<PAGE>
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:
[_] 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 Section 240.14a-11(c) or Section 240.14a-12
NALCO Chemical Co.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[NALCO CHEMICAL COMPANY LOGO]
March 29, 1999
Dear Stockholder:
We cordially invite you to attend the 1999 Annual Meeting of Shareholders.
It will be held at the Company's Corporate and Technical Center, One Nalco
Center, Naperville, Illinois, beginning at 10:00 A.M. on Thursday, April 29,
1999. The Corporate and Technical Center is located at the Southeast corner of
the intersection of Illinois Route 59 and the East-West Tollway (Interstate
Route 88).
The attached Notice of Meeting and Proxy Statement cover the formal business
items to be considered at this meeting. We also will report on current
operations and answer stockholder questions.
We hope you will be able to attend. If you cannot do so, we urge you to
exercise your right to vote by promptly returning your signed proxy card in
the enclosed prepaid envelope or using the Internet or telephone as detailed
on your proxy card.
Sincerely yours,
/s/ E. J. Mooney
E. J. Mooney
<PAGE>
Nalco Chemical Company
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 29, 1999
To Nalco Shareholders:
The Annual Meeting of Shareholders of Nalco Chemical Company will be held at
the Company's Corporate and Technical Center, One Nalco Center, Naperville,
Illinois, on Thursday, April 29, 1999, at 10:00 A.M., to consider and vote
upon the following proposals:
1. Election of three Class III Directors and one Class II Director.
2. Ratification of Independent Accountants.
3. Transaction of such other business, including a shareholder proposal
regarding endorsement of the CERES Principles, as may properly come before
the meeting.
The Board of Directors has designated the close of business on March 5, 1999
as the record date for determination of the shareholders entitled to notice of
and to vote at the meeting or any adjournment thereof.
Please complete, sign, date and return the proxy promptly in the enclosed
envelope, or vote through the Internet or telephone, so that your shares will
be represented at the meeting.
/s/ Suzzanne J. Gioimo
Suzzanne J. Gioimo
Secretary
Naperville, Illinois
March 29, 1999
<PAGE>
PROXY STATEMENT
SOLICITATION OF PROXIES
This Proxy Statement is furnished commencing approximately March 29, 1999,
in connection with the solicitation of proxies for use at the Annual Meeting
of Shareholders of Nalco Chemical Company (the "Company") to be held on April
29, 1999, at the time and place and for the purposes set forth in the
accompanying notice of the meeting. The accompanying Proxy is solicited by and
on behalf of the Board of Directors of the Company and is revocable by written
notice to the Company or by any later dated proxy at any time prior to its use
at the Annual Meeting.
The Company will bear the cost of the solicitation. The Company has retained
Georgeson & Company Inc., Wall Street Plaza, New York, N.Y. 10005 to aid in
the solicitation of proxies from banks, brokers, other custodians, nominees
and fiduciaries and institutional holders at a cost not to exceed $10,000 plus
reasonable out-of-pocket expenses. In addition, certain directors, officers
and other employees of the Company, not specifically employed for the purpose,
may solicit proxies, without additional remuneration therefor, by personal
interview, mail, telephone or telefax. The Company will reimburse banks,
brokers or other nominees for the expenses incurred in forwarding proxy
material to beneficial owners.
It is the Company's policy that all proxies, ballots and voting tabulations
that identify how shareholders voted be kept confidential, except when
disclosure is mandated by law, when such disclosure is expressly requested by
the shareholder, during a contested election for the Board of Directors or in
the event of a contested proxy solicitation, and that the tabulators and the
inspectors of election be independent and not employees of the Company.
Proposal 1.
ELECTION OF DIRECTORS
The Board of Directors currently consists of thirteen directors elected for
staggered terms which expire alternately over a three-year period but will be
reduced to eleven at the Annual Meeting when Mr. H. Corless, a Class II
Director, and Mr. H. G. Bernthal, a Class III Director, are scheduled for
normal retirement from the Board as of April 29, 1999. The present term of the
Class III Directors expires at the 1999 Annual Meeting. The Board of Directors
proposes the election of three Class III Directors to serve for three years
until the 2002 Annual Meeting, and in each case until their successors have
been elected and qualified. S. D. Newlin was elected by the Board as a Class
III Director effective December 17, 1998, and is proposed for election by the
shareholders and Messrs. J. J. Shea and B. S. Kelly are proposed for re-
election. In addition, W. S. Weeber was elected as a Class II Director by the
Board effective December 17, 1998 and is proposed for election by the
shareholders to serve for the remainder of the Class II term expiring in 2001.
Shares represented by proxies, which are properly returned, will be voted for
the nominees named in the following
1
<PAGE>
table unless the stockholder indicates on the proxy that authority to vote the
shares is withheld. Each of the nominees has consented to serve as a director
if elected. If any nominee becomes unavailable for election, the proxy may be
voted for such substitute nominee as the Board of Directors may designate or
the Board may reduce the number of directors to eliminate the vacancy.
<TABLE>
<CAPTION>
Year
Became
Name Principal Occupation or Employment Age Director
---- ---------------------------------- --- --------
The nominees for Class III Directors for election at the 1999 Annual Meeting
for a term to expire in 2002 are as follows:
<C> <S> <C> <C>
J. J. Shea........ Retired; formerly Vice Chairman, President 61 1993
and Chief Executive Officer, Spiegel, Inc.
B. S. Kelly....... Corporate Vice President, Dow Corning 54 1997
Corporation, President, Dow Corning
Americas
S. D. Newlin...... President, Nalco Chemical Company 46 1998
The nominee for Class II Director for election at the 1999 Annual Meeting
for a term to expire in 2001 is as follows:
W. S. Weeber...... Vice Chairman, Executive Vice President, 56 1998
Nalco Chemical Company
The other Class II Directors with terms to expire in 2001 are:
H. M. Dean........ Chairman and Chief Executive Officer, Dean 61 1987
Foods Company
E. J. Mooney...... Chairman, Chief Executive Officer, Nalco 57 1988
Chemical Company
S. A. Penrose..... President--Corporate and Institutional 53 1997
Services, Northern Trust Corporation
The Class I Directors with terms to expire in 2000 are:
J. L. Ballesteros. Chairman of the Executive Board of Grupo 57 1995
Mexicano de Desarrollo, S.A. de C.V.
J. P. Frazee, Jr.. Chairman, President and Chief Executive 54 1985
Officer, Paging Network, Inc.
A. L. Kelly....... Managing Partner, KEL Enterprises L.P. 61 1992
F. A. Krehbiel.... Chairman and Chief Executive Officer, 57 1990
Molex Incorporated
</TABLE>
Biography of Nominees for Class III Directors
J. J. Shea has served as President and Chief Executive Officer of Spiegel,
Inc. (apparel, specialty retail and catalog sales) from 1985 to 1998 when he
retired. He was Vice Chairman since 1989 until his retirement. Other
directorship: Pulte Corp.
B. S. Kelly has been Corporate Vice President, Dow Corning Corporation, and
President, Dow Corning U.S.A. since 1993 and President, Dow Corning Americas,
since 1996 (manufacturers of silicones and semi-conductor grade silicon). On
May 15, 1995, Dow Corning U.S.A. voluntarily filed a petition in bankruptcy
seeking protection under Chapter 11. The matter is still pending in the
bankruptcy court.
