ENGELHARD SCHEDULE 14A 050806
PRELIMINARY
COPIES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
SCHEDULE
14A
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ENGELHARD
CORPORATION
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101
WOOD
AVENUE, ISELIN, NEW JERSEY 08830
BARRY
W.
PERRY
Chairman
and
Chief
Executive Officer
May
[ ],
2006
Dear
Shareholder:
You
are
cordially invited to attend the 2006 Annual Meeting of Shareholders of Engelhard
Corporation (the “Company”), which will be held at 10:00 a.m., Eastern
Daylight Savings Time, on June 2, 2006 at the North Maple Inn at Basking Ridge,
300 North Maple Avenue, Basking Ridge, NJ 07920. The enclosed Notice and Proxy
Statement contain information about matters to be considered at the Annual
Meeting.
This
Annual Meeting is of particular importance. As you know, BASF, through
a wholly
owned subsidiary, made an unsolicited tender offer to acquire all of the
outstanding shares of Engelhard common stock for $37 per share in cash
and
subsequently increased its offer to $38 per share. Your Board's unanimous
view
is that BASF’s $38 offer is inadequate and not in the best interests of
Engelhard shareholders in that it does not adequately recognize the Company's
current performance or future prospects.
The
Recapitalization Plan
Following
BASF’s unsolicited offer, the Board, with the assistance of its independent
advisors, reviewed a broad range of strategic alternatives to maximize
shareholder value. As a result of this review, the Board has unanimously
approved a recapitalization plan comprised of a $45 per share cash self-tender
offer for up to 26 million shares (approximately 20% of the Company’s
outstanding shares including shares underlying exercisable options), continued
execution of the Company’s business strategy and incremental cost savings the
Company expects will deliver $15 million annually beginning in 2007
(collectively, the “Recapitalization Plan”). The Company commenced the $45 per
share self-tender offer on May 5, 2006. The Offer will expire on June 5,
2006
unless earlier terminated or extended pursuant to its terms.
The
Board
strongly believes that the Recapitalization Plan represents the best
value-creation alternative and is in the best interests of Engelhard
shareholders for a number of reasons, including:
· |
Superior
Value Versus BASF’s $38 Per Share Offer
- Our
Board believes that its $45 per share self-tender offer; the
expected $15
million in incremental annual cost savings; and the Company’s continued
ability to capitalize on its attractive growth opportunities
and business
strategy will deliver greater value to its shareholders than
BASF’s $38
per share offer.
|
· |
Accretion
to Earnings and Earnings Growth
- The
purchase of shares pursuant to the Recapitalization Plan represents
an
attractive investment for the Company, and the Recapitalization
Plan is
expected to be accretive to earnings per share (EPS) by approximately
six
cents in 2007 and accretive to EPS
growth.
|
· |
Expected
Strong Price-to-Earnings Multiple
- BASF
launched its hostile offer when Engelhard’s stock was trading at a forward
price-to-earnings (P/E) multiple that was meaningfully lower
than the
historical relationship that prevailed for several years to that
of key
industry peers (Johnson Matthey and Umicore). The forward P/E
multiple of the
|
Company
immediately prior to the unsolicited offer from BASF was 29.1% below that
of
Johnson Matthey. This compares to an average discount to Johnson Matthey
of
10.7%, 1.6% and 8.5% in 2005, 2004 and 2003, respectively, and an average
discount of 6.9% for the overall period of 2003 through and including 2005.
Immediately prior to the unsolicited offer from BASF, the Company’s forward P/E
was at a discount of 11.3% below that of Umicore, which compares to an
average
premium to Umicore of 6.8%, 30.7% and 20.3% in 2005, 2004 and 2003,
respectively, and an average premium of 19.3% for the overall period of
2003
through and including 2005. In addition, since the time of BASF’s hostile
offer in early January, 2006, forward P/E multiples for Engelhard’s industry
peers overall (Johnson Matthey, Umicore and eight U.S. publicly traded mid
to large capitalization specialty chemical companies) have generally
increased. An analysis of 2007 P/E multiples for these industry peers
of the Company group shows that current 2007 P/E multiples are on average
1.5x or 11.5% higher, with P/E multiples for 9 of 10 of these peers having
increased. While this increase could be related to other factors, such as
increased acquisition speculation in the industry in general following
BASF's
offer for the Company, we believe that to be unlikely given the number
and
diversity of the companies in this peer group. We believe that absent the
BASF offer, our forward P/E multiple should reflect a relationship to key
industry peers more in line with historical levels, and should benefit
from (a)
the strength of Engelhard’s earnings performance in recent quarters, (b) the
expected robust and sustained earnings growth for the years ahead, and
(c) the
general rise in industry multiples since BASF commenced its hostile
offer.
- Meaningful
Liquidity at an Attractive Price of $45 Per Share
- The
Recapitalization Plan provides shareholders with a substantial liquidity
opportunity for some of their shares at the attractive price of $45 per share,
while preserving shareholders’ ability to realize the Company’s outstanding
future growth potential through appreciation of the market price of the stock
or
a future sale of the Company.
· |
Continuing
Investment-Grade Credit Profile -
The
Company’s financing of the $45 per share self-tender offer should not
interfere with our
ability to maintain the financial capability needed to execute our
strategic business plan and realize our growth opportunities.
Implementation of the Recapitalization Plan is expected to result
in
continuance of investment-grade credit ratings for the Company.
|
The
terms
of the Recapitalization Plan are described in the enclosed Proxy Statement
under
the caption “Summary of the Recapitalization Plan,” and a description of the
reasons for the Recapitalization Plan is contained under the caption “Reasons
for the Recapitalization Plan.”
Expansion
of Engelhard’s Board
BASF—the
very same party which has made the $38 per share offer which your Board
has
determined is inadequate—has previously stated that if we do not decide to sell
the Company “expeditiously” or if BASF on
its
own“concludes
that [our] exploration of strategic alternatives is not being conducted
in the
best interests of the Company’s shareholders,” then BASF intends to solicit
written consents from our shareholders to amend our bylaws to increase
the size
of the Board and fill the newly-created vacancies with hand-picked, BASF
nominees. BASF has the ability to continue threatening, and to make, such
a
consent solicitation regardless of whether their director nominees lose
the vote
at the Annual Meeting. Furthermore, BASF can continue its consent solicitation
for as long as it chooses—there is no date by which the solicitation must end.
In
order
to be able to successfully execute on our strategic business plan,
which we
expect to deliver significant growth and value to you, our shareholders,
we
cannot afford the distraction resulting
from
either a lengthy consent solicitation for majority control of the Board
or the
threat that one could occur at any time. Our Board and management,
as well as
other important resources of the Company, would be diverted to focusing
on a
consent solicitation battle of potentially indefinite duration throughout
a
critical period for the execution of our strategic business plan. To
avoid this
potential obstacle to realizing the anticipated benefits of this part
of the
Recapitalization Plan, the Board will increase the number of Board
members at
the Annual Meeting from six to nine members and ask you vote to fill
these
additional director seats with the Board’s nominees.
Accordingly,
the Board recommends that at the Annual Meeting you elect the five Board
nominees described in the enclosed Proxy Statement, namely the three directors
nominated to fill the newly-created vacancies (who will be spread among our
three Classes of directors) and the two incumbent Class I Directors whose terms
expire at the Annual Meeting. As a result, the Board will be giving you, our
shareholders, the ability to elect a majority of the newly-enlarged Board (five
directors out of nine) at the Annual Meeting without the need for, and
distraction resulting from, the threatened BASF consent solicitation.
BASF
has
nominated five individuals for election to the Board at the Annual Meeting,
namely the two individuals BASF has previously nominated and three additional
individuals whom BASF nominated on May 1, 2006 after we announced the Board
size
would be increased at the Annual Meeting. If
BASF
is successful, its nominees will control the Engelhard Board, and we would
expect them to enable BASF’s inadequate $38 per share offer.
If
Engelhard’s five director nominees are elected, the effect will be, among other
things, to enable the Company to pursue our strategic business plan for two
years without the distraction of having to defend against a consent solicitation
by BASF that seeks or threatens to change a majority of the board to support
its
inadequate hostile tender offer. We strongly believe this outcome is important
for successful implementation of the Recapitalization Plan, including its
strategic business plan, and, consequently, the Company’s ability to create
value for shareholders.
The
increase in the size of the Board affords both the Company and BASF a fair
opportunity to present their cases to you and for you to ultimately decide
which
path will serve your best interests. If you believe, as we do, that the
Recapitalization Plan will provide a greater value-creation opportunity than
BASF’s offer, you should support all five of the Board nominees. We believe that
the choice is easy and that the path forward to greater value is clear.
The
Board
also notes that, as it has previously said, it is and has been committed to
maximizing the value of Engelhard for the benefit of our shareholders. This
is
not a fight for independence. It is a fight for our shareholders to get fair
value for their shares. The Board urges you to send BASF a message by voting
for
Engelhard’s Board nominees: “BASF, we will not sell to you at an inadequate
price.”
Recommendation
to Shareholders
Accordingly,
the Board unanimously recommends that you vote “FOR” the five Engelhard director
nominees.
We also
strongly advise you not to split your votes between the Board’s nominees and
BASF’s nominees. The attendant distraction and leadership uncertainty that would
naturally result from having a minority of BASF nominees elected would, in
the
Board’s view, gravely undermine the execution of our strategic business plan and
the expected values to be derived therefrom. Therefore, we urge you NOT to
vote
for any
nominees
of BASF.
How
to Vote
Whether
or not you plan to attend, we urge you to complete, sign and return the enclosed
BLUE proxy card or to vote over the Internet or by telephone so that your shares
will be represented and voted at the Annual Meeting. If a brokerage firm, bank
or other institution holds your shares of common stock for you, only they can
vote your shares and then only upon receipt of your instructions on how they
should vote your shares. It is important that you contact the person responsible
for your account promptly and give them your instructions on how to vote your
shares. If you plan to attend the Annual Meeting, please check the box provided
on the BLUE proxy card and an admission ticket will be sent to you. Only
shareholders and their proxies will be permitted to attend the Annual
Meeting.
The
Board
urges you NOT to sign or return any proxy card sent to you by BASF. Only your
latest dated, signed proxy card will be counted, and any BASF proxy card you
sign for any reason could invalidate previous proxy cards sent by you to support
the Engelhard Board. You are legally entitled to change your vote. If you have
previously signed a BASF proxy card, the Board urges you to sign, date and
promptly mail the enclosed proxy card, which will revoke any earlier dated
proxy
card that you signed. The best way for you to support the Board is to vote
“FOR”
all five of the Engelhard director nominees.
On
behalf
of everyone at Engelhard, we thank you for your continued support. We remain
committed to acting in your best interests. If you have any questions with
respect to voting, please call our proxy solicitor, MacKenzie
Partners, Inc. (“MacKenzie”)
at
105
Madison Avenue, New York, NY 10016, (800)
322-2885 (Toll-Free) or at (212) 929-5500 (Collect).
Sincerely
yours,
ENGELHARD
CORPORATION
101
WOOD
AVENUE
ISELIN,
NEW JERSEY
08830
NOTICE
OF THE 2006 ANNUAL MEETING OF SHAREHOLDERS
To
our
Shareholders: May
[ ],
2006
The
Annual Meeting of Shareholders of Engelhard Corporation, a Delaware corporation,
will be held on June 2 at 10:00 a.m., Eastern Daylight Savings Time, at the
North Maple Inn at Basking Ridge, 300 North Maple Avenue, Basking Ridge, NJ
07920, for the following purposes:
(1) To
elect
five directors, including the two incumbent Class I Directors whose terms expire
at the Annual Meeting and the three nominees to fill three vacancies which
the
Board will create at the Annual Meeting by increasing its size from six to
nine
members;
(2) To
ratify
the appointment of Ernst & Young LLP as our independent registered public
accounting firm; and
(3) To
transact such other business as may properly come before the
meeting.
The
record date for the determination of the shareholders entitled to vote at the
meeting or at any adjournment thereof is close of business on May 5, 2006.
The
Board
unanimously recommends that you vote “FOR” the five Engelhard director nominees
and urges you NOT to vote for any nominees of BASF. The Board also recommends
that you disregard and/or NOT execute any proxy card other than our BLUE proxy
card.
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 BLUE 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 2006
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 (the “Meeting”), which will take place on June 2,
2006. You are invited to attend the Annual Meeting and are requested to vote
on
the proposals described in this proxy statement.
What
items of business will be voted on at the meeting?
1. |
The
election of five directors, including the two incumbent Class I Directors
whose terms expire at the Annual Meeting and the three nominees to
fill
three vacancies which the Board will create at the Annual Meeting
by
increasing its size from six to nine members;
and
|
2. |
The
ratification of the appointment of Ernst & Young LLP as our
independent registered public accounting
firm.
|
We
will
also consider any other business that is properly brought before the Meeting.
Why
will the Board expand the size of the Board at the
Meeting?
BASF—the
very same party which has made the $38 per share offer which your Board
has
determined is inadequate—has previously stated that if we do not decide to sell
the Company “expeditiously” or if BASF on
its
own“concludes
that [our] exploration of strategic alternatives is not being conducted
in the
best interests of the Company’s shareholders,” then BASF intends to solicit
written consents from our shareholders to amend our bylaws to increase
the size
of the Board and fill the newly-created vacancies with hand-picked, BASF
nominees. BASF has the ability to continue threatening, and to make, such
a
consent solicitation regardless of whether their director nominees lose
the vote
at the Annual Meeting. Furthermore, BASF can continue its consent solicitation
for as long as it chooses—there is no date by which the solicitation must end.
