<PAGE> 1
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- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
THE LUBRIZOL CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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<PAGE> 2
Lubrizol Logo
THE LUBRIZOL CORPORATION
29400 LAKELAND BOULEVARD
WICKLIFFE, OHIO 44092-2298
March 17, 1999
TO OUR SHAREHOLDERS:
You are cordially invited to attend the 1999 Annual Meeting of Shareholders
on Monday, April 26, 1999, at 10:00 a.m., at the Radisson Hotel & Conference
Center Cleveland Northeast, 35000 Curtis Boulevard, Eastlake, Ohio.
The attached Notice and Proxy Statement describe the business of the
meeting. After the transaction of the formal business, officers will report on
current operations and plans. A question and answer period will follow.
At the 1998 meeting, approximately 92 percent of the Common Shares
outstanding were voted either in person or by proxy. Your continued support is
appreciated, and we hope that you will be able to join us at the April 26
meeting.
Cordially,
/s/ W. G. Bares
Chairman of the Board,
President and Chief Executive
Officer
<PAGE> 3
THE LUBRIZOL CORPORATION
29400 LAKELAND BOULEVARD
WICKLIFFE, OHIO 44092
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
The 1999 Annual Meeting of Shareholders of The Lubrizol Corporation will be
held at the Radisson Hotel & Conference Center Cleveland Northeast, 35000 Curtis
Boulevard, Eastlake, Ohio, on Monday, April 26, 1999, at 10:00 a.m., for the
following purposes:
1. To elect three directors for three-year terms and two directors for
one-year terms;
2. To confirm the appointment of Deloitte & Touche LLP as independent
auditors;
3. To consider and act upon a shareholder proposal concerning The Lubrizol
Corporation Shareholder Rights Plan;
4. To transact such other business as properly may come before the meeting
or any adjournment thereof.
Shareholders of record at the close of business on March 5, 1999, are
entitled to notice of and to vote at the meeting. A shareholder who executes and
returns the accompanying proxy may revoke such proxy at any time before it is
voted at the meeting by following the procedures set forth in the attached Proxy
Statement.
K. H. HOPPING
Secretary
Wickliffe, Ohio
March 17, 1999
RETURN OF PROXIES REQUESTED
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE
SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY,
FOR WHICH A RETURN ENVELOPE IS PROVIDED.
<PAGE> 4
THE LUBRIZOL CORPORATION
29400 LAKELAND BOULEVARD
WICKLIFFE, OHIO 44092
PROXY STATEMENT
GENERAL INFORMATION
The accompanying proxy is solicited by the Board of Directors of Lubrizol
and will be voted in accordance with the instructions given in the proxy if it
is timely returned, duly executed and is not revoked. A shareholder may revoke a
proxy at any time before it is voted by giving notice to Lubrizol in writing or
in open meeting. Attendance at the meeting will not in and of itself revoke a
proxy.
This Proxy Statement and the accompanying proxy were first mailed to
shareholders on or about March 17, 1999. The record date for determination of
shareholders entitled to vote at the meeting was the close of business on March
5, 1999. On that date, the outstanding voting securities of Lubrizol were
54,548,676 Common Shares without par value ("Common Shares"). Each Common Share
is entitled to one vote.
So far as Lubrizol is aware, no matters will be presented to the meeting
for action on the part of the shareholders other than those stated in the
notice. If any other matter is properly brought before the meeting, it is the
intention of the persons named in the accompanying proxy to vote the shares to
which the proxy relates in accordance with their best judgment. Abstentions will
be deemed to be present at the meeting for purposes of determining a quorum and
will be counted as voting (but not for or against) with regard to the issue to
which the abstention relates. Any "broker nonvote" also will be deemed to be
present for quorum purposes but will not be counted as voting with regard to the
issue to which it relates.
Lubrizol has adopted a policy to the effect that all proxies, ballots and
voting tabulations identifying how a particular shareholder has voted on any
issue will be kept confidential and will not be disclosed to Lubrizol, unless
such disclosure is mandated by law or is requested by that particular
shareholder, or except with respect to any contested election for the Board of
Directors. Accordingly, shareholders are requested to return proxies to American
Stock Transfer & Trust Company, which serves as the independent tabulator and
inspector of elections and reports the voting results to Lubrizol.
The cost of soliciting proxies will be borne by Lubrizol. Lubrizol will,
upon request, reimburse brokerage houses, custodians, nominees and others for
their out-of-pocket and reasonable clerical expenses incurred in connection with
such solicitation. For the purpose of obtaining broad representation at the
meeting, Morrow & Co., Inc. has been retained by Lubrizol to assist in the
solicitation of proxies at an anticipated cost of approximately $9,000. In
addition, officers and employees of Lubrizol, without being further compensated,
may make requests by letter, telephone or in person for the return of proxies.
1
<PAGE> 5
ELECTION OF DIRECTORS
The authorized number of directors of Lubrizol is presently fixed at
eleven, divided into three classes: two having four members and one having three
members. The directors in each class are elected for three-year terms so that
the term of office of one class of directors expires at each annual meeting.
For election as directors at the 1999 Annual Meeting of Shareholders, the
Organization and Compensation Committee has recommended, and the Board of
Directors has approved, the nomination of William G. Bares, Jerald A. Blumberg,
Peggy Gordon Elliott, David H. Hoag and Daniel E. Somers. Messrs. Bares and Hoag
and Dr. Elliott are currently directors and are nominated to serve for
three-year terms expiring in 2002. Messrs. Blumberg and Somers, who are not
currently directors, are nominated to serve in the class of directors with a
term expiring in 2000 and thus are nominated for one-year terms. Edward F. Bell
and L. E. Coleman have advised Lubrizol that they will retire as directors
effective at the 1999 Annual Meeting of Shareholders.
If any of the nominees becomes unavailable for election, the accompanying
proxy will be voted for the election of such person, if any, as shall be
recommended by the Organization and Compensation Committee, or will be voted in
favor of holding a vacancy to be filled by the directors. Lubrizol has no reason
to believe that any nominee will be unavailable. The nominees receiving the
greatest number of votes shall be elected to the director positions to be
filled.
The following information is provided regarding each nominee for election
as a director and each of the other directors who will continue in office after
the meeting:
<TABLE>
<S> <C>
NOMINEES FOR ELECTION
W. G. BARES, age 57, is Chairman of the Board, President and Chief Executive
Officer of The Lubrizol Corporation. Mr. Bares joined Lubrizol as a
[W.G. BARES PHOTO] development engineer in 1963 and was appointed Director of the Pilot Plant
in 1972. He was elected Vice President in 1978, Executive Vice President in
1980, President in 1982 and Chief Operating Officer in 1987 and became Chief
Executive Officer on January 1, 1996. He was elected a Director of Lubrizol
in 1981 and Chairman of the Board in 1996. A 1963 graduate of Purdue
University with a B.S. degree in chemical engineering, he earned an M.B.A.
from Case Western Reserve University in 1969. He is a member of the American
Petroleum Institute and the American Institute of Chemical Engineers, hav-
ing served as past chairman of its Cleveland section, and is a Trustee for
Case Western Reserve University. In addition, he is a Director of Oglebay
Norton Company, KeyCorp, Applied Industrial Technologies and an Executive
Board Member of the Greater Western Reserve Council of the Boy Scouts of
America.
</TABLE>
2
<PAGE> 6
<TABLE>
<S> <C>
JERALD A. BLUMBERG, age 59, is President and Chief Executive Officer of
Ambar, Inc., a privately held oilfield services company. Prior to joining
[JERALD A. BLUMBERG Ambar, Inc. in January 1998, Mr. Blumberg held various international and
PHOTO] management positions during a 37-year career with E. I. du Pont de Nemours &
Company, Inc. From October 1995 until his retirement December 31, 1997, he
was an Executive Vice President, Chairman of DuPont Europe and a member of
the Office of the Chief Executive. Mr. Blumberg received a B.S. in chemical
engineering from Michigan Technological University in 1960. He is a Director
of Ambar, Inc. and Burlington Industries, Inc., a member of the National
Society of Professional Engineers and the American Institute of Chemical
Engineers and is on the advisory boards for Michigan Technological
University and Rice University's Business School.
