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SCHEDULE 14A
(RULE 14a-101)
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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
THE GEON COMPANY
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GREGORY L. RUTMAN, VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
(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)(1) 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
[LOGO GEON]
THE GEON COMPANY
NOTICE OF 1997
ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
<PAGE> 3
THE GEON COMPANY
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
The Annual Meeting of Stockholders of The Geon Company will be held at The
Forum Conference & Education Center, 1375 E. Ninth Street, Cleveland, Ohio at
9:00 a.m. on Thursday, May 1, 1997. The purposes of the meeting are:
1. To elect Directors; and
2. To consider and transact any other business that may properly come
before the meeting.
Stockholders of record at the close of business on March 10, 1997 are
entitled to notice of and to vote at the meeting.
For the Board of Directors
/s/ Gregory L. Rutman
GREGORY L. RUTMAN
Secretary
March 21, 1997
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THE GEON COMPANY
PROXY STATEMENT
The Board of Directors of The Geon Company (the "Company") respectfully
requests your proxy for use at the Annual Meeting of Stockholders to be held on
May 1, 1997, and at any adjournments of that meeting. This Proxy Statement is to
inform you about the matters to be acted upon at the meeting.
If you attend the meeting, you may vote your shares by ballot. If you do
not attend, your shares may still be voted at the meeting if you sign and return
the enclosed proxy card. Common Stock represented by a properly signed card will
be voted in accordance with the choices marked on the card. If no choices are
marked, the shares will be voted to elect the nominees listed on pages 3 through
5. You may revoke your proxy before it is voted by giving notice to the Company
in writing or orally at the meeting. Participants in the Company's Retirement
Savings Plan will receive a separate voting instruction card which must be
signed and returned in order to instruct the trustee of that plan with respect
to shares held under that plan by the trustee. The voting instruction card may
be revoked before the trustee votes the shares held by it by giving notice in
writing to the trustee.
This Proxy Statement and the enclosed proxy card and, for participants in
the Retirement Savings Plan, the voting instruction card are being mailed to
stockholders on or about March 21, 1997. The Company's headquarters are located
at One Geon Center, Avon Lake, Ohio 44012. The Company's telephone number is
(216) 930-1000.
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of nine directors. Each
director serves for a one year term and until a successor is duly elected and
qualified. The Board met six times during the last fiscal year.
A stockholder who wishes to suggest a director candidate for consideration
by the Nominating Committee must provide a written notice to the Secretary of
the Company in accordance with the procedures specified in Article I, Section 9
of the Company's By-Laws. Generally, the notice must be received by the
Secretary of the Company not less than 60 nor more than 90 days prior to the
first anniversary of the preceding year's annual meeting and must set forth, as
to each nominee, the name, age, principal occupations and employment during the
past five years, name and principal business of any corporation or other
organization in which such occupations and employment were carried on, and a
brief description of any arrangement or understanding between such person and
any others pursuant to which such person was selected as a nominee and, as to
the stockholder giving the notice and any beneficial owner on whose behalf the
nomination is being made, the name and address of, and the class and number of
shares of the Company owned by, such stockholder, beneficial owner, and any
other stockholders believed to be supporting such nominee.
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Nominees for election as directors for terms expiring in 1998 and a
description of the business experience of each nominee appear below. William F.
Patient, J.A. Fred Brothers, J. Douglas Campbell, James K. Baker, and John D.
Ong have been directors since 1993. Harry A. Hammerly, D. Larry Moore, and R.
Geoffrey P. Styles have been directors since March 9, 1994 and Gale Duff-Bloom
has been a director since November 18, 1994.