In
order
to be able to successfully execute on our strategic business plan, which we
expect to deliver significant growth and value to you, our shareholders, we
cannot afford the distraction resulting from either a lengthy consent
solicitation for majority control of the Board or the threat that one could
occur at any time. Our Board and management, as well as other important
resources of the Company, would be diverted to focusing on a consent
solicitation battle of potentially indefinite duration throughout a critical
period for the execution of our strategic business plan. To avoid this potential
obstacle to realizing the anticipated benefits of this part of the
Recapitalization Plan, the Board will increase the number of Board members
at
the Annual Meeting from six to nine members and ask you vote to fill these
additional director seats with the Board’s nominees.
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 below together
with the description of each item in this proxy statement. In summary, the
Board
recommends a vote:
· |
FOR
the election of the nominated slate of directors, including the two
incumbent Class I Directors whose terms expire at the Annual Meeting
and
the three nominees to fill three vacancies which the Board will create
at
the Annual Meeting by increasing its size from six to nine members
(see
page 10); and
|
· |
FOR
ratification of the appointment of Ernst & Young LLP as our
independent registered public accounting firm (see
page 36).
|
With
respect to any other matter that properly comes before the meeting, the proxy
holders will vote as recommended by the Board or, if no recommendation is given,
in their own discretion.
Who
is entitled
to vote?
Holders
of Common Stock as of the close of business on May 5, 2006 will be entitled
to
vote. On such date there were outstanding and entitled to vote 124,011,840
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 BLUE proxy card and return it to
Engelhard, it will be voted as you direct. If you return the proxy card but
make
no specifications, your shares will be voted in accordance with the
recommendations of the Board, as set forth below. If you are a registered
shareholder and attend the meeting, you may deliver your completed BLUE 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 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, which
you need to obtain from the financial institution that holds your shares. 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 June 1, 2006.
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
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 MacKenzie to assist in such
solicitation. 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. For additional
information regarding the solicitation of proxies, please see Appendix B to
this
Proxy Statement.
ENGELHARD’S
POSITION REGARDING BASF’s OFFER
On
January 9, 2006, BASF, through its wholly-owned subsidiary, Iron Acquisition
Corporation, made an unsolicited tender offer to acquire all of the outstanding
shares of Engelhard common stock for $37 per share in cash. The purpose
of the
BASF offer is for BASF to acquire control of, and the entire equity interest
in,
the Company. BASF has stated that it currently intends, as promptly as
practicable following consummation of the BASF offer, to have the Company
consummate a merger or other similar business combination with Iron Acquisition
Corporation or another direct or indirect subsidiary of BASF in connection
with
its offer. On January 20, 2006, the Board unanimously determined that BASF’s $37
per share offer was inadequate and not in the best interests of the Company’s
shareholders.
Following
the Board’s determination as to the inadequacy of BASF’s $37 per share offer,
the Board, with the assistance of its independent advisors, explored a
wide
range of strategic alternatives to maximize shareholder value. As part
of this
process, the Recapitalization Plan was developed. Also, in connection with
this
exploration of alternatives, the Company entered into confidentiality agreements
and held meetings with a number of potential bidders who were interested
in all
or parts of the Company. No competitive, third-party transaction, however,
materialized.
In
response to the Company’s request for BASF to increase its offer following
BASF’s access to non-public information, BASF, on April 19, 2006, made a
proposal to acquire the Company for $38 per share in cash. Following receipt
of
this $38 per share proposal, the Board held a number of meetings to review
BASF’s $38 proposal and review the results of its exploration of strategic
alternatives, including the Recapitalization Plan that was developed. Following
this review, at its meeting on April 25, 2006, the Board unanimously determined
that BASF’s $38 per share proposal was inadequate and not in the best interests
of the Company’s shareholders. Subsequently, on May 1, 2006, BASF increased its
offer to $38 per share and extended its offer to June 5, 2006.
Also
at
the April 25, 2006 meeting, the Board unanimously determined that the
Recapitalization Plan represents the best value-creation alternative for
and is
in the best interests of the Company’s shareholders. Accordingly, the Board
unanimously approved the Recapitalization Plan. The Recapitalization Plan
was
announced on April 26, 2006.
Additional
information on our position on BASF's offer
can be found in the Company's Schedule 14D-9 filed with the Securities
and
Exchange Commission (the "SEC") on January 23, 2006, as amended, which
is
available at the SEC's website at www.sec.gov. These documents can be
obtained without charge in print to any shareholder who requests them from
our
Corporate Secretary.
SUMMARY
OF THE RECAPITALIZATION PLAN
As
a
result of the review of strategic alternatives to maximize shareholder value
described above, the Board has unanimously approved the Recapitalization Plan
comprised of:
· |
A
$45 per share cash self-tender offer for up to 26 million shares
(approximately 20% of the Company’s outstanding shares including shares
underlying exercisable options);
and
|
· |
Continued
execution of the Company’s business strategy and incremental cost savings
the Company expects will deliver $15 million annually beginning in
2007.
|
The
Tender Offer. The
maximum number of shares eligible to be repurchased in the $45 per share
self-tender offer is 26 million shares (approximately 20% of the Company’s
outstanding shares including shares underlying exercisable options). The
self-tender offer will be financed by third party borrowings. The Company
has a
commitment, subject to customary conditions, for a bridge credit facility
from
JPMorgan and Merrill Lynch to initially fund the self-tender offer. Permanent
financing is expected
to
comprise a mix of hybrid securities and floating- and fixed-rate
debt. The
self-tender offer was commenced on May 5, 2006 and will expire on
June 5, 2006
unless earlier terminated or extended.
Continued
Execution of Business Plan. The
Recapitalization Plan will allow the Company to continue to execute its
strategic business plan. We believe that our recent strong results, including
the earnings momentum inherent in our results for the fourth quarter
of 2005 and
the extremely strong results for the first quarter of 2006, are only
the
beginning of the fruits which this strategic business plan will bear.
The
Recapitalization Plan will afford shareholders the opportunity to continue
to
reap the benefits of our strategic plan.
Cost
Savings. The
incremental cost savings to be undertaken as part of the Recapitalization
Plan
is expected to deliver $15 million in annual cost savings beginning
in
2007.
The Company expects to incur a charge or charges of approximately $20
million in
the second half of 2006 in connection with the incremental cost savings.
Additional
information on our $45 self-tender offer can be found in the Company’s “Schedule
TO” filed on May 5, 2006 with the Securities and Exchange Commission
(the
“SEC”), which includes the Offer to Purchase, and a presentation made
to
investors regarding the Recapitalization Plan, which is available
on our website
at www.engelhard.com.
These
documents can be obtained without charge in print to any shareholder
who
requests them from our Corporate Secretary.
REASONS
FOR THE RECAPITALIZATION PLAN
Our
Board, with the help of our financial advisor, Merrill Lynch & Co., has
reviewed the opportunities and challenges ahead. On the basis of this
analysis
and the outcome of our strategic evaluation process, our Board has determined
that the Recapitalization Plan is the best alternative for delivering
value to
our shareholders for a number of reasons, including the following:
· |
Superior
Value Versus BASF’s $38 Per Share Offer
- Our
board believes that its $45 per share self-tender offer; the
expected $15
million in incremental annual cost savings; and the Company’s continued
ability to capitalize on its attractive growth opportunities
and business
strategy will deliver greater value to its shareholders than
BASF’s $38
per share offer.
|
· |
Accretion
to Earnings and Earnings Growth
- The
purchase of shares pursuant to the Recapitalization Plan represents
an
attractive investment for the Company, and the Recapitalization
Plan is
expected to be accretive to EPS by approximately six cents in
2007 and
accretive to EPS growth.
|
· |
Expected
Strong Price-to-Earnings Multiple
- BASF
launched its hostile offer when Engelhard’s stock was trading at a forward
price-to-earnings (P/E) multiple that was meaningfully lower
than the
historical relationship that prevailed for several years to that
of key
industry peers (Johnson Matthey and Umicore). The forward P/E
multiple of the Company immediately prior to the unsolicited
offer from
BASF was 29.1% below that of Johnson Matthey. This compares to
an average
discount to Johnson Matthey of 10.7%, 1.6% and 8.5% in 2005,
2004 and
2003, respectively, and an average discount of 6.9% for the overall
period
of 2003 through and including 2005. Immediately prior to the
unsolicited
offer from BASF, the Company’s forward P/E was at a discount of 11.3% to
Umicore, which compares to an average premium to Umicore of 6.8%,
30.7%
and 20.3% in 2005, 2004 and 2003, respectively, and an average
premium of
19.3% for the overall period of 2003 through and including 2005. In
|
addition,
since the time of BASF’s hostile offer in early January, 2006, forward P/E
multiples for Engelhard’s industry peers overall (Johnson Matthey, Umicore
and eight U.S. publicly traded mid to large capitalization specialty
chemical companies) have generally increased. An analysis of 2007 P/E
multiples for these industry peers of the Company shows that current
2007 P/E multiples are on average 1.5x or 11.5% higher, with 9 of
10 having
increased. While this increase could be related to increased acquisition
speculation in the industry in general following BASF's offer for
the Company,
we believe that to be unlikely given the number and diversity of
the companies
in this group. We believe that absent the BASF offer, our forward P/E
multiple should reflect a relationship to key industry peers more
in line with
historical levels, and should benefit from (a) the strength of Engelhard’s
earnings performance in recent quarters, (b) the expected robust
and sustained
earnings growth for the years ahead, and (c) the general rise in
industry
multiples since BASF commenced its hostile offer.
· |
Meaningful
Liquidity at an Attractive Price of $45 Per Share
- The
Recapitalization Plan provides shareholders with a substantial
liquidity
opportunity for some of their shares at the attractive price
of $45 per
share, while preserving shareholders’ ability to realize the Company’s
outstanding future growth potential through appreciation of the
market
price of the stock or a future sale of the Company.
|
· |
Continuing
Investment-Grade Credit Profile -
The
Company’s financing of the $45 per share self-tender offer should not
interfere with our
ability to maintain the financial capability needed to execute
our
strategic business plan and realize our growth opportunities.
Implementation of the Recapitalization Plan is expected to result
in
continuance of investment-grade credit ratings for the Company.
|
• |
Forward-Looking
Statements.
This document contains forward-looking statements. These statements
relate
to analyses and other information that are based on forecasts
of future
results and estimates of amounts not yet determinable. These
statements
also relate to future prospects, developments and business strategies.
These forward-looking statements are identified by their use
of terms and
phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,”
“intend,” “may,” “plan,” “predict,” “project,” “will” and similar terms
and phrases, including references to assumptions. These forward-looking
statements involve risks and uncertainties, internal and external,
that
may cause Engelhard’s actual future activities and results of operations
to be materially different from those suggested or described
in this
document. For a more thorough discussion of these factors, please
refer to
“Forward-Looking Statements” (excluding the first sentence thereof), “Risk
Factors” and “Key Assumptions” on pages 34, 35 and 38, respectively, of
Engelhard’s 2005 Annual Report on Form 10-K, dated March 3, 2006. Please
also refer to “Forward-Looking Statements” and “Key Assumptions” contained
in the investor presentation captioned “Recapitalization Plan” filed as an
exhibit on Form 8-K, dated April 26, 2006, and “Forward Looking
Statements” in the Offer to Purchase, dated May 5, 2006, which was
included as an exhibit to the Schedule TO filed by Engelhard
on May 5,
2006 in connection with its self-tender offer for additional
information
regarding such risks, uncertainties and contingencies.
|
Investors
are cautioned not to place undue reliance on any forward-looking statement,
which speaks only as of the date made, and to recognize that forward-looking
statements are predictions of future results, which may not occur as
anticipated. Actual results could differ materially from those anticipated
in
the forward-looking statements and from historical results due to the
risks and
uncertainties described above, as well as others that Engelhard may consider
immaterial or do not anticipate at this time. The foregoing risks and
uncertainties are not exclusive and further information concerning Engelhard
and
its businesses, including factors that potentially could
materially
affect its financial results or condition, may emerge from time to time.
Engelhard assumes no obligation to update forward-looking statements
to reflect
actual results or changes in factors or assumptions affecting such
forward-looking statements. Investors are advised, however, to consult
any
further disclosures Engelhard makes on related subjects in Engelhard’s future
periodic and current reports and other documents that Engelhard files
with or
furnishes to the SEC.
• |
Risk
Factors.
Risks and uncertainties associated with the Recapitalization
Plan,
including the $45 self-tender offer, are described in Form 10-K,
Form 8-K
and the Offer to Purchase referenced above, which should be read
carefully
and in their entirety, and include:
|
· |
Engelhard’s
ability to achieve and execute internal business plans.
Engelhard is engaged in growth and productivity initiatives in
all
technology segments. Specifically, Engelhard has major growth
initiatives
in businesses serving the person care, energy materials, polyethylene,
diesel emissions and gas-to-liquids markets. These initiatives
are subject
to greater risk than the Engelhard’s traditional markets. Additionally,
failure to commercialize proprietary and other technologies or
to acquire
businesses or licensing agreements to serve targeted markets
could
negatively impact Engelhard’s business, financial condition and results of
operations.
|
· |
Uncertainty
regarding the outcome of the BASF offer may affect Engelhard’s stock price
and future business.
The uncertainty as to the outcome of the BASF offer may have
an adverse
effect on employee retention and recruitment, and may negatively
impact
supplier and customer relationships. A significant loss of employees
or
the inability to attract new employees could negatively impact
the
Engelhard’s business, financial condition and results of
operations.
|
· |
Increased
indebtedness and a greater ratio of indebtedness to shareholders’
equity.
