SCHEDULE 14A
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INFORMATION REQUIRED IN PROXY STATEMENT
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Engelhard Corporation
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[Graphic Omitted] 101 Wood Avenue, Iselin, New Jersey 08830
Barry W. Perry
Chairman and
Chief Executive Officer
April 2, 2003
Dear Shareholder:
You are cordially invited to attend the 2003 Annual Meeting of
Shareholders, which will be held at 9 a.m., Eastern Daylight Savings Time, on
Thursday, May 1, 2003, 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/ B.W. Perry
ENGELHARD CORPORATION
101 WOOD AVENUE
ISELIN, NEW JERSEY 08830
-------------------
NOTICE OF THE 2003 ANNUAL MEETING OF SHAREHOLDERS
-------------------
To our Shareholders: April 2, 2003
The Annual Meeting of Shareholders of Engelhard Corporation, a Delaware
corporation, will be held on Thursday, May 1, 2003 at 9 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 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 14,
2003.
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 our offices located at 101 Wood Avenue, Iselin, New Jersey, during ordinary
business hours for ten days prior to the meeting, and at 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
-------------------
PROXY STATEMENT FOR THE 2003
ANNUAL MEETING OF SHAREHOLDERS
-------------------
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 1, 2003. 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 14, 2003 will
be entitled to vote. On such date there were outstanding and entitled to vote
127,344,885 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 LLC), you may vote through the Internet or by
using a toll-free telephone number by following the
1
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 11 p.m. Eastern Daylight Savings Time on
April 30, 2003.
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).
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.
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.
2
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, 2003.
AMOUNT AND
NATURE
OF BENEFICIAL PERCENT OF
OWNERSHIP CLASS
------------- -----------
Wellington Management Company, LLP (1) (3) ................ 14,785,365 11.57%
75 State Street
Boston, Massachusetts 02109
Vanguard Windsor Funds--Vanguard Windsor Fund (2) (3) ..... 9,566,700 7.49%
100 Vanguard Boulevard
Malvern, Pennsylvania 19355
Citigroup Inc. (4) ........................................ 11,514,611 9.00%
399 Park Avenue
New York, New York 10043
Dodge & Cox (5) ........................................... 8,793,782 6.90%
One Sansome Street
35th Floor
San Francisco, California 94104
Barclays Global Investors, N.A. and affiliates (6) ........ 9,982,717 7.82%
45 Fremont Street
San Francisco, CA 94105
Aim Funds Management, Inc. (7) ............................ 6,542,000 5.12%
5140 Yonge Street
Suite 900
Toronto, Ontario M2N 6X7
---------------
(1) As reported by Wellington Management Company, LLP on an amendment to its
Schedule 13G filed with the Securities and Exchange Commission ("SEC") on
February 12, 2003.
(2) As reported by Vanguard Windsor Funds--Vanguard Windsor Fund on an
amendment to its Schedule 13G filed with the SEC on February 13, 2003.
(3) Wellington Management Company, LLP reports that, as an 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
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 an amendment to its Schedule 13G filed with the SEC
on February 7, 2003. The Schedule 13G
3
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 an amendment to its Schedule 13G filed with
the SEC on February 13, 2003.
(6) As reported by Barclays Global Investors, N.A. and certain of its
affiliates on Schedule 13G filed with the SEC on February 12, 2003.
Barclays Global Investors, N.A., Barclays Global Fund Advisors, Barclays
Global Investors, Ltd. and Barclays Capital Securities Limited report sole
voting and dispositive power over 8,494,717 shares, 481,326 shares,
1,003,539 shares and 3,135 shares, respectively.
(7) As reported by AIM Funds Management, Inc. on Schedule 13G filed with the
SEC on February 13, 2003.
4
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. Antonini and Mr.
Slack are nominees for election as Class I Directors at the Annual Meeting. If
elected, they will serve until 2006. The Class II Directors will be considered
for reelection at our 2004 Annual Meeting. The Class III Directors will be
considered for reelection at our 2005 Annual Meeting.
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. Antonini
and Mr. Slack as Class I Directors.
INFORMATION WITH RESPECT TO NOMINEES AND
DIRECTORS WHOSE TERMS CONTINUE
Set forth below are 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.