S. D. Newlin was elected President of Nalco in December, 1998. He was Group
Vice President, President, Specialty Division since January 1, 1998 and Group
Vice President, President, Nalco Europe from 1994 through 1997.
2
<PAGE>
Biography of Nominee for Class II Director
W. S. Weeber was elected as Vice Chairman of Nalco in December, 1998 and has
been Executive Vice President, Operations Staff since 1993.
Biographies of Other Directors
J. L. Ballesteros has been Chairman of the Executive Board of Grupo Mexicano
de Desarrollo, S. A. de C.V. (a holding company) since 1975. From 1996 through
August, 1997 he was Chairman and from 1988 through August, 1997 President and
Chief Executive Officer of Synkro, S.A. de C.V. (a holding company). He was
Chairman from 1994 through August, 1997 for both Kayser Roth Corporation (U.S.
based-hosiery) and Revision, S.A. (Argentina based hosiery company) and
Chairman since 1992 through August, 1997 for Arcoplus, S.A. (Argentina based-
hosiery). He was Chairman of the Board of Directors of Cia. Mexicana de
Aviacion, S. A. from 1994 through 1996. Other directorships: Grupo Mexicano de
Desarrollo, S.A. de C.V., Desc Sociedad de Fomento Industrial, S.A. de C.V.,
Afianzadora Lotonal, S.A. de C.V., Kativo Chemical Industries, S.A., Ixe Grupo
Financiero S.A. and member of the Board of Trustees of Fondo de Investigacion
y Cultura, A.C., Children's Museum of Mexico City, Casa Alianza, S. A. de C.
V. and Casa de la Amistad para Ninos con Cancer, S. A. de C. V.
H. M. Dean has been Chairman of Dean Foods Company (a diversified food
processor and distributor) since 1989. He became Chief Executive Officer in
1987. Other directorships: Ball Corporation, Yellow Corporation and Dean Foods
Company.
J. P. Frazee, Jr., has been Chairman, President and Chief Executive Officer
of Paging Network, Inc. (a telecommunications company) since August, 1997. He
was President and Chief Operating Officer of Sprint Corporation (a diversified
telecommunications company) from March, 1993 to August, 1993. He was Chairman
and Chief Executive Officer of Centel Corporation (a telecommunications firm)
from 1987 to 1993. Other directorships: Dean Foods Company, Security Capital
Group Incorporated, Paging Network, Inc. and Homestead Village, Inc.
A. L. Kelly has been the Managing Partner of KEL Enterprises L.P. (a holding
and investment partnership) since 1982. Other directorships: Bayerische
Motoren Werke (BMW) A.G., Deere & Company, Northern Trust Corporation and its
principal banking subsidiary, The Northern Trust Company, Snap-on
Incorporated, and Thyssen Industrie AG.
F. A. Krehbiel has been Chairman and Chief Executive Officer of Molex
Incorporated (a manufacturer and distributor of electrical and electronic
devices) since 1993. Other directorships: Tellabs, Inc., Northern Trust
Corporation and its principal banking subsidiary, The Northern Trust Company,
Molex Incorporated and DeVry Inc.
E. J. Mooney has been Chief Executive Officer of Nalco and Chairman of the
Board since 1994. He was President from 1990 to 1998. Other directorships:
Northern Trust Corporation and its principal banking subsidiary, The Northern
Trust Company, Morton International and FMC Corporation.
S. A. Penrose was elected President--Corporate and Institutional Services of
Northern Trust Corporation (banking) effective February, 1998. She was
Executive Vice President from 1993 to 1998 and Head of the Corporate and
Institutional Services Business Unit since 1994. She was Senior Vice President
(subsequently Executive Vice President) responsible for the Wealth Management
Group as well as marketing and product development for the bank's Personal
Financial Services from 1992 to 1994.
3
<PAGE>
Meetings of the Board and Committees of the Board
The Board of Directors held six regular and special meetings in 1998. Each
director attended more than 75% of the meetings of the Board of Directors and
Committees on which he/she served.
The Executive Committee. The Executive Committee, composed of four
directors, three of whom are non-employee directors, may exercise all of the
authority of the Board of Directors except as provided by Delaware Law and the
Company's By-laws and those powers reserved for other Committees of the Board.
Present members are E. J. Mooney (Chairman), H. G. Bernthal, H. M. Dean, and
J. P. Frazee, Jr. The Executive Committee did not meet in 1998.
The Audit Committee. The Audit Committee, composed of six non-employee
directors, is responsible for (i) reviewing the Company's accounting and
auditing policies and practices, (ii) reviewing the appointment and discharge
of independent accountants, (iii) reviewing the independence of the
independent accountants, (iv) reviewing the scope and nature of the non-audit
related services performed by the independent accountants, and (v) reporting
to and making recommendations to the Board with respect to the foregoing. The
Audit Committee generally meets with management, the internal auditors, and
the independent accountants three times each year. The independent accountants
and internal auditors have full and free access to the Audit Committee without
management's presence to discuss internal accounting controls, results of
audits and financial reporting matters. Present members are J. P. Frazee, Jr.
(Chairman), J. L. Ballesteros, H. Corless, H. M. Dean, A. L. Kelly and S. A.
Penrose.
The Executive Compensation Committee. The Executive Compensation Committee,
composed of four non-employee directors, is responsible for (i) recommending
to the Board of Directors the compensation to be paid to the Chief Executive
Officer, (ii) approving compensation of corporate officers who are scheduled
to be listed in the proxy, (iii) consulting with the Chief Executive Officer
on matters related to executive compensation, and (iv) administering the
Company's Management Incentive Plan, stock option plans, Employee Stock
Compensation Plan, and Performance Share Plan. Present members are H. G.
Bernthal (Chairman), B. S. Kelly, F. A. Krehbiel, and J. J. Shea. In 1998,
this Committee met twice.
The Board Affairs and Nominating Committee. The Board Affairs and Nominating
Committee, composed of all the non-employee directors plus the Chairman, is
responsible for reviewing the qualifications of possible directors to fill
Board vacancies. Candidates for election to the Board submitted by
shareholders will be considered by the Committee if sent to the Secretary with
the candidate's qualifications. H. M. Dean is the Chairman of the Committee.
The Board Affairs and Nominating Committee met once in 1998.
Directors' Remuneration and Retirement Policies
Compensation of non-employee directors of the Company consists of an annual
retainer of $25,000 plus $1,000 for each Board meeting attended, 200 shares of
common stock under the Non-Employee Directors Stock Compensation Plan, an
additional $6,000 per year for membership on one or more Committees of the
Board, and an additional fee of $6,000 per year to the Chairmen of the Audit
Committee, Executive Compensation Committee and Board Affairs and Nominating
Committee. Directors also receive options to purchase 4,000 shares of common
stock under the Non-employee Directors Stock Option plan. Directors who are
employees of the Company do not receive fees for service on the Board or any
Committees.
A deferred compensation plan is available to all non-employee directors
under which they may defer all or a part of their annual retainer and
Committee and attendance fees for any year and receive, generally following
retirement or at such earlier time as the Board approves, the amount computed
as set forth below,
4
<PAGE>
in five equal annual payments (or such other number of annual payments, not
more than ten, as the Company elects). Deferred compensation accounts set up
for directors who elect deferral are credited with the deferred amounts. These
amounts are converted into share units based on the average of the month-end
closing prices of the Company's common stock during the calendar year and
credited with the dividend equivalents of the dividends a director would have
received had the director owned shares of common stock equal to the share
units in the director's account, also converted into share units on the same
basis. At the end of the deferral period, units are converted into cash based
on the average of the month-end closing prices of the Company's common stock
during the year prior to or of payment.
