SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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(as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
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[ ] Soliciting Material Pursuant to Section 240.14a-12
AIR PRODUCTS AND CHEMICALS, INC.
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(Name of Registrant as Specified In Its Charter)
AIR PRODUCTS AND CHEMICALS, INC.
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
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(AIR PRODUCTS LETTERHEAD)
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AIR PRODUCTS AND CHEMICALS, INC.
7201 Hamilton Boulevard
Allentown, PA 18195-1501
December 13, 2004
Dear Shareholder:
On behalf of your Board of Directors, I am pleased to invite you to attend
the 2005 Annual Meeting of Shareholders of Air Products and Chemicals, Inc.
The attached Notice of Annual Meeting and Proxy Statement describe the
business to be conducted at the meeting, including the election of four
directors. In addition to myself, the Board of Directors has nominated Mr.
Michael J. Donahue, Ms. Ursula F. Fairbairn, and Mr. Lawrence S. Smith.
It is important that your shares be represented and voted at the Annual
Meeting. You may vote by telephone or Internet as described in the proxy
voting instructions or, if you received these proxy materials by mail, you
may fill in, sign, date, and mail the proxy card.
We look forward to seeing you at the meeting.
Cordially,
-s- John P. Jones III
John P. Jones, III
Chairman of the Board, President, and
Chief Executive Officer
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AIR PRODUCTS AND CHEMICALS, INC.
TIME.......................... 2:00 p.m., Thursday, January 27, 2005
PLACE......................... Tompkins College Center Theater at Cedar Crest
College in Allentown, Pennsylvania. Free
parking will be available.
ITEMS OF BUSINESS............. 1. Elect four directors each for a three-year
term.
2. Ratify the appointment of independent
auditors for the fiscal year ending
September 30, 2005.
3. Attend to such other business as may
properly come before the meeting or any
postponement or adjournment of the meeting.
RECORD DATE................... Shareholders of record at the close of business
on November 30, 2004 are entitled to receive
this notice and to vote at the meeting.
WAYS TO SUBMIT
YOUR VOTE..................... You have the alternatives of voting your shares
by using a toll-free telephone number or the
Internet as described in the proxy voting
instructions, or you may fill in, sign, date,
and mail a proxy card. We encourage you to
complete and file your proxy electronically or
by telephone if those options are available to
you.
IMPORTANT..................... Whether you plan to attend the meeting or not,
please submit your proxy as soon as possible in
order to avoid additional soliciting expense to
the Company. The proxy is revocable and will
not affect your right to vote in person if you
attend the meeting.
7201 Hamilton Boulevard By order of the Board of Directors,
Allentown, Pennsylvania 18195-1501 -s- W. Douglas Brown
W. Douglas Brown
Vice President, General Counsel
and Secretary
December 13, 2004
PROXY STATEMENT
Table of Contents
PAGE
----
INTRODUCTION................................................ 1
QUESTIONS AND ANSWERS ON THE ANNUAL MEETING AND VOTING...... 1
PROPOSALS YOU MAY VOTE ON................................... 6
1. ELECTION OF DIRECTORS.................................. 6
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS.... 6
THE BOARD OF DIRECTORS...................................... 7
DIRECTORS STANDING FOR ELECTION THIS YEAR................. 7
DIRECTORS CONTINUING IN OFFICE............................ 8
BOARD OF DIRECTORS MEETINGS AND ATTENDANCE................ 9
DIRECTOR COMPENSATION..................................... 10
DIRECTOR INDEPENDENCE..................................... 10
SHAREHOLDER COMMUNICATIONS................................ 11
GOVERNANCE GUIDELINES..................................... 11
CODE OF CONDUCT........................................... 11
COMMITTEES OF THE BOARD..................................... 11
AUDIT COMMITTEE........................................... 12
AUDIT COMMITTEE REPORT.................................... 13
INDEPENDENT AUDITORS...................................... 13
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE............. 14
EXECUTIVE COMMITTEE....................................... 15
ENVIRONMENTAL SAFETY AND PUBLIC POLICY COMMITTEE.......... 15
FINANCE COMMITTEE......................................... 15
MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE......... 15
COMPENSATION OF EXECUTIVE OFFICERS.......................... 16
REPORT OF THE MANAGEMENT DEVELOPMENT AND COMPENSATION
COMMITTEE.............................................. 16
EXECUTIVE COMPENSATION TABLES............................. 19
2004 SUMMARY COMPENSATION TABLE........................ 19
OPTION GRANTS IN 2004.................................. 20
OPTIONS EXERCISED IN 2004 AND YEAR-END OPTION VALUES... 21
PENSION PLAN TABLE..................................... 21
SEVERANCE AND EMPLOYMENT ARRANGEMENTS..................... 22
CHANGE IN CONTROL ARRANGEMENTS............................ 23
INFORMATION ABOUT STOCK PERFORMANCE AND OWNERSHIP........... 25
STOCK PERFORMANCE GRAPH................................... 25
PERSONS OWNING MORE THAN 5% OF AIR PRODUCTS STOCK......... 26
AIR PRODUCTS STOCK BENEFICIALLY OWNED BY OFFICERS AND
DIRECTORS.............................................. 27
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE... 28
(Air Products Logo)
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AIR PRODUCTS AND CHEMICALS, INC.
7201 Hamilton Boulevard
Allentown, PA 18195-1501
PROXY STATEMENT
We have sent you this Notice of Annual Meeting and Proxy Statement because the
Board of Directors of Air Products and Chemicals, Inc. (the "Company" or "Air
Products") is soliciting your proxy to vote at the Company's Annual Meeting of
Shareholders on January 27, 2005 (the "Annual Meeting"). This Proxy Statement
contains information about the items being voted on at the Annual Meeting and
information about the Company.
The words "Company stock", "shares", and "stock" refer to the Company's common
stock, par value $1.00 per share. The "fair market value" of a share of stock,
unless otherwise indicated, is the average of the high and low sales price of
the stock on the New York Stock Exchange for the relevant date. The words
"Executive Officer" or "Executive Officers" refer to those financial and policy
making officers of the Company who are designated by the Board as Executive
Officers for U.S. securities law compliance purposes. The Company's "fiscal
year" is the twelve month period commencing on October 1, and ending on
September 30.
QUESTIONS AND ANSWERS ON THE ANNUAL MEETING AND VOTING
WHAT MAY I VOTE ON?
- The election of four nominees to serve on our Board of Directors.
- The appointment of independent auditors to audit the Company's financial
statements for our fiscal year 2005.
HOW DOES THE BOARD OF DIRECTORS RECOMMEND I VOTE ON THE PROPOSALS?
The Board recommends votes
- FOR each of the nominees for the Board of Directors.
- FOR ratifying the appointment of the independent auditors.
HOW MANY SHARES CAN VOTE AT THE 2005 ANNUAL MEETING?
As of the "Record Date", November 30, 2004, 227,309,877 shares of Company stock
were issued and outstanding, which are the only shares entitled to vote at the
Annual Meeting. Every owner of Company stock is entitled to one vote for each
share owned.
WHAT IS A "QUORUM"?
A quorum is necessary to hold a valid meeting of shareholders. A quorum exists
if a majority of the outstanding shares of Company stock are present in person
at the Annual Meeting or represented there by proxy. If you vote -- including by
Internet, telephone, or proxy card -- your shares voted will be considered part
of the quorum for the Annual Meeting.
1
WHAT VOTE IS NECESSARY TO PASS THE ITEMS OF BUSINESS AT THE ANNUAL MEETING?
If a quorum is present at the Annual Meeting, the four director candidates
receiving the highest number of votes will be elected. If you vote and are part
of the quorum, your shares will be voted for election of all four of the
director nominees unless you give instructions to "withhold" votes. Withhold
votes and broker nonvotes will not influence voting results. Abstentions may not
be specified as to election of directors.
The appointment of independent auditors will be ratified if a majority of the
shares present or represented at the meeting and entitled to vote are voted in
favor. Abstentions will have the effect of a vote against ratification.
Under New York Stock Exchange rules, brokers that do not receive instructions
from their customers may vote in their discretion on proposals 1 and 2.
WHO COUNTS THE VOTES?
Representatives of our Transfer Agent, American Stock Transfer and Trust
Company, will tabulate the votes and act as the independent inspectors of
election.
WHAT SHARES ARE INCLUDED ON MY PROXY CARD?
If you received a proxy card, the shares on your proxy card or cards are all of
the shares registered in your name with our Transfer Agent on the Record Date,
including shares in the Investors Choice Dividend Reinvestment and Direct Stock
Purchase and Sale Plan administered for Air Products shareholders by our
Transfer Agent. If you have shares registered in the name of a bank, broker, or
other registered owner or nominee, they will not appear on your proxy card.
HOW DO I VOTE THE SHARES ON MY PROXY CARD?
You may vote by signing and dating the proxy card(s) and returning the card(s)
in the prepaid envelope.
ALSO, YOU CAN VOTE BY USING A TOLL-FREE TELEPHONE NUMBER OR THE
INTERNET. Instructions about these ways to vote appear on the proxy card. If
you vote by telephone or Internet, please have your proxy card and control
number available. The sequence of numbers appearing on your card is your control
number, and your control number is necessary to verify your vote.
Votes submitted by mail, telephone, or Internet will be voted in the manner you
indicate by the individuals named on the proxy. If you do not specify how you
want your shares voted, they will be voted according to the Board's
recommendations for the two proposals.
HOW DO I VOTE SHARES HELD BY A BROKER OR BANK?
If a broker, bank or other nominee holds shares of Company stock for your
benefit, and the shares are not in your name on the Transfer Agent's records,
then you are considered a "beneficial owner" of those shares. Shares held this
way are sometimes referred to as being held in "street name". In that case, your
broker, bank or other nominee will send you instructions on how to vote. If you
have not heard from the broker, bank or other nominee who holds your stock,
please contact them as soon as possible.
2
WHAT IF I RECEIVED THESE PROXY MATERIALS ELECTRONICALLY?
If you received these proxy materials on-line, the e-mail message transmitting
the link to these materials contains instructions on how to vote your shares and
your control number.
MAY I CHANGE MY VOTE?
You may revoke your proxy at any time before the Annual Meeting by submitting a
later dated proxy card or phone or Internet vote, notifying us that you have
revoked your proxy, or attending the Annual Meeting and giving notice of
revocation and voting in person.
HOW IS COMPANY STOCK IN THE COMPANY'S RETIREMENT SAVINGS AND STOCK OWNERSHIP
PLAN ("RSSOP") VOTED?
