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[GRAPHIC OMITTED]
101 WOOD AVENUE, ISELIN, NEW JERSEY 08830
BARRY W. PERRY
Chairman and
Chief Executive Officer
March 30, 2004
Dear Shareholder:
You are cordially invited to attend the 2004 Annual Meeting of
Shareholders, which will be held at 9 a.m., Eastern Daylight Savings Time, on
Thursday, May 6, 2004, at the Sheraton at Woodbridge Place, 515 Route 1 South,
Iselin, NJ 08830-3010.
The enclosed Notice and Proxy Statement contain information about matters
to be considered at the Annual Meeting, at which the business and operations of
Engelhard will also be reviewed. Discussions at our Annual Meeting have
generally been interesting and useful, and we hope that you will be able to
attend. If you plan to attend, please check the box provided on the proxy card
and an admission ticket will be sent to you. Only shareholders and their proxies
will be permitted to attend the Annual Meeting.
Whether or not you plan to attend, we urge you to complete, sign and return
the enclosed proxy card or to vote over the Internet or by telephone, so that
your shares will be represented and voted at the Annual Meeting.
Sincerely yours,
/s/ Barry W. Perry
ENGELHARD CORPORATION
101 WOOD AVENUE
ISELIN, NEW JERSEY 08830
--------------------
NOTICE OF THE 2004 ANNUAL MEETING OF SHAREHOLDERS
--------------------
To our Shareholders:
March 30, 2004
The Annual Meeting of Shareholders of Engelhard Corporation, a Delaware
corporation, will be held on Thursday, May 6, 2004 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 15,
2004.
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 2004
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 6, 2004.You are invited to attend the Annual Meeting and are
requested to vote on the proposals described in this proxy statement.
WHO IS ENTITLED TO VOTE?
Holders of Common Stock as of the close of business on March 15, 2004 will
be entitled to vote. On such date there were outstanding and entitled to vote
124,271,610 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 11:59 p.m. Eastern Daylight Savings Time on
May 5, 2004.
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 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
shareholders known to us who owned beneficially more than five percent (5%) of
our voting securities as of March 1, 2004.
AMOUNT AND
NATURE
OF BENEFICIAL PERCENT OF
OWNERSHIP CLASS
------------- ----------
Wellington Management Company, LLP (1) (2) .......... 15,516,313 12.37%
75 State Street
Boston, Massachusetts 02109
Dodge & Cox (3) ..................................... 12,582,632 10.00%
One Sansome Street
35th Floor
San Francisco, California 94104
Citigroup Inc. (4) .................................. 10,920,098 8.70%
399 Park Avenue
New York, New York 10043
Vanguard Windsor Funds--Vanguard Windsor Fund (2) (5) 9,476,500 7.55%
100 Vanguard Boulevard
Malvern, Pennsylvania 19355
Aim Funds Management, Inc. (6) ...................... 6,757,300 5.39%
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, 2004. The Schedule 13G reports that Wellington Management
Company, LLP shares dispositive power with respect to all of the reported
shares, and shares voting power with respect to 5,569,563 of such shares.
(2) 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.
(3) As reported by Dodge & Cox on an amendment to its Schedule 13G filed with
the SEC on February 17, 2004. The Schedule 13G reports that Dodge & Cox has
sole dispositive power with respect to all of the reported shares, has sole
voting power with respect to 11,768,732 of such shares and shares voting
power with respect to 134,200 of such shares.
3
(4) As reported by Citigroup Inc. and its wholly-owned subsidiaries Citigroup
Global Markets Inc., Citigroup Financial Products Inc. and Citigroup Global
Markets Holdings Inc. on an amendment to its Schedule 13G filed with the
SEC on February 5, 2004. The Schedule 13G reports that Citigroup Inc. and
its wholly-owned subsidiaries Citigroup Global Markets Inc., Citigroup
Financial Products Inc. and Citigroup Global Markets Holdings Inc. have
shared beneficial ownership of the reported shares.
(5) As reported by Vanguard Windsor Funds--Vanguard Windsor Fund on an
amendment to its Schedule 13G filed with the SEC on February 6, 2004.
(6) As reported by AIM Funds Management, Inc. on Schedule 13G filed with the
SEC on February 13, 2004.
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. Burner and Mr.
Napier are nominees for election as Class II Directors at the Annual Meeting. If
elected, they will serve until 2007. The Class III Directors will be considered
for reelection at our 2005 Annual Meeting. The Class I Directors will be
considered for reelection at our 2006 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. Burner
and Mr. Napier as Class II Directors.
INFORMATION WITH RESPECT TO NOMINEES AND
DIRECTORS WHOSE TERMS CONTINUE
The following table sets forth the name and age of each nominee and
Director whose term continues, all other positions and offices, if any, now held
by him or her with Engelhard and his or her principal occupation during the last
five years.
This year, Mr. Burner, who was elected as a Director by the Board in
October 2003, is standing for election by the shareholders for the first time.
Mr. Burner was identified to the Board by an executive recruitment firm which
Engelhard retained for this purpose.
5
NOMINEES FOR REELECTION AT THIS MEETING,
AGES, PRINCIPAL BUSINESS EXPERIENCE DURING THE
PAST FIVE YEARS, BOARD MEMBERSHIPS (CLASS II)
---------------------------------------------
DAVID L. BURNER
Age 64. Mr. Burner has been a director of Engelhard since October 2003. He
was the Chairman and Chief Executive Officer of Goodrich Corporation,
an aerospace systems and services company, from prior to 1999 until
his retirement in October 2003. He is also a director of Progress
Energy, Inc., Milacron, Inc., Lance, Inc. and Briggs & Stratton
Corporation.
JAMES V. NAPIER
Age 67. 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 1999 until his retirement in November 2000. He
is also a director of Scientific-Atlanta, Inc., Intelligent Systems
Corporation, Vulcan Materials Company, McKesson Corporation and Wabtec
Corporation.
6
DIRECTORS WITH TERMS EXPIRING MAY 2005,
AGES, PRINCIPAL BUSINESS EXPERIENCE DURING THE
PAST FIVE YEARS, BOARD MEMBERSHIPS (CLASS III)
----------------------------------------------
NORMA T. PACE
Age 82. Mrs. Pace has been a director of Engelhard since 1987 and was
re-assigned from a Class II Director to a Class III Director at the
time of Mr. Burner's election. She has been a Partner of Paper
Analytics Associates, a planning and consulting company, from prior to
1999.