The Board of Directors has adopted a policy establishing the retirement date
of each member of the Board to be the date of the Annual Meeting of
Shareholders which next follows the earlier of either the date of retirement
from employment by the Company or the date of the member's 70th birthday.
Early retirement can be taken following the attainment of a non-employee
director's 68th birthday. Such policy also provides that upon retirement from
the Board, each non-employee director with at least five years of service on
the Board shall be paid an annual amount equal to the annual retainer paid to
non-employee directors multiplied by a factor, the numerator of which is the
number of years of service on the Board, but not exceeding ten, and the
denominator of which is ten, such annual payment to continue for the lifetime
of the retired director. In 1993 the Board adopted a new retirement policy
effective for all directors elected to the Board for the first time after
October 1993. Directors who were elected to the Board prior to that date may
choose to retire under the old policy or the new one. The new retirement
policy also provides for payment of an amount equal to the annual retainer,
multiplied by a fraction, the numerator of which is the number of years of
service on the Board but not exceeding ten, and the denominator of which is
ten, to be paid for a period not greater than ten years. However, under the
new policy, should a director die prior to retirement or after retirement but
before the ten year period has expired, the director's spouse shall receive
50% of the payment amount for the lesser of life or the remainder of the ten
year period.
Non-Employee Directors Stock Compensation Plan
Under the Non-Employee Directors Stock Compensation Plan each director of
the Company, after the Annual Shareholders Meeting, automatically receives 200
shares of Company common stock as part of the retainer paid for his or her
services. Receipt of the stock may be deferred until retirement from the
Company's Board of Directors. If deferred, an account will be set up for the
director containing one share unit for each share of common stock deferred.
Whenever a dividend is declared by the Company, an amount equal to the amount
of the dividend that would have been received had each share unit actually
been a share of common stock shall be converted into share units based on the
closing price on the New York Stock Exchange Composite Price Index for the
date approved by the Board for payment of dividends on the Company's common
stock. Upon a director leaving the Company's Board, the director shall receive
shares of common stock equal to the whole number of share units in his or her
account, plus cash in lieu of fractional shares.
Non-Employee Directors Stock Option Plan
The Stock Option Plan for Non-Employee Directors (the "Directors Plan")
provides for automatic grants of options to purchase 4,000 shares of the
Company's common stock to each non-employee director of the Company on the
date of each Annual Meeting to May 1, 2000. The option price is the fair
market value of the Company's common stock on the date of grant. Payment for
the exercise of options may be made in cash or in shares of Company common
stock that have been held by the director for at least six months. An
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<PAGE>
optionee may elect to surrender an option and receive shares of common stock
of the Company having a fair market value equal in value to the excess of the
fair market value of the unpurchased shares over the option price of such
shares.
Each option extends for 10 years from the date of grant. Options terminate
upon termination of service as a director, except that an optionee may
exercise the option within five years following retirement under the Company's
retirement policy for directors or termination of service as a director
because of total and permanent disability. If the director dies while a
director or within five years of retirement as a director, the option may be
exercised within the longer of five years from the date of retirement or one
year from the date of death by any person to whom the option passes by will or
the laws of descent and distribution. For options granted before 1992, these
exercise periods are three years. In all instances, however, the option must
be exercised during the term of the grant.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
for each of the Company's last three fiscal years to the Company's Chief
Executive Officer and each of the Company's other five most highly compensated
executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards Payouts
------------------------------------ --------------------- -------
Other Restricted Shares All
Annual Stock Underlying LTIP Other
Name and Principal Salary Bonus Compensation Award(s) Options Payouts Compensation
Position Year ($) ($)(1) ($) ($)(2) (#) ($)(3) ($)(4)
- -------------------------- ---- ------- ------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
E. J. Mooney, 1998 572,917 128,906 9,291 0 234,100 0 6,422
Chairman of the Board, 1997 546,667 307,320 19,102 0 100,000 316,296 38,379
& Chief Executive Officer 1996 510,000 284,580 9,544 0 47,600 0 34,334
S. D. Newlin 1998 286,796(5) 56,286 10,542(6) 62,000 84,100 0 2,968
President 1997 447,518(5) 93,428 89,745(6) 0 0 96,861 17,538
1996 445,703(5) 88,526 3,126 0 15,800 0 15,935
W. S. Weeber 1998 334,892 85,196 2,270 62,000 111,800 0 3,754
Vice Chairman, 1997 315,950 150,076 1,667 0 0 157,078 22,181
Executive Vice President, 1996 302,200 142,427 1,428 0 22,200 0 20,345
Operations Staff
G. M. Brannon 1998 430,453(5) 49,279 219,763(6) 62,000 68,500 0 2,612
Group Vice President, 1997 447,805(5) 64,226 46,434(6) 0 0 55,199 13,925
President, Industrial 1996 460,700(5) 44,258 4,311 0 7,200 0 12,131
Division
W. E. Buchholz 1998 260,083 48,375 3,363 0 75,900 0 2,915
Senior Vice President, 1997 248,158 82,091 4,357 0 0 71,343 17,422
Chief Financial Officer 1996 227,900 64,108 3,067 0 9,100 0 15,343
P. Dabringhausen 1998 304,032(5) 54,047 3,350 0 46,200 0 2,834
Group Vice President, 1997 305,529(5) 96,316 6,827 0 0 102,229 18,425
retired as of 12/98 1996 295,381(5) 92,555 3,067 0 16,700 0 16,885
</TABLE>
- ----------
(1) Amount represents Management Incentive Plan awards earned for stated year.
6
<PAGE>
(2) Based on the closing stock price of $31.00 on December 31, 1998, the
restricted stock holdings and their market value at the end of 1998 for
each named executive officer are: E. J. Mooney, 4,540 shares, $140,740; W.
S. Weeber, 4,630 shares, $143,530; S. D. Newlin, 2,850 shares, $88,350; G.
M. Brannon, 2,510 shares, $77,810. Dividends are paid on restricted common
stock.
(3) Half of the amount is in the form of phantom common stock that vests in
three years contingent on continued employment. Dividends are paid on the
phantom stock.
(4) Allocations under the Nalco Employee Stock Ownership Plan, including
comparable amounts under Excess ERISA Agreements.
(5) A portion of this amount represents costs and allocations associated with
overseas living expenses.
(6) Includes tax payments associated with overseas service.
Option Grants in Last Fiscal Year
The following table provides information related to options to purchase
common stock of the Company granted to the named executive officers during
1998.