If you are an employee or former employee who owns shares of Company stock under
the RSSOP, you will be furnished a separate voting direction form by the RSSOP
Trustee, State Street Bank and Trust Company. The Trustee will vote shares of
Company stock represented by units of interest allocated to your RSSOP account
on the Record Date. The vote cast will follow the directions you give when you
sign, complete, and return your voting direction form to the Trustee, or give
your instructions by telephone or Internet. The Trustee will cast your vote in a
manner which will protect your voting privacy. If you do not give voting
instructions or your instructions are unclear, the Trustee will vote the shares
in the same proportions and manner as other RSSOP participants instruct the
Trustee to vote their RSSOP shares. The Trustee will also vote fractional shares
this way.
HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
We do not know of any business or proposals to be considered at the Annual
Meeting other than the items described in this Proxy Statement. If any other
business is proposed and we permit it to be presented at the Annual Meeting, the
signed proxies received from you and other shareholders give the persons voting
the proxies the authority to vote on the matter according to their judgment.
WHEN ARE SHAREHOLDER PROPOSALS FOR THE 2006 ANNUAL MEETING DUE?
To be considered for inclusion in next year's proxy statement, proposals must be
delivered in writing to W. Douglas Brown, Secretary, Air Products and Chemicals,
Inc., 7201 Hamilton Blvd., Allentown, PA 18195-1501 no later than August 15,
2005. To be presented at the meeting, proposals must be delivered in writing to
Mr. Brown by October 29, 2005, and must comply with the requirements of our
bylaws (described in the next paragraph) to be presented at the 2006 annual
meeting. The proxy for next year's annual meeting will give authority to those
persons named as proxies in the proxy card to vote in their discretion on any
shareholder proposal that we do not know about before October 30, 2005.
Our bylaws require adequate written notice of the proposal by delivering it in
writing to Mr. Brown in person or by mail at the address stated above, on or
after September 29, 2005, but no later than October 29, 2005. To be considered
adequate, the notice must contain specified information about the matter to be
presented at the meeting and the shareholder proposing the matter. A proposal
received after October 29, 2005, will be considered untimely and will not be
entitled to be presented at the meeting.
3
WHAT ARE THE COSTS OF THIS PROXY SOLICITATION?
We hired Morrow & Co. to help distribute materials and solicit votes for the
Annual Meeting. We will pay them a fee of $7,500, plus out-of-pocket costs and
expenses. We also reimburse banks, brokers and other custodians, nominees, and
fiduciaries for their reasonable out-of-pocket expenses for forwarding Annual
Meeting materials to you because they hold title to Company stock for you. In
addition to using the mail, our directors, officers, employees and agents may
solicit proxies by personal interview, telephone, telegram, or otherwise,
although they won't be paid any additional compensation. The Company will bear
all expenses of solicitation.
MAY I INSPECT THE SHAREHOLDER LIST?
For a period of 10 days prior to the Annual Meeting, a list of shareholders
registered on the books of our Transfer Agent as of the Record Date will be
available for examination by registered shareholders during normal business
hours at the Company's principal offices, provided the examination is for a
purpose germane to the meeting.
HOW CAN I GET MATERIALS FOR THE ANNUAL MEETING?
PUBLIC SHAREHOLDERS. This Proxy Statement and the accompanying proxy card are
first being mailed to shareholders on or about December 13, 2004. Each
registered and beneficial owner of Company stock on the Record Date, including
Company employees, should have received a copy (or, if they have consented,
notice of on-line availability) of the Company's Annual Report to Shareholders
including consolidated financial statements (the "Annual Report") either with
this Proxy Statement or prior to its receipt. When you receive this package, if
you have not yet received the Annual Report please contact us and a copy will be
sent at no expense to you.
IN ADDITION, A COPY OF AIR PRODUCTS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED SEPTEMBER 30, 2004 IS AVAILABLE TO EACH SHAREHOLDER WITHOUT CHARGE
UPON WRITTEN REQUEST TO INVESTOR RELATIONS, AIR PRODUCTS AND CHEMICALS, INC.,
7201 HAMILTON BLVD., ALLENTOWN, PA 18195-1501.
CURRENT EMPLOYEES. If you are an employee of the Company or an affiliate with
an internal Company e-mail address as of the Record Date, you should have
received e-mail notice of electronic access to the Notice of Annual Meeting, the
Proxy Statement, and the Annual Report on or about December 13, 2004. You may
request a paper copy of this Notice of Annual Meeting and Proxy Statement and of
the Annual Report by contacting us. If you do not have an internal e-mail
address, copies of these materials will be mailed to your home.
If you are a participant in the RSSOP, you will receive a voting direction form
from the Trustee mailed to your home on or after December 13, 2004 for directing
the vote of shares in your RSSOP account. We've also arranged for the Trustee to
receive your voting instructions by telephone or Internet as described on the
voting direction form.
If you have employee stock options awarded to you by the Company or an affiliate
but don't otherwise own any Company stock on the Record Date, you are not
eligible to vote and will not receive a proxy card for voting. You are being
furnished this Proxy Statement and the Annual Report for your information and as
required by law.
4
CAN I RECEIVE ANNUAL REPORTS AND PROXY STATEMENTS ON-LINE?
YES. WE URGE YOU TO SAVE AIR PRODUCTS FUTURE POSTAGE AND PRINTING EXPENSES BY
CONSENTING TO RECEIVE FUTURE ANNUAL REPORTS AND PROXY STATEMENTS ON-LINE.
Most shareholders can elect to view future proxy statements and annual reports
over the Internet instead of receiving paper copies in the mail. You will be
given the opportunity to consent to future Internet delivery if you vote
electronically or, if you are a registered shareholder, you can register for
electronic delivery by visiting http:www.amstock.com and clicking on Shareholder
Account Access. If you are not a registered shareholder and are not given an
opportunity to consent to Internet delivery when you vote, contact the
registered owner of the shares to inquire about the availability of this option.
If you consent, your account will be so noted. When our proxy statement and
other solicitation materials for the 2006 annual meeting of shareholders become
available, you will be notified of how to access them on the Internet, and you
will always be able to request paper copies by contacting us.
HOW CAN I REACH THE COMPANY TO REQUEST MATERIALS OR INFORMATION REFERRED TO IN
THESE QUESTIONS AND ANSWERS?
You may reach us by mail addressed to:
Corporate Secretary's Office
Air Products and Chemicals, Inc.
7201 Hamilton Boulevard
Allentown, PA 18195-1501,
by calling 888-AIR-INFO, or by leaving a message on our website at:
www.airproducts.com/tmm/tellmemore.asp.
5
PROPOSALS YOU MAY VOTE ON
1. ELECTION OF DIRECTORS
The Board of Directors currently has 10 positions. Ms. Paula G. Rosput resigned
from the Board for personal reasons in August 2004. Our Board is divided into
three classes for purposes of election, with terms of office ending in
successive years.
The Board has nominated four directors for election to three-year terms expiring
in January 2008. Mr. Michael J. Donahue, Ms. Ursula F. Fairbairn, Mr. John P.
Jones III and Mr. Lawrence S. Smith, four incumbent directors whose terms are
currently scheduled to expire at the Annual Meeting, have been nominated for
re-election. Each nominee elected as a director will continue in office until
his or her term expires, or until his or her earlier death, resignation, or
retirement. Other directors are not up for election this year and will continue
in office for the remainder of their terms.
The Board of Directors has no reason to believe that any of the nominees will
not serve if elected. If a nominee is unavailable for election at the time of
the Annual Meeting, the Company representatives named on the proxy card will
vote for another nominee proposed by our Board or, as an alternative, the Board
may reduce the number of positions on the Board.
THE BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND A VOTE "FOR" THE ELECTION OF MR.
DONAHUE, MS. FAIRBAIRN, MR. JONES AND MR. SMITH.
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
At its meeting held in November 2004, the Audit Committee of the Board of
Directors approved KPMG LLP of Philadelphia, Pennsylvania ("KPMG") as
independent auditors for 2005. The Board concurs with and wants shareholders to
ratify this appointment even though ratification is not legally required. If
shareholders do not ratify this appointment, the Audit Committee will reconsider
it.
Representatives of KPMG will be available at the Annual Meeting to respond to
questions.
THE BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND A VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS FOR FISCAL YEAR 2005.
6
THE BOARD OF DIRECTORS
Information follows about the age and business experience, as of December 1,
2004, of the nominees up for election and the directors continuing in office.
Each nominee has consented to being nominated for director and has agreed to
serve if elected. All of the nominees are currently directors and all have been
elected by shareholders at prior meetings, except for Mr. Smith who was
initially elected to our Board by the directors effective in September 2004.
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DIRECTORS STANDING FOR ELECTION THIS YEAR FOR TERM EXPIRING AT THE ANNUAL
MEETING IN 2008
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[DONAHUE PHOTO]
MICHAEL J. DONAHUE, age 46. Group Executive Vice President
and Chief Operating Officer of BearingPoint, Inc. Director of
the Company since 2001.
Mr. Donahue has served in his current position overseeing the
operations of BearingPoint, Inc. since March of 2000.
BearingPoint, Inc. separated from the KPMG LLP tax and audit
firm in February 2001, becoming a publicly-traded consulting
company. Prior to March 2000, Mr. Donahue served as
Management Partner, Solutions, for the consulting business of
KPMG LLP, and as a member of the boards of directors of KPMG
LLP and KPMG Consulting KK Japan.
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[FAIRBAIRN PHOTO]
URSULA F. FAIRBAIRN, age 61. Executive Vice President, Human
Resources and Quality of American Express Company. Director
of the Company since 1998.
Ms. Fairbairn joined American Express Company, a global
travel and financial services company, in 1996 as Executive
Vice President, Human Resources and Quality. Prior to joining
American Express, Ms. Fairbairn was Senior Vice President,
Human Resources at Union Pacific Corporation. Previously she
held several marketing and human resources positions at IBM
Corporation, including Vice President of Management Services
and Vice President of Marketing Operations. Ms. Fairbairn has announced her plan
to retire from American Express in the Spring of 2005. She is a director of VF
Corporation and Sunoco Inc.
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[JONES PHOTO]
JOHN P. JONES III, age 54. Chairman, President, and Chief
Executive Officer of the Company. Director of the Company
since 1998.
