Notice of

2006 Annual

Meeting and Proxy

Statement

 

Harsco Corporation

 

 

Harsco Corporation

350 Poplar Church Road

Camp Hill, PA 17011 USA

Mail: P.O. Box 8888

Camp Hill, PA 17001-8888 USA

 

Telephone: 717.763.7064

Fax: 717.763.6424

Web: www.harsco.com

 

March 20, 2006

 

To Our Stockholders:

 

You are cordially invited to attend the 2006 Annual Meeting of Stockholders of your Company, which will be held on Tuesday, April 25, 2006, beginning at 10 a.m. at the Radisson Penn Harris Hotel and Convention Center, Camp Hill, Pennsylvania.

 

Information about the Annual Meeting, including a listing and discussion of the various matters on which you, as our stockholders, will act, may be found in the formal Notice of Annual Meeting of Stockholders and Proxy Statement included with this mailing. We look forward to greeting as many of our stockholders as possible.

 

The Company is providing you with the opportunity to vote your shares by calling a toll-free number, by mailing the enclosed Proxy Card or via the Internet as explained in the instructions on your Proxy Card.

 

Whether you plan to attend the Annual Meeting or not, we urge you to fill in, sign, date and return the enclosed Proxy Card, in the postage-paid envelope provided, or vote by telephone or via the Internet, in order that as many shares as possible may be represented at the Annual Meeting. The vote of every stockholder is important and your cooperation in returning your executed Proxy Card promptly will be appreciated.

 

Sincerely,

 

Derek C. Hathaway

Chairman and Chief

Executive Officer

 

This document is intended to be mailed to stockholders on or about March 20, 2006.

 

TABLE OF CONTENTS

 

HARSCO CORPORATION

350 Poplar Church Road

Camp Hill, Pennsylvania 17011 USA

Mail: P.O. Box 8888

Camp Hill, Pennsylvania 17001-8888 USA

 

 

The Annual Meeting of Stockholders of Harsco Corporation will be held on Tuesday, April 25, 2006, at 10 a.m. at the Radisson Penn Harris Hotel and Convention Center, Camp Hill, Pennsylvania to consider and act upon the following matters:

 

 

3. Such other business as may properly come before the Annual Meeting.

 

The Board of Directors has fixed the close of business on March 3, 2006, as the record date for the determination of stockholders who are entitled to notice of, and to vote at, the Annual Meeting and at any adjournments thereof. Proxies will be accepted continuously from the time of mailing until the closing of the polls at the Annual Meeting.

 

Stockholders who do not expect to attend the Annual Meeting in person are requested to fill in, sign, date and return the enclosed proxy card in the envelope provided, or vote by telephone or via the Internet, as explained in the instructions on your proxy card.

 

By Order of the Board of Directors,

 

Mark E. Kimmel

General Counsel and Corporate Secretary

March 20, 2006

PROXY STATEMENT

 

This Proxy Statement has been prepared in connection with the solicitation by the Board of Directors of Harsco Corporation, a Delaware corporation (the “Company”), of Proxies in the accompanying form to be used at the Annual Meeting of Stockholders of the Company, to be held April 25, 2006, or at any adjournment or adjournments of the Annual Meeting.

 

The following information relates to the Annual Meeting and the voting of your shares at the meeting:

 

 

All shares of common stock entitled to vote at the Annual Meeting are of one class, with equal voting rights. Each share of common stock held by a stockholder is entitled to cast one vote on each matter voted on at the Annual Meeting. In order for the Annual Meeting to be valid and the actions taken binding, a quorum of stockholders must be present at the meeting, either in person or by proxy. A quorum is a majority of the issued and outstanding shares of common stock as of the Record Date. Assuming that a quorum is present, the affirmative vote by the holders of a plurality of the votes cast at the Annual Meeting will be required to act on the election of directors and the affirmative vote of the holders of at least a majority of the outstanding common stock present in person or by proxy at the Annual Meeting will be required for the ratification of PricewaterhouseCoopers LLP as independent auditors for the current fiscal year. The vote required to act on all other matters to come before the Annual Meeting will be in accordance with the voting requirements established by the Company’s Restated Certificate of Incorporation and By-Laws.

 

The shares of common stock represented by each properly submitted proxy received by the Board of Directors will be voted as follows at the Annual Meeting:

 

If instructions are provided, in accordance with such instructions specified, or

If no instructions are provided, those shares of common stock will be voted (1) FOR the election of eleven nominees for Directors; (2) FOR the ratification of the appointment of PricewaterhouseCoopers LLP as independent auditors for the current fiscal year; and (3) in accordance with the best judgment of the named proxies on any other matters properly brought before the Annual Meeting.

 

Any proxy granted pursuant to this solicitation or otherwise, unless coupled with an interest, may be revoked by the person granting the proxy at any time before it is voted at the Annual Meeting. Proxies may be revoked by (i) delivering to the Secretary of the Company a written notice of revocation bearing a later date than the proxy, (ii) duly executing and delivering a later dated written proxy relating to the same shares, or (iii) attending the Annual Meeting and voting in person. If you hold your shares through a bank, broker or other nominee holder, only they can revoke your proxy on your behalf.

 

In certain circumstances, a stockholder will be considered to be present at the Annual Meeting for quorum purposes but will not be deemed to have cast a vote on a matter. That occurs when a stockholder is present but specifically abstains from voting on a matter or when shares are represented at the Annual Meeting by a proxy conferring authority to vote only on certain matters (“broker non-votes”). In accordance with Delaware law, abstentions and broker non-votes will not be treated as votes cast with respect to election of directors, and therefore will not affect the outcome of director elections. With respect to the ratification of auditors, abstentions will be treated as negative votes and broker non-votes will not be counted in determining the outcome.

 

The Board of Directors knows of no other business to come before the Annual Meeting. However, if any other matters are properly presented at the Annual Meeting, or any adjournment of the Annual Meeting, the persons voting the proxies will vote them in accordance with their best judgment.