BARRY W. PERRY
Age 57. 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 1999 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 59. Mr. Watson has been a director of Engelhard since 1991. He has
been the Chief Executive Officer of Pittencrieff Glen Associates, a
leadership and management-consulting firm, since June 1999. From July
2000 to September 2001, he was the President and Chief Executive
Officer of ValiGen N.V., a biotechnology company. From prior to 1999
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, InforMedix, Inc. and Genta Inc.
and Chairman of OraSure Technologies, Inc.
7
DIRECTORS WITH TERMS EXPIRING MAY 2006,
AGES, PRINCIPAL BUSINESS EXPERIENCE DURING THE
PAST FIVE YEARS, BOARD MEMBERSHIPS (CLASS I)
--------------------------------------------
MARION H. ANTONINI
Age 73. Mr. Antonini has been a director of Engelhard since 1985. He has
been a Principal of Kohlberg & Co., a private merchant banking firm,
since prior to 1999 and has served as a director and an executive for
many companies in which Kohlberg & Co. held an interest. One of these,
Printing Arts America, a private commercial printing company, filed a
Chapter 11 bankruptcy petition in October 2001, within two years of
Mr. Antonini's resignation as its President. He is also a director of
Scientific-Atlanta, Inc. and Redaelli Tecna S.p.A.
HENRY R. SLACK
Age 54. 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 1999 to June
1999, Mr. Slack was the Chief Executive of Minorco SA, an
international natural resources company. He is also a director of
African Gold Plc.
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, 2004 for all nominees, Directors, each of the Executive
Officers listed on the Summary Compensation Table and all Directors and
Executive Officers as a group.
NAME SHARES PERCENT
---- ---------- -------
Marion H. Antonini .............................. 106,047(1)(2)(3)(4)(5) *
David L. Burner ................................. 7,593(5) *
Arthur A. Dornbusch, II ......................... 714,467(6)(7) *
John C. Hess .................................... 281,533(6)(7) *
Peter B. Martin ................................. 150,211(6)(7) *
James V. Napier ................................. 62,049(1)(2)(3)(5) *
Norma T. Pace ................................... 66,983(1)(2)(3)(5) *
Barry W. Perry .................................. 1,510,671(6)(7) 1.2
Henry R. Slack .................................. 23,556(1)(2)(4)(5) *
Michael A. Sperduto ............................. 223,432(6)(7) *
Douglas G. Watson ............................... 81,411(1)(2)(3)(5) *
All Directors and Executive Officers as a group . 3,417,804(1)(2)(3)(4)(5)(6)(7) 2.6
* Represents beneficial ownership of less than 1%.
(1) Includes 19,500 shares of Common Stock subject to options granted to each
of Messrs. Antonini, Napier and Watson and Mrs. Pace and 7,500 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, 2004.
(2) Includes 21,529, 16,776, 2,708, 9,140 and 19,873 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 51,423, 15,250, 20,581 and 6,369 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 7,593 shares of voting, but unvested, Common Stock for each of
Messrs. Antonini, Burner, Napier, Slack, Watson, and Mrs. Pace granted
under the Stock Bonus Plan for Non-employee Directors.
9
(6) Includes 546,231, 245,774, 125,726, 1,332,641, 182,342 and 2,573,683 shares
of Common Stock subject to options granted to Messrs. Dornbusch, Hess,
Martin, Perry, Sperduto and all Directors and Executive Officers as a
group, respectively, under our Stock Option Plan of 1991 (the "Stock Option
Plan"), the Directors Stock Option Plan and the 2002 Long Term Incentive
Plan, which options may be exercised within 60 days from March 1, 2004.
(7) Includes 18,319, 11,455, 6,311, 75,592, 13,870 and 145,214 shares of
voting, but unvested, restricted Common Stock held by Messrs. Dornbusch,
Hess, Martin, Perry, Sperduto and all Directors and Executive Officers as a
group, respectively.
CORPORATE GOVERNANCE
HOW OFTEN DID THE BOARD OF DIRECTORS MEET DURING 2003?
Our Board of Directors held a total of six meetings during 2003. During
2003, all of our incumbent Directors attended more than 90% of the meetings of
the Board and meetings of committees of the Board on which they served.
Engelhard's Corporate Governance Guidelines provide that directors are
expected to attend the annual meeting of shareholders. All then members of
Engelhard's Board of Directors attended the Annual Meeting of Shareholders in
2003.
WHAT COMMITTEES DOES THE BOARD OF DIRECTORS HAVE?
Initially in 2003, the standing committees of the Board of Directors
included an Audit Committee, a Compensation Committee and a Stock Option/Stock
Bonus Committee. Effective February 12, 2004, the Board of Directors revised its
committee structure. Among the standing committees of the Board of Directors are
the Audit Committee, the Compensation Committee and the Nominating and
Governance Committee. Copies of the charters for these committees, as well as
Engelhard's Corporate Governance Guidelines, Engelhard's Policies of Business
Conduct and Senior Financial Officer Ethics Code, are available under the
Corporate Governance portion of the Investor Relations section of our website at
www.engelhard.com and without charge in print to any shareholder who requests
them from our Corporate Secretary.
AUDIT COMMITTEE
The members of the Audit Committee are Mr. Watson (Chairman), Mrs. Pace and
Mr. Napier. The Audit Committee assists the Board of Directors' oversight of (a)
the integrity of Engelhard's financial statements, (b) the independent auditor's
qualifications and independence, (c) the performance of Engelhard's internal
audit function and independent auditors and (d) Engelhard's compliance with
legal and regulatory requirements. The Audit Committee has the sole authority to
appoint and terminate Engelhard's independent auditors. The Board of Directors
has determined that all three members of the Audit Committee are audit committee
financial experts as described in Item 401(h) of Regulation S-K. In addition,
the Board of Directors has determined that each of the members of the Audit
Committee is "independent" as defined by the New York Stock Exchange ("NYSE")
Listing Standards and the rules of the SEC applicable to audit committee
members. The
10
Audit Committee meets the definition of an audit committee as set forth in
Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The Audit Committee
held nine meetings during 2003. See "Report of Audit Committee" on page 29 for
more information.
COMPENSATION COMMITTEE
The members of the Compensation Committee are Messrs. Antonini (Chairman),
Napier and Slack. The Compensation Committee assists the Board of Directors by
taking direct responsibility for (a) reviewing and approving corporate goals and
objectives relevant to the Chief Executive Officer's compensation, evaluating
the Chief Executive Officer's compensation in light of these goals and
objectives and, either as a committee or together with the other independent
directors (as directed by the Board), determining and approving the Chief
Executive Officer's compensation level based on this evaluation, (b) reviewing
and approving compensation for executives (other than the Chief Executive
Officer) and reviewing and making recommendations to the Board with respect to
incentive compensation and equity-based plans, and (c) producing an annual
report on executive compensation for inclusion in the Company's proxy statement
in accordance with applicable laws, rules and regulations. The Board of
Directors has determined that each member of the Compensation Committee is
"independent" as defined by the NYSE Listing Standards. The Compensation
Committee (and its predecessor) held five meetings during 2003. See
"Compensation Committee Report on Executive Compensation" on page 23 for more
information.