Mr. Jones joined the Company in 1972 and, following various
commercial assignments in Company joint ventures and
subsidiaries, was appointed Vice President and General
Manager of the Company's Environmental/Energy Division in
1988. He was appointed Group Vice President of the Company's
Process System Group in 1992 and in 1993 was transferred to
Air Products Europe, Inc. where he was named President. In
1996, Mr. Jones returned to the U.S. where he was first
elected Executive Vice President -- Gases and Equipment and, effective October
1, 1998, President and Chief Operating Officer. Mr. Jones was elected to his
present position effective December 1, 2000. Mr. Jones is a director of the
American Chemistry Council and on the Executive Committee of the Society of
Chemical Industry -- American Section.
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7
[SMITH PHOTO]
LAWRENCE S. SMITH, age 57, Executive Vice President and
Co-Chief Financial Officer of Comcast Corporation. Director
of the Company since 2004.
Mr. Smith joined Comcast Corporation, a cable communication
systems, telecommunication, and electronics retailing company
in 1988 to oversee the company's finance and administration
functions. He was named Executive Vice President and Co-Chief
Financial Officer in 2002. As Co-Chief Financial Officer, he
oversees corporate development, accounting, reporting, and
tax matters. Prior to joining Comcast, Mr. Smith served as
Chief Financial Officer of Advanta Corporation. He also
worked for Arthur Andersen & Co. for 18 years, where he was a tax partner and
headed the Philadelphia international business practice and the merger and
acquisition practice. He serves on the board of two Comcast subsidiaries, E!
Entertainment Television, Inc. and The Golf Channel.
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DIRECTORS CONTINUING IN OFFICE UNTIL THE ANNUAL MEETING IN 2006
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[BAEZA PHOTO]
MARIO L. BAEZA, age 53. Founder and controlling shareholder
of Baeza & Co. as well as Chairman of TCW/Latin America
Partners, L.L.C. Director of the Company since 1999.
Baeza & Co. was formed in 1995 to create the first
Hispanic-owned merchant banking firm focusing on the
Pan-Hispanic region. In 1996, Baeza & Co. entered into a
partnership with Trust Company of the West for the purpose of
forming TCW/Latin America Partners L.L.C. ("TCW/LAP"). Mr.
Baeza served as Chairman and CEO of TCW/LAP from its
inception in 1996. In 2003, Mr. Baeza relinquished day-to-day
operating control of TCW/LAP in order to form The Baeza Group. The Baeza Group,
controlled by Baeza & Co., is a Hispanic-owned alternative investment firm
specializing in the management and distribution of private equity and hedge fund
products. Prior to forming TCW/Latin America Partners in 1996, Mr. Baeza served
as President of Wasserstein Perella International Limited and Chairman and CEO
of Grupo Wasserstein Perella, the Latin America Division of the firm; and, until
1994, was a partner at the law firm of Debevoise & Plimpton where, among other
practices, he founded and headed the firm's Latin America Group. Mr. Baeza is a
director of Ariel Mutual Fund Group, AusAm Biotechnologies Inc., Urban America
L.L.C. and Tommy Hilfiger.
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[HAGENLOCKER PHOTO]
EDWARD E. HAGENLOCKER, age 65. Former Vice Chairman of Ford
Motor Company and former Chairman of Visteon Automotive
Systems. Director of the Company since 1997.
Mr. Hagenlocker joined Ford Motor Company as a research
scientist in 1964 and later held engineering management
positions in Product Development, Chassis Division, Body and
Electrical Product Engineering, Climate Control Division, and
Truck Operations. In 1986, he was elected a Ford vice
president and named General Manager of Truck Operations. Mr.
Hagenlocker was appointed Vice President of General
Operations for Ford North American Automotive Operations ("NAAO") in 1992 and
Executive Vice President of NAAO in 1993. He was elected President of Ford
Automotive Operations in 1994 and Chairman, Ford of Europe in 1996. He served as
Vice Chairman of Ford Motor Company in 1996 and Chairman of Visteon Automotive
Systems from 1997 until his retirement in 1999. Mr. Hagenlocker is a director of
OfficeMax, Inc., AmeriSource Bergen Corporation, American Standard Inc., and
Lucent Technologies, Inc.
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8
[MURRAY PHOTO]
TERRENCE MURRAY, age 65. Retired Chairman and Chief Executive
Officer of FleetBoston Financial Corporation. Director of the
Company since 2002.
Mr. Murray joined FleetBoston Financial Corporation, a
diversified financial service company that is engaged in
general and commercial banking, and investment management
business, in 1962. He was named Chairman, President, and
Chief Executive Officer in 1982, relinquished the position of
President in 1999 and retired as Chief Executive Officer in
December 2001 and as Chairman in 2002. Mr. Murray is a
director of A. T. Cross Company, CVS Corporation, and
ChoicePoint Inc.
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DIRECTORS CONTINUING IN OFFICE UNTIL THE ANNUAL MEETING IN 2007
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[FORD PHOTO]
W. DOUGLAS FORD, age 60. Retired Executive Director and Chief
Executive, Refining and Marketing of BP Amoco plc. ("BP").
Director of the Company since 2003.
From 1993-1999, Mr. Ford served as Executive Vice President
of BP and its predecessor Amoco Corporation. In 1999 he was
named Chief Executive, Refining and Marketing of BP, and in
2000 he joined the BP board. Mr. Ford retired from BP and its
board in March 2002. Mr. Ford is a Director of USG
Corporation, UAL Corporation, and Suncor Corporation.
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[HARDYMON PHOTO]
JAMES F. HARDYMON, age 70. Retired Chairman and Chief
Executive Officer of Textron Inc. Director of the Company
since 1997.
Mr. Hardymon joined Textron Inc., a global, multi-industry
company with core businesses of aircraft, automotive,
industrial, and finance, in 1989 as President and Chief
Operating Officer. He became Chief Executive Officer in 1992,
and assumed the title of Chairman in 1993. Mr. Hardymon
retired from Textron at the end of January 1999. Prior to
joining Textron, Mr. Hardymon was President, Chief Operating
Officer, and a director of Emerson Electric Co. He is a
director of Circuit City Stores, Inc., American Standard,
Inc., and Lexmark International, Inc.
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[THOMAS PHOTO]
LAWRASON D. THOMAS, age 70. Retired Former Vice Chairman of
Amoco Corporation. Director of the Company since 1994.
Mr. Thomas joined Amoco Chemical Company, a subsidiary of
Amoco Corporation, an integrated petroleum company, in 1958.
He held various sales, marketing and administrative positions
with Amoco's chemical and oil subsidiaries before being named
Amoco Oil Company's Vice President of Operations, Planning
and Transportation in 1976, Executive Vice President in 1979,
and President in 1981. He was elected a director of Amoco
Corporation in 1989, Executive Vice President in 1990 and
assumed the position of Vice Chairman in 1992. Mr. Thomas retired as Vice
Chairman and from the Board of Directors of Amoco Corporation effective January
1, 1996 and continued until April 1996 as senior advisor to the Chairman and a
senior representative to international trade groups, partners, and governments.
BOARD OF DIRECTORS MEETINGS AND ATTENDANCE
Our Board met six times during our fiscal year 2004. Board and committee
attendance averaged 98% for the Board as a whole, and no director attended less
than 75% of the combined total of meetings of the Board and the committees on
which they were serving. In accordance with the Company's Corporate Governance
Guidelines, all directors are expected to attend the annual meeting of
shareholders unless they have an emergency or unavoidable schedule conflict. All
directors except one attended the last annual meeting.
9
DIRECTOR COMPENSATION
During 2004, Board members who were not employed by the Company received an
annual retainer for Board service of $37,000 ($42,000 for committee chairs).
Meeting fees of $1,250 per meeting were paid for participating in Board and
committee meetings. Directors who meet with a constituent or other third party
on behalf of the Company at the request of the chief executive officer or to
satisfy a requirement of law or listing standard receive the meeting fee for
such service. Retainers and meeting fees are paid quarterly in arrears.
One-half of each director's quarterly retainer is paid in deferred stock units.
Deferred stock units entitle the director to receive one share of Company stock
upon payout, which generally occurs after the director's service on the Board is
over. Deferred stock units are credited with "dividend equivalents" equal to the
dividends that would have been paid on one share of stock for each unit owned by
the director on dividend record dates. Directors may transfer deferred stock
units by gift to family members. Directors have the opportunity to purchase more
deferred stock units with the rest of their retainers and meeting fees.
Retainers and meeting fees (plus dividend
equivalents earned on the director's existing deferred stock units account
during the quarter) are converted to deferred stock units based on the fair
market value of a share of Company stock on the third to last business day of
the quarter.
New directors receive initial grants of 1,100 deferred stock units when first
elected. Annually, directors continuing in office after the annual meeting of
shareholders are granted 1,100 deferred stock units and 2,000 stock options on
the date of the annual meeting. The stock options have an exercise price of the
fair market value of a share of Company stock on the date of grant, become
exercisable after 6 months and remain exercisable for nine and one-half years
thereafter. After the options become exercisable, the directors may transfer
them by gift to family members.
Directors are reimbursed for expenses incurred in performing their duties as
directors. The Company pays the premiums on directors' and officers' liability
insurance policies. Directors are also covered by the business travel accident
policy maintained by the Company and are eligible to participate in the
Company's charitable matching gift program. Under this program, the Company
matches donations made by employees and directors to qualifying educational
organizations up to $5000 per year and matches, at twice the amount, donations
made to qualifying arts and cultural organizations up to $1000 per year.
In September 2004, at the recommendation of the Corporate Governance and
Nominating Committee, for fiscal year 2005 the Board increased the annual Board
retainer to $40,000 ($47,500 for committee chairs) and meeting fees to $1,500.
DIRECTOR INDEPENDENCE
At its November 2004 meeting, after reviewing New York Stock Exchange ("NYSE")
and other applicable standards of independence, the Board determined that all of
our nonmanagement directors are independent from the Company and management. In
reaching this conclusion, the Board considered that the Company and its
subsidiaries sell and purchase products and services to and from companies of
which certain of our directors are or were directors or officers. Consistent
with NYSE listing standards, the Board has adopted a categorical standard that
the following relationships could potentially impair a director's independence:
direct business relationships between the Company and a director or immediate
family member of the director; business transactions between a director's
employer and the Company involving more than 1% of the employer's gross
revenues; and charitable contributions by the Company to an organization in
which the director serves as an executive officer, director or trustee that
exceed
10
$1 million or, if greater, 2% of the organization's gross revenues. None of the
Company's directors, their family members or employers has any relationship with
the Company of the type described in the preceding sentence.