Engelhard will enter into new financing arrangements to finance
the $45
self-tender offer and, as a result, indebtedness and interest
expense will
increase. Such increased levels of indebtedness and higher interest
expenses may make it difficult for Engelhard to incur future
indebtedness
at attractive terms or at all. In addition, Engelhard’s indebtedness will
be more substantial in relation to shareholders’ equity. After giving pro
forma effect to the consummation of the $45 self-tender offer
and the
related financings, Engelhard would have had total indebtedness
of
approximately $1.8 billion and shareholders’ equity of approximately $350
million at December 31, 2005.
|
· |
Changes
in Engelhard’s credit ratings.
Engelhard expects its credit ratings will be downgraded by each
of the
principal rating agencies as a result of the announcement of
the $45
self-tender offer, but that Engelhard will maintain an investment
grade
rating. Should Engelhard’s rating drop below investment grade, Engelhard
would experience higher interest expense, may incur difficulty
in
procuring metals and could default on existing
obligations.
|
· |
Conditions
to the $45 self-tender offer.
Engelhard’s ability to repurchase shares in the $45 self-tender offer will
be subject to a number of conditions, including obtaining financing.
The
commitment letter Engelhard received to provide a one year bridge
facility
of $1.5 billion to fund the repurchase and related costs and
expenses and
other liquidity support is subject to a number conditions, including
there
being no material adverse change in Engelhard since December
31, 2005 and
there being no material
|
disruption
of or material adverse change in financial, banking or capital markets
since
April 25, 2006. In addition, we will have to amend our existing credit
facilities to permit the increased level of indebtedness.
· |
Ability
to refinance the bridge facility.
The expected benefits of the recapitalization plan rely in part
on
Engelhard’s ability to refinance our bridge facility and the terms of the
financing obtained. The terms of any long-term financing will
depend on
market conditions at the time we incur the indebtedness, and
are likely to
be different. In addition, a portion of the long-term financing
is
expected to have a floating rate of interest, which may increase
over
time.
|
• |
No
Offer or Solicitation. This
document does not constitute an offer or invitation to purchase
nor a
solicitation of an offer to sell any securities of
Engelhard. Offers to purchase or solicitations of offers to
sell are being made only pursuant to the Offer to Purchase and
related
tender offer materials (“Engelhard’s Tender Offer Materials”) sent by
Engelhard to its shareholders, and as they may be amended from
time to
time. Engelhard’s shareholders are advised to read those materials
carefully and in their entirety because they contain important
information, including the various terms of, and conditions to,
the
self-tender offer. ENGELHARD’S
SHAREHOLDERS ARE ADVISED TO READ ENGELHARD’S TENDER OFFER MATERIALS AND
ANY OTHER DOCUMENTS RELATING TO THE TENDER OFFER THAT ARE FILED
WITH THE
SEC CAREFULLY AND IN THEIR ENTIRETY AS AS AND WHEN THEY BECOME
AVAILABLE
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.
|
• |
Additional
Information and Where to Find It.
On
January 9, 2006, BASF filed a Tender Offer Statement on Schedule
TO, which
has been amended (the “BASF Tender Offer Statement”). In response to the
BASF Tender Offer Statement, Engelhard has filed certain materials
with
the SEC, including the Schedule 14D-9 filed on January 23, 2006,
and which
has been amended (the “Schedule 14D-9”). Investors
and security holders may obtain a free copy of Engelhard’s Schedule TO,
Schedule 14D-9, BASF’s Tender Offer Statement and other documents filed by
Engelhard or BASF with the SEC at the SEC's website at http://www.sec.gov.
In addition, investors and security holders may obtain a free
copy of each
of the Schedule 14D-9, Engelhard’s Schedule TO, as well as Engelhard’s
related filings with the SEC, from Engelhard by directing a request
to
Engelhard Corporation, 101 Wood Avenue, Iselin, New Jersey 08830,
Attention: Investor Relations or at 732-205-5000, or from MacKenzie
Partners, Inc. by calling 1-800-322-2885 toll free or at 1-212-929-5500
collect or by e-mail at
[email protected].
|
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 15, 2006.
|
|
Amount
and Nature of Beneficial Ownership
|
|
Percent
of Class
|
|
Dodge
& Cox (1)
555
California Street
40th
Floor
San
Francisco, California 94104
|
|
|
15,838,050
|
|
|
13.2
|
%
|
CAM
North America, LLC (2)
Salomon
Brothers Asset Management Inc.
Smith
Barney Fund Management LLC
TIMCO
Asset Management Inc.
399
Park Avenue
New
York, New York 10022
|
|
|
7,715,311
|
|
|
6.43
|
%
|
FMR
Corp. (3)
82
Devonshire Street
Boston,
Massachusetts 02109
|
|
|
7,459,021
|
|
|
6.22
|
%
|
Wellington
Management Company, LLP (4)
75
State Street
Boston,
Massachusetts 02109
|
|
|
6,307,993
|
|
|
5.26
|
%
|
(1)
|
As
reported by Dodge & Cox on an amendment to its Schedule 13G filed with
the SEC on February 6, 2006. 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 14,838,950 of such shares and shares
voting power with respect to 159,900 of such
shares.
|
(2)
|
As
reported by on a Schedule 13G filed with the SEC on February 14,
2006. The
Schedule 13G reports that CAM North America, LLC, Salomon Brothers
Assets
Management Inc., Smith Barney Fund Management LLC and TIMCO Asset
Management Inc. hold the reported shares as follows: CAM North America,
LLC, 5,362,427 (shares dispositive power with respect to all of the
reported shares; shares voting power with respect to 1,266,732 shares),
Salomon Brothers Asset Management Inc., 124,084 (shares dispositive
power
and voting power with respect to all of the reported shares), Smith
Barney
Fund Management LLC, 2,205,341 (shares dispositive power and voting
power
with respect to all of the reported shares), TIMCO Asset Management
Inc.,
23,459 (shares dispositive power and voting power with respect to
all of
the reported shares).
|
(3)
|
As
reported by FMR Corp. on its Schedule 13G filed with the SEC on February
14, 2006. The Schedule 13G reports that FMR Corp. has sole dispositive
power with respect to all of the reported shares and has sole voting
power
with respect to 108,321 of such
shares.
|
(4)
|
As
reported by Wellington Management Company, LLP on an amendment to
its
Schedule 13G filed with the SEC on January 10, 2006. 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 1,102,169 of such
shares.
|
1.
ELECTION OF DIRECTORS
Our
Board
of Directors consists of three classes, Class I, Class II and Class III. Each
class currently consists of two members who serve for full three-year terms.
The
Class I Directors are scheduled to stand for reelection at the Annual Meeting.
In addition, the Board will increase its size from six to nine members at the
Annual Meeting, and shareholders will be asked to elect nominees for the three
newly-created vacancies. These three nominees will be spread across our three
Classes of directors as set forth below. As a result, shareholders will be
asked
to elect a total of five directors at the Annual Meeting. All of the Company’s
nominees have consented to their inclusion in this proxy statement and their
nomination for election to the Board.
Mr.
Marion H. Antonini and Mr. Henry R. Slack are nominees for reelection as Class
I
Directors. If elected, they will serve until 2009. To fill the three vacancies
created by the expansion of the Board at the Annual Meeting from six to nine
seats, the Board has nominated Mr. Alain Lebec, Mr. Howard L. Minigh and Mr.
Michael A. Sperduto. If elected, Mr. Sperduto will serve as a Class I
Director with a term expiring in 2009, Mr. Minigh will serve as a Class II
Director with a term expiring in 2008, and Mr. Lebec will serve as a
Class III Director, with a term expiring in 2007. Each of Messrs. Minigh
and Mr. Lebec will receive either (i) the standard director compensation, as
described on page 18 of this Proxy Statement, in the event they are elected
as
directors, or (ii) $40,000 for agreeing to serve as nominees, in the event
they
are not elected as directors. Mr. Sperduto will not receive any compensation
for
agreeing to serve as a nominee or as a director as Mr. Sperduto is currently
our
Vice President and Chief Financial Officer.
The
Board
has determined that Mr. Minigh and Mr. Lebec are “independent” as defined by the
New York Stock Exchange (“NYSE”) Listing Standards and our Director Independence
Standards. Mr. Sperduto, the Company’s Vice President and Chief Financial
Officer, is not “independent” as defined by NYSE Listing Standards and our
Director Independence Standards.
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. Marion H. Antonini,
Mr. Henry R. Slack and Mr. Sperduto as Class I Directors, Mr. Minigh as a
Class II Director and Mr. Lebec as a Class III Director.
INFORMATION
WITH RESPECT TO NOMINEES AND
DIRECTORS
WHOSE TERMS CONTINUE
The
following table sets forth the name and age of each nominee and each Director
whose term continues, all other positions and offices, if any, now held with
Engelhard and principal occupation during the last five years.
Nominees
for Reelection at this Meeting,
Ages,
Principal Business Experience During the
Past
Five Years, Board Memberships (Class I)
MARION
H.
ANTONINI
Age
75.
Mr. Antonini has been a director of Engelhard since 1985. He has been a
Principal of Kohlberg & Co., a private merchant banking firm, since March
1998 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.
From 1989 to 1998, he was Chairman and Chief Executive Officer of Welbilt
Corporation. He is also a director of Orion Food Systems.
HENRY
R.
SLACK
Age
56.
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 a director and the Chairman of Terra Industries Inc., a global
nitrogen-based fertilizer company, since April 2001. From June 1999 to August
2002, he was Chairman of Task (USA) Inc., a private investment company. From
1991 to June 1999 he was the Chief Executive Officer of Minorco SA, an
international natural resources company. From 1998 to 2002 he was a director
of
SABMiller plc. He is also a director of E. Oppenheimer & Son
International.
Nominee
for Election at this Meeting,
Upon
the Board’s Increasing its Size at the Meeting to Nine
Directors,
Age,
Principal Business Experience During the
Past
Five Years, Board Memberships (Class I)
MICHAEL
A. SPERDUTO
Age
48.
Mr. Sperduto has served as Engelhard’s Vice President and Chief Financial
Officer since January 1, 2003. From August 2001 to December 2002, in addition
to
serving as Engelhard’s Vice President and Chief Financial Officer, Mr. Sperduto
was also Engelhard’s Controller. From August 1999 to July 2001, Mr. Sperduto
served as Engelhard’s Controller. From July 1998 to July 1999, Mr. Sperduto was
Engelhard’s Vice President of Finance. Since 2003, Mr. Sperduto has served on
the Advisory Board and as a Trustee for Rutgers University Business
School.
Nominee
for Election at this Meeting,
Upon
the Board’s Increasing its Size at the Meeting to Nine
Directors,
Age,
Principal Business Experience During the
Past
Five Years, Board Memberships (Class II)
HOWARD
L.
MINIGH
Age
57.
Mr. Minigh has been the owner of HM Advisors, LLC, a management consulting
firm,
since July 2005, and a Partner in Trishul Capital Partners, a private equity
firm, since July 2003. From September 2000 to June 2003, Mr. Minigh was Group
Vice President, Agriculture & Nutrition Business Group of DuPont. From 1994
to June 2000, Mr. Minigh was President of the Cyanamid Global Agricultural
Products division of American Home Products Corporation. Mr. Minigh is a
director of MetaMorphix, Inc., an animal genomics and biotechnology company,
and
Saffron Rouge, an e-commerce retailer of cosmetics company.
Nominee
for Election at this Meeting,
Upon
the Board’s Increasing its Size at the Meeting to Nine
Directors,
Age,
Principal Business Experience During the
Past
Five Years, Board Memberships (Class III)
ALAIN
LEBEC
Age
56.
Mr. Lebec has been a Member and Senior Managing Director of Brock Capital Group
LLC, a private advisory and investment firm, since April 2003. From 1996 until
February 2003, Mr. Lebec was Vice Chairman of Investment Banking for Merrill
Lynch & Co., Inc. Mr. Lebec is a director of United Way of Greenwich, Inc.,
co-founder and director of Reading Excellence and Discovery Foundation and
Trustee of Brunswick School, Inc.
Current
Directors with Terms Expiring May 2007,
Ages,
Principal Business Experience During the
Past
Five Years, Board Memberships (Class II)
DAVID
L.
BURNER
Age
66.
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 2001 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
69.
Mr. Napier has been a director of Engelhard since 1986. Currently retired,
he
was the Chairman of Scientific-Atlanta, Inc., a communications manufacturing
company, from 1993 until his retirement in November 2000. He is also a director
of Intelligent Systems Corporation, Vulcan Materials Company, McKesson
Corporation and Wabtec Corporation.
Current
Directors with Terms Expiring May 2008,
Ages,
Principal Business Experience During the
Past
Five Years, Board Memberships (Class III)
BARRY
W.
PERRY
Age
59.
Mr. Perry has been a director of Engelhard since 1997. He has been the Chairman
and Chief Executive Officer of Engelhard since January 2001. Prior to 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
61.
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 July 1999. From July 2000 to September 2001,
he was the President and Chief Executive Officer of ValiGen N.V., a
biotechnology company. He is also a director of Dendreon Corporation,
InforMedix, Inc., Genta Inc. and BioElectronics Inc., and director and Chairman
of Javelin Pharmaceuticals Inc. and OraSure Technologies, Inc.
SHARE
OWNERSHIP OF DIRECTORS, NOMINEES AND OFFICERS
How
much Common Stock do Engelhard’s Directors,
Nominees and Executive Officers own?
As
of
March 1, 2006, Engelhard’s Directors and Executive Officers as a group (14
individuals) beneficially owned an aggregate of 4,139,088 shares, representing
approximately 3.26% of the outstanding shares. The Directors and Executive
Officers of Engelhard are entitled to participate in the $45 self-tender
offer
on the same basis as all other shareholders and Engelhard expects that
they will
tender their shares into the $45 self-tender offer. However, Engelhard
is not
waiving its ownership guidelines in connection with the $45 self-tender
offer.