 

The Company has a long-standing commitment to good corporate governance practices. These practices come in many different forms and apply at all levels of the organization. They provide the Board of Directors and senior management of the Company with a framework that defines responsibilities, sets high standards of professional and personal conduct and promotes compliance with the various financial, ethical, legal and other obligations and responsibilities applicable to the Company. Specific governance actions taken by the Board of Directors during 2005 include recommending to the stockholders and the stockholders approving the elimination of the classification of the Board of Directors and reviewing and revising the executive employment agreements that apply to certain officers of the Company , including the Named Executive Officers (see page 29, “Employment Agreements with Officers of the Company.”)

 

The Company’s corporate governance principles and code of business conduct for employees and directors can be viewed at the Governance section of the Company’s website, www.harsco.com. Information contained on the Company’s website is not incorporated by reference into this Proxy Statement, and you should not consider information contained on the Company’s website as part of this Proxy Statement. Copies of the Company’s corporate governance principles, code of business conduct and charters of the Board’s committees are available in print to any stockholder who requests such copies from the Company.

 

Information regarding the structure of the Company’s Board of Directors:

 

 

The Board of Directors held nine meetings during the fiscal year ended December 31, 2005. All Directors attended at least 75% of the total Board and committee meetings on which they served and the average attendance by Directors at all Board and committee meetings was 97%. The Independent Directors held three meetings during 2005.

 

 

The current fees for Non-Employee Directors effective January 1, 2006 are as follows:

 

Directors who are actively employed by the Company receive no additional compensation for serving as Directors and by policy, the Company does not pay consulting or professional service fees to Directors.

 

 

The Board of Directors has a formal process for stockholders to communicate directly with its members. Stockholders can contact the Board through the Chairman and Chief Executive Officer who is located at the Company’s headquarters in Camp Hill, Pennsylvania. In addition, stockholders may contact any member of the Board, including the lead independent director, Dr. Robert Wilburn, by writing to the specific Board member in care of the Corporate Secretary at the Corporate Headquarters (350 Poplar Church Road, Camp Hill, PA 17011). The Corporate Secretary will forward any such correspondence to the applicable Board member; provided, however, that any such correspondence that is considered to be improper for submission to the intended recipients will not be provided to such Directors. In addition, Board members can be contacted by e-mail at BoardofDirectors@Harsco.com.

 

Attendance at Annual Meeting

 

It is the Company’s policy to request that all Board members attend the Annual Meeting of Stockholders. However, the Company also recognizes that personal attendance by all Directors is not always possible. All eleven Directors did attend the 2005 Annual Meeting of Stockholders.

 

The Nominating Committee of the Board of Directors is responsible for overseeing the selection of qualified candidates to serve as members of the Board of Directors and guiding the corporate governance philosophy and practices of the Company. The Nominating Committee is composed of five directors each of whom is “independent” under the rules of the New York Stock Exchange and the Pacific Stock Exchange. The Nominating Committee operates according to a charter that complies with the guidelines established by the New York Stock Exchange and the Pacific Stock Exchange.

 

The Nominating Committee has not adopted formal procedures in selecting individuals to serve as members of the Board of Directors. Instead, it utilizes general guidelines that allow it to adjust the process to best satisfy the objectives established for any director search. The first step in the general process is to identify the type of candidate the Nominating Committee may desire for a particular opening. This may involve identifying someone with a specific background, skill set or set of experiences. Once identified, the Nominating Committee next determines the best method of finding a candidate who satisfies the specified criteria. The Nominating Committee may consider candidates recommended by management, by other members of the Committee or the Board of Directors, by stockholders, or it may engage a third party to conduct a search for possible candidates. The Nominating Committee accepts recommendations for director candidates from stockholders if such recommendations are in writing and set forth the following information:

 

 

 

This information must be submitted as provided under the heading “STOCKHOLDER PROPOSALS AND NOMINATIONS FOR PRESENTATION AT 2007 ANNUAL MEETING OF STOCKHOLDERS.”

 

There have been no material changes to the procedures relating to stockholder nominations during 2005. The Nominating Committee believes that these formalized procedural requirements are intended solely to ensure that it has a sufficient basis on which to assess potential candidates and are not intended to discourage or interfere with appropriate stockholder nominations. The Nominating Committee does not believe that any such requirements subject any stockholder or stockholder nominee to any unreasonable burden. The Nominating Committee and the Board reserve the right to change the above procedural requirements from time to time and/or waive some or all of the foregoing requirements with respect to certain nominees, but any such waiver shall not preclude the Nominating Committee from insisting upon compliance with any and all of the above requirements by any other recommending stockholder or proposed nominees.

 

Once candidates are identified, the Nominating Committee conducts an evaluation of the candidate. The evaluation generally includes interviews and background and reference checks. There is no difference in the evaluation process of a candidate recommended by a stockholder as compared to the evaluation process of a candidate identified by any of the other means described above. While the Nominating Committee has not established minimum criteria for a candidate, it has established important factors to consider in evaluating a candidate. These factors include: strength of character, mature judgment, business experience, availability, attendance, career specialization, relevant technical skills, diversity and the extent to which the candidate would fill a present need on the Board of Directors.

 

If the Nominating Committee determines that a candidate should be nominated as a candidate in the Proxy Statement, the candidate’s nomination is then recommended to the Board of Directors, who may in turn conduct its own review to the extent it deems appropriate. When the Board of Directors has agreed upon a candidate to be nominated at an Annual Meeting of Stockholders, that candidate is then recommended to the stockholders for election at an Annual Meeting of Stockholders.

 

All current directors have been recommended by the Nominating Committee to the Board of Directors for election as directors of the Company at the 2006 Annual Meeting of Stockholders and the Board has approved the recommendation. The Company did not engage a third party search firm to assist with the selection of the director candidates for the 2006 Annual Meeting of Stockholders. During 2005, the Company received no recommendation for directors from any stockholders.

 

The following standards have been applied by the Board of Directors of Harsco Corporation in determining whether individual directors qualify as “independent” under the Rules of the New York Stock Exchange. The Board has affirmatively determined that the following eight Directors are independent: Messrs. Jasinowski, Pierce, Scheiner, Sordoni, Viviano, Wilburn and Ms. Eddy and Ms. Scanlan. References to Harsco include its consolidated subsidiaries.