The independent directors regularly meet without the chief executive officer or
other members of management present in executive sessions that are scheduled
during four Board meetings each year. Rotating independent directors who are not
committee chairs lead these executive sessions. At two other Board meetings,
executive sessions are provided, during which the Board's and the chief
executive officer's performance are assessed, and led, respectively, by the
Chair of the Corporate Governance and Nominating Committee and by the Chair of
the Management Development and Compensation Committee.
SHAREHOLDER COMMUNICATIONS
Shareholders and other interested parties may communicate with the independent
directors by sending a written communication in care of the Corporate
Secretary's Office at the address on page 5. The Board of Directors has adopted
a written procedure for collecting, organizing and forwarding direct
communications from shareholders and other interested parties to the independent
directors. A copy of the procedure is available upon request.
GOVERNANCE GUIDELINES
The Board has adopted Corporate Governance Guidelines for the Company in order
to assure that the Board has the necessary practices in place to govern the
Company in accordance with the interests of the shareholders. The Guidelines set
forth the governance practices the Board follows; including with respect to
director independence and qualifications, director responsibilities and access
to management and independent advisors, director compensation, director
orientation and education, chief executive officer performance assessment,
management succession, and assessment of Board and committee performance. The
Governance Guidelines are available on the Company's website at
http://www.airproducts.com/Responsibility/governance/Guidelines.htm.
CODE OF CONDUCT
The Board of Directors has adopted its own Code of Conduct that is intended to
affirm its commitment to the highest ethical standards, integrity and
accountability among directors and that focuses on areas of potential ethical
risk and conflicts of interest especially relevant to directors. The Company
also has a Code of Conduct for officers and employees. This Code of Conduct
addresses such topics as conflicts of interest, confidentiality, protection and
proper use of Company assets, and compliance with laws and regulations. Both
Codes of Conduct can be found on the website at
http://www.airproducts.com/Responsibility/governance/codeofconduct.htm, and are
available in print to any shareholder who requests it.
COMMITTEES OF THE BOARD
The Board has six standing committees which operate under written charters
approved by the full Board. None of the directors who serve on the Audit,
Corporate Governance and Nominating, or Management Development and Compensation
Committees are or ever were employed by the Company, and the Board has
determined in its business judgment that all of them are "independent" from the
Company and its management as defined by the NYSE's listing standards and the
relevant provision of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"). The
charters of all the committees can be viewed on the Company website at
11
http://www.airproducts.com/Responsibility/governance/boardofdirectors/
committees.htm. The chart below identifies the members of each committee,
the number of meetings held by each committee in fiscal year 2004 and the chair
of the committee.
CORPORATE ENVIRONMENTAL, MANAGEMENT
GOVERNANCE & SAFETY AND DEVELOPMENT &
NAME AUDIT NOMINATING PUBLIC POLICY EXECUTIVE FINANCE COMPENSATION
---- ----- ------------ -------------- --------- ------- -------------
M. L. Baeza............ X C
M. J. Donahue.......... X X
U. F. Fairbairn........ C X
W. D. Ford............. X X
E. E. Hagenlocker...... C X X
J. F. Hardymon......... X X C
J. P. Jones III........ C X
T. Murray.............. C X
P. G. Rosput........... X X
L. D. Thomas........... X X X
2004 Meetings.......... 7 3 2 0 2 6
-------------------------
C=Chair
AUDIT COMMITTEE
The Board has determined that all of the Audit Committee members are
"financially literate" and that Mr. Hagenlocker qualifies as an "audit committee
financial expert" as defined by Securities and Exchange Commission (the "SEC")
regulations under Sarbanes-Oxley and NYSE listing standards. The Committee
operates under a written charter last approved by the Board in September 2004.
The Committee is directly responsible for the appointment, compensation,
retention, and oversight of the Company's independent auditors. The Committee
reviews the appropriateness, quality, and acceptability of the Company's
accounting policies, the integrity of financial statements reported to the
public, significant internal audit and control matters and activities, the
Company's policies and processes for risk assessment and management, and
compliance with legal and regulatory requirements. The Committee also reviews
compliance with the Company's Code of Conduct for employees and officers and is
responsible for establishing and administering the Company's procedures for
confidential reporting by employees of questionable accounting practices and
handling complaints regarding accounting, internal controls, and other audit
matters.
Each year the Committee approves an annual agenda plan which specifies matters
to be considered and acted upon by the Committee over the course of the year in
fulfilling its responsibilities consistent with its charter. In addition to
these matters, the Committee meets regularly with the internal and external
auditors of the Company, both with and without management present. The Board has
determined that generally the Audit Committee will have four regular meetings,
one in each fiscal quarter, as well as three meetings via telephone conference
to review quarterly reports on Form 10-Q which must be filed with the SEC before
the next regular Committee meeting. Four telephone conversations are also
scheduled with management, the independent auditors, and the Audit Committee
Chair and other available Committee members, to review the Company's quarterly
earnings releases.
12
AUDIT COMMITTEE REPORT
The Audit Committee reviews the Company's financial reporting process on behalf
of the Board; however, management bears primary responsibility for the financial
statements and the reporting process, including the system of internal controls
and disclosure controls. The independent auditors are responsible for expressing
an opinion on the conformity of those audited consolidated financial statements
with United States generally accepted accounting principles.
In fulfilling its responsibilities, the Audit Committee has reviewed and
discussed the audited consolidated financial statements contained in the 2004
Annual Report on SEC Form 10-K with the Company's management and the independent
auditors. The Audit Committee has also discussed with the independent auditors
the matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as currently in effect. In addition, the
Committee has discussed with the independent auditors their independence from
the Company and its management, including the matters in the written disclosures
and letter which were received by the Committee from the independent auditors,
as required by Independence Standard Board Standard No. 1, Independence
Discussions with Audit Committees, as currently in effect.
Based on the reviews and discussions referred to above, the Committee approved
the audited consolidated financial statements and recommended to the Board that
they be included in the Company's Annual Report on SEC Form 10-K for the year
ended September 30, 2004.
Audit Committee
Edward E. Hagenlocker, Chairman
Mario L. Baeza
W. Douglas Ford
Lawrason D. Thomas
The preceding Audit Committee Report is provided only for the purpose of this
Proxy Statement. This Report shall not be incorporated, in whole or in part, in
any other Company filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934.
INDEPENDENT AUDITORS
APPOINTMENT AND ATTENDANCE AT ANNUAL MEETING. KPMG LLP ("KPMG") was the
Company's independent auditor for the fiscal year ending September 30, 2004.
Representatives of KPMG will be present at the Annual Meeting to respond to
appropriate questions and make a statement if they desire.
FEES OF INDEPENDENT AUDITORS. Consistent with the Audit Committee's
responsibility for engaging the Company's independent auditors, all audit and
permitted non-audit services require preapproval by the Audit Committee. The
full Committee approves projected services and fee estimates for these services
and establishes budgets for major categories of services at its first meeting of
the fiscal year. The Committee Chair has been designated by the Committee to
approve any services arising during the year that were not preapproved by the
Committee and services that were preapproved if the associated fees will
materially exceed the budget established for the type of service at issue.
Services approved by the Chair are communicated to the full Committee at its
next regular quarterly meeting and the Committee reviews actual and forecasted
services and fees for the fiscal year at each such meeting. During 2004 all
services performed by the auditors were preapproved.
13
During fiscal years 2003 and 2004, KPMG billed the Company fees for services in
the following categories and amounts (in millions):
2004 2003
---- ----
Audit Fees.................................................. $3.8 $3.5
Audit-related Fees.......................................... .5 .7
Tax Fees.................................................... .3 .3
All Other Fees.............................................. 0.0 0.0
---- ----
Total Fees.................................................. $4.6 $4.5
Audit fees are fees for professional services rendered in connection with the
audit of the Company's consolidated financial statements and the review of the
Company's quarterly consolidated financial statements on Form 10-Qs that are
customary under the standards of the Public Company Accounting Oversight Board
(United States), as well as for statutory audits in foreign jurisdictions.
Audit-related services consisted primarily of services rendered in connection
with employee benefit plan audits, SEC registration statements, due diligence
assistance, and consultation on financial accounting and reporting standards.
Tax fees were primarily for preparation of tax returns in non-U.S.
jurisdictions, assistance with tax audits and appeals, expatriate tax
services(1), advice on mergers and acquisitions, and technical assistance.
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
The Corporate Governance and Nominating Committee operates under a written
charter last approved by the Board in September 2004. The Committee monitors and
makes recommendations to the Board about corporate governance matters including
the Company's Corporate Governance Guidelines, Codes of Conduct, Board structure
and operation, and other governance practices. The Committee also recommends to
the Board policies on director compensation and tenure, the meeting schedules of
the Board and the committees, the charters, members and chairs of the
committees, and the annual board and committee performance assessment processes.
The Committee has primary responsibility for identifying, recommending, and
recruiting nominees for election to the Board. The Committee has adopted a
policy regarding its consideration of director candidates recommended by
shareholders and a procedure for submission of such candidates. The policy
provides that candidates recommended by shareholders will be considered by the
Committee; that submissions of candidates must be made in writing; and, to be
considered for nomination at an annual meeting, submissions must be received not
later than 120 days prior to the anniversary date of the proxy statement for the
prior annual meeting. The submission must also provide certain information
concerning the candidate and the recommending shareholder(s), a statement of the
shareholder(s) supporting their view that the candidate has the qualifications
required, and consent of the candidate to be interviewed by the Committee and to
serve if elected. A copy of the policy and procedure is available upon request.
SELECTION OF DIRECTORS. The Board has established the following minimum
qualifications for all directors: business experience, judgment, independence,
integrity, ability to commit sufficient
-------------------------
(1) KPMG provided expatriate tax services to the Company's employees on
international assignment until 2002, when KPMG became the Company's
independent auditor. In 2003-2004, a small amount of expatriate tax services
continued to be performed by KPMG to finish services commenced for employees
who were completing or had completed their participation in the expatriate
tax program at the time this engagement with KPMG ended.
14
time and attention to the activities of the Board, absence of any potential
conflicts with the Company's interests and an ability to represent the interests
of all shareholders. The qualities and skills necessary for a specific director
nominee are governed by the needs of the Board at the time the Committee
determines to add a director to the Board. The specific requirements of the
Board will be determined by the Committee and will be based on, among other
things, the Company's then existing business, market, geographic and regulatory
environments; the mix of perspectives, experience and competencies then
represented by the other Board members; and the chief executive officer's views
as to areas in which management desires additional advice and counsel.