5
NOMINEES FOR REELECTION AT THIS MEETING,
AGES, PRINCIPAL BUSINESS EXPERIENCE DURING THE
PAST FIVE YEARS, BOARD MEMBERSHIPS (CLASS I)
--------------------------------------------
MARION H. ANTONINI
Age 72. Mr. Antonini has been a director of Engelhard since 1985. He has been
Operating Principal of Kohlberg & Co., a private merchant banking firm
since March 1998. From prior to 1998, Mr. Antonini served as Chairman and
Chief Executive Officer of Welbilt Corporation. He is also a director of
Scientific-Atlanta, Inc. and Color Spot Nurseries, Inc.
HENRY R. SLACK
Age 53. Mr. Slack has been a director of Engelhard since 1981, resigned May
21, 1999, and was re-elected to the Board of Directors as a Class I
director on June 3, 1999. He has been the Chairman of Terra Industries
Inc., a producer of nitrogen products and methanol, since April 2001. From
June 1999 to August 2002, he was Chairman of Task (USA) Inc., a private
investment company. From prior to 1998 to June 1999, Mr. Slack was the
Chief Executive of Minorco SA, an international natural resources company.
6
DIRECTORS WITH TERMS EXPIRING MAY 2004,
AGES, PRINCIPAL BUSINESS EXPERIENCE DURING THE
PAST FIVE YEARS, BOARD MEMBERSHIPS (CLASS II)
----------------------------------------------
JAMES V. NAPIER
Age 66. Mr. Napier has been a director of Engelhard since 1986. He was the
Chairman of Scientific-Atlanta, Inc., a communications manufacturing
company, from prior to 1998 to November 2000. He is also a director of
Scientific-Atlanta, Inc., Intelligent Systems Corporation, Vulcan Materials
Company, McKesson Corporation, Personnel Group of America, Inc. and Wabtec
Corporation.
NORMA T. PACE
Age 81. Mrs. Pace has been a director of Engelhard since 1987. She has been a
Partner of Paper Analytics Associates, a planning and consulting company,
from prior to 1998.
LOUIS J. GIULIANO
Age 56. Mr. Giuliano has been a director of Engelhard since February 2003. He
has been the Chairman, President and Chief Executive Officer of ITT
Industries, Inc., a diverse global engineering and manufacturing company,
since March 2001. From 1998 to March 2001, he was the President and Chief
Operating Officer of ITT Industries, Inc.
7
DIRECTORS WITH TERMS EXPIRING MAY 2005,
AGES, PRINCIPAL BUSINESS EXPERIENCE DURING THE
PAST FIVE YEARS, BOARD MEMBERSHIPS (CLASS III)
----------------------------------------------
BARRY W. PERRY
Age 56. Mr. Perry has been a director of Engelhard since 1997. He has been the
Chairman and Chief Executive Officer of Engelhard since January 2001. From
prior to 1998 until 2001, he was the President and Chief Operating Officer
of Engelhard. Mr. Perry is also a director of Arrow Electronics, Inc. and
Cookson Group plc.
DOUGLAS G. WATSON
Age 58. Mr. Watson has been a director of Engelhard since 1991. He has been
the Chief Executive Officer of Pittencrieff Glen Associates, a
management-consulting firm, since June 1999. From June 2000 to September
2001, he was the President and Chief Executive Officer of ValiGen N.V., a
biotechnology company. From prior to 1998 to May 1999, Mr. Watson was the
President, Chief Executive Officer and Director of Novartis Corporation, a
life sciences company. He is also a director of Dendreon Corporation, Genta
Inc. and Chairman of OraSure Technologies, 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, 2003 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). All
Directors and Executive Officers as a group own approximately 2.3% of the total
outstanding shares (including exercisable options).
NAME SHARES
---- ------
Marion H. Antonini .................................. 97,503(1)(2)(3)(4)
Arthur A. Dornbusch, II ............................. 661,018(5)
Louis J. Giuliano ................................... 7,593
John C. Hess ........................................ 237,190(5)
Peter B. Martin ..................................... 123,449(5)
James V. Napier ..................................... 56,575(1)(2)(3)
Norma T. Pace ....................................... 62,823(1)(2)(3)
Barry W. Perry ...................................... 1,238,112(5)
Henry R. Slack ...................................... 19,874(1)(2)(4)
Michael A. Sperduto ................................. 175,109(5)
Douglas G. Watson ................................... 74,231(1)(2)(3)
All Directors and Executive Officers as a group ..... 2,915,290(1)(2)(3)(4)(5)
--------------
(1) Includes 16,500 shares of Common Stock subject to options granted to each
of Messrs. Antonini, Napier and Watson and Mrs. Pace and 4,500 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, 2003.