PEGGY GORDON ELLIOTT, age 61, is President of South Dakota State University.
Prior to joining South Dakota State on January 1, 1998, Dr. Elliott was
[PEGGY GORDON ELLIOTT Acting Vice President for Academic and International Programs at the
PHOTO] American Association of State Colleges and Universities. She has also served
as a Senior Fellow at the National Center for Higher Education, President of
The University of Akron and Chancellor of Indiana University Northwest. She
became a Lubrizol Director in 1993. Dr. Elliott is also a Director of A.
Schulman, Inc. Dr. Elliot is a member of the National Council on
Competitiveness and the South Dakota Value Added Finance Authority Board.
Dr. Elliott holds degrees from Transylvania University, Northwestern
University and Indiana University.
DAVID H. HOAG, age 59, retired in January 1999 as Chairman of The LTV
Corporation, having retired in September 1998 as Chief Executive Officer of
[DAVID H. HOAG PHOTO] The LTV Corporation and as Chief Executive Officer of LTV Steel Company. The
LTV Corporation is a metals company engaged in the production of flat rolled
carbon steel and is the owner of the second largest metal buildings
manufacturer and fabricator. Mr. Hoag was appointed to the position of
Chairman in June 1991 after having been elected President and Chief
Executive Officer in January of that year. Mr. Hoag became Executive Vice
President of The LTV Corporation in July 1986 and was concurrently named a
member of LTV's Board of Directors. He became President and Chief Executive
Officer of LTV Steel Company in January 1985. He was previously President
and Chief Executive Officer of LTV's Jones & Laughlin Steel subsidiary
before its operations were combined with those of Republic Steel Corporation
in June 1984 to form LTV Steel. From June 1982 to April 1983, he was
Executive Vice President of J&L. Mr. Hoag became a Lubrizol Director in
1989. He is a native of Pittsburgh and attended Allegheny College in
Meadville, Pennsylvania, receiving a Bachelor's Degree in 1960. He is a
Director of Brush Wellman Inc., The Chubb Corporation and Karrington Health,
Inc. and is Vice-Chairman of the Cleveland Federal Reserve Board.
</TABLE>
3
<PAGE> 7
<TABLE>
<S> <C>
DANIEL E. SOMERS, age 51, is Senior Executive Vice President and Chief
Financial Officer of AT&T, which is one of the world's communication
[DANIEL E. SOMERS leaders. Prior to joining AT&T in May 1997, Mr. Somers was Chairman and
PHOTO] Chief Executive Officer of Bell Cablemedia, plc, of London for two years.
From 1992 to 1995, he was Executive Vice President and Chief Financial
Officer of Bell Canada International, Inc. Prior to joining Bell Canada, Mr.
Somers held a number of senior executive, financial and operating-management
positions with Radio Atlantic Holdings Ltd. and Imasco Ltd. Mr. Somers
received a B.S. degree in finance from Stonehill College in North Easton,
Massachusetts.
DIRECTORS WHOSE TERMS OF OFFICE WILL CONTINUE AFTER THE MEETING
FOREST J. FARMER, SR., age 58, is President and Chief Executive Officer of
North American Interiors, Inc., which provides value-added subassemblies to
[FOREST J. FARMER the automotive industry. He is also Chairman, Chief Executive Officer and
PHOTO] President of Trillium Teamologies, a technology and engineering services
company. Mr. Farmer was associated with Chrysler Corporation from 1968 to
1994 where he held various management positions including General Plants
Manager for Car and Truck Assembly Operations. From 1988 until 1994, he was
President of Acustar, Inc., an automotive components subsidiary of Chrysler
Corporation. Mr. Farmer became a Lubrizol Director in January 1997. Mr.
Farmer graduated from Purdue University in 1965 with a B.S. degree in
biology and physical education. He is a member of the Board of Directors of
Saturn Electronics & Engineering, Inc., the Automotive Hall of Fame, the St.
John Health System, the Macomb Hospital Corporation, Friends of Scouting and
Public Broadcasting System station WTVS-56 in Detroit, Michigan. Mr. Farmer
is also Chairman of the Detroit Area Vocational Industry Council. Mr.
Farmer's term as a Lubrizol Director expires in 2000.
GORDON D. HARNETT, age 56, is Chairman, President and Chief Executive
Officer of Brush Wellman Inc., the world's largest producer of beryllium and
[GORDON D. HARNETT beryllium-containing engineered products. Prior to joining Brush Wellman in
PHOTO] 1991, Mr. Harnett had been Senior Vice President of The BFGoodrich Company.
From 1977 to 1988, he had held a series of senior executive positions with
Tremco Inc., a wholly owned subsidiary of BFGoodrich, including President
and Chief Executive Officer from 1982 to 1988. From 1969 through 1976, Mr.
Harnett worked for McKinsey & Co., including a two-year assignment in Tokyo.
Mr. Harnett became a Lubrizol Director in 1995. Mr. Harnett graduated from
Miami University in 1964 with a B.S. in business administration. He received
an M.B.A. from Harvard University in 1969. Mr. Harnett is a Director of
National City Bank, Essef Corporation and M. A. Hanna Company. In addition,
he is a Trustee of Hathaway Brown, Cleveland Tomorrow, University Circle
Inc. and Playhouse Square Foundation and is Chairman of Cleveland
Development Advisors, Inc. Mr. Harnett's term as a Lubrizol Director expires
in 2001.
</TABLE>
4
<PAGE> 8
<TABLE>
<S> <C>
VICTORIA F. HAYNES, age 51, is Vice President-Research and Development and
Chief Technical Officer of The BFGoodrich Company, a specialty chemicals and
[VICTORIA F. HAYNES aerospace company. Dr. Haynes has been associated with BFGoodrich since 1992
PHOTO] where she is responsible for corporate technology strategy development and
state of technology for the company. Prior to joining BFGoodrich, Dr. Haynes
held various technical positions at Monsanto Company, including director of
technology for the Plastics Division from 1987-1992. Dr. Haynes became a
Lubrizol Director in 1995. Dr. Haynes graduated from the University of
California at Berkeley in 1969 with a B.S. in chemistry. She received an
M.A. in college teaching in 1971 and a Ph.D. in physical/organic chemistry
in 1975 from Boston University and followed with a post doctoral associate
assignment at Purdue University for two years. Dr. Haynes is a member of the
Georgia Tech Research Corporation Board, Battelle Pacific Northwest
Laboratory Advisory Board, Governing Board of The Council for Chemical Re-
search, the Engineering Research Advisory Board for Sandia National
Laboratory and the Port Ventures LLP Managing Board. Dr. Haynes' term as a
Lubrizol Director expires in 2001.
WILLIAM P. MADAR, age 59, is Chairman of the Board of Nordson Corporation.
He was Chief Executive Officer of Nordson until he retired from that
[WILLIAM P. MADAR position in November 1997. Nordson Corporation manufactures and worldwide
PHOTO] markets industrial equipment, along with the software and application
technologies that enhance its use. A 1961 graduate of Purdue University with
a B.S. degree in chemical engineering, he earned an M.B.A. from Stanford
University in 1965. Mr. Madar became a Lubrizol Director in 1992. He is a
Director of Nordson Corporation, National City Bank and Brush Wellman Inc.
Mr. Madar is a Trustee of the Northeast Ohio Council on Higher Education,
Cleveland Museum of Art, the Cleveland Clinic Foundation, the Playhouse
Square Foundation and Hawken School. In addition, Mr. Madar is a Fellow at
the Kennedy School of Government at Harvard University. Mr. Madar's term as
a Lubrizol Director expires in 2001.
