SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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Filed by a Party other than the Registrant [ ]
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(as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] 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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previously. Identify the previous filing by registration statement number,
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[AIR PRODUCTS LOGO]
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AIR PRODUCTS AND CHEMICALS, INC.
7201 Hamilton Boulevard
Allentown, PA 18195-1501
December 13, 2002
Dear Shareholder:
On behalf of your Board of Directors, I am pleased to invite you to attend
the 2003 Annual Meeting of Shareholders of Air Products and Chemicals, Inc.
The Notice of Annual Meeting, Proxy Statement, and proxy card accompanying
my letter describe the business to be conducted at the meeting, including
the election of four directors. The Board of Directors has nominated Mr.
Mario L. Baeza, Ambassador L. Paul Bremer, III, Mr. Edward E. Hagenlocker,
and Mr. Terrence Murray.
It is important that your shares be represented and voted at the Annual
Meeting. YOU MAY VOTE BY TELEPHONE OR INTERNET AS DESCRIBED ON THE PROXY
CARD OR 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 23, 2003
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, 2003.
3. Approve Amendments to the Long-Term
Incentive Plan.
4. 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 29, 2002, 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 on the proxy card, or you
may fill in, sign, date, and mail the 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 in the
event you find it convenient to attend the
meeting. If you find that you are unable to
attend, you may request a summary of actions
taken at the meeting which will be available
along with our financial results for the first
quarter of fiscal year 2003.
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, 2002
PROXY STATEMENT
TABLE OF CONTENTS
PAGE
----
QUESTIONS AND ANSWERS....................................... 1
PROPOSALS YOU MAY VOTE ON................................... 6
1. ELECTION OF DIRECTORS................................. 6
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS... 6
3. APPROVAL OF AMENDMENTS TO THE LONG-TERM INCENTIVE
PLAN................................................... 7
THE BOARD OF DIRECTORS...................................... 14
DIRECTORS STANDING FOR ELECTION THIS YEAR................. 14
DIRECTORS CONTINUING IN OFFICE............................ 15
BOARD OF DIRECTORS........................................ 16
COMMITTEES OF THE BOARD................................... 17
AUDIT COMMITTEE REPORT................................. 18
DIRECTOR COMPENSATION..................................... 20
DIRECTOR RETIREMENT POLICY................................ 21
COMPENSATION OF EXECUTIVE OFFICERS.......................... 21
REPORT OF THE MANAGEMENT DEVELOPMENT AND COMPENSATION
COMMITTEE.............................................. 21
EXECUTIVE COMPENSATION TABLES............................. 23
2002 SUMMARY COMPENSATION TABLE........................ 23
OPTION GRANTS IN 2002.................................. 24
OPTIONS EXERCISED IN 2002 AND 2002 YEAR-END OPTION
VALUES................................................ 24
PENSION PLAN TABLE..................................... 25
SEVERANCE AND OTHER CHANGE IN CONTROL ARRANGEMENTS........ 25
INFORMATION ABOUT STOCK PERFORMANCE AND OWNERSHIP........... 27
STOCK PERFORMANCE GRAPH................................... 27
PERSONS OWNING MORE THAN 5% OF AIR PRODUCTS STOCK......... 28
AIR PRODUCTS STOCK BENEFICIALLY OWNED BY OFFICERS AND
DIRECTORS.............................................. 29
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE... 29
EQUITY COMPENSATION PLAN INFORMATION...................... 30
[Air Products Logo]
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AIR PRODUCTS AND CHEMICALS, INC.
7201 Hamilton Boulevard
Allentown, PA 18195-1501
ANNUAL MEETING OF SHAREHOLDERS
JANUARY 23, 2003
PROXY STATEMENT
We have sent you this Notice of Annual Meeting and Proxy Statement and proxy
card 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 23, 2003 (the "Annual Meeting"). This
Proxy Statement contains information about the items being voted on at the
Annual Meeting and information about the Company.
QUESTIONS AND ANSWERS
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 2003.
- Approval of Amendments to the Long-Term Incentive Plan.
HOW DOES THE BOARD 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.
- FOR the proposed Amendments to the Long-Term Incentive Plan.
WHO IS ENTITLED TO VOTE?
The only shareholders who may vote are those who owned Air Products common
stock, par value $1.00 per share ("Company Stock"), as of the close of business
on November 29, 2002, the "Record Date" for the Annual Meeting.
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?
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 Direct
Investment Program administered for Air Products shareholders by our Transfer
Agent. If you have shares registered
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in the name of a bank, broker, or other registered owner or nominee, you should
receive instructions from that registered owner about how to instruct them to
vote those shares.
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 three proposals.
MAY I CHANGE MY VOTE?
You may revoke your proxy at any time before the Annual Meeting by returning a
later-dated proxy card or phone or Internet vote; notifying us that you have
revoked your proxy; or attending the Annual Meeting, 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
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 MANY SHARES CAN VOTE AT THE 2003 ANNUAL MEETING?
As of the Record Date, November 29, 2002, 227,219,388 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 majority of the
outstanding shares of Company Stock present in person or represented by proxy
makes a quorum. If you vote -- including by Internet, telephone, or proxy
card -- your shares voted will be considered part of the quorum for the Annual
Meeting.
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, although
withholding votes and broker nonvotes will not influence voting results.
Abstentions may not be specified as to election of directors.
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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.
The proposed Amendments to the Long-Term Incentive Plan will be approved 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.
Broker nonvotes will not be treated as entitled to vote and will have no effect
on the results of the vote.
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. As to
proposal 3, assuming that pending NYSE rules become effective, if you do not
give your broker or nominee specific instructions as to shares you hold in
street name, your shares may not be voted on that proposal. This is referred to
as a "broker nonvote." If the pending NYSE rules do not become effective, then
if you do not give your broker or nominee specific instructions, absent your
contrary agreement with such person, your shares may be voted on proposal 3 at
the Annual Meeting.
HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
We do not know of any business or proposals to be considered at the 2003 Annual
Meeting other than the items described in this Proxy Statement. If any other
business is proposed and we decide to 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 2004 ANNUAL MEETING DUE?
Proposals must be received by W. Douglas Brown, Secretary, Air Products and
Chemicals, Inc., 7201 Hamilton Boulevard, Allentown, PA 18195-1501, by October
25, 2003, and must comply with the requirements of our bylaws (described in the
next paragraph) to be presented at the 2004 annual meeting. The proxy for next
year's annual meeting will confer discretionary authority to vote on any
shareholder proposal that we do not know about before October 26, 2003.
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 25, 2003, but no later than October 25, 2003. 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 25, 2003, will be considered untimely and will not be
entitled to be presented at the meeting. To be considered for inclusion in next
year's proxy statement, proposals must be delivered in writing to Mr. Brown at
the address stated above no later than August 15, 2003.
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, and 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 own Company Stock for you. In addition to
using the mail, our directors, officers, and employees 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.
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MAY I INSPECT THE SHAREHOLDER LIST?
For a period of 10 days prior to the Annual Meeting and if you have a purpose
germane to the meeting, a list of shareholders registered on the books of our
Transfer Agent as of the Record Date will be available for your examination, as
a registered shareholder, during normal business hours at the Company's
principal offices.
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, 2002. Each
registered and beneficial owner of Company Stock on the Record Date should have
received a copy (or, if they have consented, notice of on-line availability) of
the Company's Annual Report to Shareholders including financial statements (the
"Annual Report") either with this Proxy Statement or prior to its receipt
(although only certain parts of the Annual Report are required to be part of the
proxy solicitation material for the Annual Meeting). 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.
Note to Multiple Shareholders Sharing the Same Address
In accordance with a notice sent to all shareholders who share a single
address, only one Annual Report and Proxy Statement will be sent to that
address unless contrary instructions were given by any shareholder at that
address. This practice, known as "householding," is designed to reduce our
printing and postage costs. However, if any shareholder residing at such an
address wishes to receive a separate Annual Report or Proxy Statement in
the future, they may telephone the Corporate Secretary's Office at
888-AIR-INFO or write to 7201 Hamilton Boulevard, Allentown, PA 18195-1501.
If you are receiving multiple copies of our Annual Report and Proxy
Statement, you can request householding by contacting the Secretary in the
same manner.
CURRENT EMPLOYEES. If you are an employee of the Company or an affiliate with
Intranet access 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, 2002. 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 Intranet access, 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 Plan Trustee mailed to your home on or after December 13, 2002 for
directing the vote of shares in your RSSOP account. We've also arranged for the
Plan 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 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.
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 ON THE
INTERNET.
Most shareholders can elect to view future proxy statements and annual reports
over the Internet instead of receiving paper copies in the mail. Those
shareholders will be given the opportunity to consent to future Internet
delivery when they vote their proxy or give voting instructions.
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If you are not a registered shareholder, this option may only be available if
you vote by Internet. This is due to requirements set by the bank, broker, or
other registered owner who owns your shares for you. If you are not given an
opportunity to consent to Internet delivery when you vote your proxy or give
your voting instructions, contact the registered owner of your shares and
inquire about the availability of such an option for you.
If you consent, your account will be so noted; when our proxy statement and
other solicitation materials for the 2004 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 the Corporate Secretary's Office
Air Products and Chemicals, Inc.
7201 Hamilton Boulevard
Allentown, PA 18195-1501
- by calling 888-AIR-INFO
- by leaving a message on our website at www.airproducts.com/tellmemore
When you request material for the Annual Meeting, it will be provided to you at
no cost.
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PROPOSALS YOU MAY VOTE ON
1. ELECTION OF DIRECTORS
The Board of Directors currently has 12 positions. With the retirement from the
Board of Mr. Terry R. Lautenbach under our directorship term limitation policy
and the election by shareholders of the four nominees standing for election, the
Board will have 11 members after the Annual Meeting. Our Board is divided into
three classes for purposes of election, with terms of office ending in
successive years.
Mr. Mario L. Baeza, Ambassador L. Paul Bremer III, Mr. Edward E. Hagenlocker,
and Mr. Terrence Murray, four incumbent directors whose terms are currently
scheduled to expire at the Annual Meeting, have been nominated for re-election
for three-year terms. Other directors are not up for election this year and will
continue in office for the remainder of their terms. If a nominee is unavailable
for election at the time of the Annual Meeting, proxy holders will vote for
another nominee proposed by our Board or, as an alternative, the Board may
reduce the number of positions on the Board.
YOUR BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND A VOTE "FOR" THE ELECTION OF
MR. BAEZA, AMBASSADOR BREMER, MR. HAGENLOCKER, AND MR. MURRAY.
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
At meetings held in November 2002, the Audit Committee of our Board of Directors
approved KPMG LLP of Philadelphia, Pennsylvania ("KPMG") as independent auditors
for 2003. 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 and the Board will reconsider
it.
On May 10, 2002, the Company terminated its engagement of Arthur Andersen LLP of
Philadelphia, Pennsylvania ("Andersen") as independent auditors and determined
to appoint KPMG as its new independent auditors for the fiscal year ending
September 30, 2002. This determination followed the Company's decision to seek
proposals from independent public accounting firms to audit the Company's
financial statements and was approved by the Board upon the recommendation of
the Audit Committee.
Andersen's report on the Company's audited financial statements for each of the
years ended September 30, 2000, and September 30, 2001, did not contain an
adverse opinion or a disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope, or accounting principles.
During the years ended September 30, 2000, and September 30, 2001, and the
interim period between September 30, 2001, and May 10, 2002, there were no
disagreements between the Company and Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Andersen's satisfaction, would have caused
it to make reference to the subject matter in connection with its report on the
Company's financial statements for those years. Also, during those two years and
interim period, there were no reportable events as listed in Item 304(a)(1)(v)
of Regulation S-K.
During the years ended September 30, 2000, and September 30, 2001, and the
interim period between September 30, 2001, and May 10, 2002, the Company did not
consult with KPMG regarding application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's consolidated
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financial statements, or any other matter or reportable event listed in Items
304(a)(2)(i) and (ii) of Regulation S-K.
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 2003.
3. APPROVAL OF AMENDMENTS TO THE LONG-TERM INCENTIVE PLAN
We believe that it is very important that our executives, employees, and
nonemployee directors receive part of their compensation for Company service in
the form of stock awards and are provided with programs which allow them to
elect to invest more of their pay in our stock. The Long-Term Incentive Plan,
last approved by shareholders at the 2001 Annual Meeting, has been used
effectively as a key component of our incentive compensation program since 1980
to grant stock-based awards to our executives and key employees. This year the
Board of Directors has approved amendments to the Plan, including the addition
of nonemployee directors as eligible participants, and we are asking
shareholders to approve the amended Plan. The amended Plan will
- Make some changes to the types of stock-based incentive awards which may
be granted to executives, employees, and nonemployee directors under the
Plan, and
- Authorize an additional 9,000,000 shares for issuance under the Plan.
With your approval at the Annual Meeting, we will have the flexibility to use
stock options, stock appreciation rights, deferred stock units, restricted
stock, and other stock awards. We will
- Not grant stock options and stock appreciation rights under the Plan at
less than 100% of fair market value on the date of grant,
- Not reprice any stock option or stock appreciation right,
- Not grant more than 20% of the Company Stock subject to Plan awards for
fiscal year 2002 and later years as deferred stock units, restricted
stock, or other stock awards providing for the acquisition of shares for
a consideration less than fair market value as of the date of grant,
exercise, or purchase of such awards, nor
- Amend the Plan if shareholder approval of the amendment is at the time
required by applicable law or by the rules of the New York Stock
Exchange.
As of December 1, 2002, the 9,000,000 additional shares requested for future
Plan awards represent 3.96% of the Company Stock outstanding and entitled to
vote. Our executives and employees have tended to hold their stock option awards
until relatively late in the term of the option even when the options are
significantly "in-the-money" and could be exercised. We believe this reflects
the confidence that our employees have in the future of the Company. In addition
to the options they hold, Company officers are required to attain and maintain
an investment position in Air Products stock or earned out deferred stock units
of five times base salary for the chief executive officer and two to four times
base salary for the other officers, depending on the individual's
responsibility, within a five-year period after assuming such office. As of
December 1, 2002, all executive officers are in compliance with the policy.
The following is a summary of the material features of the Plan as proposed to
be amended. This summary is qualified in its entirety by reference to the full
text of the amended and restated Plan, which we filed electronically with this
Proxy Statement with the Securities and Exchange Commission.
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PLAN PURPOSES
The purposes of the Plan are to: provide long-term incentives and rewards to
directors and to those executives and key employees who are either in a position
to contribute to the long-term growth and success of the Company, have high
potential for assuming greater levels of responsibility, or have demonstrated
their critical importance to the operation of their organizational unit; assist
the Company and its subsidiaries in attracting and retaining experienced and
capable directors, executives and key employees; and more closely associate the
interests of Plan participants with those of our shareholders.
SHARES AVAILABLE UNDER THE PLAN
The Plan limits the net number of shares of Company Stock which may be delivered
in respect of Plan awards granted on or after January 23, 2003 to 9,000,000
shares of Company Stock, plus the number of shares previously authorized under
the Plan but not issued or subject to an outstanding award which, as of December
1, 2002, was 944,648 shares. Shares subject to Plan awards which are not
delivered because the award expires, is forfeited or terminates unexercised
because payment under the award is made in a form other than in shares or for
any other reason may again be made subject to a subsequently granted award. In
addition, shares used as payment of the exercise price of an award or in
satisfaction of tax obligations relating to an award are available again for
Plan awards. On November 29, 2002, the closing price of a share of Company Stock
as reported in the New York Stock Exchange composite transactions was $44.22.
ELIGIBILITY AND ADMINISTRATION
Participation in the Plan is limited to executives and other key employees,
including officers and directors who are employees (together, "employee
participants"); and directors of the Company who are not employees of the
Company or its subsidiaries ("director participants"). The Plan permits awards
to full- and part-time salaried executives and other key employees of the
Company and entities affiliated with the Company, including entities in which
the Company holds less than a majority equity position. The term "subsidiary" as
used in this summary, includes all such affiliated entities. As of December 1,
2002, the number of employees who would have been eligible for selection to
participate in the amended Plan was approximately 1,710 and the number of
nonemployee directors was 11.
The Management Development and Compensation Committee of the Board (the
"Compensation Committee") administers the Plan with regard to employee
participants. The Nominating and Corporate Governance Committee of the Board
(the "Nominating Committee") makes recommendations to the Board of Directors
about the administration of the Plan with regard to director participants. As
used in this summary, the term "Committee" means the Compensation Committee with
regard to employee participants and the Board of Directors with regard to
director participants.