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WILLIAM F. PATIENT, age 62, is Chairman of the Board, President, and
[W. F. PATIENT Chief Executive Officer of the Company. Prior to the Company's initial
PHOTO] public offering in April 1993 (the "IPO"), Mr. Patient served as Senior
Vice President of The BFGoodrich Company ("BFG") and as President of
BFG's Geon Vinyl Division from May 1989 to April 1993. Prior to joining
BFG, Mr. Patient had been associated with Borg-Warner Chemicals since
1962, most recently as Vice President, Sales and Marketing. He serves
on the Boards of Directors of National City Bank and Navistar
International Corporation.
JAMES K. BAKER, age 65, is Vice Chairman and former Chief Executive
[J. K. BAKER Officer of Arvin Industries, Inc., an auto parts supplier to the
PHOTO] original equipment and replacement markets. Mr. Baker served as Chief
Executive Officer from 1981 to 1993 and as Chairman of Arvin from 1986
to February 1996. He remains a Director of Arvin and serves on the
Boards of Directors of First Chicago NBD, Inc., Cinergy Corp., Tokheim
Corp., and Amcast Industrial Corp.
GALE DUFF-BLOOM, age 57, is President of Marketing and Company Commu-
[G. DUFF-BLOOM nications of J.C. Penney Company, Inc., a major retailer. Ms. Bloom has
PHOTO] served in her current position since February 1996. Ms. Bloom joined
J.C. Penney in 1969 and was elected Vice President and Director of
Investor Relations in 1988. In 1990, Ms. Bloom was appointed to the
positions of Senior Vice President and Associate Director of
Merchandising. In 1993, she was appointed Executive Vice President and
Director of Administration, and, in 1995, she was appointed Senior
Executive Vice President and Director of Personnel and Company
Communications. Ms. Bloom serves on the Boards of Directors of Texas
Commerce Bank and several professional and civic organizations. In
October 1996, she was elected Chair of the Council of the Better
Business Bureau.
</TABLE>
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<TABLE>
<S> <C>
J.A. FRED BROTHERS, age 56, is Executive Vice President of Ashland
[J.A. F.BROTHERS Inc., a chemical and petroleum products company. Mr. Brothers joined
PHOTO] Ashland Inc. in 1967 and became a Group Operating Officer in 1988. Mr.
Brothers is responsible for Ashland Petroleum, The Valvoline Co., and
SuperAmerica Group. He serves on the Boards of Directors of KeyBank
National Association, a national banking association wholly-owned by
KeyCorp, and Ashland Coal, Inc. He is also a trustee of Ohio Dominican
College and Children's Hospital (Columbus).
J. DOUGLAS CAMPBELL, age 55, is President and Chief Executive Officer
[J. D. CAMPBEL and a Director of Arcadian Corporation, a nitrogen chemicals and
PHOTO] fertilizer manufacturer. Mr. Campbell joined Arcadian Corporation as
President and Chief Executive Officer in December 1992. Prior to
joining Arcadian Corporation, he held various positions with Standard
Oil (Ohio) and British Petroleum since 1966, most recently as Deputy
Chief Executive Officer of BP Chemicals.
HARRY A. HAMMERLY, age 63, served as Executive Vice President, Interna-
[HARRY A. tional Operations of 3M Company, a worldwide manufacturer serving
HAMMERLY PHOTO] industrial, commercial, health care, and consumer markets, until his
retirement in 1995. Mr. Hammerly joined 3M Company in 1955. In 1987, he
became Vice President, Europe, and served as Executive Vice President,
Industrial and Electronic Sector, from 1989 to 1991. Mr. Hammerly
serves on the Boards of Directors of Apogee Enterprises, Inc., BMC
Industries, Inc., Brown & Sharpe Manufacturing Company, Cincinnati
Milacron, Inc., and Red Wing Shoe Company.
D. LARRY MOORE, age 60, is President and Chief Operating Officer of
[D. L. MOORE Honeywell, Inc., a multinational manufacturer of controls for use in
PHOTO] homes, buildings, industry, and space and aviation. In 1987, Mr. Moore
became Vice President of Honeywell's Commercial Flight Systems Group,
and in 1989 he became President of Honeywell's Space and Aviation
business. In 1990, he became Executive Vice President and Chief
Operating Officer of Honeywell's Industrial and Space and Aviation
businesses. In April 1993, he was elected to his present position. Mr.