M. THOMAS MOORE, age 64, retired in November 1997 as Chairman and Chief
Executive Officer of Cleveland-Cliffs Inc., the world's largest iron ore
[M. THOMAS MOORE pellet producer. He was elected President and a member of the Board of
PHOTO] Directors in 1986, became Chief Executive Officer in 1987 and Chairman in
1988. Mr. Moore became a Lubrizol Director in June 1997. Mr. Moore is a
Director of Cleveland-Cliffs Inc., KeyCorp and The LTV Corporation and a
Trustee of the Cleveland Clinic Foundation and Fairview Health System. He
also serves as a strategic consultant to Cleveland-Cliffs Inc. He graduated
from Indiana University of Pennsylvania in 1956. He began his career in the
management training program of United States Steel Corporation and later
held management positions with American-Standard Corporation and Celanese
Corporation before joining Cleveland-Cliffs in 1966. Mr. Moore's term as a
Lubrizol Director expires in 2001.
</TABLE>
5
<PAGE> 9
<TABLE>
<S> <C>
RONALD A. MITSCH, age 64, retired in October 1998 as Vice Chairman and
Executive Vice President-Industrial and Consumer Markets of 3M, a
[RONALD A. MITSCH manufacturer of products for industrial, commercial, health care and
PHOTO] consumer markets. He began his career with 3M in 1960 as a Senior Research
Chemist. He served various assignments in research and in 1979 was named
Managing Director, 3M Netherlands. He returned to the United States in 1981
as Research and Development Vice President, Life Sciences Sector. He was
named Group Vice President, Traffic and Personal Safety Products in 1985,
Senior Vice President, Research and Development in 1990, Executive Vice
President in 1991 and Vice Chairman in 1995. Dr. Mitsch graduated from
Hamline University in 1956 with a B.S. in chemistry. He received an M.S. in
organic chemistry in 1958 and a Ph.D in organic chemistry in 1960 from the
University of Nebraska. Dr. Mitsch became a Lubrizol Director in 1991. He is
a Director of 3M; NCR; Shigematsu Works Inc., Ltd., Tokyo, Japan; SEI Center
for Advanced Studies in Management, Philadelphia, Pennsylvania (associated
with the Wharton School of Business of The University of Pennsylvania). In
addition, he is a Trustee of Hamline University. Dr. Mitsch's term as a
Lubrizol Director expires in 2000.
</TABLE>
COMMITTEES AND COMPENSATION OF THE BOARD OF DIRECTORS
Lubrizol's Board of Directors held nine meetings during 1998. The Board
has, among others, a standing Audit Committee and a standing Organization and
Compensation Committee. During 1998, each director attended at least 75% of the
meetings of the Board and those committees on which the director served.
The Audit Committee, currently composed of Edward F. Bell, Chairman, Gordon
D. Harnett, Victoria F. Haynes and David H. Hoag, held five meetings during
1998. The principal functions of the Audit Committee are to recommend the
nomination of independent auditors for appointment by the Board, subject to
confirmation by the shareholders; to review with the independent and internal
auditors the planned scope and results of their examinations; to hold such
conferences and reviews with the auditors as may be deemed desirable by either
the Audit Committee or the auditors; to review and approve the annual financial
statements and any changes in accounting or reporting principles; to report to
the Board the results of such reviews and conferences; and to submit to the
Board any recommendations the Audit Committee may have.
The Organization and Compensation Committee, currently composed of William
P. Madar, Chairman, Edward F. Bell, Peggy Gordon Elliott, Forest J. Farmer, Sr.,
Gordon D. Harnett, Victoria F. Haynes, David H. Hoag, Ronald A. Mitsch and M.
Thomas Moore, held seven meetings during 1998. The principal functions of the
Organization and Compensation Committee are to review and recommend the
nomination of candidates for election to the Board; to review and recommend
candidates for election as officers of Lubrizol; to review and authorize rates
of compensation for officers; to designate those employees who will receive
grants of stock options and other stock awards under Lubrizol's stock plans and
the type and size of such grants; to determine the size of the fund pools for
the profit sharing plan, year-end variable compensation plan and the performance
pay plan; and to designate those employees who will receive awards under
Lubrizol's performance pay plan. The Organization and Compensation Committee
will consider shareholder recommendations with respect to the composition of the
Board. Recommendations should be submitted in
6
<PAGE> 10
writing to the Secretary of Lubrizol no later than the first day of January
preceding an annual meeting.
Directors (other than those who are employees of Lubrizol) receive an
annual retainer fee of $14,000. In addition, directors (other than employees)
are each paid an attendance fee of $1,000 for each meeting of the Board and each
committee meeting held on days on which the Board meets ($1,200 if held on other
days). Lubrizol maintains a Deferred Compensation Plan for Directors under which
a director may elect to defer all or any portion of the annual retainer fee and
the attendance fees for any fiscal year. Any amounts so deferred by a director
will be, as elected by the director, credited to a cash account or a share unit
account in which the number of share units is based on the fair market value of
a Common Share at the time of allocation. Amounts deferred into the cash account
earn interest at the Federal Reserve 90-Day Composite Rate in effect from time
to time and amounts deferred into the share unit account are credited with
additional share units reflecting quarterly dividends declared on Common Shares.
Amounts deferred are payable to the director in cash or, if deferred into share
units, an equivalent number of Common Shares after cessation as a director of
Lubrizol.
Pursuant to Lubrizol's 1991 Stock Incentive Plan, on the date of each
Annual Meeting of Shareholders, each director who is not an employee of Lubrizol
automatically receives an option to purchase 2,000 Common Shares.
Lubrizol also maintains a Deferred Stock Compensation Plan for Outside
Directors under which each director who is not an employee of Lubrizol
automatically receives, on October 1 of each year, 500 share units, each of
which is equivalent to one Common Share. Additional share units are credited to
such directors on account of quarterly dividends declared on Common Shares.
Under the terms of the Plan, each share unit is converted into one Common Share
distributable after the director ceases to be a director of Lubrizol.
7
<PAGE> 11
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of January 31, 1999, information
concerning the number of Common Shares beneficially owned by each director and
each executive officer named in the compensation tables in this Proxy Statement
and by all executive officers and directors of Lubrizol as a group. Except as
indicated below, no executive officer or director owns more than one percent of
the outstanding Common Shares of Lubrizol. All executive officers and directors
as a group own approximately 4 percent of such Common Shares.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1)
-------------------------------------------------------------------
NAME OF DIRECT EMPLOYEE EXERCISABLE DEFERRED
BENEFICIAL OWNER TOTAL OWNERSHIP(2) PLAN(3) OPTIONS(4) SHARE UNITS(5)
---------------- ----- ------------ -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
R. A. Andreas.................. 104,018 16,507 2,632 84,170 709
W. G. Bares.................... 549,998 113,333 9,185 418,504 8,976
J. W. Bauer.................... 52,263 465 1,933 49,368 497
Edward F. Bell................. 17,489 1,700 12,500 3,289
Lester E. Coleman.............. 751,614(6) 126,515 621,666 3,433
Peggy Gordon Elliott........... 12,403 1,100 8,500 2,803
Forest J. Farmer, Sr........... 2,690 100 1,000 1,590
Gordon D. Harnett.............. 8,170 200 2,500 5,470
Victoria F. Haynes............. 6,145 500 2,500 3,418
G. R. Hill..................... 213,297 42,923 2,345 168,029
David H. Hoag.................. 19,389 3,600 12,500 3,289
S. F. Kirk..................... 79,013 4,935 5,252 67,650 1,176
William P. Madar............... 18,687 1,000 10,500 7,187
Ronald A. Mitsch............... 15,489 1,000 11,700 3,289
M. Thomas Moore................ 1,525 500 1,025
All Executive Officers and
Directors as a Group......... 2,211,452 342,198 43,975 1,770,547 54,732
</TABLE>
- ---------------
(1) Each person has sole voting and investment power with respect to all shares
shown except as indicated below.
