follows:
FAIR MARKET
NAME # SHARES VALUE ($)
- ---- -------- -----------
H. L. Henkel........................................... 67,609 2,831,465
D. W. Devonshire....................................... -- --
B. D. Jellison......................................... 4,685 196,208
S. T. Martin........................................... 4,216 176,566
G. A. Mapp............................................. 700 29,316
(c) The amounts reflected in this column represent the value of the performance
portion of stock awards distributed to the named executives. The shares
subject to the performance portion of the stock awards are distributable if
the Company achieves established earnings per share goals. Distributions of
100% of shares subject to awards granted are contingent on Company
performance (other than certain awards to Messrs. Henkel and Devonshire as
part of their initial employment arrangements with the Company).
(d) The amounts reflected in this column represent:
- our contributions for the account of the named executive officers under
our Savings and Stock Investment Plan (the "SSIP") (which includes
contributions under our Leveraged Employee Stock Ownership Plan (the
"LESOP")), as well as amounts credited to the accounts of such executive
officers under the related supplemental plans, which provide benefits
which would have been provided under the applicable tax-qualified plan but
for Internal Revenue Code restrictions on such benefits;
- dividend equivalents paid to the named executive officers in respect of
the performance portion of stock awards (see footnote (c) above);
- relocation benefits paid to the named executive officers; and
- a special bonus award paid in 1998 to Mr. Devonshire in connection with
the commencement of his employment with the Company.
For 2000 such amounts were as follows:
SAVINGS SSIP
(INCLUDING
SUPPLEMENTAL
PLAN AND LESOP DIVIDEND RELOCATION
NAME CONTRIBUTIONS) ($) EQUIVALENTS ($) BENEFITS ($)
- ---- ------------------ --------------- ------------
H. L. Henkel..................... 68,000 17,000
D. W. Devonshire................. 37,200 4,284 --
B. D. Jellison................... 43,409 4,284 --
S. T. Martin..................... 41,250 4,284 --
G. A. Mapp....................... 27,900 2,405 28,849
(e) Mr. Henkel joined the Company in April 1999.
(f) Pursuant to the Executive Deferral Plan, annual cash bonuses have been
deferred in exchange, among other investment options, for common stock
equivalents equal to 120% of the deferred amounts. Common stock equivalents
representing deferred cash bonuses are included in the "Bonus" column,
while the 20% additional amounts are included in the column captioned
"Restricted Stock Awards". The deferred cash
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bonus amounts for the executive officers named above who elected to defer bonus
payments in exchange for common stock equivalents were as follows:
NAME 1998 1999 2000
- ---- ------- ---------- --------
H. L. Henkel............................... -- $1,000,000 $850,000
D. W. Devonshire........................... -- -- --
B. D. Jellison............................. -- -- --
S. T. Martin............................... $87,846 -- --
G. A. Mapp................................. 64,315 100,000 --
(g) Receipt of these amounts has been deferred at the election of the
executives.
(h) Mr. Martin retired in January 2001.
(i) Mr. Mapp elected to forego the payment of an additional $201,540 and to
receive in lieu thereof an award of options, issued on February 7, 2001, to
purchase up to 26,320 shares of common stock at an exercise price of $44.23.
STOCK OPTIONS
The following tables contain information for the year 2000 concerning the
grants to, and exercises by, the executive officers named above, of stock
options under the Company's Incentive Stock Plans and the value of such options
held by such executive officers as of December 31, 2000:
OPTION/SAR GRANTS IN 2000
% OF
TOTAL
OPTIONS/SARS
NUMBER OF GRANTED
SECURITIES TO EXERCISE GRANT
UNDERLYING EMPLOYEES OR DATE
OPTIONS/SARS IN BASE EXPIRATION VALUE
NAME GRANTED(#)(a) 2000 PRICE($)/(sh) DATE ($)(b)
- ---- ------------- ------------ ------------- ---------- ----------
H. L. Henkel................ 125,000 4.04 53.03 1/3/10 2,166,250
25,000 0.81 46.63 5/3/10 399,750
D. W. Devonshire............ 65,000 2.10 53.03 1/3/10 1,126,450
B. D. Jellison.............. 65,000 2.10 53.03 1/3/10 1,126,450
S. T. Martin................ 65,000 2.10 53.03 1/3/10 1,126,450
G. A. Mapp.................. 35,000 1.13 53.03 1/3/10 606,550
10,000 0.32 45.88 6/7/10 156,000
- ---------------
(a) All options become exercisable in three equal annual installments beginning
on the first anniversary of the date of grant.