(2) Includes 20,546, 15,868, 2,026, 8,355 and 18,917 non-voting deferred stock
units earned by Messrs. Antonini, Napier, Slack, Watson and Mrs. Pace under
the Deferred Stock Plan for Non-employee Directors. Each deferred stock
unit will be converted into a share of Common Stock upon termination of
service.
(3) Includes 46,862, 13,683, 17,186 and 12,534 non-voting deferred stock units
held by Messrs. Antonini, Napier, 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.
(4) Includes 1,000 and 3,225 shares as to which Messrs. Antonini and Slack,
respectively, disclaim beneficial ownership.
(5) Includes 508,092, 205,545, 100,404, 1,094,742, 138,989, and 2,236,941
shares of Common Stock subject to options granted to Messrs. Dornbusch,
Hess, Martin, Perry, Sperduto and all
9
Directors and Executive Officers as a group, respectively, under our Stock
Option Plan of 1991 and the Directors Stock Option Plan.
BOARD OF DIRECTORS' MEETINGS, COMMITTEES AND FEES
HOW OFTEN DID THE BOARD OF DIRECTORS MEET DURING 2002?
Our Board of Directors held a total of seven meetings during 2002. During
2002, all of our Directors attended more than 90% 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. Currently, Engelhard does not have a Nominating Committee.
AUDIT COMMITTEE
The members of the Audit Committee are Mr. Watson (Chairman), Mrs. Pace and
Mr. Napier, all of whom are Non-employee 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. Each of the members of the Audit Committee is "independent" as
defined by the New York Stock Exchange ("NYSE") Listing Standards. The Audit
Committee held eight meetings during 2002. See "Report of Audit Committee" on
page 27 for more information.
COMPENSATION COMMITTEE
The members of the Compensation Committee are Messrs. Antonini (Chairman),
Napier and Slack, all of whom are Non-employee Directors. The Compensation
Committee determines the appropriate level of compensation for the Officers and
employees of Engelhard. The Compensation Committee held six meetings during
2002. See "Compensation Committee Report on Executive Compensation" on page 22
for more information.
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 Non-employee 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 three meetings during 2002.
HOW ARE DIRECTORS COMPENSATED?
Directors who are not our employees each received a retainer at the annual
rate of $40,000 in 2002. In addition, Non-employee Directors received a $1,350
fee for each Board meeting attended in 2002. During 2002, Non-employee Directors
also received a $1,350 fee for each
10
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 Non-employee Directors (the
"Deferred Stock Plan"), each Non-employee 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 Non-employee Directors 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 Non-employee Director
then in effect by the average daily closing price per share of Common Stock of
Engelhard for the 20 trading days ending two days prior to such date. For years
beginning with 2003, the date deferred stock units will be credited to accounts
of Non-employee Directors has been changed to the record date for payment of
dividends on shares of Common Stock of Engelhard occurring in the last month of
the second calendar quarter of each year, and deferred stock units will be
credited only to Non-employee Directors serving on the May 31 immediately
preceding the crediting 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. The entire balance of a Non-employee Director's
account under the Deferred Stock Plan will be paid to the Non-employee Director,
in either a lump sum or installments at the election of such Non-employee
Director, in shares of our Common Stock upon the Non-employee Director's
termination of service. If a "change in control" occurs and the Non-employee
Director ceases to be a Director or the Deferred Stock Plan is terminated,
shares equal to the entire balance of the account will be distributed within 30
days.
Pursuant to our Stock Bonus Plan for Non-employee Directors (the "Directors
Stock Bonus Plan"), each person who becomes a Non-employee 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 Non-employee 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 Non-employee 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
11
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 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, Non-employee
Directors may elect to defer payment of all or a designated portion of their
compensation for services as a Director into a cash or stock account. 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, as amended (the
"Exchange Act") 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 SEC and the NYSE.
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 2002.