Those guidelines require management of Engelhard to maintain specified
ownership
levels of Engelhard stock, subject to certain exceptions. The guidelines
generally require the Company’s Chief Executive Officer to maintain a share
ownership equal to 500% of current salary, the Chief Financial Officer
to
maintain a share ownership equal to 400% of current salary and other Executive
Officers to maintain a share ownership equal to 300% of current salary.
Assuming
that all outstanding shares and option shares underlying vested options
are
tendered in the $45 self-tender offer, Engelhard’s Chief Executive Officer’s and
Chief Financial Officer’s equity ownership percentages would exceed the
guidelines by 291% and 217%, respectively. All other Executive Officers
would
also be in compliance with Company policy.
Set
forth
in the following table is the beneficial ownership of Common Stock as of March
1, 2006 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
|
107,394(1)(2)(3)(4)(5)
|
*
|
David
L. Burner
|
11,081(1)(2)(5)
|
*
|
Arthur
A. Dornbusch, II
|
754,787(6)(7)
|
*
|
John
C. Hess
|
300,731(6)(7)
|
*
|
Alain
Lebec
|
0
|
*
|
Howard
L. Minigh
|
0
|
*
|
James
V. Napier
|
69,755(1)(2)(3)(5)
|
*
|
Barry
W. Perry
|
1,955,071(2)(6)(7)
|
1.54
|
Henry
R. Slack
|
30,880(1)(2)(4)(5)
|
*
|
Michael
A. Sperduto
|
328,856(6)(7)
|
*
|
Douglas
G. Watson
|
85,520(1)(2)(3)(5)
|
*
|
Edward
T. Wolynic
|
242,030(6)(7)
|
*
|
All
Directors, Nominees and Executive Officers as a group
|
4,139,088(1)(2)(3)(4)(5)(6)(7)
|
3.26
|
*
Represents beneficial ownership of less than 1%.
(1)
|
Includes
22,500 shares of Common Stock subject to options granted to each
of
Messrs. Napier and Watson, 13,500 shares of Common Stock subject
to
options granted to Mr. Slack and 10,500 shares of Common Stock subject
to
options granted to Mr. Antonini and 2,250 shares of Common Stock
subject
to options granted to Mr. Burner under our Directors Stock Option
Plan,
all of which options may be exercised within 60 days from March 1,
2006.
|
(2)
|
Includes
23,456, 1,238, 18,549, 4,032 and 10,670 non-voting deferred stock
units
earned by Messrs. Antonini, Burner, Napier, Slack and Watson,
respectively, 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. Also includes 21,470 non-voting restricted stock
units for Mr. Perry.
(3)
|
Includes
59,843, 18,183 and 14,564 non-voting deferred stock units held by
Messrs.
Antonini, Napier and Watson, respectively, 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 and Watson granted under the Stock
Bonus
Plan for Non-employee Directors.
|
(6)
|
Includes
576,171, 259,815, 1,734,591, 274,701, 207,889 and 3,316,613 shares
of
Common Stock subject to options granted to Messrs. Dornbusch, Hess,
Perry,
Sperduto, Wolynic and all Directors and Executive Officers as a group,
respectively, under our Stock Option Plan of 1991, the Stock Option
Plan
of 1999 for Certain Key Employees, the Directors Stock Option Plan
and the
2002 Long Term Incentive Plan, all of which options may be exercised
within 60 days from March 1, 2006.
|
(7)
|
Includes
15,606, 11,246, 85,581, 18,053, 13,448 and 160,875 shares of voting,
but
unvested, restricted Common Stock held by Messrs. Dornbusch, Hess,
Perry,
Sperduto, Wolynic and all Directors and Executive Officers as a group,
respectively.
|
CORPORATE
GOVERNANCE
How
often did the Board of Directors
meet during 2005?
Our
Board
of Directors held a total of 8 meetings during 2005. During 2005, all of our
Directors attended more than 75% of the meetings of the Board and meetings
of
committees of the Board on which they served.
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, except Mr. Slack, attended the Annual Meeting of Shareholders in
2005.
What
committees does the Board of Directors have?
Among
the
standing committees of the Board of Directors are the Audit Committee, the
Compensation Committee and the 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. The Board of Directors also has a Pension and Employee Benefit
Committee and an Executive Committee.
Audit
Committee
The
members of the Audit Committee are Mr. Watson (Chairman), Mr. Burner 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 NYSE Listing Standards and the
rules of the SEC applicable to audit committee members and our Director
Independence Standards, a copy of which is attached as Appendix A to this
Proxy
statement (the “Director Independence Standards”). The 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, as amended (“Exchange Act”). See “Report of
Audit Committee” on page 35 for more information. The Audit Committee held
10 meetings during 2005 and conducted a review and self-assessment in 2005.
Mr.
Burner currently serves on three other audit committees, in addition to
Engelhard’s. The Board of Directors has determined that such service would not
impair Mr. Burner’s ability to effectively serve on Engelhard’s Audit Committee,
and has approved such service pursuant to our Corporate Governance
Guidelines.
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 and our Director
Independence Standards. The Compensation Committee (and its predecessor) held
six meetings during 2005 and conducted a review and self-assessment in 2005.
See
“Compensation Committee Report on Executive Compensation” on page 30 for
more information.
Nominating
and Governance Committee
The
members of the Nominating and Governance Committee are Messrs. Watson (Chairman)
and Antonini. 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 and our Director
Independence Standards. The Nominating and Governance Committee held three
meetings in 2005 and conducted a review and self-assessment in
2005.
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. The Nominating and Governance Committee considered suggested
nominees from a variety of sources, including directors, management and the
Company’s independent financial advisor, Merrill Lynch & Co. Each of Mr.
Minigh and Mr. Lebec were among candidates recommended for nomination by Merrill
Lynch & Co.
When
seeking candidates for the Board, 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. The Company has engaged an executive recruitment firm, reporting to the
Nominating and Governance Committee, 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 10th 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 10th 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:
· |
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 Exchange
Act,
and such person’s written consent of the nominee to serve as a director if
elected; and
|
· |
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 stock which are owned of record and
beneficially 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
shareholders.
|
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
does the Company make independence determinations for
Directors?
Under
the
Company’s Corporate Governance Guidelines, a majority of the Board must be
comprised of directors who are independent under the Corporate Governance
Standards of the New York Stock Exchange. To be deemed “independent,” the Board
must determine, after due deliberation, that the director has no material
relationship with the Company other than as a director. In making such
determination, the Board adheres to all of the specific tests for independence
included in the New York Stock Exchange listing standards and considers all
other facts and circumstances it deems necessary or advisable and the standards
of director independence established by the Board. During the course of a year,
directors are expected to inform the Board of any material changes in their
circumstances or relationships that may impact their designation by the Board
as
independent.
The
basis
for a Board’s determination that a relationship is not material must be
disclosed in the Company’s annual proxy statement. In this regard, pursuant to
the Corporate Governance Standards of the New York Stock Exchange, the Board
has
adopted the Director Independence Standards to assist it in making
determinations of independence. A copy of the Director Independence Standards
used to determine is attached as Appendix A to this Proxy Statement. Any
determination of independence for a director who does not meet these standards
must be specifically explained.
Each
member of our Board of Directors and our Board nominees for seats to be created
by the expansion of the Board at the Annual Meeting, other than Mr. Perry,
our
CEO and Chairman, and Mr. Sperduto, our Vice President and Chief Financial
Officer (one of our Board nominees for a seat to be created by the expansion
of
the Board at the Annual Meeting), are “independent” as defined by the NYSE
Listing Standards and our Director Independence Standards.
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 receive a retainer at the annual rate of $50,000.
In addition, Non-employee Directors receive a $1,500 fee for each Board meeting
attended. Non-employee Directors also receive a $1,500 fee for each committee
meeting attended; a $5,000 annual retainer for each committee on which they
serve; and the chairman of the audit and compensation committee receives an
additional $10,000 annual retainer, whereas the chairman of each other committee
receives an additional $7,500 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 had been
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 are credited to accounts of Non-employee
Directors has been changed to the record date for payment of dividends on shares
of Common Stock of Engelhard occurring in the last month of the second calendar
quarter of each year, and deferred stock units will be credited only to
Non-employee Directors serving on the May 31 immediately preceding the crediting
date. When a regular cash dividend is paid on the Common Stock, the dividend
equivalent on deferred stock units is reinvested in additional deferred stock
units. The entire balance of a Non-employee Director’s account under the
Deferred Stock Plan will be paid to the Non-employee Director, in either a
lump
sum or installments at the election of such Non-employee Director, in shares
of
our Common Stock upon the Non-employee Director’s termination of service. If a
“change in control” occurs and the Non-employee Director ceases to be a Director
or the Deferred Stock Plan is terminated, shares equal to the entire balance
of
the account will be distributed within 30 days.
Pursuant
to our Stock Bonus Plan for Non-Employee Directors (the “Directors Stock Bonus
Plan”), each person who becomes a Non-employee Director prior to June 30, 2006
shall be awarded 7,593 shares of our Common Stock effective as of such
person’s
election to our Board of Directors. Such shares will tentatively vest in
equal
increments over a ten-year period. Directors are entitled to receive cash
dividends on and to vote shares which are the subject of an award prior
to their
distribution or forfeiture. Upon termination of the Director’s service as a
Non-employee Director, the Director (or, in the event of his or her death,
his
or her beneficiary) shall be entitled, in the discretion of the committee
formed
to administer the Directors Stock Bonus Plan, to receive the shares awarded
to
such Director which have tentatively vested up to the date of such termination
of service. Shares may be received prior to such date if there has been
a
“change in control” (as defined in the Directors Stock Bonus Plan). If receipt
of shares is accelerated due to a change in control, an additional payment
aggregating approximately $194,000 (assuming a change in control date of
June 2,
2006 and a share price of $38.00) will be made to compensate for the loss
of the
tax deferral.
Pursuant
to our 2002 Long Term Incentive Plan, each Non-employee Director in office
on
the date of the regular meeting of the Board in December of 2005 was 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 will 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 a “change of control”
(as defined in the 2002 Long Term Incentive Plan).
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” (as defined in the Deferred Compensation Plan) 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 Exchange Act requires our Executive Officers and Directors and
persons who own more than 10% of a registered class of Engelhard’s equity
securities to file initial reports of ownership and changes in ownership with
the SEC and the NYSE. Such Executive Officers, Directors and shareholders are
required by SEC regulations to furnish us with copies of all Section 16(a)
forms
they file. Based solely on a review of the copies of such forms furnished to
us
and written representations from our Executive Officers and Directors, all
persons subject to the reporting requirements of Section 16(a) filed the
required reports on a timely basis for 2005, except that each of Messrs.
Dornbusch and Napier inadvertently filed a Form 4 late.
CERTAIN
TRANSACTIONS
Citibank,
N.A., a subsidiary of Citigroup Inc., which reported beneficial ownership of
more than 5% of our Common Stock for part of 2005, participated with other
lenders in lines of credit available to Engelhard under revolving credit
facilities. Citibank’s total commitment was $39,000,000 through March 2005, none
of which was drawn in 2005. In 2005, Citibank received an annual facility fees
of approximately $6,400 for these facilities. The Company uses 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 $15,000 in 2005.
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 arm’s length as principals in competitive
markets. During 2005, foreign exchange transactions with subsidiaries of
Citigroup aggregated approximately $17,000,000 and metals transactions with
subsidiaries of Citigroup aggregated approximately $537,000,000.
Included
in the assets held by the Company's pension trusts are approximately 65,000
shares of Citigroup Inc. common stock having a market value of $3.2 million
at
December 31, 2005. Citigroup paid an annualized dividend of $1.76 per share
during 2005. Purchases and sales of Citigroup shares were made by independent
investment managers and were not material to the Company.
Vanguard
Group, an affiliate of Vanguard Windsor Funds, which reported beneficial
ownership of more than 5% of our Common Stock for part of 2005, received $97,353
for administering 401(k) plans for our employees during 2005.
State
Street Bank and Trust Company, which reported beneficial ownership of more
than
5% of our Common Stock for part of 2005, provides asset management services
for
our domestic pension plans. Plan assets under State Street’s management were
$52,857,328 at December 31, 2005. Fees paid by the Company’s pension plan trust
totaled $26,918 for the year ended December 31, 2005.
EXECUTIVE
COMPENSATION AND OTHER INFORMATION
The
following table sets forth the compensation paid by us for services rendered
in
all capacities during each of the last three fiscal years to our Chief Executive
Officer and our other four most highly compensated Executive
Officers.