When the need to recruit a director arises, the Committee consults the other
directors, the chief executive officer and third party recruiting firms to
identify potential candidates. Mr. Larry Smith, who is standing for election by
shareholders for the first time at the Annual Meeting, was recommended to the
Committee by both a former director and a third party recruiting firm. Once a
candidate is identified, the candidate screening process is conducted initially
by a third party recruiting firm and will include inquiries as to the
candidate's reputation and background, examination of the candidate's
experiences and skills in relation to the Board's requirements at the time,
consideration of the candidate's independence as measured by the Board's
independence standards, and other considerations as the Committee deems
appropriate at the time. Prior to formal consideration and recommendation by the
Committee, any candidate who passes such screening would be interviewed by one
or more members of the Committee and the chief executive officer. Candidates
recommended by shareholders, whose names are submitted in accordance with the
Committee's procedures described above, will be screened and evaluated in the
same manner as other candidates.
EXECUTIVE COMMITTEE
The Executive Committee, which rarely meets, has the authority of the Board to
act on most matters during intervals between Board meetings.
ENVIRONMENTAL, SAFETY AND PUBLIC POLICY COMMITTEE
The Environmental, Safety and Public Policy Committee monitors and reports to
the Board on issues and developments in areas such as environmental compliance,
safety, corporate security and crisis management, diversity, community
relations, and corporate and foundation philanthropic programs and charitable
contributions.
FINANCE COMMITTEE
The Finance Committee reviews the Company's financial policies; keeps informed
of its operations and financial condition, including requirements for funds and
access to liquidity; advises the Board about sources and uses of Company funds;
reviews the Company's financial arrangements and methods of external financing;
and oversees the funding and management of assets of the Company's employee
pension and savings plans worldwide.
MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE
The Management Development and Compensation Committee operates under a written
charter most recently approved by the Board in September 2004. The Committee has
responsibility for selecting, evaluating, and compensating the Company's chief
executive officer; making recommendations to the Board and providing advice to
management about the Company's succession planning; establishing the Company's
executive compensation policies; overseeing the administration of the incentive
compensation plans for executives and key employees and
15
the administration of the Company's pension and savings plans; and approving
significant amendments to the incentive compensation, pension, and savings plans
on behalf of the Board. The Committee has direct responsibility for reviewing
and approving the annual goals and objectives relevant to the compensation of
the chief executive officer, evaluating his performance in light of these goals
and objectives, and setting his compensation level based on this evaluation of
his performance. The Committee also approves the individual salary, bonus, and
incentive plan awards of other executive officers and certain other senior
executives, annually reviews with the Board the performance of the chief
executive officer, and approves the annual report on executive compensation for
inclusion in the proxy statement.
COMPENSATION OF EXECUTIVE OFFICERS
REPORT OF THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE
The Management Development and Compensation Committee of the Board is
responsible for establishment and oversight of the Company's compensation
program for Executive Officers. The Committee determines all the components of
the compensation of the chief executive officer and, in consultation with Mr.
Jones, determines the compensation of the remaining Executive Officers and
approves and oversees programs applicable to broader groups of management
employees. The Committee retains an independent compensation consultant to
advise it on compensation practices.
COMPENSATION POLICIES. The Committee believes that Executive Officers'
compensation should be competitive with that paid by companies with whom we
compete for talent. Accordingly, the Committee annually reviews competitive
market data supplied by its independent consultant to establish compensation
targets. For purposes of comparing market practices, the consultant compiles
survey data from a reference group of industrial companies with revenue of $3 to
$10 billion, supplemented by select chemical and benchmark companies. The
Committee seeks to achieve a compensation program that provides foundational
elements such as base salary and benefits at the median level for the market
reference group and that provides an opportunity for total compensation within
the second highest quartile of the market reference group if short and long term
performance goals are achieved. When performance falls short of those goals,
actual compensation will fall below the targeted level as well, and when
performance exceeds those goals, compensation will exceed the targeted level.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION. It is the Committee's preference
that all compensation paid to the Executive Officers qualify for deduction from
the Company's U.S. income taxes, and all Executive Officer compensation for
fiscal year 2004 will be deductible by the Company. However, the Committee
believes that the shareholders' interests are best served by offering
compensation that is not fully deductible if necessary to attract, retain and
motivate talented executives. Therefore, the Committee reserves discretion to
make compensation decisions that result in nondeductible compensation.
BASE SALARY. The Committee establishes each Executive Officer's base salary in
reference to competitive market levels for comparable positions. Base salary is
targeted at a median market position, with adjustment for performance and the
uniqueness of the responsibilities held by certain Executive Officers.
ANNUAL INCENTIVE COMPENSATION. The annual bonus opportunity is tied to
performance against objectives selected by the Committee. Performance above or
below targeted objectives produces total cash compensation for the Executive
Officers above or below median for the market reference group. This year, the
Committee approved two primary performance
16
objectives: growth in earnings per share, because consistent profit growth is a
key to creating shareholder value; and return on shareholder's equity, because
it is a traditional, well accepted measure of the Company's performance. The
Committee established payout ranges based on performance levels for these
objectives at the beginning of the fiscal year. Once the performance levels and
associated payout ranges have been determined, the Committee considers
additional performance factors to adjust the payout level within the established
range, including performance against operating plan, growth in revenues, total
return to shareholders, overall economic conditions, and comparable performance
by peer companies. Bonuses may be further adjusted to reflect individual and
operating unit performance.
The Committee determined to set Mr. Jones's bonus at $1,620,000 for the year, in
recognition of his leadership in the Company's many achievements this year.
Despite the sluggish manufacturing recovery and soaring raw material prices
which impacted the Company's financial results in 2004, the Company delivered a
solid performance with strong gains in shareholder value and continued
disciplined actions designed to strengthen potential for future earnings growth.
The Company achieved overall revenue growth of 18% percent with growth in sales
revenue across all segments, record earnings per share, successful integration
of growth in the Company's global home healthcare business, disciplined
direction of capital and research and development into growth businesses and
geographies, stable cash flow of $1.085 billion from operations allowing the
Company to significantly increase dividends, solid progress in finalizing
enterprise resource planning software implementation enabling the Company to
achieve faster cycle times and improved e-business capabilities, improved safety
rates and national recognition of corporate citizenship and best practices.
LONG TERM INCENTIVE AWARDS. Executive Officers' long-term incentives are
targeted at above median to emphasize long term value for shareholders. For
fiscal year 2004, the Committee conducted an overall review of the Company's
long term incentive program and made some significant changes in the way we
deliver long term incentive compensation to Executive Officers. We implemented
these changes in response to uncertainty about the expensing of stock options,
anticipated changes in the market and potential dilution of shareholder equity
resulting from our management team's tendency to hold vested stock options for
the maximum terms. The modified long term incentive program is intended to
reduce annual share usage and aggregate dilution while retaining key incentives
to align Executive Officer compensation with growth in shareholder value.
The primary change was to shift some of the long term incentive compensation
value from stock options to restricted stock. Restricted stock awarded to
Executive Officers in fiscal 2004 vests upon retirement, disability or death.
Stock options continue to represent a significant percentage of the long term
incentive compensation opportunity for Executive Officers. The options are
granted at fair market value, have a ten year term and vest incrementally over
the first three years of the term. The final component of the long term
incentive program is performance shares, which are deferred stock units
conditioned upon the Company's performance towards its important objective of
growth in operating return on net assets. No performance based deferred stock
units were granted during fiscal year 2004 as prior cycles were earning out.
OTHER PROGRAMS. The Company also provides Executive Officers with life and
medical insurance, pension, savings and bonus deferral programs, and other
welfare benefits that are competitive with market practices.
EXECUTIVE STOCK OWNERSHIP. The Committee has approved ownership guidelines that
require Executive Officers to achieve an ownership stake in the Company that is
significant in comparison with the executive's salary. The ownership guidelines
are five times base salary for
17
the chief executive officer and three times base salary for the other Executive
Officers. The Officers are expected to achieve the specified ownership level
within five years of assuming their position. Executive Officers may count
toward these requirements the value of shares owned, share equivalents held in
their 401(k) accounts, earned performance shares and other deferred stock units
which are fully vested and held in the Company's nonqualified savings and
deferred bonus programs. Stock options are not counted.
Management Development and Compensation Committee
James F. Hardymon, Chairman
Ursula F. Fairbairn
Terrence Murray
This Report of the Management Development and Compensation Committee is provided
only for the purpose of this Proxy Statement. This Report shall not be
incorporated, in whole or in part, in any other Company filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934.
18
EXECUTIVE COMPENSATION TABLES
2004 SUMMARY COMPENSATION TABLE
The following table summarizes the total compensation paid in fiscal years
2002-2004 to the chief executive officer and the four other Executive Officers
who were most highly compensated in fiscal year 2004.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------------------------------- ----------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARDS STOCK COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) ($)(1) ($)(2) ($)(3)(4) OPTIONS (#) ($)(5)
------------------ ------ --------- --------- ------------ ------------ ------------- ------------
John P. Jones III........ 2004 1,000,000 1,620,000 972,930 260,000 432,611
Chairman, President,
and 2003 1,000,000 594,000 0 320,000 359,142
Chief Executive Officer 2002 990,000 761,000 0 500,000 292,968
W. Douglas Brown......... 2004 406,000 350,000 208,485 65,000 118,854
Vice President, General 2003 398,000 129,000 0 80,000 101,062
Counsel and Secretary 2002 385,000 173,000 0 120,000 84,362
Arthur T. Katsaros....... 2004 406,000 365,000 208,485 65,000 118,362
Group Vice President -- 2003 398,000 129,000 0 80,000 99,878
Development &
Technology 2002 385,000 173,000 0 150,000 83,759
Mark L. Bye.............. 2004 380,000 440,000 365,309 301,145 70,000 68,579
Group Vice President -- 2003 303,423 90,000 256,674 0 42,000 56,387
Gases & Equipment 2002 260,962 140,000 321,483 0 60,000 47,774
John E. McGlade.......... 2004 380,000 410,000 301,145 70,000 58,868
Group Vice President -- 2003 294,962 90,000 0 40,000 49,132
Chemicals 2002 257,308 140,000 0 75,000 41,578
-------------------------
(1) Cash compensation earned for services performed during each fiscal year,
including amounts deferred at the election of the executive.
(2) The amounts shown in this column for Mr. Bye are comprised of payments
relating to an overseas assignment which were made under the Company's
program for employees and their family members who are U.S. citizens on
international assignments; including for foreign cost of living and exchange
rate adjustments, foreign housing and transportation costs, domestic housing
management, private school tuition for accompanying children and tax
equalization. Mr. Bye's overseas assignment to Singapore concluded during
fiscal year 2004.