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 $34,000,000, none of which was drawn in 2002. In
2002, Citibank received an initial fee of $59,000 and annual facility fees of
$33,000 for these facilities. We use subsidiaries of Citigroup, as well as other
firms, to provide cash management services to Engelhard. Fees to subsidiaries of
Citigroup for these services aggregated less than $60,000 in 2002. In addition,
Barclays Global Investors, N.A., which reports beneficial ownership of more than
5% of our Common Stock, provides certain investment management services to
Engelhard's pension plans. Fees for such services aggregated approximately
$130,000 in 2002.
Barclays Bank, plc, an affiliate of Barclays Global Investors, subsidiaries
of Citigroup and other firms, engage in foreign exchange and commodities
transactions with Engelhard in the ordinary course of business. All of these
transactions are negotiated at arms-length as principals in competitive markets.
During 2002, foreign exchange and metals transactions with subsidiaries of
Citigroup aggregated approximately $190,000,000 and metals transactions with
Barclays Bank, plc aggregated approximately $50,000,000. In addition, during
2002, Engelhard provided services in precious metals financing transactions in
which subsidiaries of Citigroup and Barclays Bank, plc
12
received funds from third parties. Engelhard received approximately $230,000 in
fees from subsidiaries of Citigroup and approximately $37,000 in net revenues
from these transactions in which Barclays Bank, plc participated.
13
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the compensation paid by us for services
rendered in all capacities during each of the last three fiscal years to our
Chief Executive Officer and our other four most highly compensated Executive
Officers.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS (1)
--------------------------------------------- -------------------------------
OTHER ANNUAL RESTRICTED ALL OTHER
COMPENSATION STOCK COMPENSATION
YEAR SALARY ($) BONUS ($) ($) (4) AWARD(S) ($) (2) OPTIONS (#) ($) (1)(3)
---- --------- --------- ----------- ---------------- ------------ ----------
Barry W. Perry .............. 2002 900,000 1,100,000 125,781 326,403 293,352 355,040
Director, Chairman 2001 750,000 1,180,000(5) 95,667 1,223,357 337,424 333,467
and Chief Executive 2000 500,000 790,000 -- 507,247 67,184 --
Officer
Arthur A. Dornbusch, II ..... 2002 315,848 190,000 -- 127,755 83,520 105,543
Vice President, 2001 307,395 192,500 -- 126,239 65,416 98,366
General Counsel 2000 297,000 290,000 -- 240,090 31,796 7,731
and Secretary
Michael A. Sperduto ......... 2002 267,500 200,000 -- 127,755 79,628 27,977
Vice President, 2001 223,679 155,750 -- 93,666 45,868 26,277
Chief Financial Officer 2000 197,000 120,000 -- 78,935 10,456 --
John C. Hess ................ 2002 249,318 144,000 -- 82,017 49,884 51,693
Vice President, 2001 236,320 146,518 -- 81,364 40,376 48,552
Human Resources 2000 224,000 182,750 -- 134,881 17,860 --
Peter B. Martin ............. 2002 222,789 95,000 -- 45,426 26,368 29,823
Vice President, 2001 216,300 105,000 -- 50,887 24,672 28,011
Investor Relations 2000 210,000 120,000 -- 79,841 10,564 --
------------------
(1) Our Key Employees Stock Bonus Plan, our stock option plans, our Restricted
Cash Incentive Compensation Plan and our 2002 Long Term Incentive 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 18.
(2) As of December 31, 2002, Messrs. Perry, Dornbusch, Sperduto, Hess and
Martin held 78,118, 22,207, 9,222, 12,961 and 7,898 unvested shares,
respectively, of stock, which were awarded pursuant to our Key Employees
Stock Bonus Plan having a market value of $1,745,942, $496,326, $206,103,
$289,687 and $176,534, respectively. The foregoing amounts do not include
the reported grants which were made in February 2003 for services rendered
during 2002. 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 18.
(3) Represents payouts in 2002 pursuant to restricted cash awards made in 2000
under the Restricted Cash Incentive Compensation Plan and, for Mr.
Dornbusch, includes interest of $10,443, $8,997 and $7,731 accrued during
2002, 2001 and 2000, respectively, in excess of 120% of the applicable
federal interest rate with respect to salary deferrals.
(4) Amounts include a $25,000 allowance for life insurance and $47,068 for
supplemental disability insurance coverage in both 2002 and 2001.