SUMMARY
COMPENSATION TABLE
|
|
Annual
Compensation
|
|
Long-Term
Compensation
Awards
(1)
|
|
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Other
Annual Compensation
($)
|
|
Restricted
Stock
Awards
($)(2)
|
|
Options
(#))
|
|
All
Other Compensation ($)(1)(3)
|
|
Barry
W. Perry
Director,
Chairman
and
Chief Executive
Officer
|
|
|
2005
2004
2003
|
|
|
1,130,000
1,100,000
1,000,000
|
|
|
1,300,000
1,760,000
2,014,900(4
|
)
|
|
279,874(5
238,066(5
169,881(5
|
)
)
)
|
|
1,102,013
465,067
1,000,288
|
|
|
200,000
258,688
238,388
|
|
|
238,810(7)
679,691(7)
375,398
|
|
Michael
A. Sperduto
Vice
President and
Chief
Financial Officer
|
|
|
2005
2004
2003
|
|
|
343,786
333,773
307,625
|
|
|
533,401
330,000
243,400
|
|
|
—
—
—
|
|
|
303,940
169,198
143,434
|
|
|
45,424
67,852
61,168
|
|
|
—
31,339
29,581
|
|
Arthur
A. Dornbusch, II
Vice
President,
General
Counsel
and
Secretary
|
|
|
2005
2004
2003
|
|
|
340,125
333,456
325,323
|
|
|
448,040
265,000
218,100
|
|
|
16,108(6
13,771(6
12,092(6
|
)
)
)
|
|
230,351
142,657
135,209
|
|
|
34,112
60,172
57,460
|
|
|
192,589(7)
576,558(7)
100,607
|
|
Edward
T. Wolynic
Vice
President and
Chief
Technology Officer
|
|
|
2005
2004
2003
|
|
|
307,467
298,512
267,800
|
|
|
465,220
265,000
166,700
|
|
|
—
—
—
|
|
|
242,582
130,442
91,342
|
|
|
35,284
55,732
38,508
|
|
|
—
38,180
36,038
|
|
John
C. Hess
Vice
President,
Human
Resources
|
|
|
2005
2004
2003
|
|
|
277,700
272,255
261,783
|
|
|
345,637
215,000
167,400
|
|
|
—
—
—
|
|
|
182,650
101,941
91,486
|
|
|
18,996
38,660
36,208
|
|
|
96,294(7)
113,128(7)
54,658
|
|
(1)
|
Our
Key Employees Stock Bonus Plan, our Stock Option Plans, 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 26.
|
(2)
|
As
of December 31, 2005, Messrs. Perry, Sperduto, Dornbusch, Wolynic
and Hess
held 74,613, 15,310, 16,091, 11,126 and 10,638 unvested shares,
respectively, of stock and stock units, which were awarded pursuant
to our
Key Employees Stock Bonus Plan and 2002 Long Term Incentive Plan
having a
market value of $2,249,582, $461,597, $485,144, $335,449 and $320,736,
respectively. These amounts do not include the grants of restricted
stock
which were made in 2006 for services rendered during 2005. 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 26.
|
(3)
|
All
amounts for 2003 represent payouts pursuant to restricted cash awards
made
in 2000 under the Restricted Cash Incentive Compensation Plan. Amounts
for
2004 include payments to Messrs. Perry, Sperduto, Dornbusch, Wolynic
and
Hess of $397,707, $31,339, $106,585, $38,180 and $57,906, respectively,
pursuant to the Restricted Cash Incentive Compensation
Plan.
|
(4)
|
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
other than for cause. Vesting will also be accelerated upon the occurrence
of a “change in control.” This award is not included in computation of Mr.
Perry’s pension benefits.
|
(5)
|
Includes
$100,000 for financial and tax planning, legal services and life
insurance
in 2005 and 2004. Also includes $25,000 for life insurance in 2003,
$39,376 for supplemental disability insurance coverage in 2005 and
$47,068
for supplemental disability insurance coverage in each of 2004 and
2003.
|
(6)
|
Represents
interest accrued during 2005, 2004 and 2003 in excess of 120% of
the
applicable federal interest rate with respect to salary deferrals.
|
(7)
|
In
light of the expiration of certain options held by Messrs. Perry,
Dornbusch and Hess during a company-mandated blackout period in 2005
and
2004, the Board authorized cash awards to Messrs. Perry, Dornbusch
and
Hess, of $238,810, $192,589 and $96,294 in 2005 and awards of $281,984,
$469,973, and $55,222 in 2004, respectively, which represented the
economic value of the expired options as of the expiration date of
the
options. These amounts are included in the “All Other Compensation” amount
reflected in the Summary Compensation
Table.
|
The
following table sets forth information concerning individual grants of stock
options made under the 2002 Long Term Incentive Plan in December 2005 for
services rendered during 2005 by each of the named Executive
Officers.
Option
Grants in Last Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual
Grants
|
|
|
|
Grant
Date
Value
|
|
Name
|
|
Number
of
Securities
Underlying
Options
Granted
(#)(1)
|
|
%
of Total
Options
Granted
to
Employees for
Services
Rendered
During
2005
|
|
Exercise
or
Base
Price
($/Sh)
|
|
Expiration
Date
|
|
Grant
Date
Present
Value
($)(2)
|
|
Barry
W. Perry
|
|
|
200,000
|
|
|
38
|
%
|
|
29.95
|
|
|
12/07/2015
|
|
|
1,978,000
|
|
Michael
A. Sperduto
|
|
|
45,424
|
|
|
9
|
%
|
|
29.95
|
|
|
12/07/2015
|
|
|
449,243
|
|
Arthur
A. Dornbusch, II
|
|
|
34,112
|
|
|
6
|
%
|
|
29.95
|
|
|
12/07/2015
|
|
|
337,368
|
|
Edward
T. Wolynic
|
|
|
35,284
|
|
|
7
|
%
|
|
29.95
|
|
|
12/07/2015
|
|
|
348,959
|
|
John
C. Hess
|
|
|
18,996
|
|
|
4
|
%
|
|
29.95
|
|
|
12/07/2015
|
|
|
187,870
|
|
(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 26.
|
(2)
|
The
Black-Scholes option pricing model was chosen to estimate the grant
date
present value of the options set forth in this table. Our use of
this
model should not be construed as an endorsement of its accuracy at
valuing
options. All stock option valuation models, including the Black-Scholes
model, require a prediction about the future movement of the stock
price.
The real value of the options in this table depends upon the actual
changes in the market price of the Common Stock during the applicable
period. The model assumes:
|
|
(a)
|
an
option term of 6.75 years, which represents anticipated exercise
trends
for the named Executive Officers;
|
|
(b)
|
interest
rate of 4.37% that represents the current yield curve as of the grant
date;
|
|
(c)
|
an
average volatility of approximately 29.87% calculated using average
weekly
stock prices for the 6.75 years prior to the grant date;
and
|
|
(d)
|
dividend
yield of 1.60% (the annual dividend rate on the grant date divided
by the
option exercise price).
|
The
following table sets forth information concerning each exercise of stock options
during 2005 by each of the named Executive Officers and the value of unexercised
options at December 31, 2005.
Aggregate
Option Exercises in 2005 and Values at December 31, 2005
|
|
Shares
Acquired
on
Exercise
|
|
Value
Realized
|
|
Number
of Securities
Underlying
Unexercised
Options at
December
31, 2005 (#)
|
|
Value
of Unexercised
In-The-Money
Options at
December
31, 2005 ($)
|
|
Name
|
|
(#)
|
|
($)
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|
Barry
W. Perry
|
|
|
77,500
|
|
|
417,321
|
|
|
1,635,029
|
|
|
686,110
|
|
|
13,786,106
|
|
|
1,196,834
|
|
Michael
A. Sperduto
|
|
|
20,550
|
|
|
109,118
|
|
|
247,790
|
|
|
173,715
|
|
|
1,930,693
|
|
|
346,097
|
|
Arthur
A. Dornbusch, II
|
|
|
51,250
|
|
|
330,819
|
|
|
548,870
|
|
|
156,152
|
|
|
5,223,024
|
|
|
349,695
|
|
Edward
T. Wolynic
|
|
|
4,275
|
|
|
26,126
|
|
|
207,297
|
|
|
127,585
|
|
|
1,688,624
|
|
|
229,298
|
|
John
C. Hess
|
|
|
6,900
|
|
|
45,615
|
|
|
287,064
|
|
|
96,715
|
|
|
2,655,709
|
|
|
216,542
|
|
Long-Term
Incentive Plan - Awards in Fiscal 2005
The
table
below sets forth information concerning the grant of performance units to each
of the named Executive Officers.
|
|
Number
of
|
|
|
|
|
|
|
|
Shares,
Units
|
|
|
|
|
|
|
|
or
Other Rights
|
|
Performance
|
|
Estimated
Future Payout(1)
|
|
Name
|
|
Granted
(1)
|
|
Period
Until Payout
|
|
Threshold
($)
|
|
Target
($)
|
|
Maximum
($)
|
|
Barry
W. Perry
|
|
|
1,000,000
|
|
|
12/31/2007
|
|
|
0
|
|
|
1,000,000
|
|
|
2,000,000
|
|
Michael
A. Sperduto
|
|
|
171,893
|
|
|
12/31/2007
|
|
|
0
|
|
|
171,893
|
|
|
343,786
|
|
Arthur
A. Dornbusch, II
|
|
|
170,063
|
|
|
12/31/2007
|
|
|
0
|
|
|
170,063
|
|
|
340,126
|
|
Edward
T. Wolynic
|
|
|
153,734
|
|
|
12/31/2007
|
|
|
0
|
|
|
153,734
|
|
|
307,468
|
|
John
C. Hess
|
|
|
83,310
|
|
|
12/31/2007
|
|
|
0
|
|
|
83,310
|
|
|
166,620
|
|
(1)
|
The
long-term performance units were granted as performance units under
the
2002 Long Term Incentive Plan. The performance period for the long-term
performance units began on January 1, 2005. The value of each long-term
performance unit was initially set at $1.00 per unit, and it will
increase
or decrease based on the performance of the Company in relation to
the
performance metrics specified annually by the Compensation Committee
of
the Board of Directors and set forth in the form of long-term performance
unit award letter, a form of which is filed as an exhibit to Engelhard’s
2005 Form 10-K filed with the SEC. Upon a change in control (as defined
in
the 2002 Long Term Incentive Plan) of the Company each long-term
performance unit will be valued at $2.00, its maximum value, and
that
value will be paid in cash at the time of the change in
control.
|
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 to
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
|
|
$
|
132,294
|
|
$
|
180,294
|
|
$
|
228,294
|
|
$
|
276,294
|
|
$
|
276,294
|
|
600,000
|
|
|
204,294
|
|
|
276,294
|
|
|
348,294
|
|
|
420,294
|
|
|
420,294
|
|
800,000
|
|
|
276,294
|
|
|
372,294
|
|
|
468,294
|
|
|
564,294
|
|
|
564,294
|
|
1,000,000
|
|
|
348,294
|
|
|
468,294
|
|
|
588,294
|
|
|
708,294
|
|
|
708,294
|
|
1,200,000
|
|
|
420,294
|
|
|
564,294
|
|
|
708,294
|
|
|
852,294
|
|
|
852,294
|
|
1,400,000
|
|
|
492,294
|
|
|
660,294
|
|
|
828,294
|
|
|
996,294
|
|
|
996,294
|
|
1,600,000
|
|
|
564,294
|
|
|
756,294
|
|
|
948,294
|
|
|
1,140,294
|
|
|
1,140,294
|
|
1,800,000
|
|
|
636,294
|
|
|
852,294
|
|
|
1,068,294
|
|
|
1,284,294
|
|
|
1,284,294
|
|
2,000,000
|
|
|
708,294
|
|
|
948,294
|
|
|
1,188,294
|
|
|
1,428,294
|
|
|
1,428,294
|
|
2,200,000
|
|
|
780,294
|
|
|
1,044,294
|
|
|
1,308,294
|
|
|
1,572,294
|
|
|
1,572,294
|
|
2,400,000
|
|
|
852,294
|
|
|
1,140,294
|
|
|
1,428,294
|
|
|
1,716,294
|
|
|
1,716,294
|
|
2,600,000
|
|
|
924,294
|
|
|
1,236,294
|
|
|
1,548,294
|
|
|
1,860,294
|
|
|
1,860,294
|
|
2,800,000
|
|
|
996,294
|
|
|
1,332,294
|
|
|
1,668,294
|
|
|
2,004,294
|
|
|
2,004,294
|
|
3,000,000
|
|
|
1,068,294
|
|
|
1,428,294
|
|
|
1,788,294
|
|
|
2,148,294
|
|
|
2,148,294
|
|
3,200,000
|
|
|
1,140,294
|
|
|
1,524,294
|
|
|
1,908,294
|
|
|
2,292,294
|
|
|
2,292,294
|
|
3,400,000
|
|
|
1,212,294
|
|
|
1,620,294
|
|
|
2,028,294
|
|
|
2,436,294
|
|
|
2,436,294
|
|
3,600,000
|
|
|
1,284,294
|
|
|
1,716,294
|
|
|
2,148,294
|
|
|
2,580,294
|
|
|
2,580,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 20, credited years of service under the
plans as of December 31, 2005 are as follows: Mr. Perry, 17 years; Mr. Sperduto,
22 years; Mr. Dornbusch, 29 years; Mr. Wolynic, 10 years; and Mr. Hess, 21
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.
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 was 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 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
(and similar arrangements established by the Compensation Committee) also
provided for a formula-based grant of additional equity awards for 2001, 2002,
2003 and 2004 if Engelhard’s average closing stock price and the total return on
Engelhard’s Common Stock met designated targets. Mr. Perry received awards under
these arrangements for 2001 and 2003. 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. The agreement as amended also provides for payment of
$100,000 per year to be used by Mr. Perry for financial planning, legal, tax
planning and similar services or for life insurance in lieu of any death benefit
or survivors’ coverage other than that generally available to all executives, to
be allocated as determined by Mr. Perry.
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 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, but
not
below zero, 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:
|
(2)
|
because
of “Disability,”
|
|
(3)
|
by
Engelhard for “Cause,” or
|
|
(4)
|
by
the Executive other than for “Good
Reason,”
|
for
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 and Hess is defined as an
Executive.
On
January 20, 2006, our Board, upon recommendation of the Company’s Compensation
Committee, approved a Change in Control Agreement with our Vice President and
Chief Technology Officer, Dr. Wolynic. Pursuant to this agreement, we will
provide severance benefits to Dr. Wolynic in the event of termination of his
employment, except a termination: (1) by Engelhard for “Cause,” or (2) by Dr.