(b) Grant date value is based on the Black-Scholes option pricing model adapted
for use in valuing executive stock options. The actual value, if any, an
executive may realize will depend on the excess of the stock price over the
exercise price on the date the option is exercised, so that there is no
assurance the value realized by an executive will be at or near the value
estimated by the Black-Scholes model. The grant date values were determined
based in part upon the following assumptions:
JANUARY 3, 2000 MAY 3, 2000 JUNE 7, 2000
--------------- ----------- ------------
Expected volatility.................. 0.3351 0.3672 0.3706
Risk-free rate of return............. 6.57% 6.66% 6.36%
Dividend yield....................... 1.28% 1.46% 1.48%
Time of exercise (expected).......... 4 years 4 years 4 years
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AGGREGATED OPTION/SAR EXERCISES IN 2000 AND DECEMBER 31, 2000 OPTION/SAR VALUE
NUMBER OF VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY
UNDERLYING OPTIONS/SARS AT OPTIONS/SARS AT
OPTIONS/ 12/31/00(#) 12/31/00 ($)
SARS VALUE REALIZED --------------------------- ---------------------------
NAME EXERCISED(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------------- ----------- ------------- ----------- -------------
H. L. Henkel............. -- -- 249,999 250,001 -- --
D. W. Devonshire......... -- -- 41,666 118,334 -- --
B. D. Jellison........... -- -- 157,166 108,334 1,101,250 --
S. T. Martin............. -- -- 61,666 108,334 -- --
G. A. Mapp............... -- -- 30,000 65,000 14,062 --
LONG-TERM INCENTIVE PLAN AWARDS
As part of our executive officer compensation program, we have awarded
shares of our common stock under our Incentive Stock Plans to executive officers
and other key employees. Distributions are contingent upon a combination of our
earnings per share performance and business sector operating income during the
payout period. The relative weighting of the components varies based upon the
particular executive's business responsibilities. The following table reflects
the stock awards granted during 2000 to the executive officers named above:
LONG-TERM INCENTIVE PLAN AWARDS IN 2000
PERFORMANCE
OR OTHER
NUMBER OF PERIOD ESTIMATED FUTURE PAYOUTS
SHARES, UNTIL UNDER
UNITS OR MATURATION NON-STOCK PRICE BASED PLANS
OTHER OR -------------------------------------
RIGHTS PAYOUT(a) THRESHOLD(#) TARGET(#) MAXIMUM(#)
---------------- ------------ ------------ --------- ----------
H. L. Henkel...................... 50,000 (a) 10,000 50,000 75,000
D. W. Devonshire.................. 14,000 (a) 2,800 14,000 21,000
B. D. Jellison.................... 9,000 (a) 1,800 9,000 13,500
S. T. Martin...................... -- -- -- -- --
G. A. Mapp........................ 11,000 (a) 2,200 11,000 16,500
667 (b) -- 667 --
- ---------------
(a) The shares subject to these stock awards are issuable half in 2002 and half
in 2003 based upon performance during the 2000-2001 and 2000-2002 periods,
respectively.
(b) Mr. Mapp was granted this award, distributable in 2001 based upon our
earnings per share performance in 2000 incident with his promotion to senior
vice president.
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RETIREMENT PLANS
The Company and its subsidiaries maintain a number of defined benefit
pension plans for their officers and other employees. The pension plans provide
for fixed benefits in the event of retirement at a specified age and after a
specified number of years of service. All of the executive officers of the
Company named above are eligible to participate in the Company's Pension Plan
Number One (the "Pension Plan") and the Elected Officers Supplemental Program.
The following table illustrates approximate annual pensions for retirements in
2001 under the Pension Plan and under the Elected Officers Supplemental Program
computed as a straight life annuity, before the reduction specified in footnote
(a) below and based on the indicated assumptions:
APPROXIMATE ANNUAL PENSION UPON RETIREMENT AT AGE 65 BEFORE OFFSET(a)
FINAL AVERAGE 15 YEARS OF 20 YEARS OF 25 YEARS OF 30 YEARS OF 35 YEARS OF 40 YEARS OF
COMPENSATION SERVICE SERVICE SERVICE SERVICE SERVICE SERVICE
- ------------- ----------- ----------- ----------- ----------- ----------- -----------
$500,000..................... $142,500 $190,000 $237,500 $ 285,000 $ 332,500 $ 332,500
700,000...................... 199,500 266,000 332,500 399,000 465,500 465,500
900,000...................... 256,500 342,000 427,500 513,000 598,500 598,500
1,100,000.................... 313,500 418,000 522,500 627,000 731,500 731,500
1,300,000.................... 370,500 494,000 617,500 741,000 864,500 864,500
1,500,000.................... 427,500 570,000 712,500 855,000 997,500 997,500
1,700,000.................... 484,500 646,000 807,500 969,000 1,130,500 1,130,500
1,900,000.................... 541,500 722,000 902,500 1,083,000 1,263,500 1,263,500
For each additional
$100,000................... 28,500 38,000 47,500 57,000 66,500 66,500
- ---------------
(a) Benefits payable to participants in the Pension Plan and the Elected
Officers Supplemental Plan are reduced by a portion of the Social Security
benefits to which such participants are entitled.