(2) Includes shares owned by or jointly with family members, including 1,700 of
Mr. Bell's shares, 446 of Dr. Coleman's shares, 3,400 of Mr. Hoag's shares,
4,935 of Mr. Kirk's shares and 15,105 of the shares held by the group, as to
which the persons indicated have shared voting and investment power.
(3) Represents shares held in the Profit Sharing and Savings Plan, as to which
the persons indicated have sole voting power and limited investment power.
(4) Represents shares subject to stock options, granted under Lubrizol's option
plans, that are exercisable currently or within 60 days of January 31, 1999.
(5) Represents the indirect beneficial interests held by outside directors under
the Deferred Stock Compensation Plan for Outside Directors and the Deferred
Compensation Plan for Directors and by officers under the Executive Council
Deferred Compensation Plan.
(6) After taking into account stock options exercisable currently or within 60
days of January 31, 1999, Dr. Coleman beneficially owns 1.4% of Lubrizol's
Common Shares.
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<PAGE> 12
Share Ownership Guidelines
Lubrizol maintains share ownership guidelines for executive officers. These
guidelines require executive officers to hold Common Shares having a value
between 1.5 times and 4 times their annual fixed pay, depending on the
management position of the individual.
Five Percent Beneficial Owners
The following table sets forth, as of December 31, 1998, information
concerning each person known by Lubrizol to be the beneficial owner of more than
5% of its Common Shares.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP CLASS
------------------- ----------------- ----------
<S> <C> <C>
Sanford C. Bernstein & Co., Inc. 5,393,034(1) 9.8%
767 Fifth Avenue
New York, New York 10153
AMVESCAP PLC 4,222,500(2) 7.57%
11 Devonshire Square
London EC2M 4YR
England
Brandes Investment Partners, LP 3,983,690(3) 7.2%
12750 High Bluff Drive
San Diego, CA 92130
</TABLE>
- ---------------
(1) This information was obtained from a Schedule 13G dated February 5, 1999,
filed by Sanford C. Bernstein & Co., Inc., which is an investment adviser
registered under the Investment Advisers Act of 1940. Sanford C. Bernstein &
Co., Inc. reported sole voting power as to 3,108,420 shares and sole
investment power as to all 5,393,034 shares. Sanford C. Bernstein & Co.,
Inc. filed a Schedule 13G dated February 17, 1999, reporting it had
subsequently increased its beneficial ownership to 5,790,008 shares, or
10.5% of the outstanding Lubrizol Common Shares. Sanford C. Bernstein & Co.,
Inc. serves as an investment advisor for Lubrizol's pension and profit
sharing plans. Under investment guidelines applicable to Lubrizol's pension
and profit sharing plans, investment advisors are not permitted to invest
assets in Lubrizol Common Shares. Lubrizol paid Sanford C. Bernstein & Co.,
Inc. approximately $205,000 for investment advisory services rendered during
1998.
(2) This information was obtained from a Schedule 13G dated February 8, 1999,
filed by AMVESCAP PLC and certain of its affiliates, one of which is an
investment adviser registered under the Investment Advisers Act of 1940.
Such reporting persons reported shared voting and investment power as to all
4,222,500 shares. AMVESCAP PLC filed a Schedule 13G on February 10, 1999,
reporting it had subsequently sold all of the Lubrizol Common Shares it had
beneficially owned.
(3) This information was obtained from a Schedule 13G dated February 11, 1999,
filed by Brandes Investment Partners, LP, which is an investment adviser
registered under the Investment Advisers Act of 1940. Brandes Investment
Partners, LP reported shared voting and investment power as to all 3,983,690
shares.
9
<PAGE> 13
EXECUTIVE COMPENSATION
The following table sets forth the respective amounts of compensation of
the Chief Executive Officer and the next four highest-paid executive officers of
Lubrizol for each of the years 1998, 1997 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION AWARDS
----------------------------------- ------------------------- PAYOUTS
OTHER SECURITIES -----------
ANNUAL RESTRICTED UNDERLYING LONG-TERM ALL OTHER
NAME AND COMPENSATION STOCK OPTIONS/ INCENTIVE COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS (1) AWARDS SARS(NO.)(2) PAYOUTS (3)
------------------ ---- ------ ----- ------------ ---------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. G. Bares
Chairman of the
Board, President and
Chief Executive
Officer.............. 1998 $599,976 $ 0 $ 4,910 0 48,000 N/A $25,406
1997 540,992 500,000 7,537 0 74,535 N/A 29,170
1996 539,730 299,109 7,398 0 93,909 N/A 33,935
G. R. Hill
Senior Vice
President............ 1998 323,854 0 1,984 0 15,000 N/A 14,260
1997 310,893 224,000 3,560 0 26,140 N/A 17,391
1996 306,707 149,134 1,454 0 25,000 N/A 19,178
R. A. Andreas
Vice President....... 1998 225,267 0 3,635 0 6,000 N/A 9,908
1997 224,899 107,000 3,124 0 11,213 N/A 12,363
1996 224,532 73,301 3,772 0 12,006 N/A 13,936
S. F. Kirk
Vice President....... 1998 220,904 0 6,033 0 9,000 N/A 10,526
1997 210,667 142,000 6,450 0 9,000 N/A 12,633
1996 207,234 95,381 4,797 0 15,000 N/A 12,953
J. W. Bauer
Vice President and
General Counsel...... 1998 214,178 0 2,289 0 6,000 N/A 5,838
1997 206,376 75,000 4,715 0 6,000 N/A 8,382
1996 202,976 66,393 4,804 0 10,000 N/A 8,844
</TABLE>
- ---------------
(1) Reflects "gross-up" payments to cover taxes related to the use of corporate
aircraft and financial planning services. The aggregate amount of other
compensation paid or distributed to the named executives in the form of
personal benefits was minimal and did not exceed the amounts as to which
disclosure would be required.
(2) Reflects the number of Common Shares covered by stock options granted during
the year.
(3) Amounts shown for 1998 reflect contributions made by Lubrizol on behalf of
the named executives under Lubrizol's Profit Sharing and Savings Plan,
including accruals to the related supplemental defined contribution plan. No
amounts shown were received by any of the named executives.
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<PAGE> 14
STOCK OPTION PLANS
Lubrizol maintains a 1991 Stock Incentive Plan (the "1991 Plan") that
permits the granting of incentive and nonstatutory stock options, as well as
stock appreciation rights ("SARs"), restricted stock awards and awards of Common
Shares. All employees of Lubrizol and its subsidiaries are eligible to be
selected to participate in the 1991 Plan. The 1991 Plan is administered by the
Organization and Compensation Committee of the Board of Directors, which selects
employees to be participants and determines the type and amount of awards to be
granted. In addition, the 1991 Plan provides for the automatic annual grant of
stock options to directors who are not employees of Lubrizol or its
subsidiaries.
The number of shares available for grant under the 1991 Plan during any
calendar year generally is 1% of the outstanding Common Shares as of the first
day of the year, plus any unused shares from previous years. The option price
for stock options granted under the 1991 Plan is the average of the high and the
low market price of Common Shares on the grant date and the term of each option
is fixed by the Committee. Options become exercisable to the extent of 50% of
the subject shares after one year from the grant date, 75% after two years from
the grant date and 100% after three years from the grant date. All outstanding
options become fully exercisable upon a "change of control" in Lubrizol.
Lubrizol also has options outstanding under a 1985 Employee Stock Option
Plan. No additional stock options may be granted under this Plan, except that
employees who pay the option price of previously granted options by surrendering
Common Shares already owned by them may receive a "reload" option grant for the
number of Common Shares so surrendered. Such "reload" options are automatically
granted under the 1991 Plan to persons who pay an option exercise price by
surrendering Common Shares. Common Shares acquired upon the exercise of a
"reload" option generally may not be transferred while the holder is an employee
or director of Lubrizol.