The Committee has all necessary powers to administer and interpret the Plan,
including the powers to select the employees or nonemployee directors to be
granted awards under the Plan and, within the limits set by the Plan, to
determine the type, size, terms, and conditions of the awards to be granted and
the timing of grant of such awards. The Compensation Committee has delegated to
management its authority to administer the Plan with regard to employees who are
neither directors or executive officers of the Company, including the authority
to grant awards within limits established by the Committee.
The types of awards that each Committee has the authority to grant to eligible
participants under the Plan consist of stock options, deferred stock units,
restricted stock, and other stock
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awards. In addition, the Compensation Committee or its delegate may grant stock
appreciation rights to employee participants. Each of these types of awards is
described below.
STOCK OPTIONS
Stock options granted under the Plan may be granted in the form of nonstatutory
stock options and incentive stock options. Nonstatutory stock options do not
qualify for preferential federal income tax treatment under Section 421(a) of
the Internal Revenue Code, while incentive stock options are intended to be
eligible for preferential federal income tax treatment. The Plan provides that
the option price will not be less than 100% of the fair market value (as defined
in the Plan) of a share of Company Stock on the date the stock option is
granted. Unless otherwise determined by the Committee, stock options will become
exercisable in increments of one-third of the shares subject to the option on
each of the first three anniversaries of the date of grant and will expire on
the tenth anniversary of the date of grant; and terminate if a participant's
employment or service as a nonemployee director ends for any reason other than
retirement or disability (as defined in the Plan) or death.
The Committee may accelerate the date of exercisability of any option or
determine that any option that would otherwise have terminated due to a
termination of employment or service shall continue. All outstanding stock
options will become exercisable in full upon a change in control of the Company
(as defined in the Plan) or, if later than the change in control, six months
after the date of grant. In addition, the Committee may require or the
participant may elect to surrender a stock option in exchange for a cash payment
of 100% of the "spread" used to value stock appreciation rights on a change in
control, as described below.
The option price of shares purchased on exercise of a stock option is payable in
full at the time of exercise. The option price may be paid in cash or, if
permitted by the Committee, in shares of Company Stock having a fair market
value on the date of exercise equal to the option price, or in a combination of
cash and such shares.
STOCK APPRECIATION RIGHTS
The Compensation Committee may grant stock appreciation rights to employee
participants on a stand-alone basis or in tandem with a stock option or other
Plan award. Unless otherwise determined by the Committee, stock appreciation
rights will be exercisable to the same extent, at the same times and on the same
conditions as described above for stock options.
In general, a participant who exercises stock appreciation rights will receive
for each share as to which the rights are exercised an amount equal to the
difference or "spread" between: (a) the fair market value of a share of Company
Stock on the date of exercise; and (b) the fair market value of a share of
Company Stock on the date the stock appreciation rights were granted. The
Committee may in its discretion determine to pay this amount in cash and/or in
shares of Company Stock based on their fair market value at the date of
exercise. If stock appreciation rights are granted in tandem with a stock
option, the exercise of stock appreciation rights cancels the related stock
option on a share-for-share basis and vice versa. Following a change in control
of the Company, clause (a) of the formula above is revised so that the value of
a share of Company Stock on the date of exercise is the greater of the price
paid or to be paid per share of Company Stock in connection with the change in
control or the highest fair market value of a share of Company Stock in the 60
days preceding the date of exercise.
DEFERRED STOCK UNITS AND RESTRICTED STOCK
The holder of deferred stock units has the right, subject to any restrictions
imposed by the Committee, to receive one share of Company Stock for each
deferred stock unit, or a cash
9
payment equal to the fair market value of those shares, at some future date
determined by the Committee; and, unless otherwise determined by the Committee,
will be entitled to receive payments (in cash or shares of Company Stock)
equivalent to the amount of dividends paid to our shareholders with respect to a
share of Company Stock when the deferred stock unit award is paid.
The holder of restricted stock owns shares of Company Stock subject to
restrictions imposed by the Committee for a specified time period determined by
the Committee. The participant generally may not transfer or pledge the
restricted stock but may have certain rights of a shareholder, including the
right to vote and to receive dividends and other distributions on the restricted
stock. Until the lapse of the restrictions, the Company will hold the
certificates for the restricted shares in escrow. Upon the lapse of the
restrictions, the share certificates will be delivered to the participant.
The minimum vesting or restriction period for deferred stock unit and restricted
stock awards is at least one year from the date of grant. The Committee may also
condition vesting or the lapse of restrictions on achievement of performance
objectives based on criteria such as those referred to below under PROVISIONS
DESIGNED TO ALLOW CONTINUED DEDUCTIBILITY OF CERTAIN COMPENSATION; and permit
normal or accelerated vesting, payout, and/or lapse of restrictions in the case
of a participant's retirement, disability, or death. If a change in control
occurs, deferred stock units and associated dividend equivalents are immediately
payable in full in cash with the units valued at the greater of the price paid
or to be paid per share of Company Stock in connection with the change in
control or the highest fair market value of a share of Company Stock during the
60 days preceding the change in control; and all restrictions on restricted
stock lapse.
OTHER STOCK AWARDS
The Committee also is authorized to grant other types of awards that are
denominated or payable in or otherwise related to shares of Company Stock. Other
stock awards may be in such form as approved by the Committee including
unrestricted shares of Company Stock. Also, the Committee may use other stock
awards to satisfy obligations of the Company or a subsidiary to eligible
participants in other compensation, stock purchase, or incentive plans,
programs, or arrangements of the Company or a subsidiary, including the
Company's Deferred Compensation Plan for Directors, the Annual Incentive Plan,
the Supplementary Savings Plan, and the U.K. Savings-Related Share Option Scheme
which are referred to and described below under EQUITY COMPENSATION PLAN
INFORMATION.
PROVISIONS DESIGNED TO ALLOW CONTINUED DEDUCTIBILITY OF CERTAIN COMPENSATION.
Stock options and stock appreciation rights granted to eligible employees are,
and deferred stock units, restricted sock, and other stock awards granted to
eligible employees may be, intended to provide compensation which will qualify
as "performance-based compensation" exempt from the limit on deductibility of
executive compensation imposed by Section 162(m) of the Internal Revenue Code.
In order for compensation attributable to Plan awards to be exempt from the
limitations of Section 162(m), the Plan includes the following limits on the
amounts of awards that may be granted to any one person in any one fiscal year:
- a 1,000,000 share limit on the number of shares that may be the subject
of grants of stock options (and tandem stock appreciation rights);
- a 1,000,000 share limit on the number of shares that may be the subject
of grants of stand-alone stock appreciation rights;
10
- a 100,000 limit on the number of deferred stock units;
- a 100,000 share limit on the number of shares of restricted stock; and
- a 100,000 share limit with respect to which other stock awards may be
granted (i.e., the value of such awards cannot exceed the value of
100,000 shares).
These limits are subject to adjustment to reflect stock splits and similar
events.
In addition, the class of employees eligible for awards under the Plan will be
limited to executives and other key employees of the Company and its
subsidiaries; and the minimum stock price at which shares may be acquired by
exercising options granted under the Plan, and on the basis of which stock
appreciation rights may be valued, will be the fair market value (as defined in
the Plan) of a share of Company Stock on the date the award is granted.
Finally, the performance objectives for any performance-based deferred stock
units, restricted stock or other stock awards are limited to objective tests
based on one or more of the following business criteria, any of which may be
measured either in absolute terms or as compared to another company or
companies: return on shareholder's equity (ROE); growth in net income; growth in
revenues; cash flow return on average total capital; profit before interest and
taxes; total return to shareholders; operating return on net or gross
investment, or various other denominators based upon investment or assets,
growth in earnings per share or growth in cash flow. These criteria may be used
individually or in a formula combining two or more criteria such as a sum of two
or more criteria or the greatest of two or more criteria.
AWARDS UNDER THE PLAN
As previously indicated, the Committee or its delegate will determine in its
discretion the amount and timing of awards under the Plan and the recipients or
classes of recipients of such awards. It is thus not possible to state the
amount of awards that will be granted in the future if the proposed amendments
to the Plan are approved. With regard to director participants, we currently
intend to continue the practice of granting awards of options and deferred stock
units and allowing additional deferred stock units to be purchased in lieu of
receiving cash retainers and meeting fees, as described under DIRECTOR
COMPENSATION, with the objective of 50% or more of the value of a director's pay
being stock-based. The following table shows the number of shares of Company
Stock subject to stock options and the number of deferred stock units granted
during fiscal 2002 to the indicated classes of recipients under the Long-Term
Incentive Plan; and under (1) the Stock Option Plan for Directors, (2) the
Deferred Compensation Plans for Directors, and (3) the Stock Incentive Program
for employees below certain salary grades. The amended Long-Term Incentive Plan
will replace these latter three plans as the vehicle for granting stock-based
awards. The awards made to individual named executive officers are shown
elsewhere in this Proxy Statement as part of the disclosure about compensation
of executive officers. No stock appreciation rights, restricted stock, or other
stock awards were granted under these plans in fiscal year 2002.
SHARES OF COMPANY STOCK COVERED BY
---------------------------------------
STOCK OPTIONS* DEFERRED STOCK UNITS**
-------------- ----------------------
All current executive officers as a group........ 1,349,000 18,300
All other employees as a group................... 3,867,150 18,870
All nonemployee directors as a group............. 20,000 17,677
-------------------------
* Does not include 217,737 stock options granted in 2002 to employees of the
Company's United Kingdom affiliates who elected to participate in the U.K.
Savings-Related Share Option Scheme. If the New York Stock Exchange listing
standards finally approved by the Securities and Exchange Commission should
require shareholder approval of so-called "save as you earn" stock
11
option plans such as the Scheme, any stock options granted under the Scheme
after the effective date of the rule will be counted against shares
authorized for the Plan.
** Does not include 5,156 deferred stock units purchased by directors under the
Deferred Compensation Plan for Directors, 10,379 deferred stock units
purchased by executives under the deferred bonus program of the Annual
Incentive Plan, and 3,503 deferred stock units purchased by executives under
the Supplementary Savings Plan, under which directors and officers are
permitted to purchase deferred stock units from the Company at fair market
value at time of purchase. We currently plan to continue these existing
purchase plans. If the New York Stock Exchange listing standards finally
approved by the Securities and Exchange Commission should require shareholder
approval of such purchase plans, deferred stock units so purchased after the
effective date of the rule will be counted against shares authorized for the
Plan.
PLAN AMENDMENT AND ADJUSTMENTS
The Board of Directors may amend the Plan at any time and in any respect it
deems to be in the best interests of the Company. However, no amendment may
adversely affect an outstanding award without the consent of the holder of the
award, and no amendment may be made without shareholder approval if required by
law or by the rules of the New York Stock Exchange or any other stock exchange
on which Company Stock is then listed. The rules of the New York Stock Exchange
do not currently require shareholder approval of Plan amendments which do not
increase the shares available under the Plan. However, the Exchange has proposed
rules which, if approved by the Securities and Exchange Commission, would
require shareholder approval of any material revision to the Plan, including an
amendment that materially increases the shares available under the Plan (other
than an adjustment to reflect stock splits and similar events), materially
changes the types of awards available under the Plan, or materially expands the
classes of persons eligible to participate in the Plan.
The Plan provides that without shareholder approval:
- no outstanding stock option or stock appreciation right will have its
exercise price reduced or will be cancelled and replaced with a new stock
option or stock appreciation right with a lower exercise price where the
economic effect would be the same as reducing the exercise price of the
cancelled stock option or stock appreciation right; and
- no more than a total of 20% of the shares of Company Stock subject to
Plan awards for fiscal year 2002 and later years may be for deferred
stock units, restricted stock, or other stock awards providing for the
acquisition of shares of Company Stock for a consideration less than fair
market value as of the date of grant, exercise, or purchase of such
awards. For this purpose, fair market value may be determined as of a
date not more than two trading days prior to the date of grant, exercise,
or purchase in order to facilitate compliance with reporting requirements
under Section 16 of the Securities Exchange Act of 1934.
If there is a change in the outstanding shares of Company Stock by reason of a
stock dividend or split, recapitalization, merger, consolidation, combination,
or exchange of shares, a rights offering to purchase Company Stock at a price
substantially below fair market value, or other similar corporate change,
including without limitation in connection with a change in control, the
Committee may make one or more of the following equitable adjustments to
preserve, without increasing or decreasing, the value of Plan awards and
authorizations: adjustments in (i) the maximum number or kind of shares issuable
or awards which may be granted under the Plan, (ii) the amount payable upon
exercise of stock appreciation rights, (iii) the number or kind of shares or
purchase price per share subject to outstanding stock options, (iv) the number
or value, or kind of shares which may be issued in payment of outstanding stock
appreciation rights, (v) the value and attributes of deferred stock units, (vi)
the maximum number, kind or value of any Plan awards which may be awarded or
paid in general or to any one employee, (vii) the performance-based events or
objectives applicable to
12
any Plan awards and/or (viii) any other aspect or aspects of the Plan or
outstanding awards made thereunder as specified by the Committee.
MISCELLANEOUS
As a general matter, no Plan award and no right to payment under the Plan is
assignable or transferable by a participant except upon death; and stock options
or other rights are exercisable during a participant's lifetime only by the
participant or by the participant's guardian or legal representative. However,
the Committee may in its discretion allow and has allowed exercisable stock
options to be transferred by a Plan participant during the participant's
lifetime and without consideration, to a family member or a trust for family
members. The transferee may not subsequently transfer the option except by will
or by the laws of descent and distribution.
There is no time limit on the duration of the Plan. If the Amendments to the
Long-Term Incentive Plan are not approved, the current Long-Term Incentive Plan
will remain in effect, and the total number of shares reserved for issuance
under the Plan will not be increased.
FEDERAL INCOME TAX CONSEQUENCES
The Company is advised by its tax counsel that, under current interpretations of
existing federal tax law, the Company will be entitled to federal income tax
deductions with respect to nonstatutory stock options, stock appreciation
rights, deferred stock units, and restricted stock, at or following the time
that taxable income is realized by an employee with respect to such awards.
Generally, income will be realized upon the exercise of nonstatutory stock
options and at the time cash or stock is delivered to an employee in respect of
the other types of awards, except that, in the case of restricted stock, income
will be realized at the time the stock is no longer subject to substantial risk
of forfeiture. No deduction is allowed to the Company for the grant or exercise
of an incentive stock option or for income in respect of any
nonperformance-based awards subject to Section 162(m) limits at the time that
income is recognized by the participant. It is possible, however, for the
Company to receive a deduction with respect to an incentive stock option if the
participant disposes of the stock before satisfying the applicable holding
period rules.
THE BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND A VOTE "FOR" APPROVAL OF THE
PROPOSED AMENDMENTS TO THE LONG-TERM INCENTIVE PLAN.
IF YOU HOLD YOUR SHARES THROUGH A BROKER, BANK, OR OTHER NOMINEE
If you hold your shares through a broker, bank, or other nominee and you do not
instruct them on how to vote on this proposal, your broker may have authority to
vote your shares on this proposal. However, the New York Stock Exchange has
proposed new regulations that would prohibit brokers or other nominees that are
NYSE member organizations from voting in favor of proposals relating to equity
compensation plans unless they receive voting instructions from the beneficial
owner of the shares. This new rule may become effective before the Annual
Meeting, in which case, for shares held through a broker or other nominee who is
a NYSE member organization, your shares will only be voted in favor of this
proposal if you have provided voting instructions to your broker or other
nominee to vote your shares in favor of this proposal. If the Securities and
Exchange Commission does not approve this rule before our Annual Meeting, then
your broker may vote your shares.
13
THE BOARD OF DIRECTORS
Information follows about the age and business experience, as of December 1,
2002, of the nominees up for election and the directors continuing in office.
Each of them has consented to being nominated for director and 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. Murray who was
initially elected to our Board by the directors effective in July 2002.
--------------------------------------------------------------------------------
PERSONS STANDING FOR ELECTION THIS YEAR FOR TERMS EXPIRING AT THE ANNUAL MEETING
IN 2006
--------------------------------------------------------------------------------
[BAEZA PHOTO]
MARIO L. BAEZA, age 51. Chairman and Chief Executive Officer
of TCW/Latin America Partners, L.L.C. Director of the Company
since 1999.
Mr. Baeza formed TCW/Latin America Partners, L.L.C. in 1996.