Moore serves on the Boards of Directors of Honeywell, Inc., Rohr, Inc.,
and Reynolds Metals Company.
</TABLE>
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<TABLE>
<S> <C>
JOHN D. ONG, age 63, is Chairman of the Board of The BFGoodrich
[J. D. ONG PHOTO] Company, a supplier of components and services to the aerospace
industry and producer of specialty chemicals and plastics. Mr. Ong
joined The BFGoodrich Company in 1961, became Chairman of the Board and
Chief Executive Officer in July 1979, and served as Chief Executive
Officer until December 1996. In addition to The BFGoodrich Company, Mr.
Ong is a Director of Ameritech Corporation, ASARCO Inc., Cooper
Industries, Inc., The Kroger Co. and TRW, Inc.
R. GEOFFREY P. STYLES, age 66, served as Vice Chairman of the Royal
[R. G. P. STYLES Bank of Canada until his retirement in December 1987. He is currently
PHOTO] Chairman and a Director of Grosvenor International Holdings Ltd. Mr.
Styles is also a Director of ProSource, Inc. and of several Canadian
corporations, including The Royal Trust Company and Echo Bay Mines Ltd.
</TABLE>
COMMITTEES OF THE BOARD OF DIRECTORS; ATTENDANCE
The present members of the Audit Committee are Ms. Duff-Bloom and Messrs.
Baker, Hammerly, Moore, and Styles. Mr. Styles serves as Chairperson of the
Committee. The Audit Committee meets with appropriate Company financial and
legal personnel and independent public accountants to review the internal
controls of the Company and its financial reporting. The Audit Committee
recommends to the Board of Directors the appointment of the independent public
accountants to serve as auditors in examining the corporate accounts of the
Company. The Audit Committee met three times during the last fiscal year.
The present members of the Compensation Committee are Ms. Duff-Bloom and
Messrs. Brothers, Campbell, Hammerly, and Moore. Mr. Brothers serves as
Chairperson of the Committee. The Compensation Committee reviews, discusses and
advises management and makes recommendations to the Board of Directors regarding
compensation and benefits afforded the executive officers and highly-compensated
personnel of the Company. The Committee also has oversight responsibilities for
all broad-based compensation and benefit programs of the Company. The
Compensation Committee met four times during the last fiscal year.
The present members of the Nominating Committee are Ms. Duff-Bloom and
Messrs. Baker, Brothers, and Campbell. Mr. Baker serves as Chairperson of the
Committee. The Nominating Committee recommends to the Board of Directors
candidates for nomination as directors of the Company. The Nominating Committee
is also authorized to recommend to the Board of Directors a successor to the
Chairman of the Board, Chief Executive Officer, President and Chief Operating
Officer, if any, of the Company and, together with the Chief Executive Officer,
to plan and monitor the development of candidates for executive personnel
reporting to the Chief Executive Officer. The Nominating Committee met twice
during the last fiscal year.
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<PAGE> 8
The present members of the Environmental, Health, and Safety Committee are
Messrs. Brothers, Campbell, Moore, Ong and Styles. Mr. Campbell serves as
Chairperson of the Committee. The Environmental, Health, and Safety Committee
exercises oversight with respect to the Company's environmental, health, and
safety policies and practices and its compliance with related laws and
regulations. The Environmental, Health, and Safety Committee met twice during
the last fiscal year.
The present members of the Financial Policy Committee are Messrs. Baker,
Hammerly, Ong, and Styles. Mr. Hammerly serves as Chairperson of the Committee.
The Financial Policy Committee reviews the policies which underlie the Company's
financial planning to assure adequacy and soundness of the Company's capital
plans; reviews proposed major financing activities prior to action by the Board
of Directors; and reviews methods under consideration by the Company for
financing proposed major investments prior to action by the Board of Directors.