<TABLE>
<CAPTION>
Potential Realizable
Value
at Assumed Annual Rates
of Stock Price
Appreciation
Individual Grants (1) for Option Terms ($)(2)
- ----------------------------------------------------------------- -----------------------
% of
Total
Options
Number of Granted
Securities to Exercise
Underlying Employees or Base
Options in Fiscal Price Expiration
Name Granted Year ($/Sh) Date 0% 5% 10%
- ------------------------ ---------- --------- -------- ---------- --- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
E. J. Mooney............ 134,100 3.86 39.1563 2/19/2008 0 3,302,238 8,368,518
100,000 2.88 30.6563 12/16/2008 0 1,927,958 4,885,825
S. D. Newlin............ 44,400 1.28 39.1563 2/19/2008 0 1,093,358 2,770,785
39,700 1.14 30.6563 12/16/2008 0 765,399 1,939,672
W. S. Weeber............ 61,800 1.78 39.1563 2/19/2008 0 1,521,837 3,856,633
50,000 1.44 30.6563 12/16/2008 0 963,979 2,442,912
G. M. Brannon........... 39,300 1.13 39.1563 2/19/2008 0 967,770 2,452,519
29,200 .84 30.6563 12/16/2008 0 562,964 1,426,661
W. E. Buchholz.......... 43,500 1.25 39.1563 2/19/2008 0 1,071,196 2,714,620
32,400 .93 30.6563 12/16/2008 0 624,658 1,583,007
P. Dabringhausen........ 46,200 1.33 39.1563 2/19/2008 0 1,137,684 2,883,114
</TABLE>
- ----------
(1) Options are always granted at fair market value on the date of grant. The
options with the expiration date of 2/19/2008 vest one-third on the
anniversaries of the date of grant for the following three years. The
options with the expiration date of 12/16/2008 vested immediately when
granted. Option holders may pay taxes owed upon exercise by having option
shares withheld or by surrendering already owned shares.
(2) The dollar amounts under these columns are the difference between the
option exercise price and market prices at the end of the option term
assuming annual rates of stock price appreciation of 0%, 5% and 10%. At 5%
or 10%, shareholder value would have increased by $1.62 billion or $4.10
billion, respectively, using an option exercise price of $39.1563. Using
an exercise price of $30.6563, shareholder value would have increased by
$1.27 billion or $3.21 billion at 5% or 10% stock price appreciation,
respectively.
7
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Year-end Option Values
The following table provides information related to options exercised by the
named executive officers during 1998 and the number and value of options held
at year-end.
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Shares Value Underlying Unexercised In-The-Money Options
Acquired on Realized Options at Year-end (#) at Year-end ($)(1)
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------ -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
E. J. Mooney............ 0 0 445,267/167,433 34,370/0
S. D. Newlin............ 0 0 103,700/44,400 13,645/0
W. S. Weeber............ 0 0 157,800/61,800 17,185/0
G. M. Brannon........... 3,100 48,641 61,300/39,300 10,036/0
W. E. Buchholz.......... 0 0 75,200/43,500 11,136/0
P. Dabringhausen........ 0 0 53,900/0 0/0
</TABLE>
- ----------
(1) Valued on the difference between $31.00 (the closing price on December 31,
1998) and the exercise price of the option.
Long-Term Incentive Plan Awards in Last Fiscal Year
The following table covers long-term incentive contingent share units
assigned to the named executive officers during 1998.
<TABLE>
<CAPTION>
Performance
or Other Estimated Future Payouts
Number of Period Until Under Non-Stock Price Based Plans
Shares, Units or Maturation ------------------------------------
Name Other Rights (#) or Payout Threshold (#) Target (#) Maximum (#)
---- ---------------- ------------ ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
E. J. Mooney............ 11,086 1998/99/2000 6,652 11,086 13,303
S. D. Newlin............ 3,077 1998/99/2000 1,846 3,077 3,692
W. S. Weeber............ 4,758 1998/99/2000 2,855 4,758 5,710
G. M. Brannon........... 2,730 1998/99/2000 1,638 2,730 3,276
W. E. Buchholz.......... 2,684 1998/99/2000 1,610 2,684 3,221
P. Dabringhausen........ 3,204 1998/99/2000 1,922 3,204 3,845
</TABLE>
Under the Performance Share Plan, a 6%, 10% and 12% compounded increase in
diluted net earnings per share of Company common stock is required to earn
threshold, target and maximum payouts, respectively. If earned, half of the
awards are to be paid in cash at the end of the performance period in an
amount based on the average Company common stock price during the last five
trading days of the performance period, and the remaining awards are to be
paid in Company common stock that vests three years after the end of the
performance period contingent on continued employment. In the event of
termination of employment due to death, disability, retirement or change in
control, all unvested common stock already awarded shall vest immediately and
shall be distributed to a participant or his or her beneficiary.
8
<PAGE>
Retirement Income Plan and Supplemental Retirement Income Plan
The following table sets forth the annual benefits payable, with respect to
specified final average earnings and years of service categories, under the
Company's Retirement Income Plan and Supplemental Retirement Income Plan (the
"Plan"), before giving effect to any social security offset.
Pension Plan Table
<TABLE>
<CAPTION>
Final Years of Service
Average ---------------------------------------
Earnings 15 20 25 30 35
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 200,000............................ 63,600 84,800 106,000 121,900 137,800
300,000............................ 95,400 127,200 159,000 182,850 206,700
400,000............................ 127,200 169,600 212,000 243,800 275,600
500,000............................ 159,000 212,000 265,000 304,750 344,500
600,000............................ 190,800 254,400 318,000 365,700 413,400
700,000............................ 222,600 296,800 371,000 426,650 482,300
800,000............................ 254,400 339,200 424,000 487,600 551,200
900,000............................ 286,200 381,600 477,000 548,550 620,100
1,000,000............................ 318,000 424,000 530,000 609,500 689,000
</TABLE>
The credited years of participation at December 31, 1998 for each individual
named in the cash compensation table are: E. J. Mooney, 30; W. S. Weeber, 32;
P. Dabringhausen, 29; S. D. Newlin, 23; G. M. Brannon, 23; W. E. Buchholz, 6.
The credited earnings are approximately the same as the salary and bonus set
forth in the summary compensation table.
The Plan uses a final average earnings formula based on the average
annualized pay for the highest paid 48 months during the last 120 months
before retirement. In general, the annual retirement income in the 10-year
certain form of settlement at normal retirement date will be equal to 2% of
"final average earnings" for each of the first 25 years of Plan participation
plus 1.5% of "final average earnings" for each year over 25 years, less a
prorated offset not to exceed 50% of the primary social security benefit at
age 62, depending on years of Plan participation.
The Company has entered into agreements with its officers, including those
listed in the summary compensation table, to restore any benefits under the
Retirement Income Plan, the Profit Sharing, Investment and Pay Deferral Plan
and Employee Stock Ownership Plan ("ESOP") reduced by the Employee Retirement
Income Security Act of 1974 and the Revenue Reconciliation Act of 1993. Any
reductions in benefits will first be made in Retirement Plan accounts and then
if necessary in the Profit Sharing, Investment and Pay Deferral Plan and ESOP
accounts. Under these agreements, the Company also agrees to pay to the
beneficiary of each executive officer an amount equal to one year's salary in
the event of death.
Key Executive Agreements
The Company has entered into Key Executive Agreements with those individuals
listed in the summary compensation table, as an assurance to the Company and
the officers of continuity of management in the event of any actual or
threatened change in control of the Company. Under the Agreements, which
become effective upon a change in control, the Company agrees to employ each
executive for a three-year period thereafter (but not after age 62) in the
capacity in which the executive was employed immediately prior thereto
9
<PAGE>
("Employment Period"). During the Employment Period, the executive will be
compensated, as detailed in the Agreements, in a manner comparable to his or
her prior compensation and will be entitled to all opportunities for bonuses
and other Company benefits provided for executives by the Company. In the
event of termination of the executive as a result of a change in control or a
significant change in the executive's authority or duties in effect
immediately prior to the effective date of the Agreement, a reduction in total
compensation opportunities, or a breach of the Agreement by the Company, the
executive would be paid a lump sum equivalent to anticipated salary, bonuses
and incentives for the remainder of the Employment Period, as well as any
benefits that would have accrued, including those under profit sharing, ESOP,
pension, stock option and insurance plans. The Company will pay any expenses
associated with enforcement of an executive's rights under an Agreement, and
will secure its obligations under the Agreements by an irrevocable letter of
credit for the benefit of the executive. In December, 1997, the Board approved
a new Key Executive Agreement ("new Agreement") that was offered to officers
whose election was effective after December 31, 1997 as a replacement to the
old Agreement. Among other changes, the new Agreement will apply only if
officers terminate employment within a three month window period one year
after a change of control. Also, no long-term incentive grants or ESOP
accruals after a change of control, or assumed salary increases, will be used
in the calculation of the lump sum payment, although a present payment cap
will be eliminated and the payment will be grossed up for excise tax.