 

 

5. No director can be independent:

 

 

 

The first proposal to be voted on at the Annual Meeting is the election of the following eleven Directors, each of whom is recommended by the Board of Directors. Biographical information about each of these nominees is included below.

The Board of Directors Recommends that Stockholders Vote ‘FOR’ the Election of Each of the Following Nominees:

 

The information set forth below states the name of each nominee for Director, his or her age (as of March 20, 2006), a listing of present and previous employment positions, the year in which he or she first became a Director of the Company, other directorships held and the committees of the Board on which the individual serves.

 

 

The following table sets forth, as of March 3, 2006, information with respect to the beneficial ownership of the Company’s outstanding voting securities, stock options and other stock equivalents by:

 

 

All of the Company’s outstanding voting securities are common stock.

 

 

 

Except as otherwise stated, each individual has sole voting and investment power over the shares set forth opposite his or her name. As of March 3, 2006, Mr. Hathaway beneficially owned .87% of the Company’s common stock. None of the other Directors and executive officers individually beneficially owned more than 1% of the Company’s common stock, and the Directors and executive officers of the Company as a group beneficially owned approximately 1.74% of the Company’s outstanding common stock. The mailing address for the Directors and executive officers of the Company is c/o Harsco Corporation Corporate Secretary, 350 Poplar Church Road, Camp Hill, PA 17011.

 

The Audit Committee of the Board of Directors (the “Audit Committee”) is composed of five Directors each of whom is considered independent under the rules of the New York Stock Exchange, the Pacific Stock Exchange and the Securities and Exchange Commission (“SEC”). The Audit Committee, has, as part of its membership, an individual who satisfies the definition of a “financial expert,” as promulgated by the SEC. Ms. Kathy Eddy, a certified public accountant and former Chairman of the American Institute of Certified Public Accountants has been a member of the Audit Committee since September 28, 2004 and serves as the Audit Committee’s “financial expert.”

 

The Audit Committee operates pursuant to a written charter which was adopted in 1992 and which was most recently amended in February of 2006. A copy of the Audit Committee Charter is included as Appendix A to this Proxy Statement and can be viewed at the Governance section of the Company’s website at www.harsco.com.

 

The Audit Committee has adopted a policy for pre-approval of audit, non-audit and tax services by the independent auditors. The Audit Committee may pre-approve services, such as the annual audit fee and statutory audits. The services to be provided are to be reviewed with the Audit Committee and approval is given for a specific dollar amount and for a period of not greater than 12 months. Services that are not pre-approved in this manner must be pre-approved on a case-by-case basis throughout the year. Additionally, if the pre-approved fee is to be exceeded, approval of the Audit Committee must be obtained. In making its decision regarding the approval of services, the Audit Committee will consider whether such services are consistent with the SEC’s rules on auditor independence, whether the independent auditor is best positioned to provide such services and whether the services might enhance the Company’s ability to manage or control risk or improve audit quality. No services were provided during the last two fiscal years pursuant to the de minimis safe harbor exception from the pre-approval requirements.

 

The Audit Committee reports to and acts on behalf of the Board of Directors by monitoring the Company’s financial reporting processes and system of internal controls, and overseeing the Company’s internal auditors and the independence and performance of the independent auditors. In carrying out these responsibilities, the Audit Committee meets with members of management,

the Company’s independent auditors and the Company’s internal auditors on a regular basis or as may otherwise be needed. The Audit Committee Chairman or his designee meets with management and with the independent auditors each quarter to review and discuss the Company’s Quarterly Report on Form 10-Q or Annual Report on Form 10-K prior to its filing with the SEC.

 

While the Audit Committee and Board of Directors monitor the Company’s financial record keeping and controls, it is the Company’s management that is ultimately responsible for the Company’s financial reporting process, including the Company’s system of internal controls, disclosure control procedures and the preparation of the financial statements. The independent auditors support the financial reporting process by performing an audit of the Company’s financial statements and issuing a report thereon.

 

The Audit Committee has reviewed and discussed with management and the independent auditors the audited consolidated financial statements for the year ended December 31, 2005 and related periods. These discussions focused on the quality, not just the acceptability, of the accounting principles used by the Company, key accounting policies followed in the preparation of the financial statements and the reasonableness of significant judgments made by management in the preparation of the financial statements and alternatives that may be available.

 

The Audit Committee also discussed with the Company’s internal auditors and independent auditors the overall scope and plans for their respective audits of the Company’s financial statements. In addition, the Audit Committee discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), as modified or supplemented, including the quality of the Company’s accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The Audit Committee also discussed with PricewaterhouseCoopers LLP, the Company’s independent auditors, matters relating to its independence, including a review of audit and non-audit fees and the written disclosures and letter received by the Audit Committee from the Company’s independent auditors required to be delivered by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees).

 

Based on the review and discussions referred to above, the Audit Committee’s review of the representations of management and the report of the independent auditors, the Audit Committee recommended to the Board of Directors that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 for filing with the SEC.

 

SUBMITTED BY THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS:

 

J. I. Scheiner, Chairman
K. G. Eddy
D. H. Pierce
C. F. Scanlan
J. P. Viviano

 

The following table sets forth the amount of audit fees, audit-related fees, tax fees and all other fees billed or expected to be billed by PricewaterhouseCoopers LLP, the Company’s principal auditor for the year ended December 31, 2005 and December 31, 2004.

 

 

 

The Audit Committee has considered the possible effect of non-audit services on the auditors’ independence and pre-approved the type of non-audit services that were rendered.

 

The Audit Committee has designated PricewaterhouseCoopers LLP as independent auditors to audit the Company’s financial statements for the fiscal year ending December 31, 2006. This firm has audited the financial statements of the Company and its predecessors since 1929. Although not required to do so by law or otherwise, the Audit Committee desires that stockholders ratify its selection of PricewaterhouseCoopers LLP as the Company’s independent auditors. Therefore, the Audit Committee’s choice of independent auditors will be submitted for ratification or rejection at the Annual Meeting. In the absence of contrary direction from stockholders, all proxies that are submitted will be voted in favor of the confirmation of PricewaterhouseCoopers LLP as the Company’s independent auditors. A representative of PricewaterhouseCoopers LLP will attend the Annual Meeting, with the opportunity to make a statement and answer questions of stockholders.