Wolynic other than for “Good Reason,” within the period beginning on the date of
a “Potential Change in Control” (as such terms are defined in the Change in
Control Agreement) or “change in control” (as defined below) and ending on the
third anniversary of the date on which a “change in control” occurs.
The
severance benefits include:
|
(1)
|
the
payment of salary through the date of termination together with salary
in
lieu of accrued vacation;
|
|
(2)
|
an
amount equal to two times the sum of his base salary and the cash
value of
his target incentive compensation awards for the year of the change
in
control, determined as set forth in the agreement;
|
|
(3)
|
continued
participation in the Company’s group medical and dental plans for up to
two years following the date of termination;
and
|
|
(4)
|
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.
|
Approximately
$65.4 million would be payable to all officers, including approximately
$61.9
million which would be payable to Executive Officers, assuming a qualifying
termination occurred on June 2, 2006 and a share price of $38.00. Amounts
payable under the agreements are in addition to the amounts payable under
the
other plans described herein.
In
order
to address the uncertainty in the application of the recently adopted rules
under the Internal Revenue Code of 1986 governing deferred compensation and
to
ensure that any amendments necessary to bring the Company’s plans and agreements
into compliance with those rules are timely made, on January 20, 2006 our Board,
upon recommendation of the Compensation Committee, approved
letter
agreements with each of the Executive Officers with a Change in Control
Agreement with the Company. The letter agreements:
|
(1)
|
obligate
the Company to make timely amendments necessary to bring the Company’s
plans and agreements into compliance with the new deferred compensation
rules in a manner that does not reduce the economic value to the
executives;
|
|
(2)
|
obligate
the Executive Officers to not unreasonably withhold their consent
to such
amendments and report for tax purposes on a basis consistent with
the
Company’s reporting; and
|
|
(3)
|
provide
that the Company will indemnify the Executive Officers, on an after-tax
basis, against any additional tax or interest imposed due to failure
to
comply with the deferred compensation rules.
|
In
addition, if compliance with the rules requires that payment of amounts to
the
Executive Officers be deferred from the date otherwise payable, the deferred
amounts would be deposited in the Company’s Supplemental Retirement Trust for
the benefit of the Executive Officer.
For
purposes of our Change in Control Agreements, a “change in control” is triggered
if one of the following occurs:
|
(1)
|
twenty-five
percent or more of our outstanding securities entitled to vote in
the
election of directors shall be beneficially owned, directly or indirectly,
by any person or group of persons, other than the groups presently
owning
the same, or
|
|
(2)
|
a
majority of our Board of Directors ceases to consist of the existing
membership or successors approved by the existing membership or their
similar successors, or
|
|
(3)
|
shareholders
approve a reorganization or merger with respect to which the persons
who
were the beneficial owners of our outstanding voting securities
immediately prior thereto do not, following the reorganization or
merger,
beneficially own more than 60% of the outstanding voting securities
of the
corporation resulting from the reorganization or merger in substantially
the same proportions as their ownership of our voting securities
immediately prior thereto, or
|
|
(4)
|
shareholder
approval of either:
|
|
(a)
|
a
complete liquidation or dissolution of Engelhard
or
|
|
(b)
|
a
sale or other disposition of all or substantially all of the assets
of
Engelhard, other than to a corporation, with respect to which following
such sale or other disposition, more than 60% of Engelhard’s outstanding
securities entitled to vote generally in the election of directors
are
thereafter beneficially owned, in substantially the same proportions,
by
all or substantially all of the individuals and entities who were
the
beneficial owners of such securities prior to such sale or other
disposition.
|
Stock
Option, Stock
Bonus and 2002 Long Term Incentive Plans
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.
Pursuant
to the terms of the plans as previously approved by the Company’s shareholders,
upon a change in control of the Company:
|
(1)
|
1,189,161
unvested options to purchase shares held by directors and executive
officers, with a weighted average exercise price of $28.63 per share,
will
vest and become exercisable;
|
|
(2)
|
160,875
unvested shares of restricted stock held by executive officers will
vest
and no longer be subject to forfeiture; and
|
|
(3)
|
12,882
unvested restricted stock units held by an executive officer will
vest and
shares will be distributed pursuant thereto at the time of a change
in
control.
|
In
the
case of restricted stock units and restricted shares, aggregate additional
payments of approximately $365,000 (assuming a change in control date of
June 2,
2006 and a share price of $38.00) will be made to executive officers to
compensate for the lost tax deferral.
Also,
pursuant to the terms of the plan under which they were granted, which was
previously approved by the Company’s shareholders, 3,737,567 long-term
performance units held by executive officers will vest and will each be valued
at $2.00. Such value will be paid in cash at the time of the change in
control.
Deferred
Compensation Plans; Supplemental
Retirement Program
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” under the Change in Control
Agreements 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, aggregate additional
payments of approximately $6.3 million (assuming
a change in control date of June 2, 2006 and a share price of $38.00) will
be
made to current executive officers and directors 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).
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:
· |
Attract
and retain key employees who can build and continue to grow a successful
company;
|
· |
Provide
incentives to achieve high levels of company, business, and individual
performance; and
|
· |
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:
· Overall
compensation policy;
· |
Salaries
for the Chief Executive Officer and for approximately 18 other senior
managers worldwide;
|
· |
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;
|
· |
Plan
design and policies related to senior management and employee awards
of
options and restricted stock; and
|
· |
Individual
grants under the Stock Option Plans, Stock Bonus Plan and other awards
under the Incentive Compensation Plan for Key Employees 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 Committee examines and sets:
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 in 2005 and it was
determined that no major structure adjustments were necessary. Likewise, merit
budgets are established based on a competitive target, actual competitive
position, and our desire to recognize and reward individual contribution. For
international employees and non-exempt
salaried
employees in the United States, structure adjustments and merit budgets are
determined based on local market conditions.
Individual
merit adjustments are based upon the managers’ quantitative and qualitative
evaluation of individual performance, including feedback from customers served,
against business objectives such as earnings, return on capital, 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 3.1% for 2006 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 Incentive Compensation
In
October 2004, the Compensation Committee adopted a new Incentive Compensation
Plan, applicable to key employees worldwide, to replace the prior Management
Incentive Plan. The redesigned Plan essentially reduced the amount of equity
(stock options and restricted stock) with an approximately corresponding
increase to cash bonuses and the introduction of a new Long-Term Performance
Unit program.
Our
Incentive Compensation Plan integrates incentive compensation vehicles (cash
bonus awards, long-term performance units, 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 consisting of cash, restricted stock and stock
options. The level of the pool generated for Engelhard overall and each business
group depends upon actual performance against targets established at the
beginning of each year (which, for executive officers, is based on Engelhard’s
earnings per share). The pools are determined by a formula based on the base
salary and band level of each eligible employee in the pool (including specific
designations for Mr. Perry) and the actual performance of Engelhard and/or
its
business units against specific predetermined levels of earnings targets. A
threshold level is established for each pool below which incentives will not
normally be paid. Engelhard’s Compensation Committee may adjust these pools up
or down in its sole discretion. Once each group’s pool is established,
individual performance based awards are made based on the individual’s
performance and the performance of the group. In addition, through awards of
long-term performance units, eligible plan participants will have the
opportunity to earn additional cash compensation contingent upon the attainment
of cumulative three-year weighted performance objectives. The initial grant
is
based upon a percentage of base salary, which varies depending on band level.
The
value
of total direct compensation, which includes both base salary and awards made
for services in 2005 under Engelhard’s Incentive Compensation Plan, for all
managers eligible under the Plan increased by 11% from 2004. As provided under
the 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 2005. Once each group’s pool was established,
awards were made as described above. 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 on
invested capital, total shareholder return, and return on average assets. In
addition to these measures the Compensation Committee considered certain other
factors in determining Mr. Perry’s compensation. Among those other factors were
his organizational leadership, strategic focus Board, shareholder and analyst
relationships and succession planning. As a result of all these considerations
the Compensation Committee decided that Mr. Perry’s total direct compensation,
which includes base salary plus the value of all awards and grants under the
Incentive Compensation Plan, should be generally consistent with the target
compensation established by the Compensation Committee for 2005. In addition,
the Compensation Committee directed that the same independent compensation
consultant retained to assess Mr. Perry’s compensation prepare a similar
assessment for all senior executives, using similar methodologies and market
data. The Compensation Committee considered the results of that assessment
in
determining executives’ 2006 base salaries and incentive compensation for 2005.
a. Annual
Cash Incentive Program
This
program is designed to provide focus on expected annual results and recognition
of accomplishment for the year.
For
2005,
actual cash payments determined under the Incentive Compensation Plan, including
the cash incentive payments to all Executive Officers, were 94% of the
competitively defined pool as factored for performance.
For
the
year 2005, Mr. Perry received a cash incentive award of $1,300,000, compared
with $1,760,000 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
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
restricted stock value under the Incentive Compensation Plan granted to
Executive Officers and other participants for 2005 was 87% of the plan generated
pool. The Committee determines the dollar amount of the restricted stock pool
for the year, which is then converted to restricted stock.
For
the
year 2005, Mr. Perry received a restricted stock award of 27,030 shares under
the Key Employees Stock Bonus Plan. For 2004, Mr. Perry received a restricted
stock award of 15,420 shares under the Key Employees Stock Bonus Plan.
c. Stock
Options
Our
Stock
Option Plans have been designed to link employee compensation growth directly
to
growth in share price. Senior managers worldwide, including all the Executive
Officers,
are reviewed for annual stock option grants determined under the Incentive
Compensation Plan in the manner previously described. Options vest in equal
increments over four years, are granted with an exercise price equal to the
fair
market value per share on the date of grant, and normally have a ten-year life.
Options granted for 2005 under the Incentive Compensation Plan were 87% of
the
pool generated.
For
the
year 2005, Mr. Perry received 200,000 stock option awards under the Incentive
Compensation Plan. He received 258,688 stock options for 2004.
In
light
of the expiration of certain options held by employees during a company-mandated
blackout period in 2005, the Compensation Committee authorized cash awards
to
those employees in an aggregate amount of $895,537, which represented the
economic value of the expired options as of the expiration date of the
options.
d. Long-Term
Performance Units
As
part
of the Incentive Compensation Plan, long-term performance units were granted
to
key employees, including all of the Executive Officers. The long-term
performance units were granted as performance units under the 2002 Long Term
Incentive Plan. The performance period for the long-term performance units
began
on January 1, 2005 and will end on December 31, 2007. The value of each
long-term performance unit was initially set at $1.00 per unit, and it will
increase or decrease based on the performance of the Company in relation to
the
performance metrics set forth in the award agreements. An aggregate of 1,854,440
long-term performance units were awarded to Executive Officers for 2005,
including an award of 1,000,000 units to Mr. Perry. Upon a “change in control”
of the Company each long-term performance unit will be valued at $2.00, its
maximum value, and that value will be paid in cash at the time of the change
in
control.
The
Committee directs the purchase of compensation survey information from several
independent professional consultants in order to review the base, annual cash
incentive, and total compensation of Mr. Perry and other individual senior
managers and employee groups. The Committee is generally satisfied that relevant
competitive data and achievements of Engelhard indicate the compensation design
supported the objectives of attracting and retaining key talent, providing
incentives for superior performance, and aligning employee and shareholder
interests.
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
Performance
Graph
Comparison
of Five-Year Cumulative Total Returns
Among
Engelhard Corporation, S&P 500 Index
and
All S&P Chemicals
[Line
Chart]
|
|
December
31,
|
|
|
|
2000
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
Engelhard
Corporation
|
|
|
100.00
|
|
|
138.00
|
|
|
113.15
|
|
|
154.07
|
|
|
160.08
|
|
|
159.98
|
|
S&P
500 Index
|
|
|
100.00
|
|
|
88.11
|
|
|
68.64
|
|
|
88.33
|
|
|
97.94
|
|
|
102.75
|
|
All
S&P Chemicals
|
|
|
100.00
|
|
|
103.09
|
|
|
98.55
|
|
|
124.76
|
|
|
151.03
|
|
|
149.76
|
|
a
|
Assumes
$100 invested on December 31, 2000 in each referenced group with
reinvestment of dividends.
|
b
|
The
All S&P Chemicals index includes all 41 companies
(including Engelhard) in all chemical subindices from the S&P
1500.
|
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. During the
fiscal year 2005, the Audit Committee held 10 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, 2005 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, 2005 be included
in
Engelhard’s Annual Report on Form 10-K for such fiscal year.
Audit
Committee
Douglas
G. Watson David
L.
Burner James
V.
Napier
The
foregoing Audit Committee Report shall not be incorporated by reference into
any
of Engelhard’s prior or future filings with the SEC, except as otherwise
explicitly specified by Engelhard in any such filing.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Ernst
& Young LLP (“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.
Fees
Billed to Engelhard by E&Y during each of the fiscal
years ended December 31, 2005 and December 31, 2004
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 and internal
controls over financial reporting for Fiscal Year 2005, the review of
Engelhard’s financial statements included in Engelhard’s Quarterly Reports on
Form 10-Q during the
fiscal
year ended December 31, 2005 and statutory audits in non-U.S. locations, totaled
$5,369,000 as compared to $5,199,000 for the fiscal year ended December 31,
2004.
Audit-Related
Fees
The
aggregate fees billed to Engelhard by E&Y during each of the fiscal years
ended December 31, 2005 and December 31, 2004 for audit-related services
totaled $614,000 and $400,000, respectively. Audit-related fees consist
principally of fees for due diligence reviews, 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, 2005 and December 31, 2004 for tax services totaled
$892,000 and $762,000, respectively. Tax fees consist of tax planning and tax
compliance services.