NOMINATING AND GOVERNANCE COMMITTEE
The members of the Nominating and Governance Committee are Messrs. Antonini
(Chairman) and Watson. The Nominating and Governance Committee is primarily
responsible for (a) identifying individuals qualified to become Board members
and recommending to the Board the director nominees for the next annual meeting
of shareholders or to be appointed by the Board to fill an existing or newly
created vacancy on the Board, (b) overseeing the evaluation of the Board and
management and (c) developing and recommending to the Board the Corporate
Governance Guidelines applicable to the Company. The Board of Directors has
determined that each member of the Nominating and Governance Committee is
"independent" as defined by the NYSE Listing Standards. The Nominating and
Governance Committee was formed in February 2004.
The Nominating and Governance Committee selects each nominee based on the
nominee's skills, achievements and experience. As set forth in Engelhard's
Corporate Governance Guidelines, the following criteria will be considered in
selecting candidates for the Board: independence, wisdom, integrity, an
understanding and general acceptance of Engelhard's corporate policy, valid
business or professional knowledge and experience that can bear on Engelhard's
and the Board of Directors' challenges and deliberations, a proven record of
accomplishment with excellent organizations, an inquiring mind, a willingness to
speak one's mind, an ability to challenge and stimulate management, future
orientation, a willingness to commit time and energy, diversity, and
international/global experience.
11
When seeking candidates for Director, the Nominating and Governance
Committee may solicit suggestions from incumbent Directors, management,
shareholders or others. After conducting an initial evaluation of a candidate,
the Nominating and Governance Committee may also ask the candidate to meet with
management. If the Committee believes a candidate would be a valuable addition
to the Board, it will recommend to the full Board that candidate's election. The
Nominating and Governance Committee has the authority under its charter to
retain a search firm. Prior to the formation of the Nominating and Governance
Committee, management, in consultation with the directors who currently comprise
the Nominating and Governance Committee, engaged two executive recruitment firms
to identify and conduct preliminary evaluations of potential nominees.
Engelhard's Corporate Governance Guidelines provide that the Governance and
Nominating Committee will consider proposals for nominees for Director by
shareholders, which are made in writing to Corporate Secretary, Engelhard
Corporation, 101 Wood Avenue, Iselin, New Jersey 08830. In order to nominate a
director at the Annual Meeting, Engelhard's By-Laws require that a shareholder
follow the procedures set forth in Article II, Section 7 of Engelhard's By-Laws.
In order to recommend a nominee for a director position, a shareholder must be a
shareholder of record at the time it gives notice of recommendation and must be
entitled to vote for the election of directors at the meeting at which such
nominee will be considered. Shareholder recommendations must be made pursuant to
written notice delivered to the Secretary at the principal executive offices of
Engelhard (i) in the case of a nomination for election at an annual meeting, not
less than 60 days prior to the first anniversary of the date of Engelhard's
notice of annual meeting for the preceding year's annual meeting; and (ii) in
the case of a special meeting at which directors are to be elected, not later
than the close of business on the later of the 90th day prior to such special
meeting or the tenth day following the day on which public announcement is first
made of the date of the meeting and of the nominees proposed by the Board to be
elected at the special meeting. In the event that the date of the annual meeting
is changed by more than 30 days from the anniversary date of the preceding
year's annual meeting, the shareholder notice described above will be deemed
timely if it is received not later than the close of business on the later of
the 90th day prior to such annual meeting or the tenth day following the day on
which public announcement of the date of such meeting is first made.
The shareholder notice must set forth the following:
o As to each person the shareholder proposes to nominate for election as
a director, all information relating to such person that would be
required to be disclosed in solicitation of proxies for the election of
such nominees as Directors pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
such person's written consent of the nominee to serve as a director if
elected, and
o As to the nominating shareholder and the beneficial owner, if any, on
whose behalf the nomination is made, such shareholder's and beneficial
owner's, name and address as they appear on Engelhard's books, the
class and number of shares of Engelhard's common
12
stock which are owned beneficially and of record by such shareholder
and such beneficial owner, and whether either such shareholder or such
beneficial owner intends to deliver a proxy statement and form of proxy
to shareholder.
In addition to complying with the foregoing procedures, any shareholder
nominating a director must also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder.
HOW CAN I COMMUNICATE WITH BOARD MEMBERS?
Except as otherwise designated, the Chairman of the Nominating and
Governance Committee will serve as the presiding Director of regularly scheduled
meetings of the Non-Management Directors. Engelhard's Corporate Governance
Guidelines provide that shareholders of Engelhard and other interested parties
may communicate with one or more of the Non-Management Directors by mail in care
of General Counsel, 101 Wood Avenue, Iselin, New Jersey 08830. Such
communications should specify the intended recipient or recipients. All such
communications, other than unsolicited commercial solicitations or
communications, will be forwarded to any specific addressee and any other
appropriate Director or Directors for review. Unsolicited commercial materials
will be available to any Non-Management Director who wishes to review it.
HOW ARE DIRECTORS COMPENSATED?
Directors who are not our employees each received a retainer at the annual
rate of $40,000 in 2003. In addition, Non-employee Directors received a $1,350
fee for each Board meeting attended in 2003. During 2003, Non-employee Directors
also received a $1,350 fee for each committee meeting attended; a $5,000 annual
retainer for each committee on which they served; and the chairman of each
committee received an additional $5,000 annual retainer. Directors who are
employed by us do not receive any Directors' fees or retainers.
Pursuant to our Deferred Stock Plan For 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
13
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 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 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
14
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 2003.
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 $39,000,000, none of which was drawn in 2003. In
2003, Citibank received an initial fee of $10,000 and annual facility fees of
$34,000 for these facilities. Citigroup received $85,000 in underwriting fees in
our May 13, 2003 note offering. 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 $30,000 in
2003. In addition, Barclays Global Investors, N.A., which reported beneficial
ownership of more than 5% of our Common Stock prior to July 2003, provides
certain investment management services to Engelhard's pension plans. Fees for
such services aggregated approximately $135,000 in 2003.