The credited years of service and covered compensation as of December 31,
2000 for the individuals named above are as follows:
YEARS OF
NAME CREDITED SERVICE COVERED COMPENSATION($)
---- ---------------- -----------------------
H. L. Henkel.................................... 13(a) 1,925,000
D. W. Devonshire................................ 3 882,500
B. D. Jellison.................................. 26 803,146
S. T. Martin.................................... 39 796,837
G. A. Mapp...................................... 33 649,176
- ---------------
(a) Mr. Henkel's credited years of service exceed his actual service pursuant to
the provisions of his employment arrangements.
OTHER POST-EMPLOYMENT ARRANGEMENTS
The Company has entered into an arrangement with each executive officer
named above other than Mr. Mapp, whereby the Company is obligated to pay certain
annual benefits for a ten-year period commencing upon normal retirement, so long
as their employment with the Company is not terminated by the Company for cause
(as defined), so long as they meet certain noncompetition obligations and, in
certain cases, so long as they retire from the Company at normal retirement age.
In the event of death, the benefits are payable to the individual's estate to
the extent not already paid. The annual benefits payable to each of such
individuals are as follows: Mr. Henkel, $125,000; Mr. Devonshire, $65,000; Mr.
Jellison, $65,000; and Mr. Martin, $65,000. Under this arrangement, the Company
is a beneficiary of life insurance policies on such executives and, based on
actuarial assumptions, the life insurance proceeds receivable by the Company
will defray the costs associated with this program.
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The Company has also adopted a program which provides the executive
officers named above with life insurance coverage ranging from one times annual
earnings (as defined) to two times annual earnings (increased in certain
instances to account for income tax obligations payable in respect of such
supplemental coverage).
The Company has also entered into an agreement with Mr. Henkel providing
him with severance benefits if he is terminated without cause. The benefit
amount payable to Mr. Henkel will equal twice his annual salary plus his last
bonus plus distribution of 63,300 shares of Company stock under the provisions
of a stock award granted to Mr. Henkel.
CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into agreements with each of the executive officers
named above which provide that if the employment of a particular executive
officer is terminated (by the Company or, under certain circumstances, by the
executive officer) within five years following a change in control of the
Company (as defined in such agreements), the executive will receive a lump sum
severance payment from the Company equal to three times the sum of (a) the
executive's highest annual salary from the date of the change in control to the
date of termination plus (b) the highest bonus awarded to the executive during
the period beginning five years prior to the change in control and ending on the
date of termination. In addition, the executive will receive an amount
approximating the Company's contribution which would have been made for such
executive's account under the SSIP (including the related supplemental plan)
during the three years following termination of employment and will be entitled
during such three-year period to continue to participate in the Company's
welfare employee benefit programs. For purposes of calculating the executive's
retirement benefits, five years will be added to both the executive's age and
service with the Company. The agreements further provide that if the payments
described above constitute "excess parachute payments" under applicable
provisions of the Internal Revenue Code and related regulations, the Company
will pay the executive an additional amount sufficient to place the executive in
the same after-tax financial position the executive would have been in if the
executive had not incurred the excise tax imposed under Section 4999 of the
Internal Revenue Code in respect of excess parachute payments.
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PERFORMANCE GRAPH
The following graph compares for the five years ended December 31, 2000,
the cumulative total shareholder return on our common stock with the cumulative
total return on the Standard & Poor's 500 Stock Index and with the cumulative
total return on the Standard & Poor's Machinery-Diversified Index. The graph
assumes that $100 was invested on December 31, 1995 in each of our common stock,
the Standard & Poor's 500 Stock Index and the Standard & Poor's
Machinery-Diversified Index and assumes the reinvestment of dividends.
COMPARISON OF FIVE YEAR CUMULATIVE
TOTAL SHAREHOLDER RETURN
[COMPARISON GRAPH]
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
Ingersoll-Rand.......................................... $100 $129 $178 $211 $249 $192
S&P 500................................................. $100 $123 $163 $210 $253 $230
S&P Machinery (Div.).................................... $100 $125 $159 $121 $140 $144
ITEM 2. APPROVAL OF AMENDMENT OF INCENTIVE STOCK PLAN OF 1998
The Board of Directors is submitting to the shareholders for approval
amendments of the Incentive Stock Plan of 1998 (the "1998 Plan") to:
- provide for an increase in the number of shares of common stock issuable
under the 1998 Plan by 5,000,000; and
- extend the termination date of the 1998 Plan to April 30, 2004.
We have had shareholder approved incentive compensation programs in
existence since 1959, to provide long-term incentives to key executives. The
Board believes that these plans have proved to be an important means of
attracting, holding and motivating key employees. Since the adoption of the 1998
Plan, we have expanded the number of employees who are eligible to participate
in this program and have acquired a number of companies which also increased
those eligible.