TCW/Latin America Partners, L.L.C. is managing general
partner of TCW/Latin America Private Equity Partners, L.P., a
private equity fund with a controlling interest in a variety
of companies in Brazil, Argentina, and Mexico which is
jointly owned by Baeza & Company and Trust Company of the
West. Prior to forming TCW/Latin America Partners in 1996,
Mr. Baeza served as president of Wasserstein Parella
International Limited and Chairman and CEO of Grupo Wasserstein Parella, the
Latin American 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 managing director of Trust
Company of the West and a director of Ariel Mutual Fund Group.
--------------------------------------------------------------------------------
[BREMER PHOTO]
L. PAUL BREMER III, age 61. Chairman and Chief Executive
Officer of Marsh Crisis Consulting Company. Director of the
Company since 1993.
In 2001, former Ambassador Bremer was made Chairman and Chief
Executive Officer of Marsh Crisis Consulting, a company owned
by Marsh McLennan Inc., the world's largest insurance broker.
Ambassador Bremer joined Marsh McLennan Inc. in 2000 as
Managing Director, MMC Enterprise Risk. Prior to joining
Marsh McLennan Inc., Ambassador Bremer was managing director
of Kissinger Associates following a 23-year career in the
U.S. Diplomatic Service. Ambassador Bremer held various
assignments including political, economic, and commercial officer at the
American Embassies in Afghanistan and Malawi and Deputy Chief of Mission and
charge d'affaires at the American Embassy in Oslo, Norway. He was appointed
Executive Secretary of the State Department and Special Assistant to the
Secretary of State in 1981. In 1983, he was named United States Ambassador to
the Netherlands, and in 1986 he was appointed Ambassador-at-Large for
Counter-Terrorism. Ambassador Bremer is also a director of Akzo Nobel N.V. and
the Netherland-America Foundation.
--------------------------------------------------------------------------------
[HAGENLOCKER PHOTO]
EDWARD E. HAGENLOCKER, age 63. 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
Boise Cascade Corporation, AmeriSource Bergen Corporation, and American
Standard, Inc.
--------------------------------------------------------------------------------
14
[MURRAY PHOTO]
TERRENCE MURRAY, age 63. Chairman 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, commercial banking, and investment management
business, in 1962. He was named Chairman, President, and
Chief Executive Officer in 1982, and retired as President in
1999 and Chief Executive Officer in December 2001. Mr. Murray
is a director of FleetBoston Financial Corporation, A. T.
Cross Company, Allmerica Financial Corporation, CVS
Corporation, and ChoicePoint Inc.
--------------------------------------------------------------------------------
DIRECTORS CONTINUING IN OFFICE UNTIL THE ANNUAL MEETING IN 2004
--------------------------------------------------------------------------------
[HARDYMON PHOTO]
JAMES F. HARDYMON, age 68. 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., Lexmark International, Inc., Championship Auto Racing Teams, Inc., and
Schneider Electric S.A.
--------------------------------------------------------------------------------
[NOSKI PHOTO]
CHARLES H. NOSKI, age 50. Retired Vice Chairman of AT&T.
Director of the Company since 2000.
Mr. Noski joined AT&T in 1999 as Senior Executive Vice
President and Chief Financial Officer and was named Vice
Chairman of AT&T's Board of Directors in 2002. Mr. Noski
relinquished the position of Chief Financial Officer in June
2002 and retired from AT&T once its restructuring was
completed with the merger of AT&T Broadband with Comcast
Corp. Prior to joining AT&T, Mr. Noski was President, Chief
Operating Officer, and a member of the board of directors of
Hughes Electronics, a publicly-traded subsidiary of General
Motors in the satellite and wireless communications business. In 1992, he was
appointed corporate senior vice president and chief financial officer of Hughes.
For a brief period in 1997, Mr. Noski was executive vice president and chief
financial officer of United Technologies Corp. Mr. Noski was a partner at
Deloitte & Touche prior to joining Hughes. He is a member of the American
Institute of Certified Public Accountants and a past member of the Financial
Accounting Standards Advisory Council. Mr. Noski is a director of Teledyne
Technologies Inc. and Northrop Grumman Corporation.
--------------------------------------------------------------------------------
[ROSPUT PHOTO]
PAULA G. ROSPUT, age 46. Chairman, Director, President and
Chief Executive Officer of AGL Resources, Inc. Director of
the Company since 2001.
Ms. Rosput joined AGL Resources, Inc., a regional energy
holding company providing natural gas and related products
and services, in September 1998 as President and Chief
Operating Officer of Atlanta Gas Light Company, a natural gas
distribution utility and main subsidiary of AGL Resources. In
2000, she was named Director, President, and Chief Executive
Officer, and in 2002, Chairman of AGL's Board of Directors.
Prior to joining AGL Resources, Inc., Ms. Rosput served as
president of Duke Energy Power Services LLC, since June 1997. She also served as
president of PanEnergy Power from June 1995 until its merger with Duke Power.
Ms. Rosput is a director of Coca Cola Enterprises, Circuit City Stores, and AGL
Resources, Inc.
--------------------------------------------------------------------------------
15
[LAWRASON PHOTO]
LAWRASON D. THOMAS, age 68. 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.
--------------------------------------------------------------------------------
DIRECTORS CONTINUING IN OFFICE UNTIL THE ANNUAL MEETING IN 2005
--------------------------------------------------------------------------------
[DONAHUE PHOTO]
MICHAEL J. DONAHUE, age 44. Group Executive Vice President
and Chief Operating Officer of BearingPoint, Inc.
Mr. Donahue has served in his current position overseeing the
operations of BearingPoint, Inc. since March of 2000.
BearingPoint, Inc. completed its separation from the KPMG LLP
tax and audit firm in February 2001, becoming a publicly-
traded consulting company. Prior to March 2000, he 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.
--------------------------------------------------------------------------------
[FAIRBAIRN PHOTO]
URSULA F. FAIRBAIRN, age 59. Executive Vice President, Human
Resources and Quality of American Express Company. Director
of the Company since 1998.
Ms. Fairbairn joined American Express Company, a 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, and had
previously held several marketing and human resources
positions at IBM Corporation. She is a director of VF
Corporation and Sunoco Inc.
--------------------------------------------------------------------------------
[JONES PHOTO]
JOHN P. JONES III, age 52. 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.
BOARD OF DIRECTORS
Our Board met eight times during our fiscal year 2002, in person and by
telephone conference, and Board and committee attendance averaged 94% for the
Board as a whole. Unless otherwise stated, 2002 means our fiscal year ending
September 30, 2002. Proposed New York Stock Exchange ("NYSE") listing standards
will require that boards of listed companies have a majority of independent
directors and that audit, nominating/corporate governance, and compensation
committee members must all be independent as determined by the board in its
business judgment. At its
16
November 2002 meeting, after reviewing the current and proposed NYSE and other
applicable standards of independence, the Board determined that all of our
nonmanagement directors are independent from the Company and management and
that, with one exception, all of our nonmanagement directors meet the proposed
NYSE independence standards.
In reaching this conclusion, the Board considered that the Company and its
subsidiaries purchase products and services from companies of which certain of
our directors are or were directors or officers. These transactions include
corporate credit card, communication, software design and implementation,
workman's compensation insurance, crisis management consulting, and commercial
lending services. Also, mutual funds affiliated with three director companies
acquire, dispose of, and hold Company Stock from time to time. We believe that
these transactions occurred in the ordinary course of business and were on terms
as favorable as the Company would have received from unaffiliated organizations,
and that they are immaterial to the Company and the other party to the
transaction, as well as to the affiliated director. While it is expected that
these kinds of business relationships may very well continue in 2003 and
thereafter, no business materially different in character or amount is currently
expected for fiscal year 2003.
If the NYSE proposal were to be adopted by the Securities and Exchange
Commission ("SEC") in its current form, independence will be precluded in cases
where a director (or his immediate family member) was employed by the company or
its public accounting firm within the last five years. Therefore, Mr. Donahue
would not qualify as independent until February 2006 because, although not
engaged in the audit business, he was affiliated with or employed by KPMG LLP,
the Company's current audit firm, within the past five years. When he joined our
Board in 2001, he was Group Executive Vice President and Chief Operating Officer
of the former KPMG Consulting Inc., now BearingPoint, Inc., which had just
completed its legal separation from the KPMG LLP audit firm in February 2001.
KPMG LLP was first engaged as the Company's independent auditors this year.
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,
Management Development and Compensation, and Nominating and Corporate Governance
Committees are or ever were employed by the Company, and all of them meet the
current and proposed NYSE independence standards.
The AUDIT COMMITTEE, which met seven times in fiscal year 2002, is comprised of
Mr. Baeza, Mr. Hagenlocker (Chairman), Mr. Hardymon, Ms. Rosput, and Mr. Thomas,
all of whom are independent from the Company and its management as independence
is defined in the NYSE's current and proposed listing standards and the
provision of the Sarbanes-Oxley Act of 2002 calling for entirely independent
audit committees. The Board has also determined that all of the Committee
members are "financially literate" and that at least one of them qualifies as a
"financial expert" under existing and proposed NYSE rules. The Committee
operates under a written charter last updated in May 2000, a copy of which was
attached to the Company's Proxy Statement for our January 2002 annual meeting.
The Committee reviews the appropriateness, quality, and acceptability of the
Company's accounting policies and the integrity of financial statements reported
to the public; significant internal audit and control matters and internal audit
staff performance and activities; and compliance with legal and regulatory
requirements. The Committee also reviews the independence and performance and
approves the audit, audit-related, and nonaudit fees of, and recommends for
Board approval the engagement and termination of, the Company's independent
auditors.
This year the Committee was actively involved in the process to select the
replacement of Arthur Andersen LLP as the independent auditors for the Company,
and recommended the Board approve the appointment of KPMG LLP; approved an
annual agenda plan which specified matters to be considered and acted upon by
the Committee over the course of the year in fulfilling its
17
responsibilities consistent with its charter; reassessed the adequacy of its
charter which the Board reapproved, recognizing that changes to the charter will
be appropriate when the regulatory requirements of the Sarbanes-Oxley Act of
2002 and NYSE listing standards are finalized; and approved its annual report
for inclusion in this Proxy Statement. The Board has determined that generally
the Audit Committee will have four regular meetings, one in each fiscal quarter,
as well as two or three meetings to review quarterly reports on Form 10-Q which
must be filed with the SEC before the next regular Committee meeting. Also
scheduled are four telephone conversations with management, the independent
auditors, and the Audit Committee Chairman or, in his absence, another Committee
member, to review the quarterly earnings releases.
AUDIT COMMITTEE REPORT
This Audit Committee Report (except for the information in the last paragraph)
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.
The Audit Committee reviews the Company's financial reporting process on behalf
of the Board. In fulfilling its responsibilities, the Committee has reviewed and
discussed the audited financial statements contained in the 2002 Annual Report
on SEC Form 10-K with the Company's management and the independent auditors.
Management is responsible for the financial statements and the reporting
process, including the system of internal controls and disclosure controls, and
has represented to the Audit Committee that such financial statements were
prepared in accordance with generally accepted accounting principles. The
independent auditors are responsible for expressing an opinion on the conformity
of those audited financial statements with accounting principles generally
accepted in the United States.
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 amended. In addition, the Committee has discussed with the
independent auditors, the auditors' 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 No. 1, Independence Discussions with Audit
Committees, as amended.
Based on the reviews and discussions referred to above, the Committee recommends
to the Board that the audited financial statements be included in the Company's
Annual Report on SEC Form 10-K for the year ended September 30, 2002.
FEES OF INDEPENDENT AUDITORS. During fiscal year 2002, the Company retained its
principal auditor, KPMG LLP, to provide services in the following categories and
amounts:
Audit Fees.................................................. $1.8 million
Financial Information Systems Design and Implementation
Fees...................................................... --
All Other Fees
Audit related fees........................................ .2 million
Tax compliance............................................ .2 million
International expatriate tax services..................... 1.1 million
----
Total All Other........................................ 1.5 million
Total Fees.................................................. $3.3 million
Audit fees were for professional services rendered in connection with the audit
of the Company's financial statements for the year ended 30 September 2002 that
are customary under auditing standards generally accepted in the United States
or that are customary for the purpose of rendering
18
an opinion or review report on the financial statements; and for the review of
the financial statements included in the quarterly reports on Form 10-Q required
to be filed during fiscal year 2002. Audit-related fees consist primarily of
services rendered in connection with benefit plan audits, SEC registration
statements, and acquisition support. The expatriate tax services began before
KPMG was selected as the Company's independent auditors and will be performed by
another firm effective with fiscal year 2003.
The Audit Committee has considered whether the provision of nonaudit services by
the Company's principal auditor is compatible with maintaining auditor
independence.
Audit Committee
Edward E. Hagenlocker, Chairman
Mario L. Baeza
James F. Hardymon
Paula G. Rosput
Lawrason D. Thomas
The ENVIRONMENTAL, SAFETY AND PUBLIC POLICY COMMITTEE, which met twice during
2002, monitors for 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. Members of the Committee
during 2002 were Mr. Bremer, Mr. Donahue, Ms. Fairbairn (Chairman), and Ms.
Rosput.
The EXECUTIVE COMMITTEE, which met twice this past year, has authority to act on
most matters concerning management of the business during intervals between
Board meetings. Members of the Committee during 2002 were Mr. Bremer, Mr.
Hardymon, Mr. Jones (Chairman), Mr. Lautenbach, and Mr. Thomas.
The FINANCE COMMITTEE, which met twice in 2002, reviews the Company's financial
policies; keeps informed of its operations and financial condition, including
requirements for funds; advises the Board about sources and uses of Company
funds; and reviews the Company's financial arrangements and methods of external
financing. Members of the Committee during 2002 were Mr. Donahue, Mr. Jones, Mr.
Murray, Mr. Noski (Chairman), and Mr. Thomas.
The MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE, which met four times in
2002, makes recommendations to the Board and provides advice to management about
the Company's succession planning; establishes the Company's executive
compensation policies; oversees the administration of the incentive compensation
plans for executives and key employees; reviews the actions of those responsible
for the administration of, and funding and investment policies for, the
Company's pension and savings plans; and approves significant amendments to such
incentive compensation, pension, and savings plans on behalf of the Board. The
Committee approves the individual salary, bonus, and incentive plan awards of
the chief executive officer, the 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. During 2002 the members of the Committee were
Ms. Fairbairn, Mr. Hardymon (Chairman), Mr. Lautenbach, and Mr. Noski.
The NOMINATING AND CORPORATE GOVERNANCE COMMITTEE met three times during 2002.
This Committee makes recommendations to the Board about: criteria for and
candidates to fill both Board vacancies arising during the year and the slate of
nominees for election at annual meetings; the functions and meeting schedules of
the Board and the committees, and the members and chairmen of the committees;
director compensation, tenure, retirement, and annual performance assessment
process; and the Company's corporate governance practices and written statement
of principles, as
19
well as committee charters. Members of the Committee during 2002 were Mr. Baeza,
Mr. Bremer (Chairman), Mr. Hagenlocker, Mr. Lautenbach, and Mr. Murray.
This Committee will consider nominations for directors made by shareholders of
record entitled to vote for the election of directors if timely written notice,
in proper form, of the intent to make a nomination at a meeting of shareholders,
is received by the Company. If the notice is not timely and in proper form, the
nominee will not be eligible to stand for election at the 2004 annual meeting.
To be timely for the 2004 annual meeting, the notice must be received within the
time frame discussed on page 3. To be in proper form, the notice must include
each nominee's written consent to be named as nominee and to serve, if elected;
and information about the shareholder making the nomination and the person
nominated for election. These requirements are contained in provisions of our
bylaws which will be provided upon written request.
DIRECTOR COMPENSATION
During 2002, Board members who are not employed by the Company received an
annual retainer for Board service of $48,000 ($53,000 for Committee chairmen),
payable quarterly, and no meeting fees. New directors also received grants of
1,000 deferred stock units ("DSUs") when first elected, and directors continuing
in office after our January 2002 annual meeting were granted on the date of the
annual meeting 1,000 DSUs and, under the Stock Option Plan for Directors, 2,000
market value stock options. These stock options become exercisable in six months
and remain exercisable for nine and one-half years unless the director serves on
our Board for less than six years (other than because of disability or death).
After the options become exercisable, the directors may transfer them by gift to
family members. The Board of Directors approved, and are with this Proxy
Statement submitting to the Company's shareholders for approval, amendments to
the Company's Long-Term Incentive Plan to provide for future stock option and
DSU grants to directors under the terms of that plan.