Death Benefit Agreements
The Company has also entered into Death Benefit Agreements ("Benefit
Agreements") with those individuals listed in the summary compensation table,
as an inducement to continue in the Company's employ and to provide the
benefit of his or her advice after his or her retirement. Each Benefit
Agreement provides for payment by the Company to the executive's beneficiaries
of an amount equal to the executive's base annual salary as of his or her last
day of work, if the executive dies (a) while employed by the Company and
covered by a Benefit Agreement, or (b) any time after retirement and before
reaching age 62 if a Benefit Agreement was in effect at retirement.
The Company will pay a benefit equal to twice the executive's base annual
salary as of his or her last day of work to the executive's beneficiaries if
the executive dies after retirement and after reaching age 62 if a Benefit
Agreement was in effect at the time of retirement. Payments under these
Benefit Agreements will be made by the Company from its general funds. It is
not necessary for a named executive officer to provide consulting services to
the Company after retirement to be awarded benefits under the Benefit
Agreement.
Benefit Protection Trusts
Four trust funds (the "Trusts") have been established to assist in
accumulating the amounts necessary to satisfy the Company's contractual
liabilities under the non-qualified benefit plans described herein, including
the deferred compensation plan for directors. However, the Company shall
remain primarily liable under the plans to pay benefits, and the Trusts'
assets shall remain subject to the claims of the Company's general creditors.
The Company may fund the Trusts at any time, but shall, no later than three
business days after a change in control of the Company, fund the Trusts in an
amount which at least equals the present value of all of the unpaid benefits
under the Trusts. To determine this value, the actuarial assumptions stated in
the Retirement Income Plan in effect on the first day of the Plan year in
which a change in control occurs will be used. A Trust beneficiary's benefit
under a plan shall be based on his or her service and compensation at the time
of the change in control.
10
<PAGE>
Change in Control
"Change in control" as used in the plans and agreements discussed herein
generally means: (a) a merger, consolidation, reorganization or sale of all or
substantially all of the Company's business or assets if less than 80% of the
outstanding voting securities or other capital interests in the surviving or
acquiring company is owned in the aggregate by the shareholders of the Company
immediately prior thereto; (b) the reported acquisition by any person or group
of beneficial ownership of 20% or more of the outstanding voting securities of
the Company; or (c) a change during any two-year period in a majority of the
Board of Directors not approved by at least two-thirds of the prior Directors.
Executive Compensation Committee Report to Shareholders
Executive Compensation Policy
The Executive Compensation Committee ("Committee") of Nalco Chemical Company
is comprised entirely of non-employee directors. The Committee is responsible
for establishing and administering Nalco's compensation policies.
Currently, the compensation program for executives consists of five
principal elements:
1. A base salary is kept competitive by utilizing various surveys provided
or published by independent consultants from time to time. In addition,
during the past year and a half a comprehensive executive compensation
survey was conducted with an outside consultant comparing Nalco to a
peer group of companies. Approximately half of these companies in the
consultant's database match the peer group companies in the performance
graph. Various size and performance measures, including return on
equity, assets, sales and capital, are used to compare survey companies
to Nalco and to judge the appropriateness of compensation comparisons.
However in setting salaries, the primary emphasis is on Nalco's sales,
earnings and earnings per share, as well as the individual executive's
yearly performance and contribution to Nalco's overall performance. Base
salaries for 1998 were set in February, 1998, after 1997 earnings were
available and achievement of plans and personal goals, as well as
adherence to expense budgets, could be calculated. In 1997, earnings
from continuing operations increased by 12%, while corresponding
earnings per share increased by 13%. Salary increases for executive
officers for 1998 averaged 6.6% including promotions, 5.1% excluding
promotions.
2. The Management Incentive Plan ("MIP") is an annual incentive plan that
provides cash compensation based on the achievement of goals set by the
Committee for Nalco and the individuals that are approved by the Board
of Directors for participation. For 1998, there were corporate
performance goals for increases in sales and earnings and for strategic
management performance, including adherence to expense budgets. The
individual management performance goals are subjective and were set for
each executive, depending on his or her particular responsibilities and
strategic objectives for the year. For the MIP, sales, earnings and
individual goals are weighted at 37.5%, 37.5% and 25%, respectively. The
earnings threshold was not met in 1998, so no payout was made on the
earnings goals. About 60% of the portion of the target award related to
sales was earned in 1998.
3. The Performance Share Plan ("PSP") provides for awards based on long-
term, per-share earnings goals of Nalco that are approved by the Board
of Directors. Awards, if earned, will be paid out in Nalco common stock
and/or cash based upon Nalco's achievement of at least a threshold
compounded increase in diluted net earnings per share during a three-
year performance period.
11
<PAGE>
This plan provides for a threshold and maximum amount below and above
the respective target amounts. For the three-year performance period
ended in December, 1998, earnings goals were not met, and no contingent
performance shares were earned for this period. The Committee granted
awards for the 1998/1999/2000 PSP cycle. A 6%, 10% and 12% compounded
annual increase in diluted earnings per share is required to earn
threshold, target and maximum payouts, respectively, for this cycle. The
size of initial awards to executive officers and the CEO is determined
by the Committee after careful consideration of past performance and
future performance goals.
4. Options to purchase common stock are awarded from time to time. The
Committee utilizes an outside consulting firm to provide comparative
data upon which the Committee bases the grant amounts, taking into
consideration individual positions and performance. Grants are intended
to be competitive and provide long-term incentive motivation. Option
prices are based on fair market value as of the grant date and the value
of any particular option depends on Nalco's common stock price at the
time of option exercise. Two separate grants were made to all executive
officers in 1998. The first grant in February, at an option price of
$39.1563 per share, vests over a three-year period. The second grant in
December at $30.6563 per share vested on that date.
5. Restricted stock grants are sometimes used as an extra incentive to keep
highly valued executives with the Company and to increase the amount of
their compensation tied to stock price performance. Three executive
officers were given restricted stock grants in December, 1998 to vest in
three years.
The Committee tries to focus the executive compensation program to
strengthen the overall performance of Nalco by integrating short-term and
long-term performance goals. PSP long-term objective goals are based 100% on
earnings performance. Once awards are made under an annual or long-term
incentive plan, the Committee has no discretion to adjust them.
The Committee believes that compensating executives by means of stock and
stock options leads to maximization of shareholder value over the long term.
Nalco's ongoing stock option program is intended to align the interests of
executives and managers with those of Nalco's shareholders and encourage
efforts that enhance Nalco's earnings per share and stock price. The Committee
does not consider outstanding stock options when awarding current stock
options.