(3) The amounts in the table are based on the NYSE market closing price of
$46.33 per share on October 2, 2003, the date of the award. These restricted
shares are forfeitable if the Executive Officer separates from employment
before the later of two years from the date of grant or his death,
disability or retirement. Cash dividends are paid on these shares.
(4) On September 30, 2004, Mr. Jones held 53,100 unvested deferred stock units
worth $2,887,578 and 21,000 restricted stock shares worth $1,141,980. Mr.
Brown held 15,250 unvested deferred stock units worth $829,295 and 4,500
restricted shares worth $244,710. Mr. Katsaros held 16,050 unvested deferred
stock units worth $872,799 and 4,500 restricted stock shares worth $244,710.
Mr. Bye held 8,705 unvested deferred stock units worth $473,378 and 6,500
restricted stock shares worth $353,470. Mr. McGlade held 8,905 unvested
deferred stock units worth $484,254 and 6,500 restricted stock shares worth
$353,470. These values are based on $54.38 the 2004 fiscal year-end NYSE
closing market price of a share of Company stock.
Deferred stock units entitle the recipient to receive one share of Company
common stock upon payout. Payout of unvested deferred stock units is
conditioned on continued employment during the deferral period which
generally ends upon death, disability, or
19
retirement. Certain deferred stock units called "performance shares" are
also conditioned on meeting performance targets during an earnout period.
All unvested deferred stock units are subject to forfeiture for engaging in
specified activities such as competing with the Company. The units accrue
dividend equivalents, but do not have voting rights.
(5) The dollar value of the amounts shown in this column for 2004 includes the
following:
MATCHING ABOVE-MARKET TAX &
CONTRIBUTIONS AND/OR INTEREST ON ESTATE PERFORMANCE
ACCRUALS UNDER DEFERRED PLANNING SHARES
NAME SAVINGS PLANS COMPENSATION STIPEND EARNOUT*
---- -------------------- ------------ -------- -----------
John P. Jones III.................. $30,000 $1,911 $8,000 $392,700
W. Douglas Brown................... $12,178 $ 501 $8,000 $ 98,175
Arthur T. Katsaros................. $12,178 $ 9 $8,000 $ 98,175
Mark L. Bye........................ $11,386 $ 105 $8,000 $ 49,088
John E. McGlade.................... $11,384 $ 214 $8,000 $ 39,270
-------------------------
* Performance shares are deferred stock units whose earn out is conditioned
on the Company's achieving certain levels of operating return on net
income. The Committee determined the level of earn out at 35% of target
for fiscal year 2004. The features described in footnote 4 also pertain
to these deferred stock units. The amounts are based on the fair market
value of $56.10 per share on November 17, 2004, the date the Committee
determined the level of earn out.
OPTION GRANTS IN 2004
The following table sets forth information concerning stock options granted in
fiscal year 2004.
INDIVIDUAL GRANTS
------------------------------------------------------- NET POTENTIAL REALIZABLE
NUMBER OF PERCENT (%) VALUE AT ASSUMED ANNUAL
SECURITIES OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE TEN-YEAR OPTION TERM(2)
GRANTED EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ---------- ------------ --------- --------------- ---------- -----------
John P. Jones III.... 260,000 9.9% $45.53 October 2, 2013 $7,444,729 $18,866,404
W. Douglas Brown..... 65,000 2.5% $45.53 October 2, 2013 $1,861,182 $ 4,716,601
Arthur T. Katsaros... 65,000 2.5% $45.53 October 2, 2013 $1,861,182 $ 4,716,601
Mark L. Bye.......... 70,000 2.7% $45.53 October 2, 2013 $2,004,350 $ 5,079,417
John E. McGlade...... 70,000 2.7% $45.53 October 2, 2013 $2,004,350 $ 5,079,417
-------------------------
(1) These options have an exercise price of the fair market value on the October
1, 2003 grant date. The exercise price and tax withholding obligations may
be satisfied with shares already owned by the executive. In general, options
become exercisable in one-third increments on the first three anniversaries
of grant and remain exercisable until ten years after the grant date;
however, the options generally expire on the last day of employment except
for death, disability, or retirement. Exercisable options may be transferred
by gift to family members. Options are subject to forfeiture for engaging in
specified activities such as competing with the Company.
(2) Net pre-tax gains which would be recognized at the end of the option term if
an executive exercised all of his 2004 options on the last day of the option
term and our stock price had grown at the 5% and 10% assumed growth rates
set by the Securities and Exchange Commission. The amounts shown are not
intended to forecast future appreciation in the price of our stock.
20
OPTIONS EXERCISED IN 2004
AND YEAR-END OPTION VALUES
This table shows, for each named Executive Officer, the number of, and net
pre-tax value realized from options exercised in fiscal year 2004 and the number
and net pre-tax value of the remaining options held by those Executive Officers.
In each case net pre-tax value is the fair market value of the stock less the
exercise price, determined on the date of exercise for options exercised and on
September 30, 2004 for the remaining options.
NUMBER OF SECURITIES NET VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR-END (#) AT YEAR-END ($)
SHARES ACQUIRED VALUE REALIZE --------------------------- ---------------------------
NAME ON EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
John P. Jones III......... 24,200 $649,649 1,091,998 640,002 $19,941,661 $7,481,029
W. Douglas Brown.......... 18,800 $435,126 237,466 158,334 $ 3,990,230 $1,842,874
Arthur T. Katsaros........ 12,000 $332,490 265,866 168,334 $ 4,860,550 $2,007,174
Mark L. Bye............... 8,400 $213,240 109,000 118,000 $ 1,957,180 $1,271,080
John E. McGlade........... 4,600 $117,806 129,933 121,667 $ 2,404,649 $1,338,087
PENSION PLAN TABLE
The Company maintains a qualified defined benefit pension plan which covered all
U.S. salaried employees during fiscal year 2004 and a related nonqualified plan.
This table shows approximate annual life annuity benefits payable to U.S.
salaried employees retiring at age 65 after the indicated years of credited
service with the indicated amounts of covered compensation, before reduction for
any offsets. A lump sum form of payment is available under the nonqualified
pension plan.
YEARS OF SERVICE
------------------------------------------------------------------------------------
REMUNERATION 15 20 25 30 35 40 45
------------ -------- -------- ---------- ---------- ---------- ---------- ----------
600,000... $133,023 $177,364 $ 221,705 $ 266,046 $ 310,386 $ 355,386 $ 400,386
700,000... $155,523 $207,364 $ 259,205 $ 311,046 $ 362,886 $ 415,386 $ 467,886
800,000... $178,023 $237,364 $ 296,705 $ 356,046 $ 415,386 $ 475,386 $ 535,386
900,000... $200,523 $267,364 $ 334,205 $ 401,046 $ 467,886 $ 535,386 $ 602,886
1,000,000.. $223,023 $297,364 $ 371,705 $ 446,046 $ 520,386 $ 595,386 $ 670,386
1,100,000.. $245,523 $327,364 $ 409,205 $ 491,046 $ 572,886 $ 655,386 $ 737,886
1,200,000.. $268,023 $357,364 $ 446,705 $ 536,046 $ 625,386 $ 715,386 $ 805,386
1,300,000.. $290,523 $387,364 $ 484,205 $ 581,046 $ 677,886 $ 775,386 $ 872,886
1,400,000.. $313,023 $417,364 $ 521,705 $ 626,046 $ 730,386 $ 835,386 $ 940,386
1,500,000.. $335,523 $447,364 $ 559,205 $ 671,046 $ 782,886 $ 895,386 $1,007,886
1,600,000.. $358,023 $477,364 $ 596,705 $ 716,046 $ 835,386 $ 955,386 $1,075,386
1,700,000.. $380,523 $507,364 $ 634,205 $ 761,046 $ 887,886 $1,015,386 $1,142,886
1,800,000.. $403,023 $537,364 $ 671,705 $ 806,046 $ 940,386 $1,075,386 $1,210,386
1,900,000.. $425,523 $567,364 $ 709,205 $ 851,046 $ 992,886 $1,135,386 $1,277,886
2,000,000.. $448,023 $597,364 $ 746,705 $ 896,046 $1,045,386 $1,195,386 $1,345,386
2,100,000.. $470,523 $627,364 $ 784,205 $ 941,046 $1,097,886 $1,255,386 $1,412,886
2,200,000.. $493,023 $657,364 $ 821,705 $ 986,046 $1,150,386 $1,315,386 $1,480,386
2,300,000.. $515,523 $687,364 $ 859,205 $1,031,046 $1,202,886 $1,375,386 $1,547,886
2,400,000.. $538,023 $717,364 $ 896,705 $1,076,046 $1,255,386 $1,435,386 $1,615,386
2,500,000.. $560,523 $747,364 $ 934,205 $1,121,046 $1,307,886 $1,495,386 $1,682,886
2,600,000.. $583,023 $777,364 $ 971,705 $1,166,046 $1,360,386 $1,555,386 $1,750,386
2,700,000.. $605,523 $807,364 $1,009,205 $1,211,046 $1,412,886 $1,615,386 $1,817,886
2,800,000.. $628,023 $837,364 $1,046,705 $1,256,046 $1,465,386 $1,675,386 $1,885,386
2,900,000.. $650,523 $867,364 $1,084,205 $1,301,046 $1,517,886 $1,735,386 $1,952,886
21
YEARS OF SERVICE
------------------------------------------------------------------------------------
REMUNERATION 15 20 25 30 35 40 45
------------ -------- -------- ---------- ---------- ---------- ---------- ----------
3,000,000.. $673,023 $897,364 $1,121,705 $1,346,046 $1,570,386 $1,795,386 $2,020,386
3,100,000.. $695,523 $927,364 $1,159,205 $1,391,046 $1,622,886 $1,855,386 $2,087,886
3,200,000.. $718,023 $957,364 $1,196,705 $1,436,046 $1,675,386 $1,915,386 $2,155,386
The compensation covered by our qualified and nonqualified defined benefit
pension plans is the average of the salary and bonus for the highest three
consecutive years during the final ten years of service. The approximate years
of service as of September 30, 2004 are 32 years for Mr. Jones, 31 years for Mr.
Katsaros, 21 years for Mr. Bye, and 28 years for Mr. McGlade. Mr. Brown has a
separate agreement with the Company under which he will be entitled to pension
benefits equivalent to the benefits which he would have earned under the pension
plans if he had been a participant in the pension plans during a time period
when he was assigned to work for a former Company affiliate, giving him
approximately 29 years of service. The benefit under Mr. Brown's agreement will
be reduced by an amount equivalent to his benefit from the former affiliate's
pension plan.