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 2003, foreign exchange transactions with subsidiaries of Citigroup
aggregated approximately $126,600,000 and metals transactions with Barclays
Bank, plc aggregated approximately $330,000,000. In addition, during 2003,
Engelhard provided services in precious metals financing transactions in which
subsidiaries of Citigroup and Barclays Bank, plc received funds from third
parties. Engelhard received approximately $157,000 in fees from subsidiaries of
Citigroup and approximately $8,000 in net revenues from these transactions in
which Barclays Bank, plc participated.
Vanguard Group, an affiliate of Vanguard Windsor Funds, which reports
beneficial ownership of more than 5% of our Common Stock, received $100,293 for
administering 401(k) plans for our employees during 2003.
15
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the compensation paid by us for services
rendered in all capacities during each of the last three fiscal years to our
Chief Executive Officer and our other four most highly compensated Executive
Officers.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS (1)
---------------------------------------------------- ------------------------------
OTHER ANNUAL RESTRICTED ALL OTHER
COMPENSATION STOCK COMPENSATION
YEAR SALARY ($) BONUS ($) ($) AWARD(S) ($) (2) OPTIONS (#) ($) (1)(3)
---- ---------- --------- ------------- ---------------- ----------- ------------
Barry W. Perry ............ 2003 1,000,000 2,014,900(4)(5) 126,991(6) 1,000,288 238,388 375,398
Director, Chairman 2002 900,000 1,100,000 125,781(6) 326,403 293,352 355,040
and Chief Executive 2001 750,000 1,180,000(4) 95,667(6) 1,223,357 337,424 333,467
Officer
Michael A. Sperduto ....... 2003 307,625 243,400 -- 143,434 61,168 29,581
Vice President, 2002 267,500 200,000 -- 127,755 79,628 27,977
Chief Financial Officer 2001 223,679 155,750 -- 93,666 45,868 26,277
Arthur A. Dornbusch, II ... 2003 325,323 218,100 12,092(7) 135,209 57,460 100,607
Vice President, 2002 315,848 190,000 10,443(7) 127,755 83,520 95,150
General Counsel 2001 307,395 192,500 8,977(7) 126,239 65,416 89,369
and Secretary
John C. Hess .............. 2003 261,783 167,400 -- 91,486 36,208 54,658
Vice President, 2002 249,318 144,000 -- 82,017 49,884 51,693
Human Resources 2001 236,320 146,518 -- 81,364 40,376 48,552
Peter B. Martin ........... 2003 227,244 111,600 -- 41,558 17,176 31,533
Vice President, 2002 222,789 95,000 -- 45,426 26,368 29,823
Investor Relations 2001 216,300 105,000 -- 50,887 24,672 28,011
----------
(1) Our Key Employees Stock Bonus Plan, our Stock Option Plan, our Restricted
Cash Incentive Compensation Plan, our 2002 Long Term Incentive Plan and our
2003 Share Performance 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 20.
(2) As of December 31, 2003, Messrs. Perry, Sperduto, Dornbusch, Hess and
Martin held 78,731, 12,568, 21,108, 12,671 and 7,512 unvested shares,
respectively, of stock, which were awarded pursuant to our Key Employees
Stock Bonus Plan having a market value of $2,357,993, $376,412, $632,185,
$379,496 and $224,984, respectively. The amounts in the preceding sentence
do not include the grants of restricted stock and restricted stock units
which were made in 2004 for services rendered during 2003. Restricted stock
awards of Engelhard's Common Stock granted under the Key Employees Stock
Bonus Plan and the restricted stock units granted under the 2002 Long Term
Incentive Plan vest in five equal annual installments commencing 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
and credit dividend equivalents on restricted stock units, 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 20.
(3) Represents payouts in 2003, 2002 and 2001 pursuant to restricted cash
awards made in 2000 under the Restricted Cash Incentive Compensation Plan.
(4) Includes $750,000 and $250,000 special awards in 2003 and 2001,
respectively, that are not included in the computation of pension benefits.
16
(5) Includes $750,000 awarded under the 2003 Share Performance Incentive Plan.
Under this plan, Mr. Perry was entitled to a formula-based cash award if
Engelhard's average closing stock price from January 1, 2003 through
December 31, 2003 exceeded $28 and the average return on Engelhard's Common
Stock during that period exceeded the average return on the S&P All
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
exceeded 115% of the average closing price for the same period in 2002. The
average closing price condition was met, and Mr. Perry's award has been
credited to a deferred compensation account, and 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.
(6) Amounts include a $25,000 allowance for life insurance and $47,068 for
supplemental disability insurance coverage in each of 2003, 2002 and 2001.
(7) Represents interest of $12,092, $10,443, and $8,997 accrued during 2003,
2002 and 2001, respectively, in excess of 120% of the applicable federal
interest rate with respect to salary deferrals.
The following table sets forth information concerning individual grants of
stock options made under the 2002 Long Term Incentive Plan in December 2003 and
February 2004 for services rendered during 2003 by each of the named Executive
Officers.
OPTION GRANTS FOR SERVICES RENDERED DURING 2003
GRANT DATE
INDIVIDUAL GRANTS VALUE
---------------------------------------------------------------------------------------------- -------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES FOR EXERCISE OR GRANT DATE
OPTIONS SERVICES RENDERED BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#) (1) DURING 2003 ($/SH) DATE ($) (2)
----------------------- --------------- ----------------- ----------- ---------- -------------
Barry W. Perry 175,000 17% 29.99 12/11/13 1,895,250
63,388 6% 28.64 2/11/14 618,033
Michael A. Sperduto 37,280 4% 29.99 12/11/13 403,742
23,888 2% 28.64 2/11/14 232,908
Arthur A. Dornbusch, II 34,952 3% 29.99 12/11/13 378,530
22,508 2% 28.64 2/11/14 219,453
John C. Hess 20,972 2% 29.99 12/11/13 227,127
15,236 1% 28.64 2/11/14 148,551
Peter B. Martin 10,252 1% 29.99 12/11/13 111,029
6,924 1% 28.64 2/11/14 67,509
----------
(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 20.
(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
17
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 6.5 years, which represents anticipated exercise
trends for the named Executive Officers;
(b) interest rates of 3.8% and 3.6% for December 2003 and February 2004,
respectively, that represent the current yield curves as of the grant
dates;
(c) an average volatility of approximately 35% calculated using average
weekly stock prices for the 6.5 years prior to the grant date; and
(d) dividend yields of 1.53% and 1.46% for December 2003 and February
2004, respectively (the dividend yields on the applicable grant
dates).
The following table sets forth information concerning each exercise of
stock options during 2003 by each of the named Executive Officers and the value
of unexercised options at December 31, 2003.