The Financial Policy Committee met three times during the last fiscal year.
During the last fiscal year, each Director attended at least 75% of the
meetings of the Board of Directors and of the Committees on which he or she
served.
COMPENSATION OF DIRECTORS
Directors unaffiliated with the Company are paid an annual retainer of
$20,000 and fees of $1,000 for each Board and Committee meeting attended. In
addition, the chairman of each Committee receives a fixed annual retainer of
$3,000. In addition, upon retirement from the Board of Directors after reaching
the age of 55 with at least ten years of service as a Director, any Director
unaffiliated with the Company would be entitled to receive an annual amount
equal to the fixed compensation level in effect at the time of retirement. A
retiring Director who has reached age 55 and has served for at least five but
less than ten years would be entitled to a reduced amount equal to 50% of the
fixed compensation level in effect at retirement, plus 10% of such compensation
level for each additional year of service (rounded to the nearest whole year) up
to ten. Directors are reimbursed for their expenses associated with each meeting
attended.
Under The Geon Company Non-Employee Directors' Deferred Compensation Plan
(the "Directors Deferred Compensation Plan"), each Director who is not an
employee may defer payment of all or a portion of his or her compensation as a
Director. The compensation may be deferred as cash or converted into Common
Stock of the Company (at a rate equal to 125% of the cash compensation amount).
Deferred compensation, whether in the form of cash or Common Stock, is held in
trust for the participating Directors. Interest earned on the cash amounts and
dividends on the Common Stock accrue for the benefit of the participating
Directors.
Under the Company's 1995 Incentive Stock Plan (the "1995 Incentive Plan"),
each current Director who was not an employee of the Company was granted on the
date of the 1995 Annual Meeting an option to acquire 5,000 shares of Common
Stock. Each new Director who is not an employee of the Company will be granted
at the time of his or her election or appointment a Director option to acquire
5,000 shares of Common Stock. Each such Director who continues in office
following the initial grant will receive an additional Director option to
acquire 1,000 shares of Common Stock annually on the anniversary date of the
previous option grant.
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OWNERSHIP OF COMMON STOCK
The following table shows the number of shares and percent of Common Stock
beneficially owned on March 10, 1997 (including options exercisable within 60
days of that date) by each of the Directors and nominees, each of the executive
officers named in the Summary Compensation Table on page 14, and by all
Directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAME (1)
------------------------------------------------------------------- ---------
<S> <C>
James K. Baker..................................................... 9,639 (2)(3)
Gale Duff-Bloom.................................................... 7,121 (2)(3)
J. A. Fred Brothers................................................ 14,637 (2)(3)
J. Douglas Campbell................................................ 10,844 (2)(3)
Harry A. Hammerly.................................................. 10,875 (2)(3)
Donald P. Knechtges................................................ 101,359 (2)(3)
Louis M. Maresca................................................... 101,784 (2)(3)
Edward C. Martinelli............................................... 184,153 (2)(3)
D. Larry Moore..................................................... 7,766 (2)(3)
John D. Ong........................................................ 7,000 (3)
William F. Patient................................................. 450,892 (2)(3)
Gregory L. Rutman.................................................. 124,236 (2)(3)
R. Geoffrey P. Styles.............................................. 7,500 (3)
Thomas A. Waltermire............................................... 161,964 (2)(3)
14 Directors and executive officers as a group..................... 1,199,770(2)(3)
</TABLE>
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(1) Except as otherwise stated in the notes below, beneficial ownership of the
shares held by each individual consists of sole voting power and sole
investment power, or of voting power and investment power that is shared
with the spouse of the individual. It includes the approximate number of
shares credited to the named executives' accounts in the Company's
Retirement Savings Plan, a tax-qualified defined contribution plan. No
Director, nominee or executive officer, other than William F. Patient,
beneficially owned on March 10, 1997, more than 1% of the outstanding Common
Stock. As of that date, Mr. Patient beneficially owned approximately 1.9% of
the outstanding Common Stock and the Directors and executive officers as a
group beneficially owned approximately 4.9% of the outstanding Common
Stock.