 

If this proposal is not ratified by a majority of the shares entitled to vote at the Annual Meeting, the appointment of the independent auditors will be reevaluated by the Audit Committee. Due to the difficulty and expense of making any substitution of auditors, it is unlikely that their appointment for the audit of the financial statements for the fiscal year ending December 31, 2006 would be changed. However, the Audit Committee may review whether to seek new independent auditors for the fiscal year ending December 31, 2007.

 

The Audit Committee, at its meeting held on November 15, 2005, reviewed and approved the fee estimate for the annual audit of the Company’s fiscal 2005 financial statements and, taking into consideration the possible effect of non-audit services on the auditors’ independence, also reviewed specific non-audit services to be rendered for income tax services.

 

The Board of Directors Recommends a Vote FOR the Ratification of the Appointment of PricewaterhouseCoopers LLP as the Company’s Independent Auditors.

 

The following performance graph compares the yearly percentage change in the cumulative total stockholder return (assuming the reinvestment of dividends) on the Company’s common stock against the cumulative total return of the Standard & Poor’s MidCap 400 Index and the Dow Jones Industrial-Diversified Index for the past five years. The graph assumes an initial investment of $100 on December 31, 2000 in the Company’s common stock or in the underlying securities which comprise each of those market indices. The information contained in the graph is not necessarily indicative of future Company performance.

 

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN

 

Among Harsco Corporation, S&P MidCap 400 Index and Dow Jones
Industrial Diversified Index (1) (2)
Fiscal Year Ending December 31

 

 

 

 

The Company’s executive compensation program is administered by the Compensation Committee of the Board of Directors. The Compensation Committee is currently composed of the five non-employee Directors listed below this Report. Each member of the Compensation Committee is considered to be independent in accordance with the guidelines established by the New York Stock Exchange and the Pacific Stock Exchange and no member has any interlocking or other relationships with the Company that are subject to disclosure under the Securities and Exchange Commission rules relating to proxy statements. All decisions of the Compensation Committee relating to the salaries and grade levels of the Company’s executive officers are reviewed with the full Board.

 

The Compensation Committee believes that the Company benefits from a broad based executive compensation program with approximately 36 division officers, five executive officers and three other corporate officers participating in the program as of December 31, 2005.

 

Program Goals

 

In administering the Company’s executive compensation program, the Compensation Committee looks to accomplish the following goals:

 

 

Other Key Guiding Principles

 

In addition to the above goals, the Compensation Committee administers the Company’s executive compensation programs with these guiding principles in mind:

 

 

Program Components

 

The Compensation Committee carries out the executive compensation program through various compensation methods and programs. The primary compensation methods used and the manner in which they are administered include the following:

 

 

In establishing the weight of these various compensation components, the Compensation Committee believes that as an executive’s level of responsibility increases, a greater portion of his or her potential total compensation opportunity should be based on performance incentives and a lesser portion on salary. The Compensation Committee also believes that as executives rise to positions that can have a greater impact on the Company’s performance, the compensation program should place more emphasis on the value of the common stock.

 

Salaries

 

The Compensation Committee completed its annual review of officer salaries at the November 14, 2004 Committee meeting. In establishing 2005 salaries, the Compensation Committee considered information compiled from a database of compensation information provided to the Company through its compensation consultant, Towers Perrin.

 

Each year, the Compensation Committee considers adjustments to the salary of each executive officer based upon a combination of the following: the available salary budget, the performance of each officer, comparison survey data provided by one or more major consulting firms, comparison to other internal salaries and the Company’s salary range structure for various grade levels. The salary range structure for various grade levels is also revised from time to time based upon industry survey data provided by Towers Perrin. The Towers Perrin industry compensation survey considered by the Compensation Committee is a broad based survey of companies selected by the consulting firm which are not limited to the companies within the Dow Jones

Industrial-Diversified Index referenced elsewhere in the Proxy Statement, though some of those companies may have been included in the survey.

 

Annual Incentive Compensation Plan

 

Payments for executive officers under the 1995 Incentive Plan for calendar year 2005 were dependent upon achievement of EVA targets for the business units in the case of Mr. Butler, and the achievement of an EVA objective for the Company, in the case of the other executive officers. These EVA objectives were established by the Compensation Committee prior to the beginning of the year.

 

Payments under this Plan are a function of the executive’s annual salary multiplied by the bonus percentage, which in turn is multiplied by a performance percentage. The bonus percentage is determined for each individual executive and is a function of the individual’s level of responsibilities and his or her ability to impact the overall results of the Company. The percentage is calculated by multiplying the individual’s salary grade by .02. The target bonus percentage for Mr. Hathaway is 70% and the target bonus percentages for the other executive officers range from 36% to 54%.

 

The performance percentage is determined based on achievement of EVA objectives and can range from 0 to 200%. The EVA objectives include various performance levels. The 2005 EVA objectives, which were developed with input from Stern Stewart & Company, include minimum, target and maximum performance levels. Performance which is below the minimum performance level results in a zero performance percentage and therefore, no incentive payments being made. The performance percentage increases above zero once the minimum performance level is obtained and increases as results increase above the minimum level. For 2005, the performance percentage for achieving the target level of EVA performance results is 100%. If the maximum performance level is obtained or surpassed, the performance percentage is capped at 200%.

 

The Compensation Committee, again with the input of Stern Stewart & Company, has established minimum, target and maximum objectives for overall Company EVA performance for 2006 and has allocated that target objective among the divisions. Thus, the annual incentive compensation awards of the corporate officers are closely related to the overall performance of the divisions against their EVA goals.

 

Based on his business unit’s achievements against the established EVA targets, Mr. Butler attained 120% of target achievement. The other four named executive officers attained 165% of target achievement for 2005 based on the overall EVA achievement of the Company. The amounts of the awards to the named executive officers under the Plan are summarized in the Summary Compensation Table.