SEVERANCE AND EMPLOYMENT ARRANGEMENTS
CHIEF EXECUTIVE OFFICER SEVERANCE AGREEMENT. The Company entered into a
severance agreement with Mr. Jones, approved by the Management Development and
Compensation Committee, under which, if his employment is terminated by the
Company without cause or by Mr. Jones upon an event amounting to constructive
termination (as defined in the agreement), Mr. Jones would be entitled to:
- a cash severance payment equal to three times salary plus target bonus
under the annual bonus plan;
- a cash payment equal to the actuarial equivalent of the pension benefits
he would have been entitled to receive under the Company's pension plans
had he accumulated three additional years of credited service after his
termination date, plus the early retirement subsidy on the entire benefit
should he be ineligible for early retirement as of the date of
termination;
- continuation of medical benefits for three years; and
- a stipend to cover outplacement assistance and legal fees.
His outstanding stock options and other stock awards would remain in effect
(although the amount of shares covered by any option outstanding for less than
one year would be prorated).
Mr. Jones' agreement provides that in order for him to receive the severance
benefits, he must sign a noncompetition agreement that prohibits him from
working for certain competitors, soliciting business from our customers,
attempting to hire our employees, and disclosing our confidential information
for three years following separation. He must also agree to release any claims
against the Company and will receive a release of claims by the Company against
him. If Mr. Jones voluntarily leaves the Company for any reason, including
retirement, under circumstances which do not amount to constructive termination,
he will not be entitled to any benefit under the severance agreement.
CORPORATE EXECUTIVE COMMITTEE RETENTION/SEPARATION PROGRAM. The Company has
also adopted, with the Management Development and Compensation Committee's
approval, a retention/separation program for other members of the Company's
Corporate Executive Committee (CEC) which, during 2004, included the four
Executive Officers named in this Proxy Statement (in addition to Mr. Jones).
These CEC members will become entitled to the program benefits following
termination of employment on a date approved by the chief executive officer
22
(the "employment termination date"). Once the employment termination date is
set, the CEC member must continue to perform the duties typically related to his
position (or such other position as the chief executive officer reasonably
requests) and assist in the identification, recruitment, and/or transitioning of
his or her successor. The CEC member must also sign a general release of claims
against the Company and a two-year noncompetition agreement. Having met these
requirements, the executive will receive a cash severance payment of one times
base salary and bonus, a pro-rata bonus for the year of termination and a
transition stipend; and his or her options which have been outstanding for more
than one year will continue.
Under Mr. Jones' agreement and the CEC program, outstanding stock awards other
than options will be paid promptly after the later of the employment termination
date and the end of any post-termination performance period. Also, if the
executive dies or becomes disabled after the employment termination date has
been set and does not retire before the employment termination date, severance
payments and other benefits will nevertheless be due to the executive or to his
or her estate or beneficiary.
CHANGE IN CONTROL ARRANGEMENTS
To retain our leadership team and provide for continuity of management in the
event of any actual or threatened change in control of the Company, we utilize
individual severance agreements which provide explicit contractual protection
for our executive officers including, in 2004, Mr. Jones, Mr. Brown, Mr.
Katsaros, Mr. Bye, and Mr. McGlade. Individuals receive no payments or benefits
under the agreements unless their employment ends during the three-year period
following a change in control.
For this purpose, a change in control means a 20% stock acquisition by a person
not controlled by the Company, a change in the Board majority during any two
year period unless approved by two thirds of those who were directors at the
beginning of the period, or other events determined to constitute a change in
control by a majority of nonemployee directors in office when the event occurs.
The severance agreements give each executive specific rights and certain
benefits if, within three years after a change in control, his or her employment
is terminated by the Company without "cause" (as defined) or he or she
terminates employment for "good reason" (as defined). In such circumstances the
executive would be entitled to:
- a cash payment equal to three times the sum of his or her annual base
salary, the value for the most recent fiscal year of the Company's
matching contribution and/or accrual on his or her behalf under the
qualified 401(k) and nonqualified savings plans, and his or her target
bonus under the annual bonus plan;
- a cash payment equal to the actuarial equivalent of the pension benefits
he or she would have been entitled to receive under the Company's pension
plans had he or she accumulated three(1) additional years of credited
service after termination, plus the early retirement subsidy on the
entire benefit if he or she is not eligible for early retirement as of
the date of termination; and
- continuation of medical, dental, and life insurance benefits for a period
of up to three years, and provision of outplacement services, financial
counseling benefits, and legal fees.
-------------------------
(1) Subject to appropriate reduction in cases where an executive would reach age
sixty-five within three years from the date of a change in control.
23
If any payment, distribution or acceleration of benefits, compensation or rights
that is made by the Company to the executive under the severance agreement or
otherwise, results in a liability for the excise tax imposed by Section 4999 of
the U.S. Internal Revenue Code, the Company will pay an amount equal to such
excise tax. Also, each severance agreement provides for indemnification of the
executive if he or she becomes involved in litigation because he or she is a
party to the agreement.
In addition to these agreements, certain components of our executive
compensation program are activated upon a change in control without regard to
whether the individual's employment ends. Specifically, incentive plan
provisions automatically accelerate payment of deferred bonuses, vest and
provide a cash out opportunity for stock options, vest and pay out all deferred
stock units in cash and cause restrictions on restricted stock to lapse. Also,
the Company has established grantor trusts, the terms of which call for cash
funding upon a change in control to pay benefits to employees under unfunded
nonqualified retirement plans and to cash out vested deferred stock units owed
to employees and nonemployee directors. The trusts are secured by an agreement
to contribute Company stock.
24
INFORMATION ABOUT STOCK PERFORMANCE AND OWNERSHIP
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
COMPARISON OF FIVE-YEAR CUMULATIVE SHAREHOLDER RETURN
AIR PRODUCTS, S&P 500 INDEX, DOW JONES SPECIALTY CHEMICALS INDEX, AND PEER GROUP
COMPARATIVE GROWTH OF A $100 INVESTMENT
(ASSUMES REINVESTMENT OF ALL DIVIDENDS)
FIVE YEAR GRAPH
AIR PRODUCTS S&P 500 DJ SPEC CHEM PEER GROUP(A)
------------ ------- ------------ -------------
Sep 99 $100.00 $100.00 $100.00 $100.00
Sep 00 $126.00 $113.00 $ 93.00 $ 75.00
Sep 01 $138.00 $ 83.00 $101.00 $ 82.00
Sep 02 $152.00 $ 66.00 $109.00 $ 80.00
Sep 03 $167.00 $ 82.00 $119.00 $ 94.00
Sep 04 $205.00 $ 94.00 $152.00 $119.00
---------------
(a) Return on the S&P Chemicals Index through December 31, 2001 and, from
January 1, 2002, the return of the six companies that had constituted the
S&P Chemicals Index at the time of its discontinuance by S&P (Air Products,
Dow, DuPont, Eastman Chemical, Praxair, and Rohm & Haas).
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
25
PERSONS OWNING MORE THAN 5% OF AIR PRODUCTS STOCK
AS OF SEPTEMBER 30, 2004
AMOUNT AND NATURE
OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
------------------------------------ ----------------- ----------------
Capital Group International, Inc.................... 12,723,000 5.2%
11100 Santa Monica Blvd.
Suite 1500
Los Angeles, CA 90025
State Farm Mutual Automobile Insurance Company(1)... 15,500,231 6.4%
("State Farm")
One State Farm Plaza
Bloomington, IL 61710
State Street Bank and Trust Company ("State
Street")(2)....................................... 15,016,953 6.2%
P.O. Box 1389
Boston, MA 02104
-------------------------
(1) In the aggregate, State Farm has sole voting and investment power over
15,416,400 shares.
(2) State Street holds 7,191,351 shares in trust as Trustee of the Company's
Retirement Savings and Stock Ownership Plan (the "RSSOP"), which is 2.9% of
outstanding shares. The RSSOP trust agreement provides, in general, that the
Trustee will vote, tender, and exchange RSSOP shares as voting RSSOP
participants direct. State Street holds the remainder of the shares in trust
as trustee or discretionary advisor for various collective investment funds
for employee benefit plan and other index accounts. In the aggregate, State
Street has sole voting power over 6,579,677 shares, shared voting power over
7,886,851 shares, sole investment power over 6,906,710 shares, and shared
investment power over 8,110,243 shares.
26
AIR PRODUCTS STOCK BENEFICIALLY OWNED BY OFFICERS AND DIRECTORS
AS OF NOVEMBER 1, 2004
DEFERRED
COMMON STOCK STOCK
NAME OF BENEFICIAL OWNER STOCK(1)(2)(3) OPTIONS(4) UNITS(5) TOTAL
------------------------ -------------- ---------- -------- ---------
Mario L. Baeza.......................... 0 10,000 7,372 17,372
W. Douglas Brown........................ 12,446 325,798 19,432 357,676
Mark L. Bye............................. 21,002 166,333 9,580 196,915
Michael J. Donahue...................... 500 6,000 7,787 14,287
Ursula F. Fairbairn..................... 0 12,000 13,948 25,948
W. Douglas Ford......................... 0 2,000 2,894 4,894
Edward E. Hagenlocker................... 0 16,000 15,139 31,139
James F. Hardymon....................... 0 14,000 9,201 23,201
John P. Jones III....................... 103,575 1,451,998 91,020 1,646,593
Arthur T. Katsaros...................... 15,011 364,198 23,981 403,190
John E. McGlade......................... 23,806 191,599 9,605 225,010
Terrence Murray......................... 0 4,000 4,007 8,007
Lawrence S. Smith....................... 2,000 0 1,181 3,181
Lawrason D. Thomas...................... 1,500 18,000 19,114 38,614
Directors and Executive Officers as a
group (16 persons)(6)................. 203,266 2,729,924 253,871 3,187,061
-------------------------
(1) Certain Executive Officers hold restricted shares which we include in this
column. The executive may vote the restricted shares, but may not sell or
transfer them during the restriction period. These restrictions lapse upon
death, disability or retirement, if such event occurs at least two years
after the date of grant. The individuals in the table hold the following
number of restricted shares:
NAME SHARES
---- ------
Brown.......................................... 9,000
Bye............................................ 13,000
Jones.......................................... 42,000
Katsaros....................................... 9,000
McGlade........................................ 13,000
All executive officers......................... 93,500
(2) Includes share units held by Executive Officers in the Company's qualified
401(k) plan. Participants have voting rights with respect to such units and
can generally redirect their plan investments.