(2) Includes shares with respect to which the following Directors and executive
officers have only sole voting power as follows: J.K. Baker, 2,839 shares;
G. Duff-Bloom, 1,121 shares; J.A. Brothers, 4,637 shares; J.D. Campbell,
4,344 shares; H.A. Hammerly, 4,275 shares; D.L. Moore, 1,766 shares; D.P.
Knechtges, 13,424 shares; L.M. Maresca, 13,483 shares; E.C. Martinelli,
22,383 shares; W.F. Patient, 64,312 shares; G.L. Rutman, 19,481 shares; and
T.A. Waltermire, 23,684 shares; and the Directors and executive officers as
a group, 175,749 shares. With respect to Ms. Duff-Bloom, Messrs. Baker,
Brothers, Campbell, Hammerly, and Moore, these shares are held under the
Directors Deferred Compensation Plan.
(3) Includes shares the individuals have a right to acquire on or before May 9,
1997 as follows: each of the Directors, with the exception of Mr. Patient,
who is not eligible to participate in the Directors Deferred Compensation
Plan, 6,000 shares; D.P. Knechtges, 77,763 shares; L.M. Maresca, 81,529
shares; E.C. Martinelli, 142,517 shares; W.F. Patient, 353,299 shares; G.L.
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<PAGE> 10
Rutman, 95,797 shares; T.A. Waltermire, 128,965 shares; and the Directors
and executive officers as a group, 927,870 shares.
The following shows certain information with respect to all persons who, as
of March 10, 1997, were known by the Company to beneficially own more than five
percent of the outstanding shares of Common Stock of the Company based on
information provided in Schedule 13G filings with the Securities and Exchange
Commission:
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<S> <C> <C>
The Goldman Sachs Group, L.P. and Goldman Sachs &
Co. .................................................. 2,411,310(1) 10.1%
85 Broad Street
New York, New York 10004
Loomis, Sayles & Company, L.P. ......................... 1,228,200(2) 5.16%
One Financial Center
Boston, Massachusetts 02111
Harris Associates L.P................................... 2,734,150(3) 11.25%
Harris Associates, Inc.
2 North LaSalle Street
Suite 500
Chicago, Illinois 60602
Harris Associates Investment Trust,
Series designated the Oakmark Fund............... 971,600(3) 4.00%
Two North LaSalle Street
Suite 500
Chicago, Illinois 60602-3790
MacKay-Shields Financial Corporation.................... 1,862,900(4) 7.8%
9 West 57th Street
New York, New York 10019
State Street Bank and Trust Company, as Trustee for
The Geon Company Retirement Savings Plan.............. 2,163,287(5) 9.3%
225 Franklin Street
Boston, Massachusetts 02110
Wellington Management Company, LLP...................... 3,066,400(6) 13.08%
75 State Street
Boston, Massachusetts 02109
Vanguard/Windsor Funds, Inc........................ 2,480,000(6) 10.64%
c/o The Vanguard Group
P.O. Box 2600
Valley Forge, Pennsylvania 19482-2600
</TABLE>
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(1) As of February 14, 1997, based upon information contained in a Schedule 13G
filed with the Securities and Exchange Commission. The Goldman Sachs Group,
L.P., together with
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<PAGE> 11
Goldman, Sachs & Co., as a registered investment adviser, have shared
dispositive power and shared voting power with respect to 2,265,710 of these
shares.
(2) As of February 13, 1997, based upon information contained in a Schedule 13G
filed with the Securities and Exchange Commission. In its capacity as a
registered investment adviser, Loomis, Sayles & Company, L.P. holds sole
voting power with respect to 600,900 of these shares and shared dispositive
power with respect to all of these shares.