 

Long-term Compensation

 

During 2004, the Compensation Committee approved a long-term restricted stock unit program pursuant to the terms of the 1995 Incentive Plan. Under the restricted stock unit program, performance goals are established three years in advance by the Compensation Committee. 2004, 2005 and 2006 earnings per share goals were established by the Compensation Committee in early 2004. The Compensation Committee approved the 2007 goals of earnings per share and cash flow at its January 2005 meeting and approved 2008 earnings per share and cash flow goals at its November 17, 2005 meeting. Grants of restricted stock units are made in the subsequent January if the performance goals for the applicable period are achieved. Maximum restricted stock unit grants, ranging from 10,000 shares annually for the CEO to 500 for certain other officers, may be granted by the Compensation Committee provided the performance goals are satisfied. At its meeting on November 14, 2005, the Compensation Committee recommended, and the Board, at its November 15 meeting, approved increasing the maximum number of restricted stock units that could be granted to the CEO from 10,000 to 20,000 and increased the maximum number of units

that could be granted to several of the executive officers. The Compensation Committee has complete discretion on whether to grant and the amount (i.e., discretion to reduce the maximum grant by any amount, even to zero) of any grant of restricted stock units that may be made annually to any officer. If shares are granted, they must be held by the individual for a period of three years. If the individual leaves the employment of the Company during this period, except as a result of death, disability or retirement, the stock units are forfeited. 2005 performance goals were achieved and the Compensation Committee did make grants of restricted stock units to Messrs. Butler, Fazzolari, Kimmel and Schnoor as well as certain other officers of the Company. As was described in a Form 8-K filing made by the Company on January 26, 2006, the Compensation Committee and the Board approved a payment to Mr. Hathaway, in lieu of a restricted stock unit award. Mr. Hathaway’s current stock holdings and outstanding stock options and the stage of his career at Harsco were considered in making this determination. Mr. Hathaway’s cash payment was equal to $715,100 and was based on the average of the high and low sales price of the Company’s common stock on January 24, 2006 and 10,000 shares.

 

The 1995 Incentive Plan was approved by the stockholders in 1995, was amended and re-approved by the stockholders in 1998, 2001 and 2004, and has been used to make grants of options and restricted stock units to other corporate officers and key employees, including division officers as well as the executive officers. The maximum stock option award as provided in the 1995 Incentive Plan is 150,000 shares for any single participant in a calendar year. The 1995 Incentive Plan was further amended in 2004 in order that the 150,000 share limit will also apply to awards of restricted stock, deferred stock and stock grants which may be issued under the 1995 Incentive Plan. The Compensation Committee only issued restricted stock units in 2005 and no stock options were issued during the year.

 

Other Compensation

 

The Company has certain other broad-based employee benefit plans in which the executive officers participate on the same terms as non-executive employees, including health insurance, a defined benefit pension plan, a 401(k) Savings Plan and a term life insurance benefit equal to two times the individual’s salary up to a maximum benefit of $500,000. In addition, the executive officers participate in the Supplemental Retirement Benefit Plan as described under the section “Retirement Plans” on page 26 of this Proxy Statement, which supplements both the qualified pension plan and the Company’s 401(k) Savings Plan. During 2003, the Company amended most of its defined-benefit pension plans to end further accruals under the plans for additional service with the Company. After 2003, benefits paid under these amended plans only take into account future salary increases of participants. Certain named executive officers, namely Messrs. Hathaway, Butler and Fazzolari, are entitled to Company-provided cars and the Board of Directors has approved Mr. Hathaway’s personal use of the Company airplane.

 

The Chief Executive Officer’s 2005 Compensation

 

The 1995 Incentive Plan cash and salary awarded or paid to Mr. Hathaway with respect to 2005 are detailed in the Summary Compensation Table on page 24 in this Proxy Statement with respect to amounts, and in this Report with respect to the factors considered by the Compensation Committee. Mr. Hathaway’s 2005 salary was determined by the Compensation Committee utilizing the same factors as are explained in the “Salaries” section above. The Compensation Committee particularly considered the significant accomplishments achieved by the Company in 2004, including significantly improved earnings, cash flows, EVA and stock price. As was stated above, Mr. Hathaway’s annual incentive payment was primarily a function of the Company’s overall EVA performance. As described above, Mr. Hathaway was also paid a cash amount in lieu of his restricted stock unit grant. This payment was based on the achievement of pre-established EPS

goals by the Company. Of the total $2,870,100 in cash compensation paid to Mr. Hathaway for 2005 as reflected in the Summary Compensation Table, 65.2% was contingent and dependent upon the achievement of the EVA and EPS performance objectives established by the Compensation Committee. This is consistent with the Compensation Committee’s view that those executives most able to affect the performance of the Company should have a significant portion of their potential total compensation at risk and dependent upon the Company’s performance.

 

Relationship of Performance to Compensation

 

The Company currently ties executive pay to corporate performance primarily through the 1995 Incentive Plan annual awards that are based upon achievement of objectives adopted by the Compensation Committee. Stock option and restricted stock unit grants have been made in the past to executives and they provide realizable compensation through increases in the stock price.

 

Policy Regarding IRC Section 162

 

Section 162(m) of the Internal Revenue Code limits the deductibility of executive compensation for individuals in excess of $1 million per year paid by publicly traded corporations to the chief executive officer and the four other executives named in the compensation table of the Proxy Statement. While much of the compensation paid to executives qualifies for the exemption under Internal Revenue Service regulations applicable to performance based compensation, Mr. Hathaway’s base salary of $1,000,000 could result in a minor portion of his compensation being exposed to non-deductibility of executive compensation expense under Section 162(m) in the 2005 tax year. The Committee and the Board have considered the possibility of a portion of the compensation being non-deductible and based on the limited amounts that would be non-deductible and their determination of the appropriate level of compensation for Mr. Hathaway they have concluded that it is in the best interest of the Company to pay Mr. Hathaway at the levels determined by their review. In 1995, the Company obtained stockholder approval of the 1995 Incentive Plan, which was designed to preserve the deductibility to the extent possible, of executive compensation resulting from performance based awards under that Plan. The Company obtained renewal of that approval by the stockholders in 1998, 2001 and again in 2004. While the tax deductibility of compensation paid is a key concern for the Compensation Committee, it is not the only concern, and the Compensation Committee, as stated above, will look at other factors to determine the appropriate compensation that should be paid to an individual and may chose to pay compensation that would otherwise not be deductible under Section 162(m) if the Compensation Committee believes that it is appropriate and in the best interest of the Company.