(3) Shares reported include 55,893 shares owned jointly by certain directors and
officers with their spouses with whom they share voting and investment
power; and 10,793 shares held by, or for the benefit of, members of the
immediate families or other relatives of certain of the directors and
officers, of which such directors and officers disclaim beneficial ownership
of 10,793 shares.
(4) The directors and officers have the right to acquire this number of shares
within 60 days by exercising outstanding options granted under the Company's
long-term incentive plan.
(5) This column shows deferred stock units which have been awarded, earned out,
or purchased. Deferred stock units entitle the holder to receive one share
of Company stock
27
upon payout which generally occurs after the director's or officer's service
to the Company ends. Deferred stock units accrue dividend equivalents, but
do not have voting rights. Certain deferred stock units held by officers are
subject to forfeiture, if employment ends before death, disability or
retirement, or for engaging in specified activities such as competing with
the Company.
(6) Not counting their deferred stock units, our directors, nominees, and
Executive Officers as a group beneficially own just over 1.2% of our
outstanding shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and
Executive Officers to file reports of holdings and transactions in Company stock
and related securities with the Securities and Exchange Commission and the New
York Stock Exchange. Based on our records and other information, we believe that
in 2004 all of our directors and Executive Officers met all applicable Section
16(a) filing requirements.
28
ANNUAL MEETING OF SHAREHOLDERS OF
[AIR PRODUCTS LOGO]
AIR PRODUCTS AND CHEMICALS, INC.
JANUARY 27, 2005
-----------------------------------
PROXY VOTING INSTRUCTIONS
-----------------------------------
MAIL -- Date, sign and mail your proxy card in the
envelope provided as soon as possible. ------------------------------------------------
-- OR -- COMPANY NUMBER
TELEPHONE -- Call toll-free 1-800-PROXIES from ------------------------------------------------
any touch-tone telephone and follow the instructions.
Have your proxy card available when you call. ACCOUNT NUMBER
-- OR -- ------------------------------------------------
INTERNET -- Access "WWW.VOTEPROXY.COM" and
follow the on-screen instructions. Have your proxy
card available when you access the web page. ------------------------------------------------
[Down arrow] Please detach along perforated line and mail in [Down arrow]
the envelope provided IF you are not voting via
telephone or the Internet.
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, AND 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK
YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
--------------------------------------------------------------------------------
1. To elect the nominee listed below as directors
for three-year terms.
FOR AGAINST ABSTAIN
NOMINEES: 2. APPOINTMENT OF AUDITORS. [ ] [ ] [ ]
[ ] FOR ALL NOMINEES O Michael J. Donahue Ratification of appointment of KPMG LLP,
O Ursula F. Fairbairn as independent auditors for fiscal year
[ ] WITHHOLD AUTHORITY O John P. Jones III 2005.
FOR ALL NOMINEES O Lawrence S. Smith
THE SHARES REPRESENTED BY THIS SIGNED PROXY WILL BE VOTED AS
[ ] FOR ALL EXCEPT DIRECTED BY THE SHAREHOLDER ON THIS PROXY WITH RESPECT TO
(See instructions below) PROPOSALS 1 AND 2. IF NO DIRECTION IS GIVEN, SUCH SHARES WILL
BE VOTED FOR PROPOSALS 1 AND 2. SUCH SHARES WILL BE VOTED IN
THE PROXIES' DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY
INSTRUCTION: To withhold authority to vote for any individual COME BEFORE THE MEETING.
nominee(s), mark "FOR ALL EXCEPT" and fill in the circle next
to each nominee you wish to withhold, as shown here: *
--------------------------------------------------------------
--------------------------------------------------------------
TO CHANGE THE ADDRESS ON YOUR ACCOUNT, PLEASE CHECK THE
BOX AT RIGHT AND INDICATE YOUR NEW ADDRESS IN THE
ADDRESS SPACE ABOVE. PLEASE NOTE THAT CHANGES TO THE [ ]
REGISTERED NAME(S) ON THE ACCOUNT MAY NOT BE SUBMITTED
VIA THIS METHOD.
--------------------------------------------------------------
-------------------- ------------- -------------------- ---------------
Signature of Shareholder Date: Signature of Shareholder Date:
-------------------- ------------- -------------------- ---------------
NOTE: Please sign exactly as your name or names appear on this proxy. When shares are held jointly, each holder should sign. When
signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a
corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
ANNUAL MEETING OF
AIR PRODUCTS AND CHEMICALS, INC.
THURSDAY, JANUARY 27, 2005 - 2:00 P.M.
TOMPKINS COLLEGE CENTER THEATER
CEDAR CREST COLLEGE, ALLENTOWN, PA
ELECTRONIC DISTRIBUTION
IF YOU WOULD LIKE TO RECEIVE FUTURE AIR PRODUCTS AND CHEMICALS, INC. PROXY
STATEMENTS AND ANNUAL REPORTS ELECTRONICALLY, PLEASE VISIT
HTTP://WWW.AMSTOCK.COM. CLICK ON SHAREHOLDER ACCOUNT ACCESS TO ENROLL. PLEASE
ENTER YOUR TAX IDENTIFICATION NUMBER AND ACCOUNT NUMBER TO LOG IN, THEN SELECT
RECEIVE COMPANY MAILINGS VIA EMAIL.
[AIR PRODUCTS LOGO]
PROXY
AIR PRODUCTS AND CHEMICALS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS -- JANUARY 27, 2005
The undersigned hereby appoints John P. Jones III, W. Douglas Brown and
Paul E. Huck ("proxies"), or any one of them, with full power of substitution,
to represent the undersigned at the annual meeting of shareholders of Air
Products and Chemicals, Inc. on Thursday, January 27, 2005, at 2:00 p.m., and
at any adjournments thereof, and to vote at such meeting the shares which the
undersigned would be entitled to vote if personally present, in accordance with
the following instructions, and to vote in their judgment upon all other
matters which may properly come before the meeting and any adjournments hereof.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
ANNUAL MEETING OF SHAREHOLDERS OF
AIR PRODUCTS AND CHEMICALS, INC.
JANUARY 27, 2005
-----------------------------------
PROXY VOTING INSTRUCTIONS
-----------------------------------
INTERNET -- Access "WWW.VOTEPROXY.COM" and follow
the on-screen instructions. Have your proxy voting
direction form available when you access the web page. ------------------------------------------------
-- OR -- COMPANY NUMBER
TELEPHONE -- Call toll-free 1-800-PROXIES ------------------------------------------------
(1-800-776-9437) from any touch-tone telephone and
follow the instructions. Have your proxy voting ACCOUNT NUMBER
direction form available when you call.
Foreign calls use 1-718-921-8500 ------------------------------------------------
-- OR --
MAIL -- Sign, date and mail your proxy voting ------------------------------------------------
direction form in the envelope provided as soon
as possible.
[Down arrow] Please detach along perforated line and mail in [Down arrow]
the envelope provided IF you are not voting via
telephone or the Internet.
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, AND 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK
YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
--------------------------------------------------------------------------------
1. To elect the nominees listed below as directors
for three-year terms.
FOR AGAINST ABSTAIN
NOMINEES: 2. APPOINTMENT OF AUDITORS. [ ] [ ] [ ]
[ ] FOR ALL NOMINEES O Michael J. Donahue Ratification of appointment of KPMG LLP,
O Ursula F. Fairbairn as independent auditors for fiscal year
[ ] WITHHOLD AUTHORITY O John P. Jones III 2005.
FOR ALL NOMINEES O Lawrence S. Smith
[ ] FOR ALL EXCEPT
(See instructions below)
INSTRUCTION: To withhold authority to vote for any individual
nominee(s), mark "FOR ALL EXCEPT" and fill in the circle next
to each nominee you wish to withhold, as shown here: *
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
-------------------- -------------
Signature of Participant Date:
-------------------- -------------
NOTE: Please sign exactly as your name or names appears on this proxy voting direction form.
STATE STREET BANK AND TRUST COMPANY
December 13, 2004
TO: ALL PARTICIPANTS IN THE AIR PRODUCTS AND CHEMICALS, INC. RETIREMENT SAVINGS
AND STOCK OWNERSHIP PLAN
If you are an active employee with Intranet access, you should have received
notification of electronic access to the Notice of Annual Meeting, the Proxy
Statement, and the Annual Report on or about December 13, 2004. You may request
paper copies of these materials by calling 1-888-AIR-INFO (1-888-247-4636). If
you do not have Internet access, or are no longer an active employee, copies of
these materials will be mailed to your home.
As a participant and named fiduciary of a Company sponsored employee benefit
savings plan that provides for pass-through voting to participants, you are
entitled to vote the shares credited to your account and held by us in our
capacity as Trustee under the Air Products and Chemicals, Inc. Retirement
Savings and Stock Ownership Plan. These shares will be voted in confidence as
you direct if your vote is received by us on or before January 20, 2005.
You may vote your shares in one of three ways: over the Internet, over the
telephone, or by marking, signing, dating and returning the proxy voting
direction form in the postage paid envelope. Internet and telephone voting
instructions are on the reverse side.
Cordially yours,
STATE STREET BANK AND TRUST COMPANY, TRUSTEE
2005 ANNUAL MEETING OF SHAREHOLDERS
AIR PRODUCTS AND CHEMICALS, INC.
STATE STREET BANK AND TRUST COMPANY, BOSTON, MA
AS TRUSTEE FOR AIR PRODUCTS AND CHEMICALS, INC. RETIREMENT SAVINGS AND STOCK
OWNERSHIP PLAN
The Trustee is hereby directed to vote the shares of common stock of Air
Products and Chemicals, Inc. represented by units of interest (the "shares")
allocated to my account under the Retirement Savings and Stock Ownership Plan
at the annual meeting of shareholders of Air Products and Chemicals, Inc. to be
held on 27 January 2005 as directed on the reverse side with respect to
proposals 1 and 2.
I understand that the whole shares allocated to my Plan account will be voted by
the Trustee in person or by proxy as so directed by me. If this form is signed
and returned without directions, the shares allocated to my account will be
voted by the Trustee for Proposals 1 and 2. Except as otherwise provided in the
Retirement Savings and Stock Ownership Plan, such shares will be voted in the
proxies' discretion upon such other business as may properly come before the
meeting. If no voting instructions are received or if this proxy voting
direction form is returned unsigned, the shares allocated to my account will be
voted by the Trustee in the same proportions as shares held under the Plan for
which voting directions have been received.
(TO BE SIGNED ON THE REVERSE SIDE)