(5) Includes $250,000 special award that is not included in computation of
pension benefits.
14
The following table sets forth information concerning individual grants of
stock options made under our Stock Option Plan of 1991 and the 2002 Long Term
Incentive Plan in December 2002 and February 2003 for services rendered during
2002 by each of the named Executive Officers.
OPTION GRANTS FOR SERVICES RENDERED DURING 2002
GRANT DATE
INDIVIDUAL GRANTS VALUE
---------------------------------------------------------------------------------------------- -------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES FOR EXERCISE OR GRANT DATE
OPTIONS SERVICES RENDERED BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#) (1) DURING 2002 ($/SH) DATE ($) (2)
---------------------------- --------------- ----------------- ----------- ---------- -------------
Barry W. Perry ............. 198,212 14% $22.80 12/12/12 $1,561,910
95,140 7% 20.47 2/6/13 647,903
Arthur A. Dornbusch, II .... 46,652 3% 22.80 12/12/12 367,618
36,868 3% 20.47 2/6/13 251,071
Michael A. Sperduto ........ 42,720 3% 22.80 12/12/12 336,949
36,868 3% 20.47 2/6/13 251,071
John C. Hess ............... 26,216 2% 22.80 12/12/12 206,582
23,668 2% 20.47 2/6/13 161,179
Peter B. Martin ............ 13,284 1% 22.80 12/12/12 104,678
13,084 1% 20.47 2/6/13 89,102
-------------------------
(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 18.
(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 6 years, which represents anticipated
exercise trends for the named Executive Officers; (b) interest rates of
3.8% and 3.2%, respectively, that represent the current yield curves as of
the grant dates; (c) an average volatility of approximately 36% calculated
using average weekly stock prices for the six years prior to the grant
date; and (d) dividend yields of 1.8% and 2.0%, respectively (the dividend
yields on the applicable grant dates).
15
The following table sets forth information concerning each exercise of
stock options during 2002 by each of the named Executive Officers and the value
of unexercised options at December 31, 2002.
AGGREGATE OPTION EXERCISES IN 2002 AND VALUES AT DECEMBER 31, 2002
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE DECEMBER 31, 2002 (#) DECEMBER 31, 2002 ($)
EXERCISE REALIZED ------------------------- --------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------------- ----------- ------- ------------------------- ----------- -------------
Barry W. Perry ............ 11,350 $149,303 991,316 671,857 $3,412,976 $598,451
Arthur A. Dornbusch, II ... 22,500 355,140 469,112 182,548 1,693,956 260,978
Michael A. Sperduto ....... 39,975 564,149 123,243 107,500 350,934 80,818
John C. Hess .............. -- -- 182,980 104,717 673,608 141,515
Peter B. Martin ........... -- -- 86,488 60,907 320,148 85,773
16
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 ................. $ 62,040 $ 6,040 $ 110,040 $ 134,040 $ 134,040
400,000 ................. 134,040 182,040 230,040 278,040 278,040
600,000 ................. 206,040 278,040 350,040 422,040 422,040
800,000 ................. 278,040 374,040 470,040 566,040 566,040
1,000,000 ................. 350,040 470,040 590,040 710,040 710,040
1,200,000 ................. 422,040 566,040 710,040 854,040 854,040
1,400,000 ................. 494,040 622,040 830,040 998,040 998,040
1,600,000 ................. 566,040 758,040 950,040 1,142,040 1,142,040
1,800,000 ................. 638,040 854,040 1,070,040 1,286,040 1,286,040
2,000,000 ................. 710,040 950,040 1,190,040 1,430,040 1,430,040
2,200,000 ................. 782,040 1,046,040 1,310,040 1,574,040 1,574,040
2,400,000 ................. 854,040 1,142,040 1,430,040 1,718,040 1,718,040
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 14, credited years of service
under the plans as of December 31, 2002 are as follows: Mr. Perry, 14 years; Mr.
Dornbusch, 26 years; Mr. Sperduto, 19 years; Mr. Hess, 18 years; and Mr. Martin,
6 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.
17
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 14
and "Compensation Committee Report on Executive Compensation" on page 22. 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.