 

Summary

 

In summary, the Compensation Committee believes that the Company’s total compensation program achieves the objective of providing meaningful and appropriate rewards, recognizing both current contributions to performance and the attainment of long-term strategic business goals of critical importance to the future growth of Harsco Corporation.

 

SUBMITTED BY THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS:

 

     R. C. Wilburn, Chairman

     J. J. Jasinowski

     C. F. Scanlan

     J. I. Scheiner

     A. J. Sordoni, III

 

The following table sets forth information concerning the compensation awarded to, earned by or paid to the Named Executives for services rendered to the Company in all capacities during each of the last three fiscal years.

 

 

 

The Board of Directors, on the recommendation of Senior Management, decided not to issue any stock options during 2005 to Company management or employees. In 2003, the Board reviewed the appropriateness of the use of stock options as the vehicle for long-term compensation within the Company and decided not to issue any options that year. In December 2003, the Board decided not to issue any stock options in 2004 to Company management or employees. Instead, the Board decided that restricted stock or restricted stock units should be the long-term compensation method for the Company. At the 2004 Annual Meeting, the stockholders approved an amendment to the Company’s 1995 Executive Incentive Compensation Plan which could qualify future grants of restricted stock or restricted stock units as performance-based compensation under Section 162(m) of the Internal Revenue Code. Restricted stock units were awarded to four executive officers and certain other officers of the Company in January 2005 and 2006 as further discussed in the Compensation Committee Report. The Company does not currently intend to grant any stock options in 2006.

 

The following table sets forth information, with respect to the Named Executives, concerning the exercise of options during fiscal year 2005 and unexercised options at December 31, 2005:

 

AGGREGATED OPTION EXERCISES IN 2005
AND OPTION VALUES AT 12/31/05

 

 

 

The Company provides retirement benefits for each officer under the Supplemental Retirement Benefit Plan (“Supplemental Plan”). All executive officers are covered by the Supplemental Plan excepting Mr. Butler who is covered by the U.K. pension plan described below. Until December 31, 2002, the Supplemental Plan replaced the 401(k) Company match lost due to government limitations on such contributions. The replacement was in the form of phantom shares as more fully described in footnote 2 on page 24. The Supplemental Plan was amended effective January 1, 2003, to eliminate any future replacement of lost company match and any further granting of phantom shares. A new non-qualified restoration plan was established January 1, 2004 to provide for the discretionary and matching contributions that would be otherwise provided under the qualified 401(k) Plan for salaried employees’ contributions made after December 31, 2003, but for IRS Code limitations under Section 402(g), Section 401(a)(17), Section 415 or Section 401(m). (See

footnote 2 on page 24). All U.S. executive officers are also covered by the qualified pension plan. Each plan is a defined benefit plan providing for normal retirement at age 65. Early retirement may be taken commencing with the first day of any month following the attainment of age 55, provided at least 15 years of service have been completed. Early retirement benefits commencing prior to age 65 are reduced. The Supplemental Plan also provides for unreduced pension benefits if retirement occurs after age 62, provided at least 30 years of service have been completed. The Supplemental Plan provides for a pre-retirement death benefit payable in a monthly benefit to a beneficiary designated by the participant for participants who die after qualifying for benefits. The Supplemental Plan also includes provisions which fully vest participants upon termination of employment following a “change in control” of the Company as defined in the Supplemental Plan.

 

The following table shows estimated total annual pension benefits payable to the U.S. executive officers of the Company under the qualified pension plan and the Supplemental Plan, including the Named Executives upon retirement at age 65, in various remuneration and year-of-service classifications, assuming the total pension benefit was payable as a straight life annuity guaranteed for ten years and retirement took place on January 1, 2006.

 

PENSION PLAN TABLE — U.S. EXECUTIVES

 

 

 

Total pension benefits are based on final average compensation and years of service. The normal retirement benefit under the Supplemental Plan is equal to a total of .8% of final average compensation up to the “Social Security Covered Compensation” as defined in the Supplemental Plan plus 1.6% of the final average compensation in excess of the “Social Security Covered Compensation” multiplied by up to 33 years of service, reduced by the benefits under the qualified plan. Final Average Compensation is defined as the aggregate compensation (base salary plus

nondiscretionary incentive compensation) for the 60 highest consecutive months out of the last 120 months prior to date of retirement or termination of employment prior to normal retirement date. The Supplemental Plan was amended in 2002 to provide that for any retirements on or after January 1, 2003, the 1.6% factor in the benefit formula is reduced to 1.5% and the definition of Final Average Compensation was amended to reduce the amount of nondiscretionary incentive compensation included in the benefit calculation from 100% to 50%, for such amounts paid on or after January 1, 2003. Notwithstanding these amendments, no participant’s retirement benefit shall be reduced by reason of these amendments, below the benefit accrued at December 31, 2002. The Supplemental Plan was amended December 31, 2003 to provide that pension benefit accrual service shall not be granted to any Company employee after December 31, 2003, provided, however, compensation earned for services performed for the Company for current Supplemental Plan participants through December 31, 2013 shall be included in determining their Final Average Compensation under the Supplemental Plan.

 

The Company does not provide retiree medical benefits to its executive officers.