The following tables set forth information regarding stock option
transactions with respect to the named executive officers during 1998.
OPTION/SAR GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/
UNDERLYING SARS POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES
OPTIONS/ GRANTED TO EXERCISE OF STOCK PRICE APPRECIATION FOR OPTION TERM (3)
SARS EMPLOYEES OR BASE EXPIRATION --------------------------------------------------
NAME GRANTED (1) IN 1998 PRICE (2) DATE 0% 5% 10%
---- ----------- ---------- --------- ---------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
W. G. Bares........... 48,000 11.70% $37.7813 3/23/08 $0 $ 1,140,502 $ 2,890,256
G. R. Hill............ 15,000 3.65% 37.7813 3/23/08 0 356,407 903,205
R. A. Andreas......... 6,000 1.46% 37.7813 3/23/08 0 142,563 361,282
S. F. Kirk............ 9,000 2.19% 37.7813 3/23/08 0 213,844 541,923
J. W. Bauer........... 6,000 1.46% 37.7813 3/23/08 0 142,563 361,282
All Optionees......... 410,248 100.00% 37.6926 (4) 0 9,724,806 24,644,541
All Shareholders...... (5) (5) (5) (5) 0 1,292,794,118(5) 3,276,714,879
Optionees' Gain as % 0.75% 0.75%(5)
of Shareholders'
Gain................
</TABLE>
- ---------------
(1) Options become exercisable pursuant to a multi-year vesting schedule as
described above. As also described, "reload" options may be granted under
specified circumstances.
11
<PAGE> 15
(2) Represents the average of the high and low sales prices as reported on the
New York Stock Exchange on the date of grant.
(3) The assumed rates of appreciation shown are prescribed in the applicable SEC
rules for use in this table. Such rates are not intended to represent either
past or future appreciation rates with respect to the Common Shares. If such
assumed annual appreciation rates were applied to the fair market value of
the Common Shares at December 31, 1998 ($25.6875 per share), then at the end
of a 10-year option term (the customary term for options granted under the
1991 Plan), the market price of the Common Shares would be $25.6875 per
share at a 0% appreciation rate, $41.84 per share at a 5% appreciation rate
and $66.63 per share at a 10% appreciation rate.
(4) Expiration dates range from June 19, 1999, through April 27, 2008.
(5) The amounts shown represent the hypothetical return to all holders of the
Common Shares assuming that all shareholders purchased their shares at a
purchase price of $37.69, the average exercise price for all options granted
during 1998, and that all shareholders hold the shares continuously for a
10-year period. The number of outstanding Common Shares on December 31,
1998, was 54,548,275.
AGGREGATED OPTION/SAR EXERCISES IN 1998
AND DECEMBER 31, 1998 OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY OPTIONS/SARS
SHARES UNEXERCISED OPTIONS/SARS AT DECEMBER 31, 1998
ACQUIRED AT DECEMBER 31, 1998 (2) (1)(2)
ON VALUE ----------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
W. G. Bares...... 0 $0 362,504 92,000 $ 0 $0
G. R. Hill....... 0 0 150,529 28,750 0 0
R. A. Andreas.... 0 0 77,170 11,500 0 0
S. F. Kirk....... 0 0 57,150 17,250 44,077 0
J. W. Bauer...... 0 0 42,368 11,500 1,039 0
</TABLE>
- ---------------
(1) The "value of unexercised in-the-money options/SARs at December 31, 1998"
was calculated by determining the difference between the fair market value
of the underlying Common Shares at December 31, 1998 ($25.6875 per share),
and the exercise price of the option. An option is "in-the-money" when the
fair market value of the underlying Common Shares exceeds the exercise price
of the option.
(2) Although Lubrizol's option plans permit the granting of SARs, no SARs were
outstanding at December 31, 1998.
REPORT OF THE ORGANIZATION AND COMPENSATION COMMITTEE ON EXECUTIVE
COMPENSATION
The Organization and Compensation Committee of the Board of Directors (the
"Committee") is responsible for setting the policies and approving the practices
of Lubrizol with respect to compensation of executive officers, including those
named in the compensation tables in this Proxy Statement. The Committee consists
of all of the outside directors of Lubrizol.
12
<PAGE> 16
Factors Considered by the Committee
In carrying out its responsibilities in 1998, the Committee considered the
following:
1. Advice from independent consultants concerning all aspects of Lubrizol's
compensation policies, including how its policies and practices compare
to the known policies and practices of other companies;
2. Lubrizol's financial performance;
3. Lubrizol's commercial performance within the markets it serves;
4. Lubrizol's policies and practices for compensation of employees
generally;
5. The recommendations of Lubrizol's executive management concerning
compensation of key employees including executive officers; and
6. The historical philosophy of Lubrizol to reward according to (i)
individual merit including the individual's commitment to Lubrizol, and
(ii) the performance of Lubrizol.
Compensation of Employees Generally
The compensation of domestic employees of Lubrizol, including the executive
officers named in the compensation tables in this Proxy Statement, consists of
(i) base salary, (ii) quarterly pay, and (iii) a variable compensation
component. Quarterly pay is a fixed percentage of base salary which is adjusted
yearly to reflect an employee's length of service with Lubrizol. Base salary
plus quarterly pay of all employees is designed to be within a range that
approximates the 50th percentile salary for individuals having similar
responsibilities in the chemical and related industries. The variable
compensation component for employees generally, other than executive officers,
is paid at year-end from funds authorized by the Committee and is based upon a
percentage of the annual net income of Lubrizol. Allocation of these funds is
based upon an employee's proportionate share of the aggregate base salary of
participating domestic employees.
Compensation of Executive Officers
The base salary and quarterly pay practices as described above also apply
to executive officers. For executive officers, three separate surveys selected
by the Committee's compensation consultant are utilized to determine base
salary. Although the surveys are broader than the published industry
line-of-business indices used to compare total shareholder return as set forth
below in this Proxy Statement, 14 peer chemical companies are included in both
the salary surveys and the published industry indices. Lubrizol's three-year
performance is also compared to a peer group of 19 companies by analyzing total
shareholder return, economic value added, return on equity, return on assets and
growth in basic earnings per share. In addition, total compensation levels and
practices are then analyzed for the five highest paid executives using
compensation data published in each peer organization's proxy statement. This
analysis considers base salary, annual incentive, total cash compensation, long-
term incentive and total compensation.
Effective in 1997, the Committee adopted changes to the compensation
practices for executive officers to more closely align their compensation with
Lubrizol's performance and shareholder interests. Executive officers and other
key employees may receive variable cash compensation under a separate
performance pay plan. These awards are paid each year from additional funds
authorized by the Committee, which determines a percentage of the annual net
income of Lubrizol to establish the
13
<PAGE> 17
participation pool. This percentage is based on objective financial measures and
objective and subjective measures of performance pertaining to initiatives to
stimulate growth, improve Lubrizol's cost structure and build its franchise.
Objective financial measures include earnings per share and value added per
share, which is a measure of earnings in excess of the cost of capital
calculated on a per share basis. Seventy percent of the weighting is based upon
financial measures with the largest portion weighted to earnings per share. The
payout will vary based upon goal accomplishment. Earnings per share must reach a
minimum predetermined target threshold or no performance payments will be made
even though other goals might be accomplished. In 1998, the weighted measures of
financial performance did not meet their minimum targets. Therefore, no variable
cash compensation was paid under the performance pay plan.