AGGREGATE OPTION EXERCISES IN 2003 AND VALUES AT DECEMBER 31, 2003
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE DECEMBER 31, 2003 (#) DECEMBER 31, 2003 ($)
EXERCISE REALIZED ----------------------------- ------------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------- ----------- -------- ----------- ------------- ------------- ---------------
Barry W. Perry 20,150 229,583 1,224,691 688,472 12,322,671 3,002,542
Michael A. Sperduto -- -- 161,069 143,822 1,521,267 742,723
Arthur A. Dornbusch, II . . 39,000 476,697 508,928 175,552 5,399,810 986,985
John C. Hess 3,525 41,888 223,450 105,362 2,366,494 588,735
Peter B. Martin -- -- 112,392 58,339 1,184,422 331,564
18
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 retirement program. 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
--------------------------- ---------- ---------- ---------- ---------- ----------
$ 400,000 $133,674 $ 181,674 $ 229,674 $ 277,674 $ 277,674
600,000 205,674 277,674 349,674 421,674 421,674
800,000 277,674 373,674 469,674 565,674 565,674
1,000,000 349,674 469,674 589,674 709,674 709,674
1,200,000 421,674 565,674 709,674 853,674 853,674
1,400,000 493,674 661,674 829,674 997,674 997,674
1,600,000 565,674 757,674 949,674 1,141,674 1,141,674
1,800,000 637,674 853,674 1,069,674 1,285,674 1,285,674
2,000,000 709,674 949,674 1,189,674 1,429,674 1,429,674
2,200,000 781,674 1,045,674 1,309,674 1,573,674 1,573,674
2,400,000 853,674 1,141,674 1,429,674 1,717,674 1,717,674
2,600,000 925,674 1,237,674 1,549,674 1,861,674 1,861,674
2,800,000 997,674 1,333,674 1,669,674 2,005,674 2,005,674
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 16, credited years of service
under the plans as of December 31, 2003 are as follows: Mr. Perry, 15 years; Mr.
Sperduto, 20 years; Mr. Dornbusch, 27 years; Mr. Hess, 19 years; and Mr. Martin,
7 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.
19
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 agreement extended until December 31,
2003. Mr. Perry's employment agreement is automatically 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 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 provided for a formula-based grant of additional
equity awards for 2001 if Engelhard's average closing stock price for 2001
exceeded $25 and the total return on Engelhard's Common Stock during calendar
year 2001 exceeded 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 16 and "Compensation Committee
Report on Executive Compensation" on page 23. Mr. Perry also received an
additional five years of credited service under our supplemental retirement
program, is entitled to participate in the benefit plans of Engelhard and is
entitled to certain other perquisites.
In the event Engelhard terminates Mr. Perry's employment other than for
cause (as defined in the agreement) or in the event Mr. Perry terminates his
employment for good reason (as defined in the agreement), the employment
agreement provides that Mr. Perry will receive an amount equal to two times the
lesser of (i) 4.5 times his then current annual base salary or (ii) the average
for the three calendar years preceding such calculation (or such lesser number
of calendar years beginning with the calendar year 2001) of the sum of Mr.
Perry's annual base salary, annual bonus and the grant date cash value of equity
based awards. Amounts payable pursuant to this termination provision will be
reduced by certain severance amounts paid to Mr. Perry under the Change in
Control Agreements described below. Upon any such termination, Mr. Perry will
also be entitled to continued benefits for two years following such termination.
Pursuant to our Change in Control Agreements, we will provide severance
benefits in the event of a termination of an Executive (as defined), except a
termination:
(1) because of death,
(2) because of "Disability,"
(3) by Engelhard for "Cause," or
(4) by the Executive other than for "Good Reason,"
20
within the period beginning on the date of a "Potential Change in Control" (as
such terms are defined in the Change in Control Agreement) or "change in
control" (as defined below) and ending on the third anniversary of the date on
which a "change in control" occurs. The severance benefits include:
(1) the payment of salary to the Executive through the date of termination
of employment together with salary in lieu of vacation accrued;
(2) an amount equal to a pro-rated incentive pool award under our
Incentive Compensation Plan, determined as set forth in the Agreement;
(3) an amount equal to two times the sum of the highest annual salary and
incentive pool award in effect during any of the preceding 36 months,
determined as set forth in the Agreement;
(4) continued coverage under our life, disability, health, dental and
other employee welfare benefit plans for up to two years;
(5) continued participation and benefit accruals under our Supplemental
Retirement Program for two years following the date of termination;
and
(6) an amount sufficient, after taxes, to reimburse the Executive for any
excise tax under Section 4999 of the Internal Revenue Code of 1986, as
amended.
Each of Messrs. Perry, Sperduto, Dornbusch, 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,
21
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" 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.
22
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Under the overall direction of the Compensation Committee of the Board of
Directors and in accordance with our Stock Option Plans and Long Term Incentive
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 Committee is 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 18
other senior managers worldwide;
o Aggregate cash incentive awards for Engelhard and specific individual
cash awards under the annual plan for the Chief Executive Officer and
approximately 18 other senior managers worldwide;
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, 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 a number of 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 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
23
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, free cash flow, 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 10% for 2004 in accordance with
competitive practice. 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 bonus award, restricted stock and stock options) to
link total compensation for the participant with both competitive practice
and the performance of Engelhard and/or the applicable business unit and
the individual. The plan facilitates clarity of performance expectations
and encourages the identification and commitment to exceptional 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. Management, under the direction of the
Committee, 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 2003 under Engelhard's
Management Incentive Plan increased by 15.0% from 2002. 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 2003. Once each group's pool was
established, individual performance based awards were made as described
below. In assessing the appropriate level of compensation for Mr. Perry,
the Compensation Committee retained an independent compensation consultant,
which was charged with reviewing both competitive practice and the
Company's performance against applicable comparator companies to ensure
that Mr. Perry's compensation was properly aligned with shareholders'
interests and to further ensure that his compensation was aligned with
performance. As part of this process the Company's performance against a
peer group of companies was assessed; among the measures reviewed were one
and three year results for operating margin, return
24
on invested capital, total shareholder return, and return on average
assets. In the aggregate these measures indicate that the Company's
performance was at or about the 75th percentile when reviewed against the
equivalent performance of the peer group. (Such review was supplemental to,
and supportive of, other similar studies conducted at the Committee's
direction during 2003.)
a. ANNUAL CASH INCENTIVE PROGRAM
This program is designed to provide focus on expected annual
results and recognition of accomplishment for the year.
For 2003, actual cash payments determined under the Management
Incentive Plan, including the cash incentive payments to all Executive
Officers, were 98% of the competitively defined pool as factored for
performance.