The Committee continues to monitor qualifying compensation paid to its
executive officers for deductibility under the $1 million deduction limit of
the Internal Revenue Code for executive salaries. Included compensation did
not exceed this limit in 1998 and is not expected to do so in 1999.
Chief Executive Officer Compensation
The pay-for-performance philosophy of Nalco's total compensation program
outlined above also applies to Mr. E. J. Mooney, Nalco's Chief Executive
Officer.
In 1997, Nalco sales were up 10% over 1996 and earnings per share from
continuing operations were up 13%. There was a 12% return to shareholders in
1997, including a 10% increase in share price, plus dividends. Because of this
and the effectiveness of Mr. Mooney's performance during the year, the
Committee approved a 4.5% increase in his base salary effective February,
1998.
The 1998 MIP award was based on achievement of corporate performance goals
for sales and earnings. The target award related to earnings was not met
resulting in zero payout for that portion of the target award. Approximately
94% of the sales goal was met, resulting in a 60% payout for that portion of
the target award. The combination of sales and earnings achievement resulted
in Mr. Mooney earning 30% of his overall target award. The MIP award paid to
Mr. Mooney was significantly below the target amount and below last year's
award. The total MIP payment Mr. Mooney received for 1998 was $128,906 vs.
$307,320 in 1997.
12
<PAGE>
The PSP earnings goals were not met for the 1996/97/98 cycle. As a result,
Mr. Mooney earned no performance shares for this period.
Potentially, 60% to 70% of Mr. Mooney's annual compensation can come from
performance related compensation plans such as the MIP and PSP. Because the
1998 MIP payout was significantly below the target level, and no performance
shares were earned under the 1996/97/98 PSP award, 18% of Mr. Mooney's 1998
cash compensation was based on performance related plans.
Mr. Mooney received a stock option grant for 134,100 shares in February,
1998 with an exercise price of $39.1563 per share. These options vest over a
three-year period. Mr. Mooney also received a stock option grant for 100,000
shares in December, 1998. This grant has an exercise price of $30.6563 and
vested at that time. The exercise price of both grants was set at the fair
market value of Nalco's common stock on the date of grant. The Committee
believes that Mr. Mooney's performance was deserving of the grants, and at the
same time wants to tie more of his compensation to stock performance and
shareholder value.
The Executive Compensation Committee
H. G. Bernthal B. S. Kelly
F. A. Krehbiel J. J. Shea
13
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The graph below compares cumulative total return of the Company, the S&P 500
Index and the Specialty Chemicals Value Line Index (dividends reinvested). The
graph assumes $100 was invested on December 31, 1993 in Nalco common stock,
the S&P 500 index and the Specialty Chemical Value Line Index.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Nalco 100.00 91.86 85.02 105.06 118.10 95.25
S&P 500 100.00 101.32 139.40 171.40 228.59 293.91
Specialty 100.00 98.77 121.89 137.92 156.07 136.26
Chemicals Value
Line Index
</TABLE>
14
<PAGE>
Proposal 2.
APPROVAL OF INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP was selected by the Board of Directors upon the
recommendation of the Audit Committee to serve as independent accountants for
the Company and its consolidated subsidiaries for 1999, and the shareholders'
ratification of such selection is requested. PricewaterhouseCoopers LLP has
been the Company's accountants since 1993. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting of
Shareholders to make a statement if they so desire and to respond to
appropriate questions. If the shareholders do not approve the accountants, the
Audit Committee and the Board of Directors will reconsider the selection.
The Board of Directors recommends a vote "FOR" Proposal 2.
Proposal 3.
STOCKHOLDER PROPOSAL ON ENDORSEMENT OF THE CERES PRINCIPLES
The General Board of Pension and Health Benefits of the United Methodist
Church, shareholders of the Company, have informed management of their
intention to present a proposed resolution on requesting endorsement of the
CERES Principles at the Annual Meeting. The General Board of Pension and
Health Benefits of the United Methodist Church may be contacted through
Vidette K. Bullock Mixon, Director of Corporate Relations and Social Concerns,
1201 Davis Street, Evanston, Illinois 60201.
WHEREAS:
All leaders of industry in the United States now acknowledge their
obligation to pursue superior environmental performance and to disclose
information about that performance to their investors and other stakeholders.
The integrity, utility, and comparability of environmental disclosure
depends on the creation of environmental reports that employ a common format,
use credible metrics, and follow a set of a generally accepted environmental
disclosure standards.
The Coalition for Environmentally Responsible Economies (CERES), a ten year
old partnership among some of the largest investors, environmental groups, and
corporations in the country, has established what we believe is the most
thorough and well-respected environmental disclosure form in the United
States.
CERES has also gathered leading international organizations, including the
United Nations Environment Programme, into a collaborative Global Reporting
Initiative to guide and accelerate the worldwide trend toward standardized
environmental reporting.
The CERES Principles and the CERES Report have already been adopted by
leading firms in highly diverse industries such as Bank America, Baxter
International, Bethlehem Steel, Coca-Cola, General Motors, Interface, ITT
Industries, Pennsylvania Power and Light, Polaroid, and Sun Company.
We believe endorsing the CERES Principles commits a Company to the prudent
oversight of its financial and physical resources through: 1) protection of
the biosphere; 2) sustainable use of natural resources; 3) waste reduction; 4)
energy conservation; 5) risk reduction; 6) safe products/services; 7)
environmental
15
<PAGE>
restoration; 8) informing the public; 9) management commitment; 10) audits and
reports. (The full text of the CERES Principles and accompanying CERES Report
form are obtainable from CERES, 11 Arlington Street, Boston, Massachusetts
02116, (617) 247-0700 or at www.ceres.org).
RESOLVED: Shareholders request that the company endorse the CERES Principles
as a reasonable and beneficial component of their corporate commitment to be
publicly accountable for environmental performance.
SUPPORTING STATEMENT
Recent studies show that the integration of environmental commitment into
business operations provide competitive advantage and improve long-term
financial performance for companies. In addition, the depth of a firm's
environmental commitment and the quality with which it manages its
environmental performance provide us with indicators of the foresight of its
management.
Given investors' needs for credible information about a firm's environmental
performance, and given the large number of companies that have already
endorsed the CERES Principles and adopted its report format, endorsement of
the CERES Principles is a reasonable, widely accepted step for any company
wishing to demonstrate its seriousness about superior environmental
performance.
The goal of the CERES Principles is continuous improvement in corporate
environmental performance, coupled with public accountability. One cannot
measure improvement without having data over time. Standardizing that data
enables investors to assess environmental progress within and across
industries. By endorsing the CERES Principles, a company agrees to a single
consistent standard for environmental reporting. An endorsing company works
with CERES and other endorsing companies in setting that reporting standard.
Your vote FOR this resolution serves the best interests of our Company and
its shareholders.
STATEMENT BY MANAGEMENT AGAINST PROPOSAL 3.
Your Directors and management recommend a vote AGAINST the above shareholder
proposal for the following reasons:
One of Nalco's major goals as a specialty chemical company is the protection
of the environment and the health and safety of our employees, customers and
the communities in which we operate and live. This is reflected within our
company in a number of ways. Our Philosophy of Operations states that our
responsibility with respect to the environment, health, safety, and product
stewardship is the key to building value for customers, employees,
shareholders and communities. Implementation of a sound environmental policy
increases long-term shareholder value by improving efficiency, decreasing
remediation costs, reducing waste generation and enhancing community relations
and product attractiveness.