If payments had been made, allocation of these funds by the Committee would
have been based upon an executive's level of responsibility, recommendations by
executive management and a subjective judgment by the Committee of the
executive's contribution to the financial and commercial performance of
Lubrizol. Generally, an executive's potential performance pay award increases
with the level of responsibilities. The Committee administers Lubrizol's
executive compensation policy with the objective of keeping executive
compensation generally comparable with other companies in the chemical and
related industries. Management estimates that base salary plus quarterly pay in
1998 for Lubrizol's executives was approximately at the 50th percentile when
compared to base compensation paid by companies in the referenced surveys.
Because no variable cash compensation was paid in 1998, total cash compensation
for these executives was approximately at the 25th percentile when compared to
total cash compensation paid by companies in the referenced surveys.
Executive officers and other key employees may receive additional long-term
compensation in the form of stock options. The specific number of stock options
granted to an executive is determined by the Committee based upon the
individual's level of responsibility, recommendations by executive management
and a subjective judgment by the Committee of the executive's contribution to
the financial and commercial performance of Lubrizol. Existing awards held by
the individual are not considered when making new grants. For 1998, the
Committee set the number of stock options for annual grants midway between the
50th and 75th percentile of long-term incentive awards within industrial
companies generally. Under a new stock option and performance share practice
that was implemented in 1997 for executive officers, the number of stock options
set by the Committee in 1998 was then reduced by 40%.
In 1997, performance share stock awards were granted under Lubrizol's 1991
Stock Incentive Plan. Common Shares equal to the number of performance share
stock awards granted will be issued when the performance shares vest.
Performance share stock awards granted in 1997 will vest if the closing market
price of Lubrizol's Common Shares reaches the target price of $45 per Common
Share for ten consecutive trading days. Otherwise, the 1997 performance share
stock awards will not vest until March 24, 2003. No performance shares vested
in 1998 and no new performance share stock awards may be granted until the
performance shares granted in 1997 vest.
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the
deductibility by public corporations of compensation paid to specified executive
officers. All compensation paid for 1998 to Lubrizol's executive officers,
including the compensation element of shares received under Lubrizol's stock
option plans, qualified for deduction under Section 162(m).
14
<PAGE> 18
Compensation of the Chief Executive Officer
With respect to Mr. Bares, the Chief Executive Officer of Lubrizol, the
Committee's intent was to establish his base salary within a range that was
competitive with the salaries of chief executive officers of companies in the
chemical and related industries. In 1998, the Committee increased Mr. Bares'
base salary by 10%, effective July 10, 1998. Because the weighted measures of
financial performance under Lubrizol's performance pay plan did not meet their
minimum targets in 1998, Mr. Bares received no variable cash compensation under
the performance pay plan.
In setting Mr. Bares' total compensation, the Committee considers various
other aspects of corporate performance including market position, productivity,
product leadership, personnel development, employee attitudes, public
responsibility, quality practices and the balancing of short-term and long-term
goals.
In determining the number of stock options granted to Mr. Bares in 1998,
the Committee considered the factors described above as well as his position
within Lubrizol and industry stock option grant comparisons. In 1997, Mr. Bares
received 23,500 performance share stock awards. The performance share stock
awards will vest if the closing market price of Lubrizol's Common Shares reaches
the target price of $45 for ten consecutive trading days. Otherwise, the 1997
performance share stock awards will not vest until March 24, 2003. In 1998, Mr.
Bares received 48,000 stock options, which is the same number he received in
1997.
Under Lubrizol's share ownership guidelines, Mr. Bares is required to hold
Common Shares having a value of 4 times his annual fixed pay. He currently owns
5 times his annual fixed pay in Common Shares.
<TABLE>
<S> <C>
William P. Madar, Chairman Victoria F. Haynes
Edward F. Bell David H. Hoag
Peggy Gordon Elliott Ronald A. Mitsch
Forest J. Farmer, Sr. M. Thomas Moore
Gordon D. Harnett
</TABLE>
15
<PAGE> 19
PERFORMANCE COMPARISONS
The following chart compares the cumulative total shareholder return of
Lubrizol for the five years ended December 31, 1998, to the cumulative total
shareholder return of (a) the Standard & Poor's Industrial Index and (b) the Dow
Jones Chemical Index and the Standard & Poor's Specialty Chemical Index, which
are two pre-established groups of companies believed by Lubrizol to have a peer
group relationship with Lubrizol. In all cases shown, the chart assumes the
investment of $100 on December 31, 1993, and the immediate reinvestment of all
dividends.
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
S&P SPECIALTY
LUBRIZOL S&P INDUSTRIALS D.J. CHEMICALS CHEMICALS
-------- --------------- -------------- -----------
<S> <C> <C> <C> <C>
1993 100.0 100.0 100.0 100.0
1994 101.9 103.8 108.9 87.3
1995 85.9 139.7 142.6 114.7
1996 99.2 171.9 177.6 117.7
1997 120.3 225.2 217.7 145.7
1998 86.3 301.1 200.5 124.1
</TABLE>
Lubrizol supplies performance chemicals for lubricants and fuels worldwide.
No single peer index or peer company is totally comparable to Lubrizol's
business. The peer company indices used to compare total shareholder return
include companies which supply specialty chemicals to diverse markets. Some of
Lubrizol's direct competitors are chemical divisions that represent small
portions of integrated oil companies and are not included in the peer
comparisons since information is not available to Lubrizol to show those
divisions separately from the parent.
16
<PAGE> 20
EMPLOYEE AND EXECUTIVE OFFICER BENEFIT PLANS
In addition to the stock option and variable compensation plans described
above in this Proxy Statement and the group health, hospitalization and life
insurance plans generally available to all employees, Lubrizol also maintains
the following plans for the benefit of employees and executive officers.
PENSION PLANS
Lubrizol maintains a qualified Pension Plan in which generally all domestic
employees of Lubrizol participate. Lubrizol also maintains a basic supplemental
defined benefit plan which provides highly paid employees with the portion of
their retirement benefits not permitted to be paid from the Pension Plan due to
limitations imposed by the Internal Revenue Code. In addition, Lubrizol
maintains a special officers' supplemental defined benefit plan which currently
covers one officer and is described in footnote (4) below. The following table
sets forth the estimated annual retirement benefits payable at age 65 under the
Pension Plan and the basic supplemental defined benefit plan in the specified
final average pay and years of service classifications.
<TABLE>
<CAPTION>
CREDITED YEARS OF SERVICE
---------------------------------------------------------------
FINAL AVERAGE PAY 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
----------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 200,000 $ 27,350 $ 41,020 $ 54,690 $ 68,370 $ 82,040 $ 82,040
400,000 56,350 84,520 112,690 140,870 169,040 169,040
600,000 85,350 128,020 170,690 213,370 256,040 256,040
800,000 114,350 171,520 228,690 285,870 343,040 343,040
1,000,000 143,350 215,020 286,690 358,370 430,040 430,040
1,200,000 172,350 258,520 344,690 430,870 517,040 517,040
</TABLE>
- ---------------
(1) Benefits under the Pension Plan and the related basic supplemental plan
generally are based upon a "final average pay" formula or a "career average
pay" formula, whichever produces the higher benefit to a participant. The
above table uses the "final average pay" formula, which generally produces
the higher benefit at the compensation levels shown. The "final average pay"
formula contains a 30-year limitation upon credited years of service.
Benefits are computed on the basis of a 10-year certain and life annuity and
are not subject to any deduction for Social Security or other offset
amounts.
(2) Final average pay is an average of a participant's highest ten consecutive
years of compensation covered by the Pension Plan and the related basic
supplemental plan. Compensation covered by the Pension Plan and the basic
supplemental plan consists of base salary (unreduced for elective before-tax
savings contributions and before-tax cafeteria plan contributions),
quarterly pay, overtime pay, shift premium differentials, vacation and
holiday pay, paid variable compensation, long-term disability benefits and
(for purposes of supplemental plans) cash compensation deferrals. Covered
compensation for the named executive officers is generally equal to the
amounts shown in the "annual compensation" columns for such individuals in
the summary compensation table above.