The closing price of the common stock on the New York Stock Exchange
composite tape on March 5, 2001 was $46.40.
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21
DESCRIPTION OF 1998 PLAN
The 1998 Plan, as originally adopted, authorized the grant through April
30, 2003, of up to 13,000,000 of stock incentives. As of March 5, 2001, we have
granted an aggregate of 10,267,903 of such stock incentives and 2,732,097 are
available for grant. The adoption of the proposed amendment will result in
7,732,097 being available for grant, which represents approximately 4.8% of the
outstanding shares as of March 5, 2001. Of the total available stock incentives,
no more than 20% shall be in the form of stock awards. Shares not issued because
of the termination of individual stock incentives, or for other reasons, can be
reused under the 1998 Plan.
The 1998 Plan permits the grant of stock incentives to key employees as
determined by the Compensation Committee. Approximately 1,600 employees are
currently considered eligible for the grant of stock incentives. We cannot state
the value or number of shares subject to any particular stock incentive to be
granted to key employees, since these matters will be determined by the
Compensation Committee in the future based on the guidelines described above
under the heading "Executive Compensation -- Report of the Compensation and
Nominating Committee". We expect, therefore, that key employees will continue to
be granted stock incentives on a basis generally comparable to prior grants.
During 2000, all current executive officers as a group were granted options to
purchase a total of 495,000 shares of common stock at a weighted average
exercise price of $50.6106, and all employees as a group were granted options
(or stock appreciation rights) to purchase a total of 3,095,770 shares at a
weighted average exercise price of $51.6975. In addition, stock awards were
granted to all current executive officers as a group covering a maximum total of
199,167 shares of common stock and to all employees as a group covering a
maximum total of 455,017 shares of common stock. Information concerning stock
incentives granted to the executive officers named in the Summary Compensation
Table is set forth under the heading "Executive Compensation."
Other provisions of the 1998 Plan are summarized below.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
Stock options and stock appreciation rights are forms of stock incentives
which are exercisable only after completion of at least 12 months of employment
after the date of grant. Neither options nor stock appreciation rights may be
granted at less than the fair market value of our common stock on the date of
grant. The term of an option or a stock appreciation right cannot exceed ten
years. It is not possible to amend, or to cancel and regrant, an option or a
stock appreciation right to lower the exercise price.
Stock appreciation rights entitle the holder to receive the difference
between the fair market value of the common stock at the time of exercise and
the fair market value at the time the rights were granted. Payment may be made
in the sole discretion of the Compensation Committee in shares of common stock,
in cash or in part common stock and part cash. Stock appreciation rights may be
granted either independently or in conjunction with options, and may carry
dividend equivalents which, as more fully discussed below under the heading
"Dividend Equivalents," entitle the holder of the stock appreciation rights to
payments equal to the cash dividends paid on shares equal to the number subject
to stock appreciation rights.
Options and stock appreciation rights terminate within specified periods
upon the holder's termination of employment. However, if termination is the
result of death, disability or retirement, an option or right may be exercised
for up to three years following such termination, and the Compensation Committee
may similarly extend the period for exercise by up to three years following
termination for other reason. A holder of options or rights may not exercise
them under any circumstances once they have expired.
Shares purchased under an option must be paid for in full at the time of
the exercise. However, such shares shall be paid for upon such terms as the
Compensation Committee may permit, including cash, secured or unsecured debt, or
by exchange for other property, including shares of common stock. Consequently,
if an optionee also holds common stock having a fair market value greater than
the option price, the optionee may be permitted to exchange the shares the
optionee holds for a greater number, under the option.
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22
OUTSIDE DIRECTOR STOCK OPTIONS
Each director who is not a Company officer or employee is annually granted
options to purchase 2,250 shares of common stock. These grants are made on the
date of the first Board meeting following each year's annual meeting of
shareholders. The exercise price is equal to the fair market value of the common
stock on the date of grant. The options granted to non-employee directors are
fully vested on the date of grant and become exercisable one year from the date
of grant. The term of all non-employee director options is ten years from the
date of grant. If the non-employee director retires or resigns, no options
issued to the director will be exercisable more than five years following such
retirement or resignation and no options will be exercisable more than three
years after a director's death.
STOCK AWARDS
The 1998 Plan permits the payment of incentive awards in shares of common
stock. A stock award may, but need not, be contingent in whole or in part upon
continued service with the Company or upon the attainment of certain
pre-established Company performance objectives such as earnings per share or
return on shareholders' equity. Stock subject to an award may be issued at the
time the award is granted, or at any time thereafter, or in installments and may
be subject to forfeiture as the Compensation Committee may decide.
If the shares are not issued at the time of grant, the Compensation
Committee may provide for the payment or crediting of dividend equivalents to
the holder. In lieu of issuing shares, the Company may elect to pay cash equal
to the then fair market value of the shares otherwise issuable.