For the year 2003, Mr. Perry received a cash incentive award of
$2,014,900, compared with $1,100,000 for 2002. The 2003 amount
includes $750,000 awarded under the 2003 Share Performance Incentive
Plan, a formula-based plan that credits awards to a deferred
compensation account and vests in three equal annual installments
beginning on the first anniversary of the date of grant. See Note 5 to
the Summary Compensation Table contained in "Executive Compensation
and Other Information" on page 16. The Committee has approved a
similar compensation arrangement for Mr. Perry for 2004. 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 for those employees in businesses
whose achievement of targeted results and whose individual performance
warrants such compensation.
b. RESTRICTED STOCK AND RESTRICTED STOCK UNITS
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 2003 was 96% 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 2003 was in the form of restricted stock.
For the year 2003, Mr. Perry received a restricted stock award of
13,190 shares under the Key Employees Stock Bonus Plan. In addition,
an award of 21,470 restricted stock units was granted Mr. Perry for
2003 under the 2002 Long-Term Incentive Plan. These
25
vest ratably over five years with conversion to shares on payout, earn
dividend equivalents that accrue interest and are generally comparable
in economic benefit to the Company's traditional restricted stock
awards, except that these restricted stock units do not vest on
retirement absent a determination by the Board. The award of these
restricted stock units reflects the Committee's determination, based
on the specific report of a nationally recognized compensation
consulting firm as well as additional supporting data, that Mr.
Perry's annual compensation was below the target level in relation to
CEO compensation at peer organizations, and that the award of
additional restricted stock units to Mr. Perry provided an effective
means to address the differential while incentivizing both performance
and retention.
Mr. Perry received a restricted stock award of 15,700 shares
pursuant to the Management Incentive Plan for 2002.
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 20. 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.
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.
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 2003 under the
Management Incentive Plan were 96% of the pool generated.
For the year 2003, Mr. Perry received 238,388 stock option awards
under the Management Incentive Plan. He received 293,352 stock options
in 2002.
The Committee directs the purchase of compensation survey information from
several independent professional consultants in order to renew the base, annual
cash incentive, and total compensation of Mr. Perry and other individual senior
managers and employee groups.
26
The Committee is 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 Committee 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. The Committee
is aware of this limitation and will continue to consider tax consequences as
well as other relevant factors in connection with compensation decisions.
COMPENSATION COMMITTEE
Marion H. Antonini James V. Napier Henry R. Slack
27
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN(a)
AMONG ENGELHARD CORPORATION, S&P 500 INDEX
AND ALL S&P CHEMICALS(b)
[THE DATA BELOW APPEARS AS A LINE GRAPH IN THE PRINTED DOCUMENT]
ENGELHARD ALL S&P
CORPORATION S&P 500 CHEMICALS
----------- ------- ---------
1998 100 100 100
1999 98.85 121.04 119.16
2000 109.24 110.02 104.07
2001 150.75 96.95 106.14
2002 123.61 75.52 101.73
2003 168.31 97.18 128.04
DECEMBER 31,
------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
------ ------ ------ ------ ------ ------
Engelhard Corporation ............ 100.00 98.85 109.24 150.75 123.61 168.31
S&P 500 Index .................... 100.00 121.04 110.02 96.95 75.52 97.18
All S&P Chemicals ................ 100.00 119.16 104.07 106.14 101.73 128.04
----------
(a) Assumes $100 invested on December 31, 1998 in each referenced group with
reinvestment of dividends.
(b) The All S&P Chemicals index includes all 42 companies (including Engelhard)
in all chemical subindices from the S&P 1500.
28
REPORT OF AUDIT COMMITTEE
GENERAL
The primary purpose of the Audit Committee is to assist the Board of
Directors' oversight of (a) the integrity of Engelhard's financial statements,
(b) the independent auditor's qualifications and independence, (c) the
performance of Engelhard's internal audit function and independent auditors and
(d) Engelhard's compliance with legal and regulatory requirements. The Audit
Committee has the sole authority to appoint and terminate Engelhard's
independent auditors. The Audit Committee is composed of all independent
directors and operates under a written charter adopted and approved by the Board
of Directors, attached as Appendix A to this Proxy Statement. During the fiscal
year 2003, the Audit Committee held nine meetings.
It is not the responsibility of the Audit Committee to plan or conduct
audits, determine that Engelhard's financial statements are in all material
respects complete and accurate in accordance with generally accepted accounting
principles, or to certify Engelhard's financial statements. This is the
responsibility of management and the independent auditors. It is also not the
responsibility of the Audit Committee to guarantee the independent auditor's
report or to assure compliance with laws and regulations and Engelhard's
Policies of Business Conduct.
Based on the Audit Committee's review of the audited financial statements
as of and for the fiscal year ended December 31, 2003 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, 2003 be included in Engelhard's
Annual Report on Form 10-K for such fiscal year.
AUDIT COMMITTEE
Douglas G. Watson James V. Napier Norma T. Pace
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.
29
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 Ernst & Young LLP ("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).
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.
30
FEES BILLED TO ENGELHARD BY ERNST &YOUNG LLP DURING EACH OF THE FISCAL YEARS
ENDED DECEMBER 31, 2003 AND 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 2003, the review of Engelhard's financial statements included in
Engelhard's Quarterly Reports on Form 10-Q during the fiscal year ended December
31, 2003 and statutory audits in non-U.S. locations, totaled $3,092,000 as
compared to $2,418,000 for the fiscal year ended December 31, 2002.
AUDIT-RELATED FEES
The aggregate fees billed to Engelhard by E&Y during each of the fiscal
years ended December 31, 2003 and December 31, 2002 for audit-related services
totaled $439,000 and $241,000, respectively. 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 each of the fiscal
years ended December 31, 2003 and December 31, 2002 for tax services totaled
$3,170,000 and $1,274,000, respectively. 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 each of
the fiscal year ended December 31, 2003 and December 31, 2002, other than those
described above.
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
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. Engelhard's Audit Committee has established detailed policies
and procedures for the pre-approval of audit, audit-related, tax and other
services. These procedures include review and approval of the nature of
permissible services in 31 specific service categories. The Audit Committee has
pre-approved fees within nine service categories. Additionally, and
notwithstanding any pre-approval, any individual service for $100,000 or more
requires explicit review and approval of the Audit Committee before the auditor
is engaged. The Chairman has authority to approve engagements within permitted
service categories on an interim basis, subject to review at the next Audit
Committee meeting.
31
FUTURE SHAREHOLDER PROPOSALS
HOW DO I MAKE A PROPOSAL FOR THE 2005 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 2005
Annual Meeting of Shareholders (the "2005 Annual Meeting") is November 30, 2004.