 

PENSION PLAN TABLE — U.K. EXECUTIVE

 

 

 

The above table shows estimated total annual pension benefits payable to the U.K. executive officer of the Company, Mr. Butler, for life, under the Harsco Pension Scheme (the “Scheme”), a qualified pension plan in the U.K., upon retirement at age 60, which is normal retirement age under the Scheme, in various remuneration and year-of-service classifications, assuming the total pension benefit was payable and retirement took place on January 1, 2006. The benefit would be paid in British pounds and all amounts in the table below are stated in U.S. dollars at a conversion rate of $1.7205 = £1.00. The Scheme provides that if the participant dies within five years after starting to receive a pension, a lump sum will be paid equal to the pension payments that would have been made during the remainder of the five year period. The annual pension benefit is based on the highest annual total of salary and bonus within the last five years (or the highest average amount of annual salary plus bonus received in any three consecutive scheme years within the last ten years, if higher) (“Final Pensionable Salary”) and the years of service, subject to various deductions for service prior to April 6, 1989, and a statutory limitation of two thirds of the Final Pensionable Salary. The Scheme was amended in 2002 to provide that for any retirements on or after January 1, 2003, the benefit accrual rate is reduced, and the definition of Final Pensionable Salary is amended to reduce the amount of incentive bonus included in the calculation from 100% of 50% for such amounts paid on or after January 1, 2003. The Plan was amended in 2003 to provide that, in respect of service after January 1, 2004 only, normal retirement age is increased to

65, and the definition of Final Pensionable Salary is amended so as to be equal to the average salary and 50% of bonus over the last five scheme years prior to retirement.

 

On September 25, 1989, the Board of Directors authorized the Company to enter into employment agreements with certain officers (the “Agreements”), including Mr. Hathaway, and subsequently with Messrs. Fazzolari and Butler (the “Senior Officers”). Pursuant to those authorizations, the Company entered into an individual Agreement with each of these individuals. The Agreements are designed as an inducement to retain the services of the Senior Officers and provide for continuity of management during the course of any threatened or attempted change in control of the Company. The Agreements are also intended to ensure that, if a possible change in control should arise and the Senior Officers should be involved in deliberations or negotiations in connection with the possible change in control, the officer would be in a position to consider as objectively as possible whether the possible change in control transaction is in the best interests of the Company and its stockholders without concern for his position or financial well-being. Should a change in control occur, the Agreements provide for continuity of management following the change by imposing certain obligations of continued employment on the Senior Officers. On June 21, 2005, the Board of Directors approved amendments to the Agreements as well as approved a similar form of Agreement with a lower level of benefits to certain other officers including Messrs. Kimmel and Schnoor.

 

Under the amended Agreements, the Company and each of the Senior Officers agree that in the event of a change in control, such Senior Officer will remain in the Company’s employ for a period of three years from the date of the change in control (or to such officer’s normal retirement date, if earlier), subject to such officer’s right to resign during a thirty-day period commencing one year from the date of the change in control or for good reason, as defined in such officer’s Agreement. If such Senior Officer’s employment terminates within three years after a change in control for any reason other than cause as defined in the Agreements, resignation without good reason as defined in the Agreements, or disability or death, such Senior Officer will be paid a lump sum amount equal to three times such officer’s annual base salary, which is defined as the highest monthly salary paid to the executive during the prior twelve months, multiplied by 12. The payment may be subject to reduction to avoid adverse tax consequences. Payments for other executive officers is equal to one times the individual’s annual base salary, and other terms of their Agreements are similar to those described above for Senior Officers.

 

For purposes of the Agreements, a “change in control” would be deemed to have occurred if (i) any person or group acquires 20% or more of the Company’s issued and outstanding shares of common stock; (ii) the members of the Board as of the date of the Agreements (the “Incumbent Board”) including any person subsequently becoming a Director whose election, or nomination for election by the Company’s stockholders, was approved by a majority of the Directors then comprising the Incumbent Board, cease to constitute a majority of the Board of the Company as a result of the election of Board members pursuant to a contested election; (iii) the stockholders approve of a reorganization, merger, consolidation, sale of substantially all of the assets of the Company or the acquisition of the stock or assets of another corporation that results in the stockholders of the Company immediately prior to such reorganization, merger, consolidation, sale or acquisition owning less than 50% of the combined voting power of the Company; or (iv) the stockholders approve the liquidation or dissolution of the Company or the sale of all or substantially all of the Company’s assets.

If such provisions under the applicable Agreements had become operative on January 1, 2005, the Company would have been required to pay Messrs. Hathaway, Butler, and Fazzolari the following termination payments based on compensation information available at December 31, 2005: $3,000,000, $1,732,500, and $1,260,000, respectively. The payments for Messrs. Kimmel and Schnoor would be $233,810 and $233,810, respectively.

 

On September 26, 1988, the Company entered into an agreement with Mr. Hathaway which provides that for purposes of calculating his retirement benefits, his years of service will be deemed to have commenced June 20, 1966.

 

Messrs. Wilburn, Jasinowski, Scheiner, Sordoni and Ms. Scanlan served as members of the Compensation Committee during 2005 and none of them was an officer or employee of the Company or any of its subsidiaries during that time and did not serve as an executive officer of any entity for which any executive officer of the Company serves as a director or a member of its compensation committee.

 

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s Directors and certain of its officers to send reports of their ownership of Harsco Corporation stock and changes in ownership to the Company and the SEC, The New York Stock Exchange, Inc. and The Pacific Exchange, Inc. SEC regulations also require the Company to identify in this Proxy Statement any person subject to this requirement who failed to file any such report on a timely basis and the Company is not aware of any such failure during 2005.

 

The cost of this solicitation of proxies will be borne by the Company. In addition to solicitation by use of mail, employees of the Company may solicit proxies personally or by telephone or facsimile but will not receive additional compensation for these services. Arrangements may be made with brokerage houses, custodians, nominees and fiduciaries to send proxies and proxy materials to their principals and the Company may reimburse them for their expense in so doing. The Company has retained Morrow & Co. to assist in the solicitation at a cost that is not expected to exceed $10,000 plus reasonable out-of-pocket expenses.

 

The Company and some brokers household the Annual Report to Stockholders and proxy materials, delivering a single copy of each to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker or the Company that they or the Company will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time you no longer wish to participate in householding and would prefer to receive a separate copy of the proxy materials, including the Annual Report to Stockholders, or if you are receiving multiple copies of the proxy materials and wish to receive only one, please notify your broker if your shares are held in a brokerage account or the Company if you hold registered shares. You can notify the Company by sending a written request to Harsco Corporation, 350 Poplar Church Road, Camp Hill, PA 17011 or by calling (717) 763-7064.