DIVIDEND EQUIVALENTS
The 1998 Plan permits the granting of dividend equivalents in connection
with the grant of stock options, stock appreciation rights or stock awards to
key employees. A dividend equivalent is the right to receive, immediately or on
a deferred basis, an amount equivalent to all or part of the dividends paid or
payable on a share of common stock subject to a stock incentive. Dividend
equivalents may be awarded either at the time of a stock incentive or at any
time thereafter. Dividend equivalents may be credited either in cash, shares of
common stock or in common stock equivalents, valued at fair market value. Common
stock equivalents entitle the holder to receive amounts equivalent to dividends
paid on common stock or appreciation in value of common stock during the period
the common stock equivalent is held, or both. Amounts representing dividends
paid on common stock equivalents either may be paid in cash or may be credited
in additional common stock equivalents. As the 1998 Plan has been administered,
dividend equivalents have been credited only with regard to stock awards.
ADJUSTMENT AND CHANGE IN CONTROL PROVISIONS
The 1998 Plan provides that in the event of a recapitalization, split-up or
consolidation of shares of common stock or other significant corporate
transaction involving the Company, shares subject to a stock incentive shall be
equitably adjusted as to number, classification, exercise price or fair market
value (in the case of stock appreciation rights) and date of exercise.
The 1998 Plan also provides that under certain circumstances involving a
change in control of the Company, the holders of stock incentives shall have the
right to surrender such stock incentives in exchange for a cash payment based
upon the then current fair market value of the common stock.
ADMINISTRATION AND AMENDMENT
The 1998 Plan is administered by the Compensation Committee which is
composed of disinterested independent directors. In general, the Compensation
Committee may exercise all of the authority of the Company under the 1998 Plan
except amending the Plan. In addition, all determinations in respect of awards
to any key employee who is also a member of the Board of Directors are made,
based upon the recommendations of such Committee, by a committee consisting of
all "non-employee directors" under Rule 16b-3 under the Securities Exchange Act
of 1934 and as "outside directors" under Section 162(m) of the Internal Revenue
Code of 1986 (the "Code") and the regulations issued under that provision.
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23
The 1998 Plan may be amended by the Board at any time without shareholder
approval. No such amendment may, however, increase the total number of shares
that may be issued under the Plan, permit a person who is not a key employee or
a non-employee director to be granted a stock incentive, or extend the term of
the Plan.
FEDERAL INCOME TAX CONSEQUENCES
Under present law, a participant who is granted a stock option will not be
subject to federal income tax at the time of grant, and the Company will not be
entitled to a tax deduction by reason of such grant. Upon exercise of a
non-qualified option (which all options granted under the 1998 Plan have been),
the excess of the share's fair market value on the exercise date over the option
price will be considered ordinary income. The Company is entitled to a tax
deduction at the same time and in the same amount, provided that the Company
complies with the applicable reporting requirements under the Code and the
regulations promulgated thereunder. Upon the exercise of an incentive stock
option (as defined in the Code), no taxable income will be recognized by the
participant and the Company is not entitled to a tax deduction by reason of such
exercise. However, if shares purchased pursuant to the exercise of an incentive
stock option are sold within two years from the date of grant or within one year
after the transfer of such shares to the participant, then the difference, with
certain adjustments, between the fair market value of the shares at the date of
exercise and the option prices will be considered ordinary income, and the
Company will be entitled to a tax deduction at the same time and in the same
amount. In the event of a sale of shares purchased upon exercise of either a
nonqualified option or an incentive stock option, any appreciation above or
depreciation below the fair market value at the date of exercise will generally
qualify as capital gain or loss. If shares purchased upon the exercise of a
nonqualified option are transferred to the participant subject to restrictions,
then, depending upon the nature of the restrictions, the income realized by the
participant and the Company's tax deduction may be deferred and measured by the
excess of the fair market value of the shares over the option price at the time
the restrictions lapse.
Stock appreciation rights, stock awards and dividend equivalents will not
result in taxable income upon grant unless the award is paid at the time of
grant. Generally, the above grants will be taxable to the participants as
compensation in the year when paid. The participant will recognize income in an
amount equal to the sum of the cash and the fair market value of any shares
received. The Company is entitled to a deduction at the same time and in the
same amount, provided that the Company complies with the applicable Code
withholding requirements. Any appreciation or depreciation on the sale of shares
after transfer to the participant will result in capital gain or loss, and the
Company will have no tax consequences with respect thereto.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
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ITEM 3. APPROVAL OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed PricewaterhouseCoopers LLP as
independent accountants for the Company and its subsidiaries to examine the
consolidated financial statements of the Company for the fiscal year ending
December 31, 2001. The appointment of PricewaterhouseCoopers LLP is subject to
approval by the shareholders at the annual meeting. PricewaterhouseCoopers LLP
has been acting as our independent accountants for many years and, both by
virtue of its long familiarity with the Company's affairs and its ability, is
considered best qualified to perform this important function.