All
Other
Fees
No
other
fees were incurred or billed to Engelhard by E&Y during each of the fiscal
years ended December 31, 2005 and December 31, 2004, 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 of the Audit Committee has authority to approve engagements within
permitted service categories on an interim basis, subject to review at the
next
Audit Committee meeting.
2. RATIFICATION
OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The
Audit
Committee of the Board of Directors is required by law and applicable New York
Stock Exchange rules to be directly responsible for the appointment,
compensation and retention of the Company’s independent registered public
accounting firm. The Audit Committee has appointed E&Y as the independent
registered public accounting firm for the year ending December 31, 2006. While
shareholder ratification is not required by the Company’s By-laws or otherwise,
the Board of Directors is submitting the selection of E&Y to the
shareholders for ratification as part of good corporate governance practices.
If
the shareholders fail to ratify the selection, the Audit Committee may, but
is
not required to, reconsider whether to retain E&Y. Even if the selection is
ratified, the Audit Committee in its discretion may direct the appointment
of
different independent registered public accounting firms at any time during
the
year if it determines that such a change would be in the best interest of the
Company and its shareholders.
The
Board
of Directors recommends a vote FOR the proposal to ratify the selection of
E&Y as the Company’s independent registered public accounting firm to audit
the Company’s consolidated financial statements for the year ending December 31,
2006. The persons designated as proxies will vote FOR the ratification of
E&Y as the Company’s independent registered public accounting firm, unless
otherwise directed.
FUTURE
SHAREHOLDER PROPOSALS
How
do
I make a proposal for the 2007 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 2007 Annual
Meeting of Shareholders (the “2007 Annual Meeting”) is December 29, 2006. Any
shareholder proposal submitted outside of the processes of Rule 14a-8 of the
Exchange Act must be received by us after February 3, 2007 and before March
6,
2007. If received by us after March 6, 2007, then our proxy for the 2007 Annual
Meeting may confer discretionary authority to vote on such matter without any
discussion of such matter in the proxy statement for the 2007 Annual
Meeting.
HOUSEHOLDING
The
SEC
has adopted amendments to its rules regarding delivery of proxy statements
and
annual reports to shareholders 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 shareholders. 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 shareholders who share an address,
unless we received contrary instructions from the impacted shareholders 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 shareholder 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.
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.
PARTICIPANTS
IN THE SOLICITATION
Under
applicable regulations of the SEC, each member of the Engelhard Board, the
director nominees at this year’s Meeting and Messrs. Dresner, Lowen, Wolynic and
Bell may be deemed to be a “participant” in Engelhard’s solicitation of proxies
in connection with the meeting. For information on each participant please
refer
to Appendix B to the proxy statement.
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
[ ],
2006
APPENDIX
A
Engelhard
Corporation
Director
Independence Standards
The
Board
of Directors of Engelhard Corporation (the “Company”) has adopted the following
standards to assist it in making determinations of independence in accordance
with the NYSE Corporate Governance rules.
Employment
Relationships
A
director will be deemed to be independent unless, within the preceding three
years:
· |
is
or was an employee of the Company or any of the Company’s subsidiaries,
other than an interim Chairman or Chief Executive Officer or other
executive officer;
|
· |
is
a current partner of the Company’s internal or external
auditor;
|
· |
is
a current employee of the Company’s internal or external auditor;
or
|
· |
was
(but is no longer) a partner or employee of the Company’s internal or
external auditor who personally worked on the Company’s audit within that
time.
|
· any
immediate family member of such director
· |
is
or was an executive officer of the Company or any of the Company’s
subsidiaries;
|
· |
is
a current partner of the Company’s internal or external
auditor;
|
· |
is
a current employee of the Company’s internal or external auditor who
participates in the firm’s audit, assurance or tax compliance (but not tax
planning) practice; or
|
· |
was
(but is no longer) a partner or employee of the Company’s internal or
external auditor who personally worked on the Company’s audit within that
time.
|
Compensation
Relationships
A
director will be deemed to be independent unless, within the preceding three
years:
· |
such
director has received during any twelve-month period more than $100,000
in
direct compensation from the Company or any of its subsidiaries other
than: (i) director and committee fees; (ii) pension or other forms of
deferred compensation for prior service; provided, however, that
such
compensation is not contingent in any way on continued service; and
(iii)
compensation received for former service as an interim Chairman or
Chief
Executive Officer or other executive officer;
or
|
· |
an
immediate family member of such director has received during any
twelve-month period more than $100,000 in direct compensation from
the
Company or any of its subsidiaries as a director or executive officer
other than: (i) director and committee fees and (ii) pension or other
forms of deferred compensation for prior service; provided, however,
that
such compensation is not contingent in any way on continued
service.
|
Commercial
Relationships
A
director will be deemed to be independent unless:
· |
such
director is a current employee of another company that has made payments
to, or received payments from, the Company or any of its subsidiaries
for
property or services in an amount which, in any of the last three
fiscal
years, exceeds the greater of $1 million or 2% of such other company’s
consolidated gross revenues; or
|
· |
an
immediate family member of such director is a current executive officer
of
another company that has made payments to, or received payments from,
the
Company or any of its subsidiaries for property or services in an
amount
which, in any of the last three fiscal years, exceeds the greater
of $1
million or 2% of such other company’s consolidated gross
revenues.
|
Charitable
Relationships
A
director will be deemed to be independent unless such director is an executive
officer of a tax-exempt organization that, within the preceding three years,
received contributions from the Company or any of its subsidiaries in an amount
which, in any single fiscal year, exceeded the greater of $1 million or 2%
of
such tax-exempt organization’s consolidated gross revenues; unless the Board
determines such relationships not to be material or otherwise consistent with
a
Director’s independence.
Interlocking
Directorates
A
director will be deemed to be independent unless, within the preceding three
years:
· |
such
director is or was employed as an executive officer of another company
where any of the Company’s or its subsidiaries’ present executive officers
at the same time serves or served on that company’s compensation
committee; or
|
· |
an
immediate family member of such director is or was employed as an
executive officer of another company where any of the Company’s or its
subsidiaries’ present executives at the same time serves or served on that
company’s compensation committee.
|
Other
Relationships
For
relationships not specifically mentioned above, the determination of whether
a
director has a material relationship with the Company (either directly or as
a
partner, shareholder or officer of an organization that has a relationship
with
the Company), and therefore would not be independent, will be made by the Board
of Directors after taking into account all relevant facts and circumstances.
For
purposes of these standards, a director who is solely a director and/or a
non-controlling shareholder of another company that has a relationship with
the
Company will not be considered to have a material relationship based solely
on
such relationship that would impair such director’s independence.
For
purposes of the standards set forth above, “immediate family member” means any
of such director’s spouse, parents, children, siblings, mothers and
fathers-in-law, sons and daughters-in-law and brothers and sisters-in-law (other
than those who are no longer family members as a result of legal separation
or
divorce, or those who have died or become incapacitated) and anyone (other
than
a domestic employee) who shares such director’s home. For purposes of the
standards set forth above, “executive officer” means the Company’s president,
principal financial officer, principal accounting officer (or, if there is
no
such accounting officer, the controller), any vice-president of the Company
in
charge of a principal business unit, division or function (such as sales,
administration or finance), any other officer who performs a policy-making
function, or any other person who performs similar policy-making functions
for
the Company. Officers of the Company’s subsidiaries shall be deemed officers of
the Company if they perform such policy-making functions for the
Company.
These
standards shall be interpreted in a manner consistent with the New York Stock
Exchange Corporate Governance Rules.
APPENDIX
B
Information
Concerning the Solicitation
of Proxies
Engelhard
is soliciting the proxies solicited by this proxy statement. Engelhard will
solicit proxies by mail, telephone, facsimile, press releases and in person.
Solicitations may be made by directors, officers and employees of Engelhard,
none of whom will receive additional compensation for such solicitations.
Engelhard will request banks, brokerage houses and other custodians, nominees
and fiduciaries to forward all of its solicitation materials to the beneficial
owners of the shares they hold of record. Engelhard will reimburse these record
holders for customary clerical and mailing expenses incurred by them in
forwarding these materials to customers.
Engelhard
has retained MacKenzie to assist it in connection with Engelhard’s
communications with its shareholders with respect to the offer, as information
agent with respect to the self-tender offer and such other advisory services
as
may be requested from time to time by Engelhard. Engelhard has agreed to pay
MacKenzie customary compensation for its services and reimbursement of
out-of-pocket expenses in connection therewith. Engelhard has also agreed to
indemnify MacKenzie against certain liabilities arising out of or in connection
with the engagement. MacKenzie estimates it will use approximately 50 employees
to solicit proxies from individuals, brokers, bank nominees and other
institutional holders.
Engelhard
has retained Merrill Lynch & Co. (“Merrill”) as its independent financial
advisor in connection with Engelhard’s analysis and consideration of, and
response to, the offer and with respect to any acquisition of control over
Engelhard, as well as a co-dealer manager with respect to the self-tender offer.
For these services, Engelhard has agreed to pay Merrill customary fees for
such
services; to reimburse Merrill for all reasonable and customary expenses,
including reasonable attorneys fees and disbursements; and to indemnify Merrill
and certain related persons against liabilities related to, arising out of
or in
connection with the engagement.
In
connection with Merrill’s engagement as financial advisor, it is possible that
certain employees of Merrill may communicate in person, by telephone or
otherwise with a limited number of institutions, brokers or other persons who
are shareholders of Engelhard for the purpose of assisting in the solicitation
of proxies for the annual meeting. Merrill will not receive any fee for, or
in
connection with, such solicitation activities apart from the fees to which
it
may otherwise be entitled to receive as described above. Except as otherwise
provided below, Merrill does not admit that it or any of its directors,
officers, employees or affiliates is a “participant,” as defined in Schedule 14A
promulgated by the SEC, or that Schedule 14A requires the disclosure of certain
information concerning Merrill.
JP
Morgan
Securities Inc. (“JPMorgan”) was retained as a financial advisor to Engelhard to
render a fairness opinion to the Board of Directors with respect to the
consideration to be received by Engelhard in connection with any acquisition
by
a third party of a material portion of Engelhard. Engelhard has agreed to pay
JPMorgan customary fees for such services; to reimburse JPMorgan for all
expenses, including reasonable fees and disbursements of legal counsel; and
to
indemnify them and certain related persons against certain liabilities related
to, arising out of, or in connection with its engagement. In connection with
the
self-tender offer, J.P. Morgan Chase Bank, N.A. (“JPMorgan Chase”), an affiliate
of JPMorgan, will act as co-dealer manager.
Each
of
Merrill and its affiliates, and JPMorgan and JPMorgan Chase and their
affiliates, in the past have provided, and in the future may provide financial
advisory and financing services to the Company, for which services they have
received, and would expect to receive, compensation. In
addition,
JPMorgan and Merrill have provided commitment letters, subject to customary
conditions, to provide a bridge credit facility to initially fund the
self-tender offer.
Engelhard
estimates that total costs relating to the solicitation of proxies (excluding
costs relating to the offer) are expected to be approximately $1,000,000,
including fees payable to MacKenzie. To date, Engelhard has incurred
approximately $300,000 in communicating with its shareholders in connection
with
this proxy solicitation. Actual expenditures may vary materially from this
estimate, however, as many of the expenditures cannot be readily predicted.
The
entire expense of preparing, assembling, printing and mailing this proxy
statement and any other related materials and the cost of communicating
with
Engelhard’s shareholders will be borne by Engelhard.
Information
Concerning Participants in the Solicitation
Under
applicable SEC regulations, Messrs. Antonini, Slack, Sperduto, Burner, Minigh,
Napier, Lebec,
Perry,
Watson, Bell, Dresner, Lowen and Wolynic may be deemed to be “participants” in
our solicitation of proxies for the meeting. The following is provided for
those
individuals.
Name,
Present Principal Occupation and Principal Business Address for each
Participant
Name
|
Present
Principal Occupation
|
Principal
Business Address
|
Directors
& Director Nominees
|
|
|
Marion
H. Antonini
|
Operating
Principal, Kohlberg & Company
|
101
Wood Avenue
Iselin,
NJ 08830
|
Henry
R. Slack
|
Chairman,
Terra Industries, Inc.
|
325
Columbia Turnpike
Florham
Park, NJ 07932
|
Michael
A. Sperduto
|
Vice
President and Chief Financial Officer, Engelhard
Corporation
|
101
Wood Avenue
Iselin,
NJ 08830
|
David
L. Burner
|
Retired
Chairman & CEO, Goodrich Corporation
|
101
Wood Avenue
Iselin,
NJ 08830
|
Howard
L. Minigh
|
Owner,
HM Advisors, LLC
|
81
Alize Drive
Kinnelon,
NJ 07405
|
James
V. Napier
|
Retired
Chairman of the Board, Scientific-Atlanta, Inc.
|
3325
Lenox Road
Suite
750
Atlanta,
GA 30326
|
Alain
Lebec
|
Member
and Senior Managing Director of Brock Capital Group LLC
|
622
Third Avenue
New
York, NY 10017
|
Barry
W. Perry
|
Chairman
and Chief Executive Officer, Engelhard Corporation
|
101
Wood Avenue
Iselin,
NJ 08830
|
Douglas
G. Watson
|
Chief
Executive Officer, Pittencrieff Glen Associates
|
52
Liberty Corner Rd.
Far
Hills, NJ 07931
|
Executive
Officers, Officers and Employees who are not Directors or Director
Nominees
|
|
|
Gavin
A. Bell
|
Vice
President, Investor Relations, Engelhard Corporation
|
101
Wood Avenue
Iselin,
NJ 08830
|
Mark
Dresner
|
Vice
President, Corporate Communications, Engelhard Corporation
|
101
Wood Avenue
Iselin,
NJ 08830
|
Ted
Lowen
|
Director,
Corporate Communications
|
101
Wood Avenue
Iselin,
NJ 08830
|
Edward
T. Wolynic
|
Vice
President and Chief Technology Officer
|
101
Wood Avenue
Iselin,
NJ 08830
|
Ownership
of Engelhard
To
the
extent not already included in this proxy statement, the number of shares of
Engelhard Common Stock directly or indirectly beneficially owned as of March
15,
2006 by the Participants listed above is set forth below. The information
includes shares that may be acquired by the exercise of stock options within
sixty days of such date.