Our global Environmental, Health and Safety Department (created in 1976)
manages environmental compliance and employee, customer and community health
and safety issues. With a focus on customers, employees, shareholders and
communities, we track our success through global environmental performance
measures.
16
<PAGE>
We continue to believe the best way to achieve our goals to protect and
enhance the environment and the health and safety of our employees, customers
and neighbors is through our own Environmental, Health and Safety programs, in
addition to the Chemical Manufacturers Association's ("CMA") Responsible
Care(R) program. This CMA program, which has been in existence since 1985, is
the chemical industry's voluntary, global initiative for continuous
improvement in all aspects of environmental, health and safety performance and
openness in communications about its activities and achievements.
Responsible Care(R) is part of Nalco's corporate culture world-wide, and we
have chosen to continue its use as a more formal base for our environmental
efforts rather than begin a new program such as the CERES Principles. Nalco
has made a written public commitment to Responsible Care(R) and has
implemented its six Codes of Management Practices. Through adherence to these
codes and its own environmental policies and practices, Nalco has committed
the Company and its employees to protect the environment of our planet; to use
resources in an environmentally conscientious manner; to prevent waste and
pollution of our air, water and other natural resources; to conserve energy;
to reduce risk in all aspects of its business for employees, shareholders and
neighbors; to manufacture and distribute our products and services safely; to
communicate to our employees and neighbors and publish all information
necessary for their health and safety.
Community Awareness and Emergency Response Code. Community Advisory Panels
at all plant locations in the United States and Canada improve communication
with plant neighbors regarding local risks; work to improve all formal,
written emergency plans and integrate them with those of the community; and
continue the education of our employees about Company emergency response plans
and environmental, health & safety programs.
Pollution Prevention Code. Reduction of total Toxic Release Inventory
("TRI") chemical releases and transfers by 30 percent and total TRI chemical
releases to the air by 30 percent has been achieved.
Process Safety Code. There is full compliance with the code by every Nalco
manufacturing site that reports performance according to CMA requirements with
the goal of preventing fires, explosions and accidental chemical releases at
plant facilities. Using a three to five year cycle depending on the scope of
operations, the Plant Operations Review Team visits and audits in detail each
of our worldwide manufacturing and research locations for process and employee
safety.
Distribution Code. Nalco has reduced the number of bulk delivery incidents
by 80% since 1990 through the use of a fleet of specially designed trucks and
Customer Delivery Specialists, as well as a Zero Defect Delivery program for
bulk chemical deliveries. Our PORTA-FEED program has resulted in delivery of
more than 90 percent of products in the United States in bulk or PORTA-FEED
containers, eliminating the use of 3.5 million 55-gallon drums and the
disposal of the 35 million pounds of residual chemical wastes that would have
resulted from those drums. Last year Nalco invested approximately $17 million
in PORTA-FEED containers and trucks to continue its development of its premier
distribution system.
Employee Health and Safety Code. Employees worldwide are trained regularly
to operate safely within their work environment. Members of our sales force
are trained in hazard communications, respiratory protection, hearing
conservation, product stewardship, personal safety management, confined space
entry, personal protective equipment, hazardous materials and driving safety.
Sales force members also train customer employees on the safe use of Nalco
products.
Product Stewardship Code. Nalco quantifies and reduces, where necessary,
chemical hazards and exposures during the product development stage; performs
risk assessments of existing product lines to assure the safe and
environmentally responsible application of our products, establishes
employment, health and
17
<PAGE>
safety standards that must be met by our raw material suppliers; surveys and
audits companies that make products for us; and provides periodic risk
assessments to our customers to help minimize the potential for accidents
related to the use of our products.
Each CMA member company, including Nalco, is committed to full
implementation of the CMA Responsible Care(R) Codes of Management Practices by
the end of 1999. Nalco has fully implemented five out of the six codes with
the sixth to be completed this year.
In addition to the CMA Responsible Care(R) programs, Nalco has many other
programs and practices, such as the Process Operations Review and the
Environmental Assessment Processes, to assure compliance with all
environmental regulations as well as all Nalco environmental policies. The
Plant Operations Review Team program, developed in 1984, audits all Company
facilities on a regular basis for proper process operation, industrial hygiene
safety and environmental compliance. This process is used worldwide and also
includes assessment of compliance with all local environmental, health and
safety regulations. All these programs are overseen by the Environmental
Compliance Committee, which further illustrates top management commitment to
environmental, health and safety goals and programs.
The actions that we have undertaken in response to our own environmental
policies and our public commitment to Responsible Care(R) are part of an
extensive and ongoing process to enhance and protect the environment by
continually improving our environmental, health and safety performance. We
report the results of our efforts to the CMA, as well as to shareholders,
employees and the investment community. Commitment to the environment has
become part of our culture, and we hope to make it part of the culture of the
entire chemical industry worldwide.
The Responsible Care(R) Codes and Principles are specifically applicable to
chemical companies and their particular operations and needs. The CERES
Principles appear to be a broad-based set of environmental principles and we
do not believe that standardization of environmental reporting across a
diverse range of companies and industries is comparable or useful. Nor do we
believe it would be efficient or productive for us to undertake an additional
separate reporting requirement. Most of the information required by the CERES
Report form is already available to the public through Responsible Care(R),
government filings and our biannual Environmental Report.
The Board of Directors recommends a vote AGAINST Proposal 3. Unless
otherwise indicated on the proxy, the shares represented by properly executed
proxies will be voted AGAINST Proposal 3.
SHARES OUTSTANDING AND VOTING RIGHTS
Only shareholders of record at the close of business on March 5, 1999 are
entitled to vote at the meeting. On that date, the Company had outstanding
65,725,414 shares of common stock, each of which is entitled to one vote, and
367,027 shares of ESOP Preferred Stock, each of which is entitled to 20 votes
and will be converted upon retirement or separation from service into 20
shares of common stock (subject to adjustments in certain events). A quorum is
a majority of the votes represented by the outstanding shares of stock of the
Company either present at the meeting or represented by proxy. The common
stock and the ESOP Preferred Stock will vote together as a single class on
each of the Proposals. A plurality of the votes cast is necessary to elect
directors; the affirmative vote of the holders of shares constituting a
majority of votes cast is necessary to adopt Proposal 2; and the affirmative
vote of the holder of shares constituting a majority of the voting power of
all the outstanding shares is necessary to adopt Proposal 3. Abstentions and
broker non-votes will each be treated as shares that are represented at the
meeting for purposes of determining the presence of a quorum.
18
<PAGE>
Each is tabulated separately. Abstentions and broker non-votes will have no
effect on Proposals 1 and 2 and will have the effect of votes against Proposal
3. Broker non-votes are shares held by a broker or nominee in street name and
represented at the meeting but not authorized to vote on a matter.
The Company stockholders are urged to sign and date the enclosed proxy card
and return it as promptly as possible in the envelope enclosed for that
purpose. Stockholders of record can also give proxies by calling a toll-free
telephone number or by using the Internet. The telephone and Internet voting
procedures are designed to authenticate the Company stockholders' identities,
to allow its stockholders to give their voting instructions, and to confirm
that the instructions have been recorded properly. Stockholders who wish to
vote over the Internet should be aware that there may be costs associated with
electronic access, such as usage charges from Internet access providers and
telephone companies, and that there may be some risk a stockholder's vote
might not be properly recorded or counted because of an unanticipated
electronic malfunction.