In September 2002, at the recommendation of the Nominating and Corporate
Governance Committee, the Board determined that the amount of compensation under
the Company's current program is appropriate and competitive, but that the
dollar-denominated annual Board retainer compensation should be reduced and
Board and committee meeting fees should be introduced to address the fairness
issues relating to variations in the frequency of meetings held by the different
committees. For 2003, the annual Board retainer is $32,000, Committee chairmen
continue to receive a $5,000 annual retainer, and meeting fees of $1,250 per
meeting are paid for each Board and Committee meeting. The meeting fee is also
paid to Audit Committee members who participate in the telephone conversations
to review quarterly earnings releases. Retainers and meeting fees continue to be
paid quarterly in arrears.
Instead of being paid their retainers quarterly entirely in cash, under the
Deferred Compensation Plan for Directors last year each director received grants
of DSUs equivalent to $3,000. This year each receives grants of DSUs equivalent
to $4,000 and has the opportunity to purchase more DSUs with up to all of the
rest of their retainers and meeting fees. Retainer and meeting fee dollars (plus
dividend equivalents earned on the director's existing DSU account during the
quarter) are converted to DSUs based on the market value of a share of Company
Stock on the second business day preceding the date the dollars would have been
paid to the director on the last business day of the quarter. DSUs provide our
directors with the financial equivalent of owning Company Stock participating in
quarterly dividend reinvestment, which they cannot sell until after they leave
our Board, except that DSUs have no voting rights. Directors may transfer DSUs
by gift to family members.
Directors are reimbursed for expenses incurred in performing their duties as
directors. We also pay the premiums on directors' and officers' liability and
business travel accident insurance policies.
20
DIRECTOR RETIREMENT POLICY
Directors who have never been Company employees are required to tender their
resignation for consideration by the Nominating and Corporate Governance
Committee when they have a change in principal position or identity other than
normal retirement, and are not to continue on the Board after the Annual Meeting
at which they've attained age 70. Directors who are Company employees, currently
only the chief executive officer, must retire from the Board when they retire
from active employment with the Company. Company policy requires the chief
executive officer and other executive officers to retire from Company employment
at the end of the month in which they attain age 65.
COMPENSATION OF EXECUTIVE OFFICERS
REPORT OF THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE (THE
"COMMITTEE")
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.
COMPENSATING EXECUTIVE OFFICERS. The Committee is responsible for our
management compensation program, the primary elements of which are base salary,
cash bonus, and stock-based incentives. An executive officer's pay reflects his
performance and responsibility. A significant amount of total pay is tied to the
achievement of financial goals for the annual and longer-term financial
performance of the Company and the creation of incremental shareholder value,
and/or to the performance of our stock. In this report we refer to this kind of
compensation as "at risk" pay.
We determine the compensation levels for Mr. Jones and the other executive
officers with the assistance of the Company's Human Resources Department and
work with an independent consulting firm that furnishes the Committee with
executive compensation data drawn from published surveys. Each year we set
target levels for salary, bonus, and incentive awards using survey data for
general industry companies with annual revenues of three to ten billion dollars.
We focus on chemical and nondurable manufacturing companies in particular. In
the fall of 2001, we adjusted the three elements of our management compensation
program to maintain their competitiveness for fiscal year 2002 and beyond. Our
intent is for cash components of pay to approximate the survey median and for
stock-based incentive awards to be above the median for executive officers and
other key leaders. Since a large portion of the compensation opportunity is
determined by performance-based variables, total compensation may be above or
below the median based on individual and/or Company performance.
Again in 2002, at risk pay represented a progressively larger portion of the
total pay for our executives in higher-level positions in order to encourage our
leadership team to manage from the perspective of owners with an equity stake in
the Company. Approximately 90% of Mr. Jones' intended total pay was variable,
with a range of 84% to 87% for Mr. Gadomski, Mr. Cummins, Mr. Brown, and Mr.
Katsaros.
Since U.S. tax law does not let us deduct from the Company's federal taxable
income compensation paid to any one of these five executives which is not
variable or at risk and which exceeds $1,000,000, we periodically obtain
requisite shareholder approval so that compensation paid under the Company's
bonus and stock-based incentive plans qualify for continued tax deductibility.
This year we are again asking shareholders to approve terms applicable to the
stock-based incentive plan to maintain this tax deductibility. However, since we
believe that the Company's interests may sometimes be best served by providing
compensation which is not deductible in order to attract, retain, motivate, and
reward top executive talent, the Committee retains the flexibility to provide
for payments of such compensation.
2002 ANNUAL CASH COMPENSATION -- BASE SALARY. Late in 2001, when we fixed the
fiscal year 2002 salaries for Mr. Jones and the other executive officers, we
considered pay for comparable positions reported in the compensation surveys;
personal performance, position in salary range, and time since
21
last increase; and, most importantly, the Company's overall performance as
related to Mr. Jones' leadership and the impact of the other executive officers
on the business.
ANNUAL INCENTIVE PLAN BONUS. At the beginning of 2002, we adopted performance
objectives for the year based on return on shareholders' equity ("ROE") and
growth in earnings per share, and established an objective formula for computing
the bonus for Mr. Jones and the other executive officers, based on the extent to
which these objectives are achieved. Following the end of the year, in addition
to establishing the maximum possible bonus payment by measuring performance
against the two principal objectives, ROE and growth in earnings per share, we
also considered growth in revenues, growth in net income, total return to
shareholders, the overall economic environment, and the comparable performance
of the other companies included in our self-constructed peer group (formerly the
Standard & Poor's Chemicals Index) or the Dow Jones Specialty Chemicals Index;
and progress towards achieving the Company's strategic objectives.
To set Mr. Jones' bonus, we also considered his 2002 CEO performance review in
which we focused on the criteria we use to evaluate his leadership to Air
Products, our various stakeholders, and our Board. The Company was able to
perform well in 2002 under Mr. Jones' leadership despite the worldwide
industrial recession which continued into fiscal year 2002. Our total
shareholder return outperformed the S&P 500 by 31%. We maintained a stable cash
flow from operations of $1.1 billion a year and were upgraded by Moody's. We
continued our focus on improved return on capital. Although operating return on
net assets ("ORONA") for the year declined to 10.6% from 11.1% last year due to
the impact of the first two quarters following 9/11, ORONA exceeded 11% in the
last two quarters of fiscal year 2002. Meaningful progress was made in
restructuring our portfolio, profitably investing in our growth platforms, and
improving our work processes.
At our November 2002 meeting, we completed our assessment of the Company's and
of Mr. Jones' performance and set 90% of the 2002 target bonus guideline as the
overall bonus award level for fiscal year 2002, including for Mr. Jones' award.
LONG-TERM INCENTIVE PLAN 2002 STOCK-BASED COMPENSATION. We think this
compensation component is particularly important since it reflects the Company's
capital-intensive business portfolio which requires long-term commitments for
success. We've used two main forms of awards -- stock options and
performance-based deferred stock units ("DSUs"). In the fall of 2001, we granted
our executive officers ten-year market-priced stock options and DSUs with
performance objectives based on achieving ORONA objectives for fiscal year 2002,
in each case at a unit level within the guideline award range for their salary
grade level, reflecting their position and responsibilities at the time of
grant.
OTHER COMPENSATION. The Company maintains a competitive package of compensatory
employee benefit and welfare plans which are generally available to all
employees. Our executives are eligible to participate in these programs
including our qualified 401(k) plan and/or supplementary savings plan and
deferred bonus program which provide convenient ways for executives and
employees to buy Company Stock on the open market or defer receipt of pay and
purchase DSUs from the Company, all at fair market value at the time of
purchase.
CONCLUSION. To drive management effort and results, we have a compensation
program that is competitive and appropriately linked to shareholder return and
the Company's financial goals.
Management Development and Compensation Committee
James F. Hardymon, Chairman
Ursula F. Fairbairn
Terry R. Lautenbach
Charles H. Noski
22
EXECUTIVE COMPENSATION TABLES
2002 SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS(2)
-------------
SECURITIES
UNDERLYING
NAME AND FISCAL SALARY BONUS STOCK OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR ($)(1) ($)(1) (#) COMPENSATION($)(3)(4)
------------------ ------ ------- ------- ------------- ---------------------
John P. Jones III........................... 2002 990,000 761,000 500,000 292,968
Chairman, President and Chief Executive 2001 900,000 765,000 320,000 550,977
Officer 2000 702,308 776,000 75,000 21,559
Robert E. Gadomski.......................... 2002 645,000 386,000 200,000 203,694
Executive Vice President, Gases and 2001 620,000 403,000 200,000 366,496
Equipment 2000 521,923 543,000 50,000 17,478
Andrew E. Cummins........................... 2002 437,000 217,000 170,000 99,862
Group Vice President -- Chemicals 2001 420,000 231,000 100,000 171,660
2000 321,044 298,000 24,000 10,230
W. Douglas Brown............................ 2002 385,000 173,000 120,000 84,362
Vice President, General Counsel and 2001 370,000 185,000 80,000 142,579
Secretary 2000 276,000 263,000 18,800 8,390
Arthur T. Katsaros.......................... 2002 385,000 173,000 150,000 83,759
Group Vice President -- Engineered Sys. & 2001 355,115 185,000 65,000 115,585
Develop. 2000 290,000 263,000 18,800 8,951
-------------------------
(1) Cash compensation earned for services performed during each fiscal year,
including amounts deferred at the election of the executive.
(2) On September 30, 2002, Mr. Jones owned 71,020 deferred stock units ("DSUs")
worth $2,920,698; Mr. Gadomski owned 44,562 DSUs worth $1,832,612; Mr.
Cummins owned 15,698 DSUs worth $645,580; Mr. Brown owned 12,000 DSUs worth
$493,500; and Mr. Katsaros owned 16,576 DSUs worth $681,688. These values
are based on the 2002 fiscal year-end fair market value of a share of
Company Stock. DSUs which have earned out or have been purchased are the
financial equivalent of owning Company Stock which can't be transferred or
sold until after the executive retires, except that all DSUs accrue dividend
equivalents, none have voting rights, and certain of them are subject to
forfeiture for engaging in specified activities such as competing with the
Company.
(3) Amounts shown for 2002 and 2001 include Performance Shares granted under the
Long-Term Incentive Plan which were earned out for each year under our
continuing ORONA plan. For 2002, the Committee set the level of earnout at
30% of target, based on the ORONA performance achieved in the challenging
business environment. The features described in the last sentence of
footnote 2 also pertain to these Performance Shares. The following amounts
are included for 2002 and 2001: for Mr. Jones $254,700 and $523,560, Mr.
Gadomski $165,555 and $340,314, Mr. Cummins $76,410 and $157,068, Mr. Brown
$63,675 and $130,890, and Mr. Katsaros $63,675 and $104,712. These amounts
are based on the market value of $42.45 and $43.63 per share on the dates
the Committee determined the level of payout for the 2002 and 2001 awards,
respectively.
(4) In addition to the Performance Shares described in footnote 3, amounts shown
for 2002 are principally Company matching contributions and/or accruals
under the qualified 401(k) and nonqualified savings plans for U.S. employees
under which the Company matches 50% of each participant's elective salary
reduction up to 6% of base salary. Also included for 2002 is a tax and
estate planning stipend of $8,000 for each of the named executive officers,
and the following amounts of interest and/or dividend equivalents accrued
under the nonqualified savings plan and on certain deferred bonus accounts:
for Mr. Jones, $568; Mr. Gadomski, $10,789; Mr. Cummins, $2,342; Mr. Brown,
$1,137; and Mr. Katsaros, $534.
23
OPTION GRANTS IN 2002
NET POTENTIAL
REALIZABLE VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATES
----------------------------------------------------------------------------------- OF STOCK PRICE
NUMBER OF PERCENT (%) APPRECIATION FOR
SECURITIES OF TOTAL TEN-YEAR OPTION
UNDERLYING OPTIONS TERM(2)
OPTIONS GRANTED TO EXERCISE -------------------------
GRANTED EMPLOYEES IN PRICE EXPIRATION 5% 10%
NAME (#)(1) FISCAL YEAR ($/SH) DATE ($) ($)
---- ---------- ------------ --------- --------------- ----------- -----------
John P. Jones III......... 500,000 9.2% $38.02 October 2, 2011 $11,955,287 $30,297,044
Robert E. Gadomski........ 200,000 3.7% $38.02 October 2, 2011 $ 4,782,115 $12,118,818
Andrew E. Cummins......... 170,000 3.1% $38.02 October 2, 2011 $ 4,064,798 $10,300,995
W. Douglas Brown.......... 120,000 2.2% $38.02 October 2, 2011 $ 2,869,269 $ 7,271,291
Arthur T. Katsaros........ 150,000 2.8% $38.02 October 2, 2011 $ 3,586,586 $ 9,089,113
-------------------------
(1) These options become exercisable in one-third increments on the first three
anniversaries of grant and were granted at fair market value on the October
1, 2001 grant date. Exercisable options may be transferred by gift to family
members. The exercise price and tax withholding obligations may be satisfied
with shares owned by the executive. In general, options terminate on the
last day of employment except for retirement or disability, as defined in
the plan, or death after a minimum period of time following the grant date
specified in the award agreement. 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 2002 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.
OPTIONS EXERCISED IN 2002
AND 2002 YEAR-END OPTION VALUES
NUMBER OF
SECURITIES UNDERLYING NET VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT YEAR-END (#) AT YEAR-END ($)(1)
SHARES ACQUIRED VALUE REALIZED --------------------------- ---------------------------
NAME ON EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
John P. Jones III.... 47,327 $499,639 535,886 738,334 $4,160,050 $2,992,862
Robert E. Gadomski... 18,360 $495,670 442,118 350,002 $3,673,004 $1,534,103
Andrew E. Cummins.... 31,280 $550,787 118,733 244,667 $1,107,943 $ 980,278
W. Douglas Brown..... 0 $ 0 108,798 179,602 $ 536,435 $ 732,915
Arthur T. Katsaros... 6,000 $173,565 129,618 199,602 $1,152,698 $ 773,015
-------------------------
(1) Net pre-tax amounts determined by subtracting the exercise price from the
fair market value at the exercise date or at year-end, as the case may be.
24
PENSION PLAN TABLE
YEARS OF SERVICE
----------------------------------------------------------------------------------
REMUNERATION 15 20 25 30 35 40 45
------------ -------- -------- -------- ---------- ---------- ---------- ----------
3$00,000.... $ 65,736 $ 87,648 $109,560 $ 131,472 $ 153,384 $ 175,884 $ 198,384
400,000.... $ 88,236 $117,648 $147,060 $ 176,472 $ 205,884 $ 235,884 $ 265,884
500,000.... $110,736 $147,648 $184,560 $ 221,472 $ 258,384 $ 295,884 $ 333,384
600,000.... $133,236 $177,648 $222,060 $ 266,472 $ 310,884 $ 355,884 $ 400,884
700,000.... $155,736 $207,648 $259,560 $ 311,472 $ 363,384 $ 415,884 $ 468,384
800,000.... $178,236 $237,648 $297,060 $ 356,472 $ 415,884 $ 475,884 $ 535,884
900,000.... $200,736 $267,648 $334,560 $ 401,472 $ 468,384 $ 535,884 $ 603,384
1,000,000.. $223,236 $297,648 $372,060 $ 446,472 $ 520,884 $ 595,884 $ 670,884
1,100,000.. $245,736 $327,648 $409,560 $ 491,472 $ 573,384 $ 655,884 $ 738,384
1,200,000.. $268,236 $357,648 $447,060 $ 536,472 $ 625,884 $ 715,884 $ 805,884
1,300,000.. $290,736 $387,648 $484,560 $ 581,472 $ 678,384 $ 775,884 $ 873,384
1,400,000.. $313,236 $417,648 $522,060 $ 626,472 $ 730,884 $ 835,884 $ 940,884
1,500,000.. $335,736 $447,648 $559,560 $ 671,472 $ 783,384 $ 895,884 $1,008,384
1,600,000.. $358,236 $477,648 $597,060 $ 716,472 $ 835,884 $ 955,884 $1,075,884
1,700,000.. $380,736 $507,648 $634,560 $ 761,472 $ 888,384 $1,015,884 $1,143,384
1,800,000.. $403,236 $537,648 $672,060 $ 806,472 $ 940,884 $1,075,884 $1,210,884
1,900,000.. $425,736 $567,648 $709,560 $ 851,472 $ 993,384 $1,135,884 $1,278,384
2,000,000.. $448,236 $597,648 $747,060 $ 896,472 $1,045,884 $1,195,884 $1,345,884
2,100,000.. $470,736 $627,648 $784,560 $ 941,472 $1,098,384 $1,255,884 $1,413,384
2,200,000.. $493,236 $657,648 $822,060 $ 986,472 $1,150,884 $1,315,884 $1,480,884
2,300,000.. $515,736 $687,648 $859,560 $1,031,472 $1,203,384 $1,375,884 $1,548,384
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, 2002 for Mr. Jones are 30 years; for Mr.