AUDIT COMMITTEE REPORT
The members of the Audit Committee report to the shareholders of the
Company as follows:
- We have reviewed and discussed with the management of the Company the
audited consolidated financial statements of the Company for the year
ended December 31, 2000.
- We have discussed with PricewaterhouseCoopers LLP, the Company's
independent accountants, the matters required to be discussed with them
under Statement of Auditing Standard No. 61 (Codification of Statements
on Auditing Standards, AU 380).
- We have received the written disclosures and the letter from
PricewaterhouseCoopers LLP required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), and have
discussed with PricewaterhouseCoopers LLP their independence.
Based on the review and discussions referred to in this report, we have
recommended to the Company's Board of Directors that the audited consolidated
financial statements be included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2000, for filing with the Securities and Exchange
Commission.
AUDIT COMMITTEE
Richard J. Swift (Chair)
Joseph P. Flannery
Peter C. Godsoe
H. William Lichtenberger
Orin R. Smith
Tony L. White
AUDIT AND RELATED FEES
PricewaterhouseCoopers LLP has performed a variety of services for the
Company in addition to auditing our financial statements. The fees they have
billed for the various types of services performed by them were as follows:
- Audit Fees -- Fees of $3.3 million for services performed for the audit
of our annual consolidated financial statements for the year 2000 and the
reviews of the consolidated financial statements included in our Forms
10-Q filed during 2000 with the Securities and Exchange Commission.
- All Other Fees -- Fees of $12.9 million for all other services. These
services consisted primarily of tax consulting, benefit plan
administration, due diligence services relating to the possible purchase
or sale of business units, audits of subsidiaries required by local law
and audit and accounting services relating to pension plans, financings,
and sales or potential sales of business units.
PricewaterhouseCoopers LLP did not perform any services relating to the
design or implementation of financial information systems.
The Audit Committee has determined that the provision of the services
described under "All Other Fees" is compatible with maintaining the independence
of PricewaterhouseCoopers LLP.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Annual Meeting and to be available to respond to appropriate questions. They
will have an opportunity to make a statement if they so desire.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
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TRANSACTIONS WITH MANAGEMENT
Since January 1, 2000, we have engaged in transactions in the ordinary
course of business with, or have used products or services of, a number of
organizations in which our directors have interests. The amounts involved have
in no case been material in relation to our business and we believe that they
have not been material in relation to the businesses of the other organizations
or to the individual directors concerned. It is expected that we may continue to
engage in similar transactions with such organizations in the future.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and officers, and persons who own more than ten percent of the Company's common
stock, to file reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission and the New York Stock Exchange. To the
Company's knowledge, based solely on its review of such forms received by the
Company and written representations that no other reports were required, all
Section 16(a) filing requirements were complied with for the year 2000.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Any proposal by a shareholder intended to be presented at the 2002 Annual
Meeting of Shareholders of the Company must be received at the Company's
principal executive offices at 200 Chestnut Ridge Road (P.O. Box 8738),
Woodcliff Lake, New Jersey 07677, Attn: Vice President and Secretary, no later
than November 19, 2001, for inclusion in the proxy materials relating to that
meeting.
The Company's By-laws, as amended, set forth procedures to be followed by
shareholders who wish to nominate candidates for election to the Board in
connection with annual meetings of shareholders or pursuant to written
shareholder consents or who wish to bring other business before a shareholders'
meeting. All such nominations must be made following written notice to the
Secretary of the Company accompanied by certain background and other information
specified in the By-laws. In connection with any annual meeting, written notice
of a shareholder's intention to make such nominations must be given to the
Secretary not later than the date which is 90 days in advance of the anniversary
of the immediately preceding annual meeting or, if the date of the annual
meeting occurs more than 30 days before, or 60 days after, the anniversary of
such immediately preceding annual meeting, not later than the seventh day after
the date on which notice of such annual meeting is given.
In order for you to bring other business before a shareholder meeting,
timely notice must be received by our Secretary within the time limits described
above. The notice must include a description of the proposed item, the reasons
you believe support your position concerning the item, and other specified
matters. These requirements are separate from and in addition to the
requirements you must meet to have a proposal included in our proxy statement.
The foregoing time limits also apply in determining whether notice is timely for
purposes of rules adopted by the Securities and Exchange Commission relating to
the exercise of discretionary voting authority.
Dated: March 16, 2001
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DIRECTIONS TO THE MEETING
FROM J.F. KENNEDY AIRPORT -
Take the Van Wyck Expressway North to the Grand Central Parkway West to the
Triboro Bridge. Cross the Triboro Bridge and take the Major Deegan Expressway
North to the George Washington Bridge. Cross the George Washington Bridge and
take Interstate Route 80 West to Garden State Parkway North to Exit 171.