Engelhard established incentive plans for Mr. Perry in each of 2002 and
2003. The 2002 Share Performance Incentive Plan provided for a formula-based
cash award to Mr. Perry for 2002 if Engelhard's average closing stock price from
April 1, 2002 through December 31, 2002 exceeded $32 per share and the return on
Engelhard's Common Stock during that period exceeded the return of the All S&P
Chemicals Index, or, if greater, for an award of $750,000 if Engelhard's average
closing stock price for the last twenty trading days of 2002 exceeded 115% of
the average closing price for the same period in 2001. No award was paid under
this plan. The 2003 Share Incentive Plan will provide Mr. Perry with a
formula-based cash award if Engelhard's average
18
closing stock price from January 1, 2003 through December 31, 2003 exceeds $28
and the return on Engelhard's Common Stock during that period exceeds the return
on the All S&P Chemicals Index, or, if greater, an award of $750,000 if
Engelhard's average closing stock price for the last twenty trading days of 2003
exceeds 115% of the average closing price for the same period in 2002. The
amount of any bonus award will be credited to a deferred compensation account,
and it will vest in three equal annual installments beginning on the first
anniversary of the date of grant. The amount of any vested bonus, together with
interest credited thereon, will generally be payable upon termination of Mr.
Perry's employment. Vesting will accelerate upon a termination of Mr. Perry's
employment due to disability, retirement or death, and the award will continue
to vest if Mr. Perry's employment is terminated by Engelhard not for cause. In
the event of a change in control, the award will become immediately vested and
paid in full, and an additional payment will be made to compensate for the loss
of tax deferral.
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,"
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.
19
Each of Messrs. Perry, Dornbusch, Sperduto, Hess 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
(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 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. 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.
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"
20
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.
21
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 Non-employee 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 17 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 17 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, restricted stock awards
under the Key Employees Stock Bonus Plan and awards under the 2002 Long Term
Incentive 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 at or above the
median for positions of comparable level. This target is being achieved on
average for the professional, technical, and managerial salaried work
force. Salary structures are set each year based on our target and its
actual competitive
22
position. A market analysis was done on the existing salary structure and
it was determined that no major structure adjustments were necessary.
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.
Mr. Perry's salary was increased 11% for 2003 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 awards, 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.
The value of awards made for services in 2002 under Engelhard's
Management Incentive Plan decreased by 11.2% from 2001. As provided under
this plan, the level of the pool generated for Engelhard overall and each
business group depends upon that group's actual performance against targets
established at the beginning of 2002. Once each group's pool was
established, individual performance based awards were made as described
below.
23
a. ANNUAL CASH INCENTIVE PROGRAM
This program is designed to provide focus on expected annual results
and recognition of accomplishment for the year.
For 2002, actual cash payments determined under the Management
Incentive Plan, including the cash incentive payments to all Executive
Officers, were 98.3% of the competitively defined pool as factored for
performance.
For the year 2002, Mr. Perry received a cash incentive award of
$1,100,000, compared with $1,180,000 (including $930,000 that was part of
the Management Incentive Plan pool) for 2001. 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--lower in lower level positions and higher in higher level
positions.
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 2002 was 102% 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 2002 was in the form of
restricted stock.
For the year 2002, Mr. Perry received a restricted stock award of
15,700 shares pursuant to the Management Incentive Plan. He received a
restricted stock award of 9,965 shares pursuant to the Management Incentive
Plan for 2001.
In accordance with the terms of his employment agreement, Mr. Perry
was also awarded special restricted stock awards in 2001 of 29,300 shares
that do not vest until the fifth anniversary of the award, when they vest
entirely. See "Employment Contracts, Termination of Employment and Change
in Control Arrangements" on page 18. After assessing Mr. Perry's 2001
performance, the Committee 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.
24
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 2002 under the Management Incentive Plan were 102% of
the pool generated.
For the year 2002, Mr. Perry received stock option awards under the
Management Incentive Plan totaling 293,352 options pursuant to the
Management Incentive Plan. He received 337,424 stock options in 2001,
including 231,268 options that were part of the Management Incentive Plan
pool.
The Committees direct the purchase of compensation survey information from
several independent professional consultants in order to review 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
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 2002. The Committee will continue to review tax
consequences as well as other relevant considerations in connection with
compensation decisions.