Any shareholder proposal submitted outside of the processes of Rule 14a-8 of the
Exchange Act must be received by us after December 30, 2004 and before January
29, 2005. If received by us after January 29, 2005, then our proxy for the 2005
Annual Meeting may confer discretionary authority to vote on such matter without
any discussion of such matter in the proxy statement for the 2005 Annual
Meeting.
HOUSEHOLDING
The SEC has 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 shareholder sharing an address with another
shareholder 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 shareholders 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.
32
ELECTRONIC PROXY VOTING
Registered shareholders can vote their shares via (1) a toll-free telephone
call from the U.S. and Canada; (2) the Internet; or (3) by mailing their signed
proxy card. The telephone and Internet voting procedures are designed to
authenticate shareholder's identities, to allow shareholders to vote their
shares and to confirm that their instructions have been properly recorded.
Specific instructions to be followed by any registered shareholder interested in
voting via telephone or the Internet are set forth on the enclosed proxy card.
OTHER MATTERS
At the date of this proxy statement, the Board of Directors has no
knowledge of any business other than that described herein which will be
presented for consideration at the meeting. In the event any other business is
presented at the meeting, the persons named in the enclosed proxy will vote such
proxy thereon in accordance with their judgment in the best interests of
Engelhard.
By Order of the Board of Directors
ARTHUR A. DORNBUSCH, II
VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
March 30, 2004
33
APPENDIX A
ENGELHARD CORPORATION
AUDIT COMMITTEE CHARTER
I. AUDIT COMMITTEE PURPOSE
The Audit Committee (the "Committee"), in its capacity as a committee of
the Board, shall assist the Board in overseeing:
-- the integrity of the Company's financial statements,
-- the compliance by the Company with all applicable laws, regulations
and corporate policies,
-- the independent auditor's qualifications and independence, and
-- the performance of the Company's internal audit function and
independent auditor.
The Audit Committee shall prepare an audit committee report as required by
the SEC to be included in the Company's proxy statement.
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the responsibility or duty of the Committee to plan or
conduct audits, to guarantee the auditor's report, to certify the Company's
financial statements or to determine that the Company's financial
statements are complete and accurate and are in accordance with generally
accepted accounting principles or applicable rules and regulations. It is
also not the responsibility of the Committee to ensure compliance with laws
and regulations or with the Company's Policies of Business Conduct. These
are the responsibilities of management and the independent auditor, as
appropriate.
II. AUDIT COMMITTEE AUTHORITY
The Committee has the sole authority to, and shall directly, appoint,
retain, evaluate and terminate the Company's independent auditor, which
shall report directly to the Committee. The Committee shall be directly
responsible for determining the compensation (including as to fees and
terms) and oversight of the work of the Company's independent auditor
(including resolution of disagreements between management and the
independent auditor regarding financial reporting). The Committee shall
have the sole authority to, and shall pre-approve all auditing services and
permitted non-audit services performed for the Company by the independent
auditor, subject to applicable laws, rules and regulations. The Committee
has the authority, without Board approval, to retain, at the Company's
expense, independent or outside legal, accounting, or other advisors of its
choice as it deems necessary or
A-1
appropriate in the performance of its duties. The Company shall provide
appropriate funding, as determined by the Committee, for payment of
compensation to such advisors employed by the Committee, to any registered
public accounting firm engaged for the purpose of preparing or issuing an
audit report or performing other audit, review or attest services for the
Company and for ordinary administrative expenses of the Committee that are
necessary or appropriate in carrying out its duties.
The Committee may request any officer or employee of the Company or the
Company's counsel or independent auditor to attend any meeting of the
Committee or to meet with any members of, or consultants to, the Committee.
The Committee may delegate authority to an individual member of the
Committee or to subcommittees to the extent permitted by applicable laws,
rules and regulations, including those of the New York Stock Exchange.
III. AUDIT COMMITTEE MEMBERSHIP AND MEETINGS
The Committee shall be comprised of three or more independent directors
appointed annually by the Board. Each member shall comply with and satisfy
requirements of the New York Stock Exchange and all other applicable laws,
rules and regulations and may be removed by the Board of Directors in its
discretion. If a Committee Chairman is not designated or present, the
members of the Committee may designate a Chairman by majority vote of the
Committee membership present at the meeting.
All members of the Committee shall be financially literate, as such
qualification is interpreted by the Board in its business judgement, or
must become financially literate within a reasonable time after his or her
appointment to the Committee. In addition, at least one member of the
Committee shall have accounting or related financial management expertise,
as determined by the Board in its business judgment.
The Committee shall meet at stated times four times per year, or more
frequently as circumstances dictate. Meetings of the Committee shall be
called by the Chairman of the Committee or the Chief Executive Officer of
the Company. All meetings of the Committee shall be held pursuant to the
Bylaws of the Company with regard to notice and waiver thereof, and written
minutes of each meeting shall be duly filed in the Company's records.
Reports of meetings of the Committee shall be made to the Board at its
regularly scheduled meeting following the Committee meeting accompanied by
any recommendations to the Board approved by the Committee.
Periodically, the Committee shall meet with management, the director or
senior representative of internal audit and the independent auditor in
separate sessions to discuss any matters that the Committee or any of the
aforementioned believes should be discussed.
A-2
IV. AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES
The Committee shall:
A. GENERAL
1. Discuss with management and the independent auditor the annual
audited financial statements, including disclosures made in
management's discussion and analysis, and any related
certifications required to be made by any officer of the Company,
and recommend to the Board whether the audited financial
statements should be included in the Company's Form 10-K.
2. Discuss with management and the independent auditor the Company's
quarterly financial statements, including disclosures made in
management's discussion and analysis, and any related
certifications to be made by any officer of the Company,
including the results of the independent auditor's reviews of the
quarterly financial statements.
3. Review the Company's disclosure controls and procedures and the
certifications required to be made by any officer of the Company
in each of the Company's quarterly reports on Form 10-Q and the
Company's annual report on Form 10-K.
4. Discuss with management the Company's earnings press releases,
including the type and presentation of information to be included
therein, as well as financial information and earnings guidance
provided to analysts and rating agencies. The Committee's
responsibility to discuss earnings releases as well as to review
any financial information and earnings guidance may be done
generally (i.e., discussion of the types of information to be
disclosed and the type of presentation to be made). The Committee
need not discuss in advance each earnings release or each
instance in which the Company may provide earnings guidance.
5. Prepare a report to shareholders to be included in the Company's
annual proxy statement in accordance with applicable laws, rules
and regulations.