Leave the Garden State Parkway at Exit 171, turn left at Glen Road, cross under
the Garden State Parkway and turn left on Chestnut Ridge Road south
approximately 3/4 of a mile to Ingersoll-Rand.
FROM LAGUARDIA - Take the Grand Central Parkway West and follow the same route
as described above from J.F. Kennedy Airport.
FROM NEWARK - Take the New Jersey Turnpike North to Interstate Route 80 West and
follow the same route as described above from J.F. Kennedy Airport.
FROM MANHATTAN - Take the West Side Highway North to the Henry Hudson Parkway to
the George Washington Bridge. Then follow the same route as described above from
J.F. Kennedy Airport.
FROM THE NEW YORK THRUWAY - Follow signs leading to the Garden State Parkway.
The first exit southbound on the Garden State Parkway connection is Schoolhouse
Road. Turn left off the ramp on Schoolhouse Road and travel one mile to Summit
Avenue. Turn right on Summit Avenue and proceed approximately one mile to
Chestnut Ridge Road. Turn left on Chestnut Ridge Road and continue south
approximately two miles to Ingersoll-Rand.
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APPENDIX A
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee (the "Committee") is appointed by the Board of
Directors to assist the Board in fulfilling its responsibilities to the
shareholders and the investment community by overseeing that:
1. Management has maintained the integrity of the accounting policies and
financial reporting and disclosure practices of the Company.
2. Management has established and maintained an adequate system of internal
controls within the Company to support the financial and business
environment.
3. Management has established and maintained processes to assure compliance
by the Company with all applicable laws, regulations and corporate
policy.
The Committee shall be comprised of three or more directors appointed by
the Board, each of whom shall be independent and, as determined by the Board
consistent with New York Stock Exchange guidelines, free from any relationship
that would interfere with the exercise of his or her independent judgment as a
member of the Committee.
All members of the Committee shall be financially literate, defined as
being able to read and understand fundamental financial statements, including
the Company's balance sheet, income statement and cash flow statement or will
become able to do so within a reasonable period of time after his or her
appointment. In addition, at least one member of the Committee shall have
accounting and related financial management expertise, as determined by the
Board.
The Committee shall meet at least four times annually, or more frequently
as circumstances dictate. At each of the four regularly scheduled meetings, and
at other meetings as necessary, the Committee shall meet with the senior
internal auditing executive and the Company's independent accountants in
separate executive sessions to discuss any matters that the Committee or any of
the aforementioned believes should be discussed privately.
The Committee shall have the authority to retain special legal, accounting
or other consultants to advise the Committee. The Committee may request any
officer or employee of the Company or the Company's outside counsel or
independent auditor to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
The Committee shall:
- review and reassess the adequacy of this Charter annually or more often
as conditions dictate, and recommend proposed changes to the Board.
- review the annual audited financial statements with management and the
independent accountants, including a discussion of significant issues
regarding the accounting and auditing principles and practices as well as
the adequacy of the internal controls.
- discuss with the independent accountants the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit or review of the quarterly financial statements as
included in the 10-Q.
- consider and approve, if appropriate, major changes to the Company's
auditing and accounting principles and practices as recommended by the
independent accountants, management or the internal auditing department.
- review significant accounting and reporting issues, including recent
professional and regulatory pronouncements.
- recommend to the Board of Directors the selection (or the nomination for
shareholder approval) of the independent accountants, which firm is
ultimately accountable to the Committee and the Board.
A-1
28
- review the performance of the independent accountants and, when
circumstances warrant, recommend to the Board the replacement (or the
nomination for shareholder approval) of the independent accountants.
- review and discuss with the independent accountants, in order to satisfy
itself as to their independence, all relationships that would reasonably
be thought to bear on the objectivity and independence of the independent
accountants. Ensure the receipt of the independent accountants' annual
independence statement.
- review with the independent accountants and financial management of the
Company the scope and staffing of the proposed audit for the current year
and, at the conclusion thereof, review such audit including any comments
or recommendations of the independent accountants.
- review management's monitoring of compliance with the Company's Code of
Conduct, including the Foreign Corrupt Practices Act.
- review with the General Counsel any legal matters, including litigation
and regulatory matters, which could have a significant impact on the
Company's financial statements.
- review the appointment and replacement of the senior internal auditing
executive.
- cause to be issued the report of the Committee required by the rules of
the Securities and Exchange Commission to be included in the Company's
annual proxy statement.
- report to the Board all significant issues discussed and make
recommendations to be acted upon by the Board.
- perform any other activities consistent with this Charter, the Company's
By-laws and governing law, as the Committee or the Board deems necessary
or appropriate.