 

If a stockholder of the Company wishes to submit a proposal for consideration at the 2007 annual meeting of stockholders, such proposal must be received at the executive offices of the Company no later than November 21, 2006 to be considered for inclusion in the Company’s proxy statement and proxy card relating to the 2007 annual meeting. Although a stockholder proposal received after such date will not be entitled to inclusion in the Company’s proxy statement and proxy card, a stockholder can submit a proposal for consideration at the 2007 annual meeting in accordance with the Company’s By-Laws if written notice is given to the Secretary of the Company not less than 60 days nor more than 90 days prior to the annual meeting. In the event that the Company gives less than 70 days notice of the annual meeting date to stockholders, the stockholder must give notice of the proposal within ten days after the mailing of notice or announcement of the annual meeting date. In order to nominate a candidate for election as a Director at the 2006 annual meeting, a stockholder must provide written notice and supporting information to the Secretary of the Company by personal delivery or mail not later than January 25, 2007.

 

HARSCO CORPORATION (the “Corporation”)

 

AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

 

CHARTER

 

(As Amended and Restated February 28, 2006)

 

 

The Audit Committee (the “Committee”) shall:

 

 

 

 

 

 

 

 

The Audit Committee will primarily fulfill these responsibilities by carrying out the activities outlined in Section IV of this Charter.

 

 

The Committee shall be comprised of three or more directors as determined by the Board, each of whom is affirmatively determined by the Board to be an “independent” director under the rules of the New York Stock Exchange and the SEC. No member of the Committee may serve on the audit committee of more than three public companies, including the Corporation, unless the Board (i) determines that such simultaneous service would not impair the ability of such member to effectively serve on the Committee and (ii) discloses such determination in the annual proxy statement. No member of the Committee shall be an “affiliate” of the Corporation under the rules and regulations of the SEC.

 

All members of the Committee shall be financially literate (or become financially literate within a reasonable period after his or her appointment), as such qualification is interpreted by the Board in its business judgment, and there must be at least one member that has accounting or related financial management expertise, as such qualification is interpreted by the Board in its business judgment. The Board may also determine, in the exercise of its business judgment, to require at least one member of the Committee (which may include the member that has accounting or related financial management expertise) be an “audit committee financial expert” as determined by the Board under the rules and regulations of the SEC.

No member of the Committee shall receive any compensatory fees other than in his or her capacity as a member of the Committee, the Board or any other Board committee. Compensatory fees shall not include the receipt of fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service that is in no way contingent on continued service.

 

The Chairman of the Board shall submit his recommendation to the Nominating and Corporate Governance Committee for the appointment of members of the Audit Committee and the Chairman of the Committee. The Board shall elect the members and Chairman of the Committee at the annual organizational meeting of the Board to serve until the next annual organizational meeting or until their successors shall be duly elected and qualified.

 

 

The Committee shall meet at least four times annually, or more frequently as circumstances dictate. The Committee will fully discuss with management any questions which it may have regarding matters within the scope of its responsibilities. As part of its job to foster open communication, the Committee shall periodically meet separately with each of management, the internal auditors and the independent auditors to discuss any matters that the Committee or each of these groups believe should be discussed privately. In addition, the Committee or a member of the Committee designated by the Chairman, shall meet with management and the independent auditors quarterly to review the financial statements of the Corporation as outlined in Section IV of this Charter.

 

 

The Audit Committee shall report Committee actions regularly to the full Board and may make appropriate recommendations. The Committee, in discharging its oversight role, is empowered to study or investigate any matter of interest or concern that the Committee deems appropriate. In this regard, the Committee shall have the authority to retain outside legal, accounting or other advisors for this purpose, including any terms of retention. The Committee shall have the authority to approve the fees and expenses payable to such advisors and the independent auditors and for ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

 

The Committee shall be given full access to the Corporation’s internal audit group, the Board, corporate executives and independent auditors as necessary to carry out these responsibilities.

 

To fulfill its responsibilities and duties, the Committee shall:

 

DOCUMENTS/REPORTS REVIEW

 

 

 

Independent Auditors

 

 

 

 

 

 

 

 

Financial Reporting Processes

 

 

 

Internal Control Framework, Code of Conduct, and Legal Compliance

 

 

 

Reports

 

 

 

 

The Committee shall provide such recommendations as the Committee may deem appropriate. The report to the Board may take the form of an oral or written report by the Chairman or any other member of the Committee designated by the Committee to make such report.

While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Corporation’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles. This is the responsibility of management and the independent auditors.

 

Nothing contained in this Charter is intended to alter or impair the operation of the “business judgment rule” as interpreted by the courts under the General Corporation Law of the State of Delaware. Further, nothing contained in this Charter is intended to alter or impair the right of the members of the Committee to rely, in discharging their oversight role, on the records of the Corporation and on other information presented to the Committee, the Board or the Corporation by its officers or employees or by outside experts such as the independent auditors.

 

 

The Committee shall discuss annually its evaluation of the Committee’s effectiveness in performing its responsibilities under this Charter. The Committee shall conduct such evaluation in such manner as it deems appropriate.

THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED “FOR” THE PROPOSALS.		Please Mark Here for Address Change or Comments		o
		SEE REVERSE SIDE

Signature

Signature

Dated

, 2006

5 FOLD AND DETACH HERE 5

Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week

Internet and telephone voting is available through 11:59 PM Eastern Time
the day prior to the date of the Annual Meeting.

Your Internet or telephone vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed and returned your proxy card.

If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.

You can view the Annual Report and Proxy Statement
on the Internet at www.harsco.com

PROXY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
HARSCO CORPORATION

     The undersigned hereby appoints D.C. Hathaway, S.D. Fazzolari and A.J. Sordoni, III and each of them, with power to act without the other and with power of substitution, as proxies and attorneys-in-fact and hereby authorizes them to represent and vote, as provided on the other side, all the shares of Harsco Corporation Common Stock which the undersigned is entitled to vote, and, in their discretion, to vote upon such other business as may properly come before the Annual Meeting of Stockholders of the company to be held April 25, 2006 or at any adjournment or postponement thereof, with all powers which the undersigned would possess if present at the Annual Meeting.

(Continued and to be marked, dated and signed, on the other side)

5 FOLD AND DETACH HERE 5