COMPENSATION COMMITTEE
STOCK OPTION/STOCK BONUS COMMITTEE
Marion H. Antonini Henry R. Slack James V. Napier
25
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG ENGELHARD CORPORATION, S&P 500 INDEX
AND ALL S&P CHEMICALS**
[INSERT PLOT POINTS]
DECEMBER 31,
------------------------------------------------------
1997 1998 1999 2000 2001 2002
------ ------ ------ ------ ------ ------
Engelhard Corporation ...... 100.00 114.60 113.29 125.20 172.77 141.66
S&P 500 Index .............. 100.00 128.58 155.63 141.26 124.65 97.10
All S&P Chemicals .......... 100.00 90.02 106.43 92.90 94.83 90.33
--------------------
* Assumes $100 invested on December 31, 1997 in each referenced group with
reinvestment of dividends.
** The All S&P Chemicals index includes all 42 chemical companies (including
Engelhard) from five chemical sub-industry indices of the S&P 1500.
26
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, which was previously attached as an
appendix to Engelhard's Proxy Statement dated March 29, 2001.
Based on the Audit Committee's review of the audited financial statements
as of and for the fiscal year ended December 31, 2002 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, 2002 be included in Engelhard's
Annual Report on Form 10-K for such fiscal year.
FEES BILLED TO ENGELHARD BY ERNST & YOUNG LLP ("E&Y") DURING FISCAL YEAR ENDED
DECEMBER 31, 2002
AUDIT FEES
The aggregate audit fees billed to Engelhard by E&Y, which consists
principally of 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 2002, the review of Engelhard's financial statements included in
Engelhard's Quarterly Reports on Form 10-Q during the fiscal year ended December
31, 2002 and statutory audits in non-U.S. locations, totaled $2,418,000.
AUDIT-RELATED FEES
The aggregate fees billed to Engelhard by E&Y during the fiscal year ended
December 31, 2002 for audit-related services totaled $241,000. Audit-related
fees consist principally of fees for audits of financial statements of certain
employee benefit plans and audits of government research programs.
TAX FEES
The aggregate fees billed to Engelhard by E&Y during the fiscal year ended
December 31, 2002 for tax services totaled $1,274,000. Tax fees consist of tax
planning and tax compliance services.
OTHER FEES
No other fees were incurred or billed to Engelhard by E&Y during the fiscal
year ended December 31, 2002, other than those described above. E&Y was not
Engelhard's independent
27
auditor for the fiscal year ended December 31, 2001. However, the aggregate fees
billed to Engelhard by E&Y in 2001 consisted of tax compliance services of
$59,000 and internal audit services of $248,000.
The Audit Committee considered and concluded that the provision of
non-audit services by E&Y is compatible with maintaining auditor independence.
Audit fees are reviewed and explicitly approved by the Audit Committee on
an annual basis. On December 12, 2002, Engelhard's Audit Committee established
detailed policies and procedures for the pre-approval of audit-related, tax and
other fees. These procedures include review and approval of the nature of
permissible services to be incurred in each of nine specific service categories.
Additionally, notwithstanding the pre-approval procedures, any engagement of
$100,000 or more requires explicit review and approval of the Audit Committee
before the auditor is engaged.
AUDIT COMMITTEE
Douglas G. Watson Norma T. Pace James V. Napier
The foregoing Audit Committee Report shall not be incorporated by reference
into any of Engelhard's prior or future filings with the SEC, except as
otherwise explicitly specified by Engelhard in any such filing.
28
INDEPENDENT PUBLIC ACCOUNTANTS
On May 2, 2002, the Audit Committee and the Board of Directors determined
that Arthur Andersen LLP ("AA") should be dismissed as our independent
accountants as soon as a new accounting firm was engaged.
The report of AA on our financial statements for the fiscal year ended
December 31, 2001 and December 31, 2000 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, 2001
and December 31, 2000, and during the subsequent period ended May 2, 2002, there
were no disagreements with AA on matters of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which, if not
resolved to the satisfaction of AA, would have caused AA to make reference to
the matter in their report. During our fiscal years ended December 31, 2001 and
2000, and during the subsequent interim period, there have been no reportable
events (as defined in Regulation S-K Item 304(a)(1)(v)).
Engelhard has provided AA with a copy of the foregoing disclosure. A copy
of AA's letter, dated May 2, 2002, stating their agreement with the accuracy of
these statements is attached as Exhibit 16.1 to Engelhard's Form 8-K dated May
2, 2002 and filed with the SEC.