(3) As of January 31, 1997, based upon information contained in a Schedule 13G
filed with the Securities and Exchange Commission. Of the 2,734,150 shares
beneficially owned by Harris Associates L.P. ("Harris"), as a registered
investment adviser, together with Harris Associates, Inc., Harris' sole
general partner, Harris has sole dispositive power with respect to 1,729,550
shares, shared dispositive power with respect to 1,004,600 shares and shared
voting power with respect to all of these shares. Included in the 1,004,600
shares with respect to which Harris has shared voting and investment power,
are 971,600 shares beneficially owned by a series (the Oakmark Fund) of the
Harris Associates Investment Trust ("Oakmark"). Oakmark, a registered
investment company for which Harris serves as investment adviser, shares
voting and dispositive power with respect to these 971,600 shares with
Harris.
(4) As of February 7, 1997, based upon information contained in a Schedule 13G
filed with the Securities and Exchange Commission. MacKay-Shields Financial
Corporation, as a registered investment adviser, has shared voting and
shared dispositive power with respect to all of these shares.
(5) As of February 10, 1997, based upon information contained in a Schedule 13G
filed with the Securities and Exchange Commission. State Street Bank and
Trust Company, as Trustee for The Geon Company Retirement Savings Plan and
for various collective investment funds for employee benefit plans and other
index accounts, as a bank, has sole voting and sole dispositive power with
respect to 79,900 of these shares and shared voting and shared dispositive
power with respect to 2,083,387 of these shares.
(6) As of January 24, 1997, based upon information contained in a Schedule 13G
filed with the Securities and Exchange Commission by Wellington Management
Company. Wellington Management Company, as a registered investment adviser,
has shared voting power with respect to 384,600 of these shares and shared
dispositive power with respect to all of these shares. Of the 3,066,400
shares with respect to which Wellington Management Company has shared
dispositive power, 2,480,000 are held by Vanguard/Windsor Funds, Inc., an
investment advisory client of Wellington Management Company. As of February
7, 1997, based upon information contained in a Schedule 13G filed with the
Securities and Exchange Commission by Vanguard/Windsor Funds, Inc., as a
registered investment company, Vanguard/Windsor Funds, Inc. has sole voting
power and shared dispositive power with respect to all of those shares.
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<PAGE> 12
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
currently comprised of J.A. Fred Brothers, its Chairperson, Gale Duff-Bloom, J.
Douglas Campbell, Harry A. Hammerly, and D. Larry Moore.
The Committee's responsibilities include, but are not limited to, reviewing
and approving executive compensation, including base salary, cash bonuses and
stock incentive awards for the Chief Executive Officer and all other executive
officers of the Company.
GENERAL COMPENSATION PHILOSOPHY
The Committee believes that the total compensation package for executive
officers should be performance-oriented, tying a significant amount of
compensation to short and long-term financial and strategic objectives,
including increases in stockholder value. The Committee established the
following guiding principles for the Company's executive compensation program.
- A significant portion of executive officers' total compensation will be
dependent on the Company's annual and long-term performance, including
creation of stockholder value.
- Non-cash compensation programs will be designed to provide stock-based
incentives which will encourage stock ownership by executives in order to
better align stockholder and executive interests.
- Significant ownership of Company Common Stock by executive officers will
be encouraged.
At the Committee's February 1, 1995 meeting, the Committee adopted Company
stock ownership guidelines for the participants in the Company's Senior
Executive Management Incentive Plan (the "Executive MIP") and the Company's
Management Incentive Plan (the "MIP"). Under these guidelines, goals regarding
levels of stock ownership by executives were established to emphasize the
importance of stock ownership by management. The specified level of stock
ownership (based on market prices), which are intended to be achieved over a
five-year period, range from five times annual salary for the Chief Executive
Officer, to three times annual salary for other executive officers participating
in the Executive MIP, and to one times salary for the least senior participants
in the Company's MIP.