Name
|
|
Shares
|
|
Percent
|
|
Gavin
A. Bell
|
|
|
4,134
|
|
|
*
|
|
Mark
Dresner
|
|
|
179,081
|
|
|
*
|
|
Ted
Lowen
|
|
|
12,654
|
|
|
*
|
|
*
Represents beneficial ownership of less than 1%.
Except
as
otherwise set forth in this proxy statement, none of Messrs. Antonini, Slack,
Sperduto, Burner, Minigh, Napier, Lebec,
Perry,
Watson, Bell, Dresner, Lowen and Wolynic (i) is the beneficial or record owner
of any shares of our Common Stock, (ii) has purchased or sold any shares of
our
Common Stock since January 1, 2004, borrowed any funds for the purpose of
acquiring or holding any shares of our Common Stock, or is or was within the
past year a party to any contract, arrangement or understanding with any person
with respect to any shares of our Common Stock, or (iii) was in the past ten
years convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors).
Arrangements
with Engelhard
Except
as
otherwise set forth in this proxy statement, none of Messrs. Antonini, Slack,
Sperduto, Burner, Minigh, Napier, Lebec,
Perry,
Watson, Bell, Dresner, Lowen and Wolynic nor any of their associates, has any
arrangement or understanding with any person (i) with respect to any future
employment by Engelhard or its affiliates or (ii) with respect to future
transactions to which Engelhard or any of its affiliates will or may be a party,
or any material interest, direct or indirect, in any transaction that has
occurred since January 1, 2005, or any currently proposed transaction or series
of similar transactions, which Engelhard or any of its affiliates was or is
to
be a party and in which the amount involved exceeds $60,000.
Transactions
in Ownership of Engelhard Common Stock
The
following table sets forth the acquisitions and dispositions of shares of our
Common Stock made by Messrs. Antonini, Slack, Sperduto, Burner, Napier, Perry,
Watson, Bell, Dresner, Lowen and Wolynic since January 1, 2004. Neither Mr.
Minigh nor Mr. Lebec, acquired or disposed of shares of our Common Stock since
January 1, 2004. Unless otherwise indicated, all transactions were in the public
market other than acquisitions pursuant to deferred compensation plans or
acquisitions upon exercise of options and none of the purchase price or market
value of those shares is represented by funds borrowed or otherwise obtained
for
the purpose of acquiring and holding such securities:
Name
|
Date
of
Transaction
|
Nature
of
Transaction
|
No.
of
Shares
|
Transaction
Type
|
Antonini,
Marion
|
3/15/2006
|
Acquisition
|
1,208.41
|
Acquired
pursuant to deferred compensation plans
|
|
12/15/2005
|
Acquisition
|
1,233.57
|
Acquired
pursuant to deferred compensation plans
|
|
12/07/2005
|
Disposition
|
15,000.00
|
Sale
upon exercise of options
|
|
9/15/2005
|
Acquisition
|
1,169.72
|
Acquired
pursuant to deferred compensation plans
|
|
6/15/2005
|
Acquisition
|
1,739.23
|
Acquired
pursuant to deferred compensation plans
|
|
3/15/2005
|
Acquisition
|
1,356.03
|
Acquired
pursuant to deferred compensation plans
|
|
12/15/2004
|
Acquisition
|
1,095.89
|
Acquired
pursuant to deferred compensation plans
|
|
9/15/2004
|
Acquisition
|
1,023.34
|
Acquired
pursuant to deferred compensation plans
|
|
6/15/2004
|
Acquisition
|
1,413.20
|
Acquired
pursuant to deferred compensation plans
|
|
3/15/2004
|
Acquisition
|
1,314.74
|
Acquired
pursuant to deferred compensation plans
|
|
|
|
|
|
Bell,
Gavin A.
|
2/1/2006
|
Disposition
|
54.00
|
Transfer
to satisfy minimum withholding tax obligation on vesting of restricted
share awards pursuant to plan
|
|
|
|
|
|
Burner,
David
|
3/15/2006
|
Acquisition
|
3.71
|
Acquired
pursuant to deferred compensation plans
|
|
12/15/2005
|
Acquisition
|
5.04
|
Acquired
pursuant to deferred compensation plans
|
|
9/15/2005
|
Acquisition
|
5.21
|
Acquired
pursuant to deferred compensation plans
|
|
6/15/2005
|
Acquisition
|
684.80
|
Acquired
pursuant to deferred compensation plans
|
|
3/15/2005
|
Acquisition
|
2.17
|
Acquired
pursuant to deferred compensation plans
|
|
12/15/2004
|
Acquisition
|
1.97
|
Acquired
pursuant to deferred compensation plans
|
|
9/15/2004
|
Acquisition
|
2.10
|
Acquired
pursuant to deferred compensation plans
|
|
6/15/2004
|
Acquisition
|
536.36
|
Acquired
pursuant to deferred compensation plans
|
|
|
|
|
|
Dresner,
Mark
|
02/01/2006
|
Disposition
|
867.00
|
Transfer
to satisfy minimum withholding tax obligation on vesting of restricted
share awards pursuant to plan
|
|
12/02/2005
|
Disposition
|
1,050.00
|
Sale
upon exercise of options
|
|
12/02/2005
|
Disposition
|
8,100.00
|
Sale
upon exercise of options
|
|
2/3/2004
|
Acquisition
|
4,275.00
|
Acquired
upon exercise of options pursuant to Stock Option Plan
|
|
2/3/2004
|
Disposition
|
3,332.00
|
Transfer
to pay exercise price and withholding obligation upon exercise of
options
|
|
|
|
|
|
Lowen,
Ted
|
2/1/2006
|
Disposition
|
218.00
|
Transfer
to satisfy minimum withholding tax obligation on vesting of restricted
share awards pursuant to plan
|
|
|
|
|
|
Napier,
James V.
|
3/15/2006
|
Acquisition
|
598.86
|
Acquired
pursuant to deferred compensation plans
|
|
12/15/2005
|
Acquisition
|
609.54
|
Acquired
pursuant to deferred compensation plans
|
|
12/13/2005
|
Disposition
|
3,000.00
|
Sale
upon exercise of options
|
|
9/15/2005
|
Acquisition
|
471.21
|
Acquired
pursuant to deferred compensation plans
|
|
6/15/2005
|
Acquisition
|
977.60
|
Acquired
pursuant to deferred compensation plans
|
|
3/15/2005
|
Acquisition
|
489.29
|
Acquired
pursuant to deferred compensation plans
|
|
12/15/2004
|
Acquisition
|
394.89
|
Acquired
pursuant to deferred compensation plans
|
|
9/15/2004
|
Acquisition
|
372.64
|
Acquired
pursuant to deferred compensation plans
|
|
6/15/2004
|
Acquisition
|
746.90
|
Acquired
pursuant to deferred compensation plans
|
|
3/15/2004
|
Acquisition
|
644.62
|
Acquired
pursuant to deferred compensation plans
|
|
|
|
|
|
Perry,
Barry
|
12/06/2005
|
Disposition
|
7,500.00
|
Sale
upon exercise of options*
|
|
12/05/2005
|
Disposition
|
10,000.00
|
Sale
upon exercise of options*
|
|
12/02/2005
|
Disposition
|
10,000.00
|
Sale
upon exercise of options*
|
|
12/01/2005
|
Disposition
|
10,000.00
|
Sale
upon exercise of options*
|
|
11/01/2005
|
Disposition
|
40,000.00
|
Sale
upon exercise of options*
|
|
|
|
|
|
Slack,
Henry
|
3/15/2006
|
Acquisition
|
12.09
|
Acquired
pursuant to deferred compensation plans
|
|
12/15/2005
|
Acquisition
|
16.42
|
Acquired
pursuant to deferred compensation plans
|
|
9/15/2005
|
Acquisition
|
16.98
|
Acquired
pursuant to deferred compensation plans
|
|
6/15/2005
|
Acquisition
|
696.05
|
Acquired
pursuant to deferred compensation plans
|
|
3/15/2005
|
Acquisition
|
13.19
|
Acquired
pursuant to deferred compensation plans
|
|
12/15/2004
|
Acquisition
|
12.02
|
Acquired
pursuant to deferred compensation plans
|
|
9/15/2004
|
Acquisition
|
12.80
|
Acquired
pursuant to deferred compensation plans
|
|
6/15/2004
|
Acquisition
|
546.35
|
Acquired
pursuant to deferred compensation plans
|
|
3/15/2004
|
Acquisition
|
10.42
|
Acquired
pursuant to deferred compensation plans
|
|
|
|
|
|
Sperduto,
Michael A.
|
11/17/2005
|
Disposition
|
20,550.00
|
Sale
upon exercise of options
|
|
|
|
|
|
Watson,
Douglas
|
3/15/2006
|
Acquisition
|
75.66
|
Acquired
pursuant to deferred compensation plans
|
|
12/15/2005
|
Acquisition
|
113.33
|
Acquired
pursuant to deferred compensation plans
|
|
11/29/2005
|
Acquisition
|
3,000.00
|
Shares
acquired upon exercise of options
|
|
11/29/2005
|
Disposition
|
4,012.00
|
Sale
|
|
9/15/2005
|
Acquisition
|
117.20
|
Acquired
pursuant to deferred compensation plans
|
|
6/15/2005
|
Acquisition
|
791.93
|
Acquired
pursuant to deferred compensation plans
|
|
3/15/2005
|
Acquisition
|
107.05
|
Acquired
pursuant to deferred compensation plans
|
|
12/15/2004
|
Acquisition
|
112.20
|
Acquired
pursuant to deferred compensation plans
|
|
9/15/2004
|
Acquisition
|
119.54
|
Acquired
pursuant to deferred compensation plans
|
|
6/15/2004
|
Acquisition
|
645.98
|
Acquired
pursuant to deferred compensation plans
|
|
3/15/2004
|
Acquisition
|
114.36
|
Acquired
pursuant to deferred compensation plans
|
|
|
|
|
|
Wolynic,
Edward T.
|
01/03/2006
|
Disposition
|
18,475
|
Sale
upon exercise of options*
|
|
11/29/2005
|
Disposition
|
4,275
|
Sale
upon exercise of options
|
* Pursuant
to a Rule 10b5-1 Sales Plan.
NOTICE
OF
ANNUAL
MEETING
OF
SHAREHOLDERS
AND
PROXY
STATEMENT
June
2,
2006
PRELIMINARY COPIES
101
WOOD AVENUE, ISELIN, NEW JERSEY 08830
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY
FOR
THE ANNUAL MEETING OF SHAREHOLDERS-JUNE 2, 2006
P
R
O
X
Y
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 North
Maple
Inn at Basking Ridge, 300 North Maple Avenue, Basking Ridge, NJ 07920 on
Friday,
June 2, 2006 at 10:00 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. You are encouraged to specify
your choices by marking the appropriate boxes, but you need not mark any
boxes
if you wish to vote in accordance with the recommendation of the Board
of
Directors. See reverse side for 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)
----------------------------------------------------------------------------------------------------------------------------------------
^
FOLD
AND DETACH HERE ^
Dear
Shareholder(s)
Enclosed
you will find material relating to the Company’s 2006 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
THIS
PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE
UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED
FOR PROPOSALS 1 AND 2.
THE
BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” ITEMS 1 AND 2.
Please
mark
your
vote
as [X]
indicated
in
this
example
1. Election
of Directors;
01
Marion H. Antonini
02
Alain Lebec
03
Howard L. Minigh
04
Henry R. Slack
05
Michael A. Sperduto
|
FOR
[
]
|
WITHHELD
[
]
|
(To
withhold vote for any individual nominee write that name
below.)
|
|
|
|
|
2. Ratification
of the appointment of Ernst & Young LLP as independent registered
public accounting firm.
|
FOR AGAINST
ABSTAIN
[
] [
] [
]
|
|
3. In
their discretion, upon other matters as they may properly come
before the
meeting.
|
Choose
MLINK(SM) for fast, easy and secure 24/7 online access to your future proxy
materials, investment plan statements, tax documents and more. Simply log
on to
INVESTOR SERVICEDIRECT (R) at www.melloninvestors.com/isd where step-by-step
instructions will prompt you through enrollment.
I
PLAN TO
ATTEND
THE
MEETING. [ ]
SIGNATURE________________________
SIGNATURE___________________ DATE______________
Please
mark, sign and return promptly using the enclosed envelope. Executors,
administrators, trustees, etc. should give full title as such. If the signer
is
a corporation, please sign full corporate name by duly authorized
officer.
--------------------------------------------------------------------------------------------------------------------------------------------
^
FOLD
AND DETACH HERE ^
VOTE
BY
INTERNET OR TELEPHONE OR MAIL
24
HOURS
A DAY, 7 DAYS A WEEK
YOUR
TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR
SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY
CARD
|
|
|
|
|
Internet
|
|
Telephone
|
|
Mail
|
http://www.proxyvoting.com/ec
|
|
1-866-540-5760
|
|
|
Use
the Internet to vote your proxy. Have your proxy card in hand
when you
access the website.
|
OR
|
Use
any touch-tone telephone to vote your proxy. Have your proxy
card in hand
when you call.
|
OR
|
Mark,
sign and date your proxy card and 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.proxyvoting.com/ec