(3) The estimated credited years of service for each of the named executive
officers (after application of the 30-year service limitation) is as
follows: Mr. Bares, 30 years; Mr. Kirk, 26 years; Mr. Andreas, 18 years; Dr.
Hill, 16 years; and Mr. Bauer, 13 years.
(4) Benefits under the special officers' supplemental plan are based upon a
"final average pay" formula under which final average pay is an average of a
participant's highest three consecutive years of covered compensation during
the last ten years. Compensation covered by this plan is equal to the
amounts described in
17
<PAGE> 21
footnote (2) above. The plan contains a 30-year limitation upon credited
years of service and benefits are computed on the basis of a 10-year certain
and life annuity. Benefits under the plan are subject to reduction for
Social Security and payments made under other specified benefit plans of
Lubrizol. After making all deductions required under the plan, the
additional annual benefit payable under this plan at age 65 (assuming
current final average pay) to Mr. Bares, who is the current participant in
this plan, is approximately $113,000.
PROFIT SHARING AND SAVINGS PLAN
Lubrizol maintains a qualified Profit Sharing and Savings Plan in which
generally all domestic employees of Lubrizol participate. Each year, the Board
of Directors determines the portion, if any, of Lubrizol's profits that will be
contributed to the profit sharing portion of the Plan. Profit sharing
contributions are allocated, pro rata, to participant accounts on the basis of
compensation levels.
Employees may elect to have their base salary reduced by up to 18% (16% for
certain highly compensated employees) and to have such amount contributed to the
savings portion of the Plan as a before-tax contribution. For employees with at
least one year of service, Lubrizol contributes an amount equal to 50% of an
employee's before-tax contributions that are not in excess of 4% of the
employee's base salary. This matching contribution by Lubrizol is invested in
Common Shares of Lubrizol. Participating employees also may make contributions
on an after-tax basis, subject to certain overall limitations upon an employee's
total before-tax and after-tax contributions. Participants direct the investment
of their contributions among a Common Share fund, an equity index fund, a
balanced fund, a fixed income fund, an international equity fund, a small
capitalization fund and an equity growth fund. Participants vest in profit
sharing and matching contributions made by Lubrizol at a rate of 20% per year of
service. Distribution of a participant's vested account balance generally occurs
following retirement, death or other termination of employment.
DEFERRED COMPENSATION PLANS
Lubrizol maintains a deferred compensation plan for executive officers. The
plan allows deferral of a pre-selected amount of total annual compensation for
one or more designated future successive calendar years. Any amounts so deferred
by an executive officer earn interest at the Federal Reserve 90-day Composite
Rate in effect from time to time and are payable to the officer upon cessation
of employment in a lump sum or periodic installments over a pre-selected period
not exceeding ten years.
In addition, Lubrizol maintains another deferred compensation plan that
allows certain executive officers, including the named executive officers, to
defer a pre-selected amount of performance pay under Lubrizol's performance pay
plan. With respect to amounts so deferred, share units are credited to a share
unit account based upon the current market price of Common Shares, with the
resulting units then being multiplied by 1.25. Additional share units are
credited on account of quarterly dividends declared on Common Shares. Amounts
deferred generally are payable to the executive officer in Common Shares
equivalent to the number of share units in an account three years after the date
share units are first credited due to the deferral.
EXECUTIVE DEATH BENEFIT PROGRAMS
Certain executive officers are eligible to participate in an executive
death benefit program which provides a benefit payable to the executive
officer's designated beneficiary following the death of the executive officer
during employment or after retirement from Lubrizol. For currently employed
participants, the death benefit is
18
<PAGE> 22
equal to 250% of the executive officer's 1996 base salary plus quarterly pay,
reducing to 150% at age 70 and 100% at age 75.
EXECUTIVE AGREEMENTS
Lubrizol has entered into employment termination agreements (the
"Termination Agreements") with certain senior executives, including Messrs.
Bares, Hill, Andreas, Kirk and Bauer.
Generally, each Termination Agreement provides that, in the event of a
change in control of Lubrizol, the executive will be employed by Lubrizol at
responsibility, salary and benefit levels substantially equal to those
immediately preceding the change in control for a period of up to three years
(the "Employment Period"). If the executive's employment is terminated during
the Employment Period for reasons other than his death, permanent disability,
attainment of the normal retirement age or for cause, or if the executive
terminates his employment in certain circumstances, the principal benefits
provided to the executive are (a) a lump sum payment of an amount equal to the
present value of salary and additional forms of cash compensation which the
executive would have received during the remainder of the Employment Period and
(b) continued employee benefits coverage for the remainder of the Employment
Period. The Termination Agreements further provide that the executive is
entitled to receive an amount which will be sufficient (on an after-tax basis)
to pay any excise taxes that may be applicable to amounts deemed to be paid to
the executive by reason of the change in control.
Each executive has agreed, if he accepts any benefits under his Termination
Agreement, not to enter into any activity which would be competitive with the
business of Lubrizol during a period of one year from the termination of his
employment after a change in control. Assuming a change in control were to occur
and all of the executive officers with whom Lubrizol has entered into
Termination Agreements were terminated as of January 1, 1999, the aggregate
amount of the lump sum payments which Lubrizol would be obligated to make
pursuant to the Termination Agreements (including amounts with respect to excise
taxes) would be approximately $23 million.
SEVERANCE COMPENSATION PLAN
Lubrizol also has in effect a severance compensation plan that provides for
a severance payment to U.S. employees if, within fifteen months after a change
in control of Lubrizol, their employment is terminated for any reason other than
death, permanent disability, voluntary retirement or for cause. Executives who
receive payments pursuant to Termination Agreements will not receive duplicative
severance payments under the severance compensation plan.
If an employee with five or more years of service with Lubrizol is
terminated other than as permitted under the severance compensation plan, the
benefit provided to such employee under such plan is a lump sum payment equal to
the total cash compensation received by the employee in the preceding
twelve-month period. Employees with less than five years but more than six
months of service would receive a lesser amount proportionate to their length of
service.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Lubrizol's
officers and directors, and persons who beneficially own more than ten percent
of a registered
19
<PAGE> 23
class of Lubrizol's equity securities, to file reports of ownership and changes
in ownership of such securities with the Securities and Exchange Commission.
Officers, directors and greater-than-ten-percent beneficial owners are required
by applicable regulations to furnish Lubrizol with copies of all Section 16(a)
forms they file. Lubrizol is not aware of any beneficial owner of more than ten
percent of its Common Shares.
Based solely upon a review of the copies of the forms furnished to Lubrizol
during or with respect to 1998, and written representations from certain
reporting persons, Lubrizol believes that no officer or director failed to file
on a timely basis during 1998 or during any prior year any report required by
Section 16(a) of the Securities Exchange Act of 1934.
APPOINTMENT OF AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed Deloitte & Touche LLP, independent auditors, to audit the financial
statements of Lubrizol for the current year ending December 31, 1999. The Board
of Directors recommends that shareholders confirm this appointment.
During 1998, Lubrizol engaged Deloitte & Touche LLP to render a variety of
services to Lubrizol, including the audit of Lubrizol's financial statements.
The Audit Committee has taken into consideration the fact that the auditors
provide services in addition to the audit of Lubrizol's financial statements and
the possible effect of such services upon the auditor's independence.
A representative of Deloitte & Touche LLP will be present at the Annual
Meeting of Shareholders, will have the opportunity to make a statement and will
be available to respond to questions.