A-2
29
[INGERSOLL-RAND LOGO]
TWO NEW WAYS TO VOTE
VOTE BY INTERNET OR TELEPHONE
24 HOURS A DAY - 7 DAYS A WEEK
SAVE YOUR COMPANY MONEY - IT'S FAST AND CONVENIENT
TELEPHONE
1-800-520-9271
- Use any touch-tone telephone.
- Have your proxy card ready.
- Enter your Control Number located in the box below.
- Follow the simple recorded instructions.
OR
INTERNET
http://proxy.shareholder.com/ir
- Go to the website address listed above.
- Have your proxy card ready.
- Enter your Control Number located in the box below.
- Follow the simple instructions on the website.
OR
MAIL
- Mark, sign and date your proxy card.
- Detach your proxy card.
- Return your proxy card in the postage-paid envelope provided.
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. If you
have submitted your proxy by the Internet or telephone there is no need for you
to mail back your proxy card.
1-800-520-9271
CALL TOLL-FREE TO VOTE
CONTROL NUMBER
FOR INTERNET/TELEPHONE VOTING
- DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY THE INTERNET OR TELEPHONE -
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES, AND A VOTE FOR
PROPOSAL 2 AND PROPOSAL 3.
1. Election of the following nominees FOR all nominees WITHHOLD AUTHORITY to vote *EXCEPTIONS
as Directors listed below for all nominees listed below
[ ] [ ] [ ]
Nominees: 01 - P. C. Godsoe, 02 - C. J. Horner, 03 - O. R. Smith
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
*Exceptions
- --------------------------------------------------------------------------------
2. Approval of amendment of Incentive Stock Plan of 1998.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Ratification of appointment of independent accountants.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Change of Address and [ ]
or Comments Mark Here
DATED______________________________, 2001
SIGNED __________________________________
SIGNED __________________________________
VOTES MUST BE INDICATED (X) IN BLACK
OR BLUE INK AS IN THIS EXAMPLE. [X]
- PLEASE DETACH HERE -
YOU MUST DETACH THIS PORTION OF THE PROXY CARD BEFORE
RETURNING IT IN THE ENCLOSED ENVELOPE
30
[INGERSOLL-RAND LOGO] World Headquarters
Ingersoll-Rand Company
Woodcliff Lake, New Jersey 07677-8738
March 16, 2001
Dear Shareholder:
It is my pleasure to invite you to Ingersoll-Rand Company's 2001 Annual Meeting
of Shareholders. The meeting will be held at 11:00 a.m. on Wednesday, May 2,
2001, at the Company's executive offices in Woodcliff Lake, New Jersey.
The enclosed Notice of Meeting and Proxy Statement covers the formal business of
the meeting, which includes the election of directors, the amendment of our
Incentive Stock Plan of 1998 and the ratification of the appointment of the
independent accountants for the coming year. Also during the meeting, management
will address other corporate matters which may be of interest to you as a
shareholder.
It is important that your shares are represented at this meeting, whether or not
you attend the meeting in person and regardless of the number of shares you own.
To be sure your shares are represented, we urge you to complete, sign and mail
the attached proxy card as soon as possible. If you attend the meeting and wish
to vote in person, the ballot that you submit will supersede your proxy.
Sincerely,
/s/HERBERT L. HENKEL
- ---------------------------
Herbert L. Henkel
Chairman, President
and Chief Executive Officer
INGERSOLL-RAND COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR ANNUAL MEETING
OF SHAREHOLDERS MAY 2, 2001
The undersigned hereby appoints HERBERT L. HENKEL, DAVID W. DEVONSHIRE and
PATRICIA NACHTIGAL, or any of them, with power of substitution, attorneys and
proxies to vote, as indicated on the reverse hereof, all shares of stock of
Ingersoll-Rand Company (the "Company") which the undersigned is entitled to vote
at the Annual Meeting of Shareholders to be held at the Company's executive
offices, 200 Chestnut Ridge Road, Woodcliff Lake, New Jersey, on Wednesday, May
2, 2001, at 11:00 A.M., or at any adjournments thereof, with all the powers the
undersigned would possess, including cumulative voting rights, if then and there
personally present, upon the matters described in the Notice of Annual Meeting
of Shareholders and Proxy Statement, dated March 16, 2001, receipt of which is
hereby acknowledged, and upon any other business that may come before the
meeting or any such adjournment.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO CONTRARY SPECIFICATIONS ARE MADE ABOVE, THIS
PROXY WILL BE VOTED FOR ITEMS 1, 2 AND 3.
This card also constitutes your voting instructions with respect to shares held
in accounts under the Company's Savings and Stock Investment Plan and similar
plans of the Company and its subsidiaries.
PLEASE MARK, SIGN AND DATE ON REVERSE SIDE AND RETURN
IN THE ACCOMPANYING ENVELOPE.
INGERSOLL-RAND COMPANY
P.O. BOX 11266
NEW YORK, N.Y. 10203-0266