Gadomski, 32 years; for Mr. Cummins, 28 years; for Mr. Brown, 27 years; and for
Mr. Katsaros, 30 years. In addition to participating in the pension plans, Mr.
Brown has a separate agreement with the Company under which he will be entitled
to pension benefits equivalent to those to which he would have been entitled if
he had been an employee of the Company and a participant in the pension plans
since he first joined the Company, and had not worked for a former Company
affiliate. The benefits under this agreement will be reduced by an amount
equivalent to the benefit derived from the former affiliate's pension plans. The
table shows approximate annual ordinary life annuity benefits payable to U.S.
salaried employees retiring at age 65 in calendar year 2002, after selected
periods of service with selected amounts of covered compensation, without
reduction for any survivor benefit or for Social Security benefits or other
offsets. A lump sum form of payment is available under the nonqualified pension
plan.
SEVERANCE AND OTHER 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 2002, Mr. Jones, Mr. Gadomski, Mr.
Cummins, Mr. Brown, and Mr. Katsaros. Individuals receive no payments or
benefits under the agreements unless their employment ends during the three-year
period following the change in control. Also, 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 and vest and
provide a cash out opportunity for executive stock options; and pay all
executive deferred stock unit awards in cash on an accelerated basis. Also,
grantor trusts secured by an agreement to reserve Company Stock for contribution
to each trust, call for cash funding to pay benefits to employees under unfunded
25
nonqualified retirement plans (under which participants will have an immediate,
nonforfeitable right to their plan benefits and be entitled to elect an
immediate lump sum payment of such amounts); and to cash out deferred stock
units owed to nonemployee directors. In all of these agreements, plans, and
programs, 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 years
except if 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 for
purposes of the particular agreement, plan, or program 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 employment is
terminated by the Company without "cause" (as defined) or he terminates his
employment for "good reason" (as defined). In such circumstances the executive
would be entitled to:
- a cash payment equal to three(1) times the sum of his annual base salary,
the value for the most recent fiscal year of the Company's matching
contribution and/or accrual on his behalf under the qualified 401(k) and
nonqualified savings plans, and his 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(1) additional years of service credited 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; 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.
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 to him for the excise tax imposed by Section
4999 of the U.S. Internal Revenue Code, the Company will pay him an amount equal
to such excise tax. Also, each severance agreement provides for indemnification
of the executive if he becomes involved in litigation because he is a party to
the agreement.
-------------------------
(1) Subject to appropriate reduction in cases where an executive's mandatory
retirement would occur within three years from the date of a change in
control.
26
INFORMATION ABOUT STOCK PERFORMANCE AND OWNERSHIP
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
COMPARISON OF FIVE-YEAR CUMULATIVE SHAREHOLDER RETURN
AIR PRODUCTS, S&P 500, DOW JONES SPECIALTY CHEMICALS INDEX, AND PEER GROUP
COMPARATIVE GROWTH OF A $100 INVESTMENT
(ASSUMES REINVESTMENT OF ALL DIVIDENDS)
AIR PRODUCTS S&P 500 DJ SPEC CHEM PEER GROUP(A)
------------ ------- ------------ -------------
Sep 97 100.00 100.00 100.00 100.00
Sep 98 73.00 109.00 79.00 90.00
Sep 99 73.00 139.00 89.00 106.00
Sep 00 92.00 158.00 83.00 79.00
Sep 01 101.00 116.00 90.00 86.00
Sep 02 112.00 92.00 97.00 85.00
---------------
(a) Return on the S&P Chemicals Index through 31 December 2001; and from 1
January 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).
--------------------------------------------------------------------------------
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27
PERSONS OWNING MORE THAN 5% OF AIR PRODUCTS STOCK
AS OF SEPTEMBER 30, 2002
AMOUNT AND NATURE
OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
------------------------------------ ----------------- ----------------
State Farm Mutual Automobile Insurance Company......... 15,535,138 6.3%
One State Farm Plaza
Bloomington, IL 61710
State Street Bank and Trust Company ("State
Street")(1).......................................... 14,620,059 5.9%(2)
P.O. Box 1389
Boston, MA 02104
-------------------------
(1) State Street holds 8,793,460 shares in trust as trustee of the Company's
Retirement Savings and Stock Ownership Plan (the "RSSOP"), which is 3.6% 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 4,829,911 shares, shared voting power over
9,044,147 shares, sole investment power over 5,477,732 shares, and shared
investment power over 9,142,327 shares.
(2) 8,684,265 shares, which is 3.5% of outstanding shares, are held in a grantor
trust established by the Company with a bank not affiliated with the RSSOP
trustee. Shares in this trust are used to satisfy obligations of the Company
and its affiliates under various employee and director benefit and
compensation plans and programs as and when specified by the Company. The
trust agreement for this trust requires these trust shares to be voted,
tendered, and exchanged in the same proportions and manner as the voting
participants in the RSSOP direct the RSSOP trustee, although the RSSOP
trustee has no power to vote or direct the vote, or to dispose or direct the
disposition of such shares.
28
AIR PRODUCTS STOCK BENEFICIALLY OWNED BY OFFICERS AND DIRECTORS
AS OF NOVEMBER 1, 2002
SHARES BENEFICIALLY
OWNED AND OTHER
EQUITY
NAME OF BENEFICIAL OWNER INTERESTS(1) STOCK OPTIONS(2)
------------------------ ------------------- ----------------
Mario L. Baeza......................................... 4,313 6,000
L. Paul Bremer III..................................... 18,160 18,000
W. Douglas Brown....................................... 15,876 181,732
Andrew E. Cummins...................................... 31,063 216,732
Michael J. Donahue..................................... 4,058 2,000
Ursula F. Fairbairn.................................... 9,141 8,000
Robert E. Gadomski..................................... 53,161 592,118
Edward E. Hagenlocker.................................. 10,861 12,000
James F. Hardymon...................................... 6,072 10,000
John P. Jones III...................................... 121,678 834,218
Arthur T. Katsaros..................................... 29,292 207,552
Terry R. Lautenbach.................................... 19,155 18,000
Terrence Murray........................................ 1,076 0
Charles H. Noski....................................... 5,393 4,000
Paula G. Rosput........................................ 5,060 4,000
Lawrason D. Thomas..................................... 15,615 16,000
Directors and Executive Officers as a group (19
persons)(3).......................................... 402,101 2,362,468
-------------------------
(1) Shares reported include 5,154 shares owned jointly by certain of the
directors and officers with their spouses with whom they share voting and
investment power; and 8,857 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 8,857 shares. Equity interests reported are 91,105 deferred stock units
("DSUs") awarded or purchased, and 204,416 DSUs awarded or earned out, under
Company plans for nonemployee directors and for executives, respectively.
The directors and officers have no voting or investment power over these
securities.
(2) The directors and officers have the right to acquire this number of shares
within 60 days by exercising outstanding options granted under Company
plans.
(3) Not counting their DSUs, our directors, nominees, and executive officers as
a group beneficially own just over 1.0% 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 2002 all of our directors and executive officers met all applicable Section
16(a) filing requirements.
29
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of September 30, 2002, about Company
Stock that may be issued upon the exercise of options, warrants, and rights
granted to employees or members of our Board of Directors under our existing
equity compensation plans, including plans approved by shareholders and plans
which have not been approved by shareholders in reliance on the New York Stock
Exchange's traditional treasury stock or other applicable exception to the
Exchange's listing requirements.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER
TO BE ISSUED UPON EXERCISE PRICE OF EQUITY COMPENSATION
EXERCISE OF OUTSTANDING PLANS (EXCLUDING
OUTSTANDING OPTIONS, OPTIONS, WARRANTS, SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS, AND RIGHTS AND RIGHTS THE FIRST COLUMN)
------------- -------------------- ------------------ -----------------------
Equity compensation
plans approved by
security holders............... 18,414,180(1) $33.52 6,177,822(2)
Equity compensation
plans not approved
by security holders............ 7,034,392(3) $33.25 412,797(4)
Total............................ 25,448,572 6,590,619
-------------------------
(1) Represents outstanding options under the Long-Term Incentive Plan.
(2) This number includes: 1,041,404 deferred stock units ("DSUs") which have
earned out and are the financial equivalent of owning Company Stock which
can't be transferred or sold until after the employee retires, except that
all DSUs accrue dividend equivalents, none have voting rights, and certain
of them are subject to forfeiture for engaging in specified activities such
as competing with the Company; and 5,136,418 authorized shares which were
available for future grants as of September 30, 2002.
(3) Represents outstanding options under Global Employee Stock Option Awards
(4,198,675), the Stock Incentive Program (1,789,300), the Stock Option Plan
for Directors (134,000), and the U.K. Savings-Related Share Option Schemes
(912,417).
(4) Represents DSUs under the Stock Incentive Program (201,540) which vested on
September 30, 2002, after a four-year deferral period and have been paid by
delivering shares of Company Stock and dividend equivalents; and DSUs under
the Deferred Compensation Plan for Directors (140,543), the Annual Incentive
Plan (35,715), and the Supplementary Savings Plan (34,999) which plans do
not limit the number of DSUs which may be purchased for fair market value
with eligible deferred compensation.
The Stock Option Plan for Directors and the Deferred Compensation Plan for
Directors are described under DIRECTOR COMPENSATION. The following is a
description of the material features of the Company's other equity compensation
plans that were not approved by shareholders.
In each of 1995, 1997, and 1999, the Company granted Global Employee Stock
Option Awards covering 100 shares of Company Stock to every individual who was
at the time a full- or part-time employee of the Company (or a subsidiary
designated to participate in the Award) who was employed in an active
classification at or below a certain salary grade level ("Eligible Employees").
(The 1995 and 1997 Awards were adjusted to double the number of units and halve
the purchase price to reflect the May 1998 two-for-one stock split.)
Additionally, each year since 1999, the Company has granted stock options Awards
under the Stock Incentive Program to a subset of Eligible Employees classified
at or above a certain salary grade level. All stock options under these Awards
were granted at fair market value on date of grant, first become exercisable
after three years, and terminate ten years after the date of grant or upon the
earlier termination of employment for reasons other than retirement, disability,
30
death, or involuntary termination due to Company action necessitated by business
conditions. These Awards are administered by the Vice President, Human
Resources.
The Air Products PLC U.K. Savings-Related Share Option Scheme and the Air
Products Group Limited U.K. Savings-Related Share Option Scheme (together, the
"U.K. Plan") are employee benefit plans for salaried employees of Air Products
PLC (and certain of its U.K. subsidiaries) and Air Products Group Limited (and
certain of its U.K. subsidiaries), respectively (together, the "U.K.
Companies").
The directors of the U.K. Companies may from time to time invite salaried
employees to participate in the U.K. Plan by electing to do so during a brief
invitation period. An employee who elects to participate elects a five- or
seven-year option period and has amounts of salary automatically withheld and
contributed to a savings account at a bank not affiliated with the Company. At
the end of the five-year savings period, a tax-free bonus is added to the
employee's account. An employee who elects a seven-year option and retains his
savings account for seven years receives a further bonus at the end of the
seventh year.
At the end of the option period, the participant may use his savings to purchase
shares of Company Stock at the fixed option price or receive in cash the amount
of his savings and bonus(es). His election must be made within six months of the
close of the option period. The option price is an amount determined by the
directors of the U.K. Company on the date the option is granted, which may not
be less than 90% of Market Value (as defined in the U.K. Plan) on the date of
grant.
The Annual Incentive Plan is the annual cash bonus plan for executives and key
salaried employees of the Company and its subsidiaries. At the 2001 Annual
Meeting, terms applicable to the Plan were approved by shareholders in order to
permit the continued exclusion of compensation payable under it from the
deduction limitations imposed by Section 162(m) of the Internal Revenue Code.
The Plan is administered by the Management Development and Compensation
Committee of the Board of Directors (the "Compensation Committee"). All or a
portion of bonuses granted to a participant may be deferred at the election of
the participant or in the discretion of the Compensation Committee ("Deferred
Awards").
The dollar amount of Deferred Awards granted to a participant is initially
credited to an unfunded account which earns interest credits. The Compensation
Committee amended the Plan in 2001 so that participants with Deferred Awards may
periodically be permitted while employed by the Company to irrevocably convert
all or a portion of their accounts to an account deemed to be invested in
Company Stock. Upon conversion, the Company Stock account is credited with
deferred stock units ("DSUs") based on the fair market value of a share of
Company Stock on the date of crediting. Dividend equivalents corresponding to
the number of DSUs are credited quarterly to the interest-bearing account. DSUs
are paid after, but no later than ten years after, termination of employment in
shares of Company Stock, unless the Compensation Committee determines otherwise.
Upon a change in control of the Company, DSUs become payable immediately in
cash.
The Company's Supplementary Savings Plan is an unfunded employee retirement
benefit plan available to certain of the Company's U.S.-based management and
other highly compensated employees (and those of its subsidiaries) whose
participation in the Company's Retirement Savings and Stock Ownership Plan (the
"RSSOP") is limited by federal tax laws. Participants may defer a portion of
base salary which cannot be contributed to the RSSOP because of tax limitations
("Elective Deferrals") and earn matching contributions from the Company they
would have received if their Elective Deferrals had been contributed to the
RSSOP ("Matching Credits"). The dollar amount of Elective Deferrals and Matching
Credits is initially credited to an unfunded account which earns interest
credits. Participants may periodically be permitted while employed by the
Company to irrevocably convert all or a portion of their account to DSUs in a
Company Stock account. Conversion and crediting of earnings to, and payments
from, the Company Stock account is the same as described above as to Deferred
Awards granted under the Annual Incentive Plan.
31
AIR PRODUCTS AND CHEMICALS, INC.
LONG-TERM INCENTIVE PLAN
As Amended and Restated
Effective January 23, 2003
TABLE OF CONTENTS
Page
----
Purposes of the Plan.......................................................... 1
Administration of the Plan.................................................... 1
Eligibility for Participation................................................. 2
Shares of Stock Subject to the Plan........................................... 3
Awards........................................................................ 3
Stock Options................................................................. 4
Director Stock Options................................................... 4
Employee Stock Options................................................... 4
Terms Applicable to all Stock Options.................................... 5
Terms and Exercise Dates............................................. 5
Exercise............................................................. 5
Payment.............................................................. 6
Termination of Employment or Death................................... 6
Stock Appreciation Rights..................................................... 7
Number of Rights......................................................... 7
Exercise................................................................. 7
Amount of Cash and/or Number of Shares................................... 7
Termination of Employment or Death....................................... 8
Restricted Shares............................................................. 8
Deferred Stock Units.......................................................... 8
Number, Value, and Manner of Payment of Deferred Stock Units............. 9
Deferral Period.......................................................... 9
Termination of Service or Death.......................................... 9
Dividends................................................................10
Other Stock Awards............................................................10
TABLE OF CONTENTS
(continued)
Page
----
Change in Control............................................................ 10
Acceleration and Exercisability of Stock Options and
Stock Appreciation Rights; Amount of Cash and/or
Number of Shares for Stock Appreciation Rights...................... 10
Cash Surrender of Stock Options......................................... 11
Reduction in Accordance with Plan....................................... 11
Lapse of Restrictions on Restricted Shares.............................. 12
Accelerated Payment of Deferred Stock Units............................. 12
Dilution and Other Adjustments............................................... 12
Miscellaneous Provisions..................................................... 13
Amendments and Termination; Requisite Shareholder Approval................... 17
Effective Date, Amendment and Restatement, and Term of the Plan.............. 18
-ii-
1. PURPOSES OF THE PLAN
The purposes of this Plan are: (i) to provide long-term incentives and
rewards to directors and to those executives or other key employees who are
either in a position to contribute to the long-term success and growth of Air
Products and Chemicals, Inc. (the "Company") and Participating Subsidiaries, or
who have high potential for assuming greater levels of responsibility or who
have demonstrated their critical importance to the operation of their
organizational unit, (ii) to assist the Company and Participating Subsidiaries
in attracting and retaining directors, executives and other key employees with
experience and ability and (iii) to associate more closely the interests of such
directors, executives and other key employees with those of the Company's
shareholders.