SHAREHOLDER PROPOSAL
The Teachers Insurance and Annuity Association College Retirement Equities
Fund, 730 Third Avenue, New York, New York, 10017-3206, the beneficial owner of
969,233 Common Shares, has submitted the following proposal:
WHEREAS, the Company's Board of Directors, without shareholder
approval, has adopted a plan, commonly known as a "poison pill", with a
"dead hand" provision which permits only the board members that adopted the
poison pill to redeem the pill;
WHEREAS, this type of poison pill, unlike most poison pills, not only
allows the current Board to effectively thwart acquisition offers which may
be favored by a majority of shareholders, but also denies shareholders the
right to replace this Board with new directors empowered to redeem the
poison pill and permit such offers to go forward, unless the new directors
have been recommended or approved by the continuing directors;
WHEREAS, we believe that a "dead hand" poison pill has a coercive
effect on the shareholders' basic right to freely elect a new Board and
also takes away normal decision-making authority in this important area
from a newly elected Board;
WHEREAS, we believe that such a "dead hand" poison pill interferes
with good corporate governance and can reduce the value of the company's
shares to the detriment of shareholders.
RESOLVED, that the shareholders request that the Board of Directors;
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Redeem the "dead hand" poison pill, unless approved by the affirmative
vote of a majority of shares of the Company entitled to vote at a
meeting of shareholders held as soon as practicable.
SUPPORTING STATEMENT
By adopting the poison pill without shareholder approval, the current Board
unilaterally deprived shareholders of the traditional right to sell their shares
to potential bidders. By adding the "dead hand" feature, we believe this Board
also denies appropriate decision making authority to a new Board, elected by
shareholders, to decide what is in the best interests of shareholders on this
important subject.
Traditional poison pills have been defended with the argument that
directors can generally be trusted to act in the shareholders' interest, and if
they do not, they can be replaced by the shareholders with other directors.
Adoption of "dead hand" poison pills, however, is different. We believe
that it has the effect of "entrenching" the current board by coercing
shareholders to vote for incumbent directors to preserve the possibility of
redemption of the pill. Their intended effect in our view is to preclude proxy
contests for corporate control, which are an appropriate means to challenge
incumbent management.
We believe that the right of shareholders freely to elect a board of
directors with full power to represent the shareholders' interests is the
foundation-stone of good corporate governance. Yet this Board has unilaterally
deprived shareholders of what is, in our opinion, their only real protection
against a board that acts against their interests -- the ability to freely elect
a board of their choosing with full powers to represent them in all respects.
By supporting this resolution, shareholders can protect the value of their
investment by sending a message to the Company that we value our right to elect
a Board that is prepared and able to represent shareholder interests on all
proper matters; and that we will not support unilateral actions by the Board
that restrict our ability to meaningfully exercise our voting rights.
* * *
If the foregoing resolution is properly presented at the meeting, the
affirmative vote of holders of a majority of the Common Shares represented at
the meeting will be necessary for adoption of the resolution.
RESPONSE OF LUBRIZOL
Lubrizol has had a shareholder rights plan since 1987. In his letter to
shareholders in 1997 announcing your Board's adoption of the current plan, W. G.
Bares, Chairman, President and Chief Executive Officer, explained that the
shareholder rights plan "will not prevent takeover proposals, but rather is
designed to encourage potential acquirors of the Company to negotiate directly
with the Board of Directors and to enhance the Board's ability to achieve the
best possible value for all shareholders of the Company." This is still the
critical point.
The "continuing director" provision of the shareholder rights plan requires
approval by a majority of the Board and a majority of the continuing directors
for any acquisition of more than 20% of the outstanding Lubrizol Common Shares,
any redemption of the rights issued under the shareholder rights plan or any
amendment of the shareholder rights plan. Continuing directors are those
directors who were in office at the time of adoption of the shareholder rights
plan or whose nominations
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were approved by directors then in office. Your Board believes the continuing
director provision is an appropriate means to manage serious conflicts of
interest.
A potential acquiror, acting together with other market players or through
the solicitation of proxies, could gain control of sufficient voting power to
replace the Board with "interested" directors who would approve the acquiror's
proposal to acquire Lubrizol. While this may be in the best interest of the
acquiror, it may not be in the best interests of other Lubrizol shareholders.
The continuing director provision does not limit the right of shareholders,
including any potential acquiror, to elect directors. Rather, it merely requires
that any transaction between a potential acquiror and Lubrizol be approved by
directors who are not affiliated with the acquiror or otherwise interested in
the transaction. The Board believes this procedure advances the purpose of the
continuing director provision, which is to protect the interests of shareholders
other than a potential acquiror.
The continuing director provision is neither unusual nor an unlawful
affront to traditional concepts of good corporate governance. To the contrary,
Ohio corporate law contains continuing director concepts to deal with similar
conflict of interest transactions with interested shareholders. In addition,
Lubrizol shareholders previously have approved Amended Articles of Incorporation
that utilize a continuing director provision to address conflicts of interest in
"related party" transactions.
Ohio law expressly authorizes the Board to adopt a shareholder rights plan
as an appropriate mechanism to deal with a potential change of control. The
Board firmly believes that adoption of the shareholder rights plan and its
continuing director provision is an important tool to protect shareholder
interests in conflict of interest situations and to enhance the Board's ability
to achieve the best possible value for all Lubrizol shareholders in change of
control situations.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
SHAREHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
Any shareholder who intends to present a proposal at the 2000 Annual
Meeting of Shareholders must deliver the proposal to Lubrizol no later than
November 18, 1999, to have the proposal included in Lubrizol's proxy materials
for that meeting. Any shareholder proposal submitted other than for inclusion in
Lubrizol's proxy materials for that meeting must be delivered to Lubrizol no
later than February 24, 2000, or such proposal will be considered untimely. If a
shareholder proposal is received after February 24, 2000, Lubrizol may vote in
its discretion as to the proposal all of the shares for which it has received
proxies for the 2000 Annual Meeting of Shareholders.
THE LUBRIZOL CORPORATION
K.H. HOPPING
Secretary
March 17, 1999
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PROXY
THE LUBRIZOL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of The Lubrizol Corporation hereby appoints W. G.
Bares, C. P. Cooley and K. H. Hopping, and each of them, as agents, with full
power of substitution, to vote the shares of the undersigned at the 1999 Annual
Meeting of Shareholders of The Lubrizol Corporation to be held on April 26,
1999, and at any adjournments thereof, as indicated on the reverse side of this
proxy card.
Comments:
----------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Comments will be collected by the Inspector of Elections and forwarded to
Lubrizol management)
PLEASE SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES ON THE REVERSE
SIDE. IF NO SPECIFICATION IS MADE, AUTHORITY IS GRANTED TO CAST THE VOTE OF THE
UNDERSIGNED FOR ELECTION OF THE NOMINEES, FOR ITEM 2 AND AGAINST ITEM 3. THE
AGENTS NAMED ABOVE CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS PROXY
CARD.
(CONTINUED, AND TO BE SIGNED ON OTHER SIDE)
<PAGE> 27
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
THE LUBRIZOL CORPORATION
APRIL 26, 1999
Please Detach and Mail in the Envelope Provided
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<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
A /X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of Directors / / / / DIRECTOR NOMINEES: 2. Appointment of Deloitte & Touche LLP / / / / / /
William G. Bares as independent auditors.
Jerald A. Blumberg
For, except vote withheld from the Peggy Gordon Elliott THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ABOVE PROPOSAL.
following nominee(s): David H. Hoag
Daniel E. Somers
- ---------------------------------- 3. Shareholder proposal on Shareholder / / / / / /
Rights Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE ABOVE
PROPOSAL.
IF YOU HAVE A CHANGE OF ADDRESS, PLEASE INDICATE NEW ADDRESS
BELOW AND MARK BOX TO RIGHT.
---------------------- CHANGE
---------------------- OF / /
---------------------- ADDRESS
ATTEND
MEETING / /
SIGNATURE(S) DATE SIGNATURE(S) 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 AS SUCH. IN CASE OF A CORPORATION, A DULY AUTHORIZED OFFICER SHOULD SIGN
ON ITS BEHALF.
</TABLE>