The Board of Directors, based on the recommendation of the Audit Committee,
voted to engage E&Y as our independent accountants on May 2, 2002. During the
two most recent fiscal years and the subsequent interim period preceding the
engagement of E&Y, neither we nor anyone on our behalf has consulted E&Y
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 E&Y 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 E&Y to serve as Engelhard's independent public accountants for
the year 2003. E&Y 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.
29
FUTURE SHAREHOLDER PROPOSALS
HOW DO I MAKE A PROPOSAL FOR THE 2004 ANNUAL MEETING?
The deadline for you to submit a proposal pursuant to Rule 14a-8 of the
Exchange Act for inclusion in our proxy statement and form of proxy for the 2004
Annual Meeting of Shareholders (the "2004 Annual Meeting") is December 4, 2003.
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 December
4, 2003. Any shareholder proposal submitted outside of the processes of Rule
14a-8 of the Exchange Act must be received by us after January 3, 2004 and
before February 2, 2004.
If received by us after February 2, 2004, then our proxy for the 2004 Annual
Meeting may confer discretionary authority to vote on such matter without any
discussion of such matter in the proxy statement for the 2004 Annual Meeting.
HOUSEHOLDING
The SEC 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 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.
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.
30
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
April 2, 2003
31
[Graphic Omitted]
NOTICE OF
ANNUAL MEETING
OF
SHAREHOLDERS
AND PROXY
STATEMENT
May 1, 2003
ENGELHARD CORPORATION
101 WOOD AVENUE, ISELIN, NEW JERSEY 08830
P
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
R FOR THE ANNUAL MEETING OF SHAREHOLDERS-MAY 1, 2003
O The undersigned hereby constitutes and appoints Barry W. Perry and
Arthur A. Dornbusch, II, and each of them, his true and lawful agents and
X proxies with full power of substitution in each, to represent the
undersigned at the Annual Meeting of Shareholders of ENGELHARD CORPORATION
Y to be held at The Sheraton at Woodbridge Place, 515 Route 1 South, Iselin,
NJ 08830-3010 on Thursday, May 1, 2003 at 9:00 a.m. Eastern Daylight
Savings Time and at any adjournments thereof, on all matters coming before
said meeting.
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. Your
shares cannot be voted unless you sign and return this card.
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ADDRESS CHANGE/COMMENTS (MARK THE CORRESPONDING BOX ON THE REVERSE SIDE)
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FOLD AND DETACH HERE
Dear Shareholder(s)
Enclosed you will find material relating to the Company's 2003 Annual
Meeting of Shareholders. The notice of the annual meeting and proxy
statement describe the formal business to be transacted at the meeting.
Whether or not you expect to attend the Annual Meeting, please
complete the reverse side of the attached proxy card and return promptly 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 Please |_|
THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED Mark Here
SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS for Address
PROXY WILL BE VOTED FOR PROPOSAL 1. Change or
Comments
SEE REVERSE SIDE
FOR WITHHELD
1. Election of Directors; |_| |_|
01 Marion H. Antonini
02 Henry R. Slack
(To withhold vote for any individual nominee write that name below.)
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2. In their discretion, upon other matters as they may properly
come before 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.
I PLAN TO ATTEND THE MEETING |_|
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.
Dated: , 2003
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Signature
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Signature if held jointly
.................................................................................
FOLD AND DETACH HERE
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 11PM EASTERN DAYLIGHT
SAVINGS TIME THE DAY PRIOR TO ANNUAL MEETING DAY.
YOUR INTERNET OR TELEPHONE 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 1-800-435-6710
Use the Internet to vote Use any touch-tone Mark, sign and date
your proxy. Have your telephone to vote your your proxy card and
proxy card in hand when proxy. Have your proxy return it in the
you access the web site. OR card in hand when you OR enclosed
You will be prompted to call. You will be postage-paid
enter your control prompted to enter your envelope.
number, located in the control number, located
box below, to create and in the box below, and
submit an electronic then follow the
ballot. directions given.
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.
YOU CAN VIEW THE ANNUAL REPORT AND PROXY STATEMENT
ON THE INTERNET AT HTTP://WWW.EPROXY.COM/EC