2. ADMINISTRATION OF THE PLAN
With regard to Plan awards granted to employees, the Plan shall be
administered by the Management Development and Compensation Committee of the
Company's Board of Directors (the "Board") or such other committee thereof
consisting of such members (not less than three) of the Board as are appointed
from time to time by the Board (the "Compensation Committee"), each of the
members of which, at the time of any action under the Plan, shall be (i) a
"non-employee director" as then defined under Rule 16b-3 under the Act (or
meeting comparable requirements of any successor rule relating to exemption from
Section 16(b) of the Act), (ii) an "outside director" as then defined under
Section 162(m) of the Internal Revenue Code and (iii) an "independent director"
as then defined under the rules of the New York Stock Exchange (or meeting
comparable requirements of any stock exchange on which the Company's Common
Stock may then be listed). With regard to Plan awards granted to Eligible
Directors, the Plan shall be administered by Nominating and Corporate Governance
Committee of the Board or such other committee thereof consisting of such
members (not less than three) of the Board as are appointed from time to time by
the Board (the "Nominating Committee"), each of the members of which, at the
time of any action under the Plan, shall be (i) a "non-employee director" as
then defined under Rule 16b-3 under the Act (or meeting comparable requirements
of any successor rule relating to exemption from Section 16(b) of the Act) and
(ii) an "independent director" as then defined under the rules of the New York
Stock Exchange (or meeting comparable requirements of any stock exchange on
which the Company's Common Stock may then be listed). As used herein, the term
"Committee" shall mean the Compensation Committee as regards awards granted or
to be granted to employees and the Nominating Committee as regards awards
granted or to be granted to Eligible Directors.
The Committee shall have all necessary powers to administer and interpret
the Plan. Such powers of the Compensation Committee include exclusive authority
(within the limitations described and except as otherwise provided in the Plan)
to select the employees or determine classes of employees to be granted awards
under the Plan, to determine the aggregate amount, type, size, and terms of the
awards to be made to eligible employees, and to determine the time when awards
will be granted. The Compensation Committee may take into consideration
recommendations from the appropriate officers of the Company and of each
Participating Subsidiary with respect to making the foregoing determinations as
to Plan awards,
administration, and interpretation. Such powers of the Nominating Committee
include exclusive authority (within the limitations described and except as
otherwise provided in the Plan) to select the Eligible Directors to be granted
awards under the Plan, to determine the aggregate amount, type, size, and terms
of the awards to be made to Eligible Directors, and to determine the time when
such awards will be granted.
The Committee shall have full power and authority to adopt such rules,
regulations, agreements and instruments for the administration of the Plan and
for the conduct of its business as the Committee deems necessary or advisable.
The Committee's interpretations of the Plan and all action taken and
determinations made by the Committee pursuant to the powers vested in it
hereunder shall be conclusive and binding on all parties concerned, including
the Company, its shareholders and any director or employee of the Company or any
Subsidiary. Notwithstanding any other provision of the Plan to the contrary, the
Committee may delegate to appropriate Company officers its authority to take all
final action with respect to granting and administering Plan awards granted to
Participants who are at the time of such action not members of the Board or
"officers" within the meaning of Rule 16a-1(f) of the Act, including without
limitation selecting the executives and key employees to whom such awards will
be granted and determining the amount of any such awards to be made to such
executives and key employees, determining the terms and conditions of such
awards and administering, interpreting, and taking all action on behalf of the
Company with respect to administering, vesting, and paying such awards;
provided, however, that (i) all such awards shall be granted within the
limitations and subject to the terms and conditions required by the Plan and by
the Committee's determinations and interpretations thereof and thereunder; (ii)
the aggregate of such awards granted under the Plan for or with respect to a
given Fiscal Year shall not, when added to the awards approved by the Committee
for granting to individuals who are members of the Board of Directors or are
"officers" within the meaning of Rule 16a-1(f) of the Act for or with respect to
the same Fiscal Year, exceed the total amount of awards approved by the
Committee for or with respect to such Fiscal Year; and (iii) any action with
respect to such awards taken because of or in connection with a Change in
Control of the Company or as contemplated by Section 12 shall be taken by the
Committee. With respect to matters so delegated, the term "Committee" as used
herein shall mean the delegate.
3. ELIGIBILITY FOR PARTICIPATION
Participation in the Plan shall be limited to (i) directors of the Company
who are not employees of the Company or any of its subsidiaries or their
respective predecessors ("Eligible Directors") and (ii) executives or other key
employees (including officers and directors who are also employees) of the
Company and its Participating Subsidiaries selected on the basis of such
criteria as the Committee may determine. Employees who participate in other
incentive or benefit plans of the Company or any Participating Subsidiary may
also participate in this Plan. As used herein, the term "employee" shall mean
any person employed full time or part time by the Company or a Participating
Subsidiary on a salaried basis, and the term "employment" shall mean full-time
or part-time salaried employment by the Company or a Subsidiary.
-2-
4. SHARES OF STOCK SUBJECT TO THE PLAN
The shares that may be delivered upon exercise, in payment or in respect
of stock options, stock appreciation rights, deferred stock units, restricted
shares and other stock awards granted under the Plan on or after January 23,
2003 shall not exceed in the aggregate 9,000,000 shares of common stock of the
Company ("Common Stock") plus the number of shares previously authorized under
the Plan but not then issued or subject to an outstanding award, subject to
adjustment as provided in Section 12. Any share subject to a Plan award which
for any reason is not delivered, whether because the award expires, is
forfeited, or terminates unexercised, because payment under the award is made in
a form other than in shares, or for any other reason may again be subject to an
award subsequently granted under the Plan. Shares used as payment of the
exercise price of an award or in satisfaction of tax obligations relating to an
award are available again for Plan awards.
5. AWARDS
Awards granted to Eligible Directors under the Plan may be of the
following types: (i) stock options, (ii) restricted shares, (iii) deferred stock
units and/or (iv) other stock awards. Awards granted to employees under the Plan
may be of the following types: (i) stock options, (ii) stock appreciation
rights, (iii) restricted shares, (iv) deferred stock units and/or (v) other
stock awards.
Stock options ("Stock Options"), are rights to purchase Common Stock from
the Company. Stock Options granted to employees may be either Nonstatutory Stock
Options or Incentive Stock Options, both as described below. The Committee shall
designate each Stock Option grant to an employee as being either a Nonstatutory
Stock Option or an Incentive Stock Option. If the same employee receives both
Nonstatutory Stock Options and Incentive Stock Options, each type shall be
clearly identified and separately granted.
Stock appreciation rights ("Stock Appreciation Rights") are rights to
receive cash and/or Common Stock equivalent in value to the "spread" between (a)
the aggregate fair market value of the number of shares with respect to which
the Participant has elected to exercise Stock Appreciation Rights and (b) the
aggregate purchase price of such shares based on the Fair Market Value of a
share of Common Stock on the date the Stock Appreciation Rights were granted.
Restricted shares ("Restricted Shares") are shares of Common Stock awarded
subject to restrictions and to possible forfeiture upon the occurrence of
specified events. Deferred stock units ("Deferred Stock Units") are rights to
receive at the end of a deferral period cash and/or Common Stock equivalent in
value to one share of Common Stock for each unit. Other stock awards ("Other
Stock Awards") are awards in such form as the Committee may determine that are
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to shares of Common Stock.
Nonstatutory Stock Options, Restricted Shares, Deferred Stock Units and
Other Stock Awards, and in the case of employee Participants Incentive Stock
Options and Stock Appreciation Rights, may be granted to the same Participant as
separate awards at or for the same
-3-
period of time under terms whereby the issuance of shares or payment under one
award has no effect on any other award. Stock Appreciation Rights and, in the
case of a Nonstatutory Stock Options, other Plan awards may be granted to an
employee Participant in relation to (i.e., in "tandem" with) each other or with
a previously or concurrently granted Stock Option under terms whereby the
issuance of shares or payment under one award reduces directly the number of
shares, units, and/or rights remaining available under the related award(s).
6. STOCK OPTIONS
(a) DIRECTOR STOCK OPTIONS
All Stock Options granted to Eligible Directors under the Plan shall
be Nonstatutory Stock Options. The purchase price per share of Common Stock
covered by each Stock Option shall be determined by the Committee but shall not
be less than 100% of the Fair Market Value of a share of Common Stock on the
date of grant of such Option. The Committee will determine, absolutely or by
formula, the number of shares to be subject to each Stock Option.
(b) EMPLOYEE STOCK OPTIONS
Stock Options granted to eligible employees under the Plan may be either
Incentive Stock Options or Nonstatutory Stock Options, as determined by the
Committee at the time of grant. The Committee may grant Stock Options to
eligible employees either alone or in conjunction with and related to Stock
Appreciation Rights and may also grant Nonstatutory Stock Options in conjunction
with and related to other Plan awards. No Incentive Stock Option shall be
granted under this Plan more than 10 years after the most recent date this Plan
is adopted or approved by the shareholders of the Company.
The purchase price per share of Common Stock covered by each Stock Option
shall be determined by the Committee but shall not be less than 100% of the Fair
Market Value of a share of Common Stock on the date of grant of such Option. If
an Incentive Stock Option is granted to an employee who, on the date of grant,
owns stock possessing more than 10% of the total combined voting power of all
outstanding classes of stock of the Company or any affiliate, the purchase price
per share under such Incentive Stock Option shall be at least 110% of the Fair
Market Value of a share of Common Stock on the date of grant of such Option, and
such Incentive Stock Option shall not be exercisable after the expiration of
five years from its date of grant.
The Committee will determine, absolutely or by formula related to the Fair
Market Value of a share of Common Stock, the number of shares of Common Stock to
be subject to each Stock Option. The number of shares subject to an outstanding
Stock Option will be reduced on a one-for-one basis to the extent that shares
under such Stock Option are used to calculate the cash and/or shares received
upon exercise of related Stock Appreciation Rights. In no event shall the number
of shares subject to Stock Options (and any related Stock Appreciation Rights)
granted to any Participant in any Fiscal Year exceed 1,000,000.
-4-
The aggregate Fair Market Value, determined on the date of grant, of
stock with respect to which Incentive Stock Options are exercisable for
the first time by such Participant during any calendar year (under this
Plan and all such other plans of the Company and any predecessor, parent,
subsidiary or affiliate) shall not exceed $100,000, except as a result of
an acceleration of the exercise date of an Incentive Stock Option provided
for in Section 11.
(c) TERMS APPLICABLE TO ALL STOCK OPTIONS.
Except as otherwise determined by the Committee and reflected in the
applicable Stock Option agreement or an amendment thereto, Stock Options
shall be granted on the following additional terms and conditions (and
such other terms and conditions that the Committee may establish which are
consistent with the Plan and applicable law):
(i) Term and Exercise Dates. The Committee shall fix the term during
which each Stock Option may be exercised, but no Stock Option shall be
exercisable after the tenth anniversary of its date of grant. No Stock
Option shall be exercisable prior to one year from its date of grant,
except as otherwise provided in Section 11. Except as otherwise provided
in Section 11, each Stock Option shall become exercisable in installments
as follows:
1. One-third of the shares subject to such Stock Option may be
purchased commencing one year after the date of grant; and
2. An additional one-third of such shares subject to such
Stock Option may be purchased commencing on each of the second and
third yearly anniversaries of the date of grant.
Notwithstanding any other provision of the Plan, the Committee may
determine that the date on which any outstanding Stock Option or any
portion thereof is exercisable shall be or shall have been advanced to an
earlier date or dates designated by the Committee in accordance with such
terms and subject to such conditions, if any, as the Committee shall
specify; provided, however, that any such earlier date shall not be prior
to one year from the date of grant of such Stock Option, except as
otherwise provided in Section 11.
(ii) Exercise. A Participant wishing to exercise his or her Stock
Option in whole or in part shall give written notice of such exercise to
the Company, accompanied by full payment of the purchase price. The date
of receipt of such notice (including by facsimile transmission) and
payment shall be the "Exercise Date" for such Stock Option or portion
thereof; provided, however, that if the Participant engages in a
simultaneous Option exercise and sale of shares of Common Stock, the
Exercise Date shall be the date of sale of the shares purchased by
exercising such Option. No partial exercise of a Stock Option may be for
less than 100 shares of Common Stock.
-5-
(iii) Payment. The purchase price of shares purchased upon exercise
of any Option shall be paid in full in cash at the time of exercise of the
Option, except that the Committee, in its sole discretion, and on such
terms and conditions as it may specify, may approve payment by the
exchange of shares of Common Stock having a Fair Market Value on the
Exercise Date equal to the purchase price of such shares or by a
combination of cash and Common Stock having a Fair Market Value on the
Exercise Date equal to the portion of such purchase price not paid in
cash; provided, however, that except as the Committee shall otherwise
determine, any such shares submitted in the exchange must have been
beneficially owned by the Participant for a certain period prior to the
Exercise Date, the duration of such period to be determined from time to
time by the Committee but in no event to be less than six months. Subject
to any administrative rules from time to time adopted by the Committee for
administering Option exercises, payment of the exercise price of the
Option will be permitted through the delivery (including by facsimile
transmission) of an irrevocable exercise notice coupled with irrevocable
instructions to a designated broker to simultaneously sell the underlying
shares of Common Stock and deliver to the Company on the settlement date
the portion of the proceeds representing the exercise price (and any taxes
to be withheld).
(iv) Termination of Employment or Death.
(A) The Participant whose employment or service as a director is
terminated by Retirement or Disability, and, in the case of the
Participant's death while an employee or director or after termination of
employment or service due to Retirement or Disability, the Participant's
Designated Beneficiary or, if none, his or her legal representative, shall
continue to have the same rights to exercise any unexercised portion of
the Participant's Stock Option which is exercisable at the time of, or
will by its terms become exercisable after, such termination or death, as
the Participant would have had if he or she had continued to be an active
or retired employee or director of the Company or a Subsidiary, as the
case may be.
(B) Except as provided in clause (A) of this Section 6(c)(iv), if
prior to the expiration or cancellation of any Stock Option, the
Participant ceases to be employed by the Company or a Subsidiary or to be
a director for any reason, any unexercised portion of his or her
outstanding Option shall automatically terminate unless the Committee, in
its sole discretion, shall determine otherwise, and except that when the
Participant's employment has ceased due to a leave of absence, such
Participant's Stock Option shall be treated in accordance with guidelines
for such situations established by the Committee.
(C) No provision of this Section 6(c)(iv) shall be deemed to permit
the exercise of any Stock Option after the expiration of the normal stated
term of such Option.
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7. STOCK APPRECIATION RIGHTS
The Committee may grant Stock Appreciation Rights either alone or in
conjunction with and related to previously or concurrently granted Stock Options
and/or other Plan awards. Except as otherwise determined by the Committee and
reflected in the applicable Stock Appreciation Rights agreement or an amendment
thereto, all Stock Appreciation Rights shall be granted on the following terms
and conditions (and such other terms and conditions that the Committee may
establish which are consistent with the Plan and applicable law):
(a) Number of Rights. The Committee shall determine, absolutely or by
formula related to the Fair Market Value of a share of Common Stock, the number
of Stock Appreciation Rights which shall be granted. As to any Stock
Appreciation Rights granted in tandem with a Stock Option, such number shall not
be greater than the number of shares which are then subject to the related Stock
Option, and the number of such Stock Appreciation Rights will be reduced on a
one-for-one basis to the extent that shares under the related Stock Option are
purchased. In no event shall the number of Stock Appreciation Rights granted to
any Participant in any Fiscal Year (excluding Stock Appreciation Rights granted
in tandem with a Stock Option, which shall be subject to the limitation in
Section 6(b)), exceed 1,000,000.
(b) Exercise. Stock Appreciation Rights shall entitle the Participant, to
the extent he or she so elects from time to time, to receive, without any
payment to the Company, an amount of cash and/or a number of shares determined
and payable as provided in Section 7(c). Stock Appreciation Rights shall
generally be exercisable to the extent and upon the same conditions that Stock
Options are exercisable under Section 6(c)(iv); provided, however, that, unless
otherwise determined by the Committee, Stock Appreciation Rights may not be
exercised prior to one year following the date of their grant. A Participant
wishing to exercise Stock Appreciation Rights shall give written notice of such
exercise to the Company. The date of receipt of such notice shall be the
"Exercise Date" for such Stock Appreciation Rights. Promptly after the Exercise
Date the Company shall pay and/or deliver to the Participant the cash and/or
shares to which he or she is entitled.