Any Company stockholder of record desiring to vote by telephone or over the
Internet will be required to enter the unique control number imprinted on such
holder's proxy card, and therefore should have the proxy card in hand when
initiating the session. To vote by telephone, dial 1-800-OK2-VOTE (1-800-652-
8683) on a touch tone telephone, and follow the simple menu instructions
provided. There is no charge for this call. To vote over the Internet, log on
to the website http://www.vote-by-net.com and follow the simple instructions
provided.
Similar instructions are included on the enclosed proxy card.
Any Company stockholder who has delivered a proxy or voted by telephone or
the Internet may revoke it at any time before it is voted by giving notice of
revocation in writing or submitting to the Company a signed proxy card bearing
a later date, provided that such notice or proxy card is actually received by
the Company before the vote of stockholders or in open meeting prior to the
taking of a stockholder vote at the Company's Annual Meeting. Any notice of
revocation should be sent to Nalco Chemical Company, One Nalco Center,
Naperville, Illinois 60563-1198; Attention: Suzzanne J. Gioimo, Corporate
Secretary. A proxy will not be revoked by death or supervening incapacity of
the stockholder executing the proxy unless, before the vote, notice of such
death or incapacity is filed with the Corporate Secretary. The shares of the
Company Common Stock represented by properly executed proxies received at or
prior to the Company's Annual Meeting and not subsequently revoked will be
voted as directed in such proxies. If instructions are not given, shares
represented by proxies received will be voted for the election of the four
nominees for director named in the this Proxy Statement, for the ratification
of Independent Accountants, against the CERES Principles proposal and in the
discretion of the proxies on any other matter that properly comes before the
Company's Annual Meeting.
19
<PAGE>
Security Ownership of Management
The following table shows the number of shares of common stock and ESOP
Preferred Stock owned beneficially (as defined by the Securities and Exchange
Commission) by each director, director nominee and named executive officer (in
each instance, amounting to less than 1% of the outstanding class) and by all
present directors and executive officers as a group (2.42% of the outstanding
common stock and less than 1% of the outstanding ESOP Preferred Stock) as of
March 5, 1999 (as of December 31, 1998, as to shares held in the Profit
Sharing, Investment and Pay Deferral Plan), with sole voting and investment
power unless otherwise indicated.
<TABLE>
<CAPTION>
ESOP
Common Preferred
Name Shares Shares
---- --------- ---------
<S> <C> <C>
J. L. Ballesteros.................................... 16,600 --
H. G. Bernthal....................................... 37,031 --
G. M. Brannon........................................ 86,187 161
W. E. Buchholz....................................... 99,846 99
H. Corless........................................... 38,631 --
P. Dabringhausen..................................... 60,685 3
H. M. Dean........................................... 33,881 --
J. P. Frazee, Jr..................................... 39,265 --
A. L. Kelly.......................................... 33,527 --
B. S. Kelly.......................................... 4,600 --
F. A. Krehbiel....................................... 40,631 --
E. J. Mooney......................................... 565,304 252
S. D. Newlin......................................... 128,773 179
S. A. Penrose........................................ 6,258 --
J. J. Shea........................................... 25,631 --
W. S. Weeber......................................... 199,286 252
All Directors and Executive Officers as a Group...... 1,587,723 1,361
</TABLE>
The above amounts include common shares which are subject to outstanding
stock options exercisable within 60 days of March 18 as follows: E. J. Mooney,
523,300 shares; W. S. Weeber, 178,400 shares; S. D. Newlin, 118,500 shares; G.
M. Brannon, 78,100 shares; W. E. Buchholz, 89,700 shares; P. Dabringhausen,
53,900 shares; H. G. Bernthal, H. Corless, J. P. Frazee, Jr., and F. A.
Krehbiel, 36,000 shares each; H. M. Dean, 32,000 shares; A. L. Kelly, 28,000
shares; J. J. Shea, 24,000 shares; J. L. Ballesteros, 14,000 shares;
S. A. Penrose and B. S. Kelly 4,000 shares each; and directors and executive
officers as a group, 1,446,900 shares. The table does not include ESOP
Preferred Stock not held for the account of the foregoing individuals that the
ESOP trustee is required to vote or dispose of in the manner and proportion in
which allocated shares are directed to be voted or disposed of, or common
shares into which any ESOP Preferred Stock may be converted.
20
<PAGE>
Security Ownership of Certain Owners
Based on Schedule 13G filings received, the following companies are the only
persons known to the Company that own beneficially more than 5% of any class
of its voting securities.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
-------------- ------------------------------ -------------------- --------
<S> <C> <C> <C>
Common Shares........... FMR Corp. 8,235,029(1) 12.57%
82 Devonshire Street
Boston, MA 02109
Common Shares........... Sanford C. Bernstein Co., Inc. 7,908,922(2) 12.1%
767 Fifth Avenue
New York, NY 10153
Common Shares........... Dodge & Cox 3,479,140(3) 5.3%
One Sansome St., 35th Fl.
San Francisco, CA 94104
</TABLE>
- ----------
(1) Fidelity Management and Research Company ("Fidelity"), a wholly owned
subsidiary of FMR Corp., beneficially owns 7,235,100 of these shares
(11.046%). Edward C. Johnson 3rd, Chairman, of FMR Corp., through its
control of Fidelity and the Fidelity Funds, each reports sole power to
dispose of 7,235,100 shares. Voting power over these shares resides with
the Funds' Boards of Trustees. Fidelity Management Trust Company, a wholly
owned subsidiary of FMR Corp., beneficially owns 999,929 shares or 1.526%.
Mr. Johnson and FMR Corp., through its control of Fidelity Management
Trust Company, each report sole dispositive power over 999,929 shares,
sole power to vote or direct the voting of 914,429 shares and no power to
vote or direct the voting of 85,500 shares. Members of Mr. Johnson's
family and trusts for their benefit may be deemed to form a controlling
group with respect to FMR Corp.
(2) Sanford C. Bernstein & Co., Inc. has sole voting power over 4,595,612 of
these shares, shared voting power over 720,121 shares and sole dispostive
power over 7,908,922 shares.
(3) Dodge & Cox has sole voting power over 3,080,952 of these shares, shared
voting power over 39,900 shares and sole dispositive power over 3,479,140
shares.
STOCKHOLDER PROPOSAL DEADLINE
Stockholder proposals, to be considered for inclusion in the proxy statement
for the 2000 Annual Meeting of Shareholders, must be received by the Company
by November 30, 1999, and must otherwise comply with the requirements of the
Securities and Exchange Commission. Shareholders who wish to bring business
before the meeting must notify the Company by January 30, 2000, 90 days prior
to the date corresponding to this year's meeting in compliance with By-law
provisions.
21
<PAGE>
DISCRETIONARY VOTING OF PROXIES ON OTHER MATTERS
The Board of Directors presently knows of no other matters scheduled to be
presented at the Annual Meeting. With respect to any other matter requiring a
vote of the shareholders that may come before the Annual Meeting, the proxies
in the enclosed form confer upon the person or persons entitled to vote the
shares represented by such proxies authority to vote the same in their
discretion in respect of any such other matter.
By Order of the Board of Directors
S. J. Gioimo
Secretary
Naperville, Illinois
March 29, 1999
22
<PAGE>
NOTICE OF
ANNUAL
MEETING
and
PROXY
STATEMENT
Thursday, April 29, 1999
NALCO CHEMICAL COMPANY
ONE NALCO CENTER, NAPERVILLE, ILLINOIS
60563-1198