6. Discuss with management and the independent auditor major issues
regarding accounting principles and financial statement
presentations, including any significant changes in the Company's
selection or application of accounting principles, and major
issues as to the adequacy of the Company's internal controls and
any special audit steps adopted in light of material control
deficiencies.
7. Review with management and/or the independent auditor, and
discuss as necessary, all significant financial reporting issues
and judgments made in connection with the preparation of the
financial statements, including analyses of the effects of
alternative GAAP methods on the financial statements.
A-3
8. Discuss with management and the independent auditor the effect of
regulatory and accounting initiatives, as well as off-balance
sheet structures, on the Company's financial statements.
9. Discuss with management the Company's major financial risk
exposures and the steps management has taken to monitor and
control such exposures, including the Company's risk assessment
and risk management policies.
10. Review and assess any legal, regulatory and environmental matters
that may have a material impact on the Company's financial
statements.
11. Review the adequacy of internal controls and the activities of
the Company's internal audit department, including the proposed
annual audit plan, periodic reports on the status of the plan,
assessments of the Company's risk management processes and system
of internal control, and summaries of any significant issues
raised during the performance of internal audits.
12. Review and assess compliance with all applicable rules and
regulations of the SEC and the New York Stock Exchange
specifically applicable to the composition and responsibilities
of the Audit Committee.
13. Review annually the Company's Policies of Business Conduct, which
prohibits unethical or illegal activities by the Company's
directors, officers and employees, as well as review the actions
taken to monitor compliance with the Code.
14. Recommend to the Board any waivers for directors or executive
officers proposed to be granted, and review any material waivers
for non-executive officers or employees granted by the General
Counsel, pursuant to the Company's Policies of Business Conduct.
B. INDEPENDENT AUDITORS
The Committee shall:
1. Set clear policies for the Company's hiring of employees or
former employees of the independent auditor who were engaged on
the Company's account.
2. Review and evaluate the experience and qualifications of the lead
(or coordinating) partner of the independent auditor.
3. Obtain and review a report from the independent auditor at least
annually describing (a) the auditor's internal quality-control
procedures, (b) any material issues raised by the most recent
quality-control review, or peer review, of the firm, or by any
inquiry or investigation by governmental or professional
authorities within the preceding five years, respecting one or
more independent audits carried out by the firm and any steps
taken to deal with any such issues, and (c) in order to assess
the auditor's independence, all relationships between the
independent auditor and the Company.
A-4
Evaluate the qualifications, performance and independence of the
independent auditor, taking into account the foregoing report,
the services provided by the independent auditor and the opinions
of management and the internal auditor. In addition to ensuring
the regular rotation of the lead audit partner as required by
law, the Committee should further consider whether, in order to
ensure continuing auditor independence, there should be regular
rotation of the audit firm itself. The Committee shall present it
conclusions to the full Board.
4. Discuss with the independent auditor any matters required to be
discussed in accordance with SAS 61 relating to the conduct of
the audit. In particular, discuss:
(a) the adoption of, proposal of, or changes to, the Company's
significant auditing and accounting principles and practices
as suggested by the independent auditor, internal auditors
or management;
(b) any management or internal control letter provided, or
proposed to be provided, by the independent auditor and the
Company's response to that letter; and
(c) any difficulties encountered in the course of the audit
work, including any restrictions on the scope of activities
or access to requested information, and any significant
disagreements with management.
5. Review with the independent auditor 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
auditor.
6. Review with the independent auditor any audit problems or
difficulties and management's response.
7. Receive, and take any required or appropriate action in relation
to, all reports and other communications which the independent
auditor is required to make to the Audit Committee, including
timely reports concerning:
(a) all critical accounting policies and practices to be used;
(b) all alternative treatments of financial information within
generally accepted accounting principles that have been
discussed with management officials of the Company,
ramifications of the use of such alternative disclosures and
treatments, and the treatment preferred by the independent
auditor; and
(c) other material written communications between the
independent auditor and the management of the Company, such
as any management letter or schedule of unadjusted
differences.
A-5
8. Discuss with the independent auditors their judgments about the
quality, not just the acceptability, of the Company's accounting
principles as applied in its financial reporting.
9. Obtain assurance from the independent auditor that the Company is
in compliance with the provisions of Section 10A of the
Securities Exchange Act of 1934, as amended.
C. OTHER AUDIT COMMITTEE RESPONSIBILITIES
The Committee shall:
1. Review and reassess the adequacy of this Charter and the
Committee's own performance annually or more often as conditions
dictate, and recommend proposed changes to the Board.
2. Review the appointment, performance and replacement of the senior
internal auditing executive and the performance of the internal
audit group.
3. Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, as well as for
confidential, anonymous submission by Company employees of
concerns regarding questionable accounting or auditing matters.
4. Perform any other activities consistent with this Charter, the
Company's By-laws and as the Committee or the Board deems
necessary or appropriate.
A-6
[GRAPHIC OMITTED]
NOTICE OF
ANNUAL MEETING
OF
SHAREHOLDERS
AND PROXY
STATEMENT
May 6, 2004
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VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 11:59 PM 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 Mark, sign and date
Use the Internet to vote your proxy. OR Use any touch-tone telephone to OR your proxy card
Have your proxy card in hand when vote your proxy. Have your proxy and
you access the web site. card in hand when you call. return it in the
enclosed postage-paid
envelope.
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
ENGELHARD CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
FOR THE ANNUAL MEETING OF SHAREHOLDERS-MAY 6, 2004
The undersigned hereby constitutes and appoints Barry W. Perry and Arthur
A. Dornbusch, II, and each of them, his true and lawful agents and proxies with
full power of substitution in each, to represent the undersigned at the Annual
Meeting of Shareholders of ENGELHARD CORPORATION to be held at the Sheraton at
Woodbridge Place, 515 Route 1 South, Iselin, NJ 08830-3010 on Thursday, May 6,
2004 at 9:00 a.m. Eastern Daylight Savings Time and at any adjournments thereof,
on all matters coming before said meeting.
The shares represented by this proxy will be voted as instructed by you and
in the discretion of the proxies on all other matters. If not otherwise
specified, shares will be voted in accordance with the recommendation of the
Board of Directors. This proxy, if properly executed and delivered, will revoke
all prior proxies related to the shares.
ADDRESS CHANGE/COMMENTS (MARK THE CORRESPONDING BOX ON THE REVERSE SIDE)
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Dear Shareholder(s)
Enclosed you will find material relating to the Company's 2004 Annual
Meeting of Shareholders. The notice of the Annual Meeting and proxy statement
describe the formal business to be transacted at the meeting, as summarized on
the attached proxy card.
Whether or not you expect to attend the Annual Meeting, please complete 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