(c) Amount of Cash and/or Number of Shares. Except as otherwise provided
in Section 11, the amount of the payment to be made upon exercise of Stock
Appreciation Rights shall be determined by multiplying (i) that portion, as
elected by the Participant, of the total number of shares as to which the
Participant is entitled to exercise the Stock Appreciation Rights award as of
the Stock Appreciation Right Exercise Date, by (ii) 100% of the amount by which
the Fair Market Value of a share of Common Stock on the Exercise Date exceeds
the Fair Market Value of a share of Common Stock on the date the Stock
Appreciation Rights were granted. The Committee may make payment in cash or
partly in cash and partly in Common Stock, all as determined by the Committee in
its sole discretion. To the extent that payment is made in Common Stock, the
number of shares shall be determined by dividing the amount of such payment by
the Fair Market Value of a share of Common Stock on the Exercise Date. No
fractional shares shall be issued, but instead the Participant shall be entitled
to receive a cash adjustment equal to the same fraction of the Fair Market Value
on the Exercise Date.
-7-
(d) Termination of Employment or Death. In the event that a recipient of
Stock Appreciation Rights ceases to be employed by the Company or a Subsidiary
by reason of Retirement, Disability or death, his or her Stock Appreciation
Rights shall continue to be or become exercisable following such termination of
employment and termination of directorship, if any, to the extent and upon the
same conditions that a Stock Option is exercisable under Section 6(c)(iv). In
the event a recipient of Stock Appreciation Rights ceases to be employed by the
Company or a Subsidiary for a reason other than Retirement, Disability or death,
his or her Stock Appreciation Rights shall automatically terminate unless and to
the extent the Committee, in its sole discretion, shall determine otherwise.
8. RESTRICTED SHARES
Restricted Share awards shall be evidenced by a written agreement in the
form prescribed by the Committee in its discretion, which shall set forth the
number of shares of Common Stock awarded, the restrictions imposed thereon
(including, without limitation, restrictions on the right of the grantee to
sell, assign, transfer or encumber such shares while such shares are subject to
other restrictions imposed under this Section 8), the duration of such
restrictions which shall not be less than one year from the effective date of
the award; the events (which may, in the discretion of the Committee, include
performance-based events or objectives) the occurrence of which would cause a
forfeiture of the Restricted Shares in whole or in part; and such other terms
and conditions as the Committee in its discretion deems appropriate. If so
determined by the Committee at the time of an award of Restricted Shares, the
lapse of restrictions on Restricted Shares may be based on the extent of
achievement over a specified performance period of one or more performance
targets based on performance criteria established by the Committee. In no event
shall the number of Restricted Shares granted to any Participant in any Fiscal
Year exceed 100,000.
Restricted share awards shall be effective upon execution of the
applicable Restricted Share agreement by the Company and the Participant.
Following a Restricted Share award and prior to the lapse or termination of the
applicable restrictions, the share certificates for such Restricted Shares shall
be held in escrow by the Company. Upon the lapse or termination of the
applicable restrictions (and not before such time), the certificates for the
Restricted Shares shall be issued or delivered to the Participant. From the date
a Restricted Share award is effective, the Participant shall be a shareholder
with respect to all the shares represented by such certificates and shall have
all the rights of a shareholder with respect to all such shares, including the
right to vote such shares and to receive all dividends and other distributions
paid with respect to such shares, subject only to the restrictions imposed by
the Committee.
9. DEFERRED STOCK UNITS
The Committee may grant Deferred Stock Units to Participants on the
following terms and conditions (and/or such other terms and conditions that the
Committee may establish which are consistent with the Plan and applicable law):
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(a) Number, Value, and Manner of Payment of Deferred Stock Units. Each
Deferred Stock Unit shall be equivalent in value to one share of Common Stock
and shall entitle the Participant to receive from the Company at the end of the
deferral period (the "Deferral Period") applicable to such Unit the value at
such time of each Unit. Except as otherwise determined by the Committee,
Deferred Stock Units shall be granted without payment of cash or other
consideration to the Company but in consideration of services performed for or
for the benefit of the Company or a Participating Subsidiary by such
Participant. Payment of the value of Deferred Stock Units may be made by the
Company in shares of Common Stock, cash or both as determined by the Committee
during, or as soon as practicable after the end of the Deferral Period. If paid
in Common Stock, the Participant shall receive a number of shares of Common
Stock equal to the number of matured or earned Deferred Stock Units, and if paid
in cash, the Participant shall receive for each matured Deferred Stock Unit an
amount equal to the Fair Market Value of a share of Common Stock on the last day
of the applicable Deferral Period (except as otherwise provided in Section 11).
Upon payment in respect of a Deferred Stock Unit, such Unit shall be canceled.
In no event shall the number of Deferred Stock Units granted to any Participant
in any Fiscal Year exceed 100,000.
(b) Deferral Period. Except as otherwise provided in Section 9(c),
payments in respect of Deferred Stock Units shall be made only at the end of the
Deferral Period applicable to such Units, the duration of which Deferral Period
shall be fixed by the Committee at the time of grant of such Deferred Stock
Units. Deferral Periods shall be no less than one year.
(c) Termination of Service or Death. Unless otherwise determined by the
Committee:
(i) in the case of Deferred Stock Units granted to employee
Participants:
(A) If during a Deferral Period a Participant's employment
with the Company or a Subsidiary is terminated for any reason other
than Retirement, Disability or death, such Participant shall forfeit
his or her Deferred Stock Units which would have matured or been
earned at the end of such Deferral Period, unless the Committee
determines in its discretion that such Deferred Stock Units should
be paid at the end of such Deferral Period or, notwithstanding any
other provision of the Plan, on some accelerated basis; and
(B) Unless otherwise specified by the Committee in the
applicable Deferred Stock Units agreement, a Participant whose
employment with the Company or a Subsidiary terminates during a
Deferral Period due to Retirement or Disability or, in the case of
his or her death while an employee or after termination of
employment due to Retirement or Disability, such Participant's
Designated Beneficiary or, if none, his or her legal representative,
shall receive payment in respect of such Participant's Deferred
Stock Units which would have matured or been earned at the end of
such Deferral Period, at such time and in such manner as if the
Participant were still employed (and living) at the end of the
Deferral Period or, notwithstanding any other provision of the Plan,
on such accelerated basis as the Committee may determine.
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(ii) Deferred Stock Units granted to Eligible Directors shall not be
required to be forfeited upon termination of service as a director.
(d) Dividends. No cash dividends or equivalent amounts shall be paid on
outstanding Deferred Stock Units. However, when payment of the value of an award
is made to the Participant, the Company shall pay to the Participant an
additional amount in cash which shall be equal to the cash dividends, if any
("Dividend Equivalent"), which would have been paid during the period since the
award was granted with respect to issued and outstanding shares of Common Stock
equal in number to the number of Deferred Stock Units being paid. No interest
shall be paid on any such Dividend Equivalent or any part thereof.
10. OTHER STOCK AWARDS
The Committee shall have the authority in its discretion to grant to
eligible Participants such other awards that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or related to,
shares of Common Stock as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, purchase rights, shares
awarded without restrictions or conditions, or securities or other rights
convertible or exchangeable into shares of Common Stock. In the discretion of
the Committee, such Other Stock Awards, including shares of Common Stock, or
other types of awards authorized under the Plan, may be used in connection with,
or to satisfy obligations of the Company or a Subsidiary to eligible employees
under, other compensation or incentive plans, programs or arrangements of the
Company or a Subsidiary, including without limitation the Company's Deferred
Compensation Plan for Directors, Annual Incentive Plan, Supplementary Savings
Plan, and the U.K. Savings-Related Share Option Scheme. The Committee shall
determine the terms and conditions, if any, of any Other Stock Awards made under
the Plan. In no event shall Other Stock Awards be granted to any Participant in
any Fiscal Year with respect to more than 100,000 shares of Common Stock (i.e.,
have a value greater than the value of 100,000 shares of Common Stock).
11. CHANGE IN CONTROL
Following or in connection with the occurrence of a Change in Control, the
following shall or may occur as specified below, notwithstanding any other
provisions of this Plan to the contrary:
(a) Acceleration and Exercisability of Stock Options and Stock
Appreciation Rights; Amount of Cash and/or Number of Shares for Stock
Appreciation Rights. All Stock Options and Stock Appreciation Rights shall
become immediately exercisable in full for the period of their remaining terms
automatically and without any action by the Committee, provided, however, that
the acceleration of the exercisability of any Stock Option or Stock Appreciation
Right that has not been outstanding for a period of at least six months from its
respective date of grant shall occur on the first day next following the end of
such six-month period. The amount of the payment to be made upon the exercise of
a Stock Appreciation Right following a Change in
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Control shall be determined by multiplying (i) that portion, as elected by the
Participant, of the total number of shares as to which the Participant is
entitled to exercise the Stock Appreciation Rights as of the Exercise Date for
the Stock Appreciation Rights, by (ii) 100% of the amount by which
(A) the greater of (1) the highest tender or exchange offer price
paid or to be paid for Common Stock pursuant to the offer associated with
the Change in Control (such price to be determined by the Committee from
such source or sources of information as the Committee shall determine
including, without limitation, the Schedule 13D or an amendment thereto
filed by the offeror pursuant to Rule 13d-1 under the Act), or the price
paid or to be paid for Common Stock under an agreement associated with the
Change in Control, as the case may be, and (2) the highest Fair Market
Value of a share of Common Stock on any day during the sixty-day period
immediately preceding the Exercise Date of the Stock Appreciation Rights,
exceeds
(B) the Fair Market Value of a share of Common Stock on the date of
grant of the Stock Appreciation Rights.
For purposes of determining the price paid or to be paid for Common Stock
under clause (1) of paragraph (A) of the preceding formula, consideration other
than cash forming part or all of the consideration for Common Stock paid or to
be paid pursuant to the exchange offer or agreement associated with the Change
in Control shall be valued at the higher of the valuation placed thereon by the
Board of Directors or by the person making the offer or entering into the
agreement with the Company.
(b) Cash Surrender of Stock Options. All or certain outstanding Stock
Options may, at the discretion of the Committee, be required to be surrendered
by the holder thereof for cancellation in exchange for a cash payment for each
such Stock Option. In the absence of Committee action requiring the surrender of
Stock Options, each holder of Stock Options may elect to surrender all or
certain of his or her outstanding Options which are then exercisable for
cancellation in exchange for a cash payment for each such Stock Option. In any
case, the cash payment received for each share subject to the Stock Option shall
be 100% of the amount by which the amount described in paragraph (A) of Section
11(a) exceeds the Fair Market Value of a share of Common Stock on the date of
grant of the Option. Such payments shall be due and payable immediately upon
surrender to the Committee for cancellation of appropriate award agreements or
other evidence in writing of the Participant's relinquishment of his or her
rights to such award or at such earlier date as the Committee shall determine
(but in no event earlier than the occurrence of a Change in Control) and shall
be valued as if the Exercise Date were the date of receipt of said materials or
such earlier date as the Committee shall determine.
(c) Reduction in Accordance with Plan. The number of shares covered by
Stock Options and Stock Appreciation Rights will be reduced on a one-for-one
basis to the extent related Stock Options or Stock Appreciation Rights are
exercised, or surrendered for cancellation in exchange for a cash payment, as
the case may be, under this Section 11.
-11-
(d) Lapse of Restrictions on Restricted Shares. Unless the applicable
Restricted Share agreement or an amendment thereto shall otherwise provide, all
restrictions applicable to an outstanding award of Restricted Shares shall lapse
immediately upon the occurrence of such Change in Control regardless of the
scheduled lapse of such restrictions.
(e) Accelerated Payment of Deferred Stock Units. Unless otherwise provided
in the applicable Deferred Stock Unit award agreement or an amendment thereto,
all outstanding Deferred Stock Units together with any Dividend Equivalents for
the period for which such Units have been outstanding, notwithstanding that the
Deferral Periods as to such Deferred Stock Units have not been completed, shall
be paid in full. Such payment shall be in cash and shall be due and payable to
Participants immediately upon the occurrence of a Change in Control in an amount
in respect of each Deferred Stock Unit equal to the greater of (i) the highest
tender or exchange offer price paid or to be paid for Common Stock pursuant to
the offer associated with the Change in Control (such price to be determined by
the Committee from such source or sources of information as the Committee shall
determine including, without limitation, the Schedule 13D or an amendment
thereto filed by the offeror pursuant to Rule 13d-l under the Act) or the price
paid or to be paid for Common Stock under an agreement associated with the
Change in Control, as the case may be, and (ii) the highest Fair Market Value of
a share of Common Stock on any day during the sixty-day period immediately
preceding the Change in Control. For purposes of determining the price paid or
to be paid for Common Stock under clause (i) of the preceding sentence,
consideration other than cash forming part or all of the consideration for
Common Stock paid or to be paid pursuant to the exchange offer or agreement
associated with the Change in Control shall be valued at the higher of the
valuation placed thereon by the Board of Directors or by the person making the
offer or entering into the agreement with the Company.
12. DILUTION AND OTHER ADJUSTMENTS
Notwithstanding any other provision of the Plan, in the event of any
change in the outstanding shares of Common Stock by reason of any stock dividend
or split, recapitalization, merger, consolidation, combination or exchange of
shares, a rights offering to purchase Common Stock at a price substantially
below fair market value, or other similar corporate change, including without
limitation in connection with a Change in Control, an equitable adjustment shall
be made, as determined by the Committee, so as to preserve, without increasing
or decreasing, the value of Plan awards and authorizations, in (i) the maximum
number or kind of shares issuable or awards which may be granted under the Plan,
(ii) the amount payable upon exercise of Stock Appreciation Rights, (iii) the
number or kind of shares or purchase price per share subject to outstanding
Stock Options, (iv) the number or value, or kind of shares which may be issued
in payment of outstanding Stock Appreciation Rights, (v) the value and
attributes of Deferred Stock Units, (vi) the maximum number, kind or value of
any Plan awards which may be awarded or paid in general or to any one employee,
(vii) the performance-based events or objectives applicable to any Plan awards,
(viii) any other aspect or aspects of the Plan or outstanding awards made
thereunder as specified by the Committee, or (ix) any combination of the
foregoing. Such adjustments shall be made by the Committee and shall be
conclusive and binding for all purposes of the Plan.
-12-
13. MISCELLANEOUS PROVISIONS
(a) The holder of a Plan award shall have no rights as a Company
shareholder with respect thereto unless, and until the date as of which,
certificates for shares of Common Stock are issued upon exercise or payment in
respect of such award.
(b) Except as the Committee shall otherwise determine in connection with
determining the terms of awards to be granted or shall thereafter permit, no
Plan award or any rights or interests therein of the recipient thereof shall be
assignable or transferable by such recipient except upon death to his or her
Designated Beneficiary or by will or the laws of descent and distribution, and,
except as aforesaid, during the lifetime of the recipient, a Plan award shall be
exercisable only by, or payable only to, as the case may be, such recipient or
his or her guardian or legal representative.
(c) All Stock Options, Stock Appreciation Rights, Restricted Shares, and
Deferred Stock Units granted under the Plan shall be evidenced by agreements in
such form and containing and/or incorporating such terms and conditions (not
inconsistent with the Plan and applicable domestic and foreign law) in addition
to those provided for herein as the Committee shall approve.
(d) No shares of Common Stock shall be issued, delivered or transferred
upon exercise or in payment of any award granted hereunder unless and until all
legal requirements applicable to the issuance, delivery or transfer of such
shares have been complied with to the satisfaction of the Committee and the
Company, including, without limitation, compliance with the provisions of the
Securities Act of 1933, the Act and the applicable requirements of the exchanges
on which the Company's Common Stock may, at the time, be listed. The Committee
and the Company shall have the right to condition any issuance of shares of
Common Stock made to any Participant hereunder on such Participant's undertaking
in writing to comply with such restrictions on his or her subsequent disposition
of such shares as the Committee and/or the Company shall deem necessary or
advisable as a result of any applicable law, regulation or official
interpretation thereof, and certificates representing such shares may be
legended to reflect any such restrictions.
(e) The Company shall have the right to deduct from all awards hereunder
paid in cash any federal, state, local or foreign taxes required by law to be
withheld with respect to such cash awards. In the case of awards to be
distributed in Common Stock, the Company shall have the right to require, as a
condition of such distribution, that the Participant or other person receiving
such Common Stock either (i) pay to the Company at the time of distribution
thereof the amount of any such taxes which the Company is required to withhold
with respect to such Common Stock or (ii) make such other arrangements as the
Company may authorize from time to time to provide for such withholding
including without limitation having the number of the units of the award
cancelled or the number of the shares of Common Stock to be distributed reduced
by an amount with a value equal to the value of such taxes required to be
withheld. The obligation of the Company to make delivery of awards in cash or
Common Stock shall be subject to currency or other restrictions imposed by any
government.
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(f) No employee or director of the Company or a Subsidiary or other person
shall have any claim or right to be granted an award under this Plan. Neither
this Plan nor any action taken hereunder shall be construed as giving any
employee any right to be retained in the employ of the Company or a Subsidiary
or any director any right to continue as a director of the Company, it being
understood that all Company and Subsidiary employees who have or may receive
awards under this Plan are employed at the will of the Company or such
Subsidiary and in accord with all statutory provisions.
(g) Distributions of shares of Common Stock upon exercise, in payment or
in respect of awards made under this Plan may be made either from shares of
authorized but unissued Common Stock reserved for such purpose by the Board of
Directors or from shares of authorized and issued Common Stock reacquired by the
Company and held in its treasury or held under the Company's Flexible Employee
Benefits Trust, as from time to time determined by the Committee, the Board, or
pursuant to delegations of authority from either.
(h) The costs and expenses of administering this Plan shall be borne by
the Company and not charged to any award or to any employee, director or
Participant receiving an award. However, the Company may charge the cost of any
awards made to employees of Participating Subsidiaries, including administrative
costs and expenses related thereto, to the respective Participating Subsidiaries
by which such persons are employed.
(i) This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any award under this Plan and payment of awards
shall be subordinate to the claims of the Company's general creditors.
(j) In addition to the terms defined elsewhere herein, the following terms
as used in this Plan shall have the following meanings:
"Act" shall mean the Securities Exchange Act of 1934 as amended from time
to time.
"Change in Control" shall mean the first to occur of any one of the events
described below:
(i) Stock Acquisition. Any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Act), other than the Company or a
corporation, a majority of whose outstanding stock entitled to vote is
owned, directly or indirectly, by the Company, or a trustee of an employee
benefit plan or trust sponsored solely by the Company and/or such a
corporation, is or becomes, other than by purchase from the Company or
such a corporation, the "beneficial owner" (as such term is defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the
Company's then outstanding voting securities. Such a Change in Control
shall be deemed to have occurred on the first to occur of the date
securities are first purchased by a tender or exchange offeror, the date
on which the
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Company first learns of acquisition of 20% of such securities, or the
later of the effective date of an agreement for the merger, consolidation
or other reorganization of the Company or the date of approval thereof by
a majority of the Company shareholders, as the case may be.
(ii) Change in Board. During any period of two consecutive years,
individuals who at the beginning of such period were members of the Board
of Directors cease for any reason to constitute at least a majority of the
Board of Directors, unless the election or nomination for election by the
Company's shareholders of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were directors
at the beginning of the period. Such a Change in Control shall be deemed
to have occurred on the date upon which the requisite majority of
directors fails to be elected by the shareholders of the Company.
(iii) Other Events. Any other event or series of events which,
notwithstanding any other provision of this definition, is determined, by
a majority of the outside members of the Board of Directors of the Company
serving in office at the time such event or events occur, to constitute a
change in control of the Company for purposes of this Plan. Such a Change
in Control shall be deemed to have occurred on the date of such
determination or on such other date as such majority of outside members of
the Board shall specify.
"Designated Beneficiary" shall mean the person or persons, if any, last
designated as such by the Participant on a form filed by him or her with the
Company in accordance with such procedures as the Committee shall approve.
"Disability" shall mean permanent and total disability of an employee or
director participating in the Plan as determined by the Committee in accordance
with uniform principles consistently applied, upon the basis of such evidence as
the Committee deems necessary and desirable.
"Fair Market Value" of a share of Common Stock of the Company on any date
shall mean an amount equal to the mean of the high and low sale prices for such
date on the New York Stock Exchange, as reported on the composite transaction
tape, or on such other exchange as the Committee may determine. If there are no
such sale price quotations for the date as of which Fair Market Value is to be
determined but there are such sale price quotations within a reasonable period
both before and after such date, then Fair Market Value shall be determined by
taking a weighted average of the means between the highest and lowest sales
prices per share of Common Stock as so quoted on the nearest dates before and
after the date as of which Fair Market Value is to be determined. The average
should be weighted inversely by the respective numbers of trading days between
the sales dates and the date as of which Fair Market Value is to be determined.
If there are no such sale price quotations on or within a reasonable period both
before and after the date as of which Fair Market Value is to be determined,
then the Committee shall in good faith determine the Fair Market Value of the
Common Stock on such date.
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"Fiscal Year" shall mean the twelve-month period used as the annual
accounting period by the Company and shall be designated according to the
calendar year in which such period ends.
"Incentive Stock Option" shall mean a Stock Option designated by the
Committee as an Incentive Stock Option and if so designated is intended to
comply with the requirements in Subsection (b) of Section 422 of the Internal
Revenue Code so as to be eligible for preferential income tax treatment.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986 and
regulations thereunder as amended from time to time. References to particular
sections of the Internal Revenue Code shall include any successor provisions.
"Nonstatutory Stock Option" shall mean a Stock Option which is not
eligible for preferential tax treatment under Section 421(a) of the Internal
Revenue Code.
"Participant" shall mean, as to any award granted under this Plan and for
so long as such award is outstanding, the employee or director to whom such
award has been granted.
"Participating Subsidiary" shall mean any Subsidiary designated by the
Committee to participate in this Plan which Subsidiary requests or accepts, by
action of its board of directors or other appropriate authority, such
designation.
"Retirement" shall mean
(a) in the case of an employee Participant, separating from service
with the Company or a Subsidiary with the right to begin receiving
immediate pension benefits under the Company's Pension Plan for Salaried
Employees or under another defined benefit pension plan sponsored or
otherwise maintained by a Subsidiary for its employees, in either case as
then in effect or, in the absence of such Pension Plan or such other
pension plan being applicable to any Participant, as determined by the
Committee in its sole discretion; and
(b) in the case of an Eligible Director, (i) resigning from serving
as a director, failing to stand for re-election as a director or failing
to be re-elected as a director after being duly nominated, and (ii) in any
such case having the right to immediate or deferred pension benefits under
the Company's Pension Plan for Directors as then in effect or, in the
absence of such Pension Plan or another pension plan being applicable to
any director, after at least six (6) full years of service as a director
of the Company. More than six (6) months' service during any twelve (12)
month period after a director's first election by the shareholders to the
Board shall be considered as a full year's service for this purpose.
"Subsidiary" shall mean any domestic or foreign corporation, partnership,
association, joint stock company, trust or unincorporated organization
"affiliated" with the Company, that is, directly or indirectly, through one or
more intermediaries, "controlling", "controlled by" or
-16-
"under common control with", the Company. "Control" for this purpose means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of such person, whether through the ownership of
voting securities, contract or otherwise.
(k) This Plan shall be governed by the laws of the Commonwealth of
Pennsylvania and shall be construed for all purposes in accordance with the laws
of said Commonwealth except as may be required by the General Corporation Law of
Delaware or by applicable federal law.
14. AMENDMENTS AND TERMINATION; REQUISITE SHAREHOLDER APPROVAL
The Board may at any time terminate or from time to time amend or suspend
the Plan in whole or in part in such respects as the Board may deem advisable in
order that awards granted thereunder shall conform to any change in the law, or
in any other respect which the Board may deem to be in the best interests of the
Company; provided, however, that no amendment of the Plan shall be made without
shareholder approval if shareholder approval of the amendment is at the time
required by applicable law, or by the rules of the New York Stock Exchange or
any stock exchange on which Common Stock may be listed.
In addition, without shareholder approval, no outstanding Stock Option (or
Stock Appreciation Right) will have its exercise price reduced or will be
cancelled and replaced with a new Stock Option (or Stock Appreciation Right)
with a lower exercise price where the economic effect would be the same as
reducing the exercise price of the cancelled Stock Option (or Stock Appreciation
Right); and no more than a total of 20% of the shares of Common Stock subject to
Plan awards for Fiscal Year 2002 and later years may be for Deferred Stock
Units, Restricted Shares or Other Stock Awards providing for the acquisition of
shares of Common Stock for a consideration less than Fair Market Value as of the
date of grant or exercise of such awards. For this purpose, Fair Market Value
may be determined as of a date not more than two trading days prior to the date
of grant or exercise in order to facilitate compliance with the reporting
requirements under Section 16 of the Act.
The Board shall have the power to amend the Plan in any manner
contemplated by Section 12 or deemed necessary or advisable for awards granted
under the Plan to qualify for the exemption provided by Rule 16b-3 (or any
successor rule relating to exemption from Section 16(b) of the Act), to qualify
as "performance-based" compensation under Section 162(m) of the Internal Revenue
Code or to comply with applicable law, and any such amendment shall, to the
extent deemed necessary or advisable by the Board, be applicable to any
outstanding awards theretofore granted under the Plan notwithstanding any
contrary provisions contained in any award agreement. In the event of any such
amendment to the Plan, the holder of any award outstanding under the Plan shall,
upon request of the Board and as a condition to the exercisability thereof,
execute a conforming amendment in the form prescribed by the Board to any award
agreement relating thereto within such reasonable time as the Board shall
specify in such request.
With the consent of the Participant affected, the Board may amend
outstanding agreements evidencing Plan awards in a manner not inconsistent with
the terms of the Plan.
-17-
Notwithstanding anything contained in this Section 14 or in any other provision
of the Plan, unless required by law, no action contemplated or permitted by this
Section 14 shall adversely affect any rights of Participants or obligations of
the Company to Participants with respect to any award theretofore made under the
Plan without the consent of the affected Participant.
15. EFFECTIVE DATE, AMENDMENT AND RESTATEMENT, AND TERM OF THE PLAN
This Plan, previously denominated the "Air Products and Chemicals, Inc.
1990 Long-Term Incentive Plan," became effective for the Fiscal Year commencing
October 1, 1989 for awards to be made for the Fiscal Year commencing October 1,
1989 and for Fiscal Years thereafter and was continued in effect indefinitely
until terminated, amended, or suspended as permitted by its terms, following
approval by a majority of those present at the January 26, 1989 annual meeting
of shareholders of the Company and entitled to vote thereon. Following approval
by the holders of a majority of the shares of Common Stock of the Company
present at the January 25, 1996 annual meeting of shareholders of the Company
and entitled to vote thereon, the Plan was amended, restated denominated the
"Air Products and Chemicals, Inc. 1997 Long-Term Incentive Plan" continued in
effect indefinitely for awards made for the Fiscal Year commencing October 1,
1996 and for Fiscal Years thereafter, until terminated, amended, or suspended as
permitted by its terms. Following approval by the holders of a majority of the
shares of Common Stock of the Company present at the January 25, 2001 annual
meeting of shareholders of the Company and entitled to vote thereon, the Plan
was amended, restated and continued in effect indefinitely for awards made for
the Fiscal Year commencing October 1, 2001 and for Fiscal Years thereafter,
until terminated, amended, or suspended as permitted by its terms. The Plan as
amended and restated herein, was continued in effect indefinitely for awards
made on or after January 23, 2003, until terminated, amended, or suspended as
permitted under Section 14, following approval by a majority of those present at
the January 23, 2003 annual meeting of shareholders of the Company and entitled
to vote thereon.
-18-
ANNUAL MEETING OF
AIR PRODUCTS AND CHEMICALS, INC.
THURSDAY, JANUARY 23, 2003
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.INVESTPOWER.COM. Click on "Enroll to receive mailings via e-mail" to
enroll. Please refer to the company number and account number on top of the
reverse side of this card.
[AIR PRODUCTS LOGO]
PROXY
AIR PRODUCTS AND CHEMICALS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS -- JANUARY 23, 2003
The undersigned hereby appoints John P. Jones III, W. Douglas Brown, and John R.
Owings, 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 23, 2003, 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 thereof.
[AIR PRODUCTS LOGO]
ANNUAL MEETING OF SHAREHOLDERS OF
AIR PRODUCTS AND CHEMICALS, INC.
January 23, 2003
Co. #________________ Acct. #_________________
PROXY VOTING INSTRUCTIONS
TO VOTE BY MAIL
Please date, sign, and mail your proxy card in the envelope provided as soon as
possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
Please call toll-free 1-800-PROXIES (1-800-776-9437) and follow the
instructions. Have your control number and the proxy card available when you
call.
TO VOTE BY INTERNET
Please access the web page at "www.voteproxy.com" and follow the on-screen
instructions. Have your control number available when you access the web page.
YOUR CONTROL NUMBER IS - [ ]
- Please Detach and Mail in the Envelope Provided -
Please mark your
A [X] votes as in this
example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
FOR WITHHELD
1. To elect
all [ ] [ ]
nominees
Nominees: 01. M. L. Baeza
02. L. P. Bremer III
03. E. E. Hagenlocker
04. T. Murray
as directors for three-year terms.
For all nominees except those named below:
FOR AGAINST ABSTAIN
2. APPOINTMENT OF AUDITORS
Ratification of appointment of [ ] [ ] [ ]
KPMG LLP as independent auditors
for fiscal year 2003
FOR AGAINST ABSTAIN
3. AMENDMENTS TO THE LONG-TERM INCENTIVE PLAN
Approval of Amendments to the Long-Term [ ] [ ] [ ]
Incentive Plan
The shares represented by this proxy will be voted as directed by the
Shareholder on this proxy with respect to Proposals 1, 2, and 3. If no direction
is given, such shares will be voted for Proposals 1, 2, and 3. Such shares will
be voted in the proxies' discretion upon such other business as may properly
come before the meeting.
SIGNATURE________________________________________DATE___________________________
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title of such.
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
STATE STREET BANK AND TRUST COMPANY
1. ELECTION OF DIRECTORS
The nominees for Directors for three-year terms are:
FOR ALL WITH- FOR ALL
NOMINEES HOLD EXCEPT
(01) M. L. BAEZA (03) E. E. HAGENLOCKER
(02) L. P. BREMER III (04) T. MURRAY [ ] [ ] [ ]
NOTE: If you do not wish your shares voted "For" a particular nominee, mark the
"For All Except" box and strike a line through that nominee(s) name. Your shares
will be voted for the remaining nominee(s).
CONTROL NUMBER:
RECORD DATE SHARES:
2. APPOINTMENT OF AUDITORS FOR AGAINST ABSTAIN
Ratification of appointment of KPMG LLP,
as independent auditors for fiscal year 2003. [ ] [ ] [ ]
3. AMENDMENTS TO THE LONG-TERM INCENTIVE PLAN FOR AGAINST ABSTAIN
Approval of amendments to the Long-Term [ ] [ ] [ ]
Incentive Plan.
If not voting electronically, please be sure to sign and date this Proxy.
Date
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR NOS. 1, 2, AND 3.
Participant sign here
DETACH CARD DETACH CARD
STATE STREET BANK AND TRUST COMPANY
December 13, 2002
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
E-mail notice of electronic access to the Notice of Annual Meeting, the Proxy
Statement, and the Annual Report on or about December 13, 2002. You may request
paper copies of these materials by calling 1-888-AIR-INFO (1-888-247-4636). If
you do not have Intranet 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 16, 2003.
Similar to last year, you may vote your shares in one of three ways. You may
vote over the Internet, vote over the telephone, or vote by marking, signing,
dating, and returning the 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
2003 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 23 January 2003 as directed on the reverse side with respect to
Proposals 1, 2, and 3.
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, 2, and 3. 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 it this 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.
ELECTRONIC VOTING
You can vote your shares electronically through the Internet or the telephone,
24 hours a day, 7 days a week. This eliminates the need to return the voting
direction form.
To vote your shares by these means, please use the control number printed on the
voting direction form. The number must be used to access the system.
1. TO VOTE OVER THE INTERNET:
* Log on the Internet and go to the website
http://www.eproxyvote.com/apd1
2. TO VOTE OVER THE TELEPHONE:
* On a touch-tone telephone call 1-877-PRX-VOTE
(1-877-779-8683)
* Outside of the U.S. and Canada call 1-201-536-8073
Your electronic vote authorizes the proxies in the same manner as if you marked,
signed, dated, and returned the voting direction form.