At the December 12, 1996 meeting of the Board of Directors, the Board
appointed a subcommittee of the Compensation Committee made up of Ms. Duff-Bloom
and Messrs. Campbell and Hammerly. The subcommittee was formed to address
executive compensation issues involving the grant of Company equity awards to
executive officers and includes only "non-employee directors," as defined for
purposes of the applicable rules under Section 16 of the Securities Exchange Act
of 1934. The subcommittee has been designated the Executive Equity Compensation
Committee.
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<PAGE> 13
EXECUTIVE COMPENSATION
BASE SALARIES
Salary range midpoints of the executive officers' salary ranges for 1996
were established at the median of salaries of comparable positions included in a
survey of a group of companies of one billion dollars and greater in annual
sales provided by the Committee's independent executive compensation consultant
at that time, The Wyatt Company. These companies are generally those with which
the Company competes for executive talent and from whom the Company may recruit
future executives. This comparison group includes companies from many different
industries and therefore differs from the group of companies used in the
performance graph appearing below under the heading "Company Stock Performance"
on page 20. The companies used in the performance graph are generally the
companies with which the Company competes for capital and may be considered
useful and appropriate for comparing the Company's stock performance.
Salary increases are granted based on merit or coincident with an increase
of responsibilities. As a result of annual merit increases, the salaries of all
named executive officers, including the Chief Executive Officer, were adjusted
for 1996 based on competitive salary information provided to the Committee by
The Wyatt Company.
The Committee has appointed Frederic W. Cook & Co., Inc. as the Committee's
independent executive compensation consultant for 1997. Based on the Company's
performance in 1996, no salary increases were made for the executive officers
for 1997; however, stock options were awarded by the Executive Equity
Compensation Committee.
INCENTIVE COMPENSATION
Deduction Limitation on Executive Compensation. Section 162(m) of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder ("Section 162(m)") preclude a publicly-held corporation from taking a
deduction for certain compensation in excess of $1 million paid or accrued with
respect to certain executive officers. It is the Committee's intent that the
Company's executive compensation program be designed to allow maximum possible
deductibility of executive compensation by the Company.
The Executive MIP was approved by the stockholders at the 1995 Annual
Meeting and provides for awards that are wholly contingent on the attainment of
Committee established performance goals, eliminates the Committee's discretion
to increase the amount of incentive awards and provides for administration by a
committee of outside directors. The Committee believes that the Executive MIP
satisfies the Internal Revenue Service's requirements for "performance-based"
compensation under Section 162(m). Under Section 162(m), performance-based
compensation is not subject to the deductibility limitation under current
Internal Revenue Service regulations. The Committee expects that awards under
the Executive MIP will be comparable to awards that would have been made to the
executive officers under the MIP.
Cash and Stock Incentives. The executive officers, including the Chief
Executive Officer, are eligible annually to receive bonus awards, consisting of
restricted stock or a combination of both
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restricted stock and cash, under the Company's Executive MIP. Each year the
Committee establishes performance measures to be used to determine an
appropriate payout, if any, under the Executive MIP. Target awards, stated as a
percentage of salary, are determined by the Committee at the beginning of the
plan year, although the Committee retains the discretion to reduce such award
depending on an executive officer's (including the Chief Executive Officer)
individual performance and the Company's performance in meeting established
goals. The Executive MIP also establishes threshold levels below which no
incentives would be paid.
The Incentive Stock Plan, which was also approved by the stockholders at
the 1995 Annual Meeting of Stockholders, includes provisions for the award of
performance-based compensation that would not be subject to the deductibility
limitations. The Committee will continue to monitor its compensation policy,
including compensation, if any, paid under the Executive MIP and the Incentive
Stock Plan, for deductibility under Section 162(m).
The performance measures used for 1996 under the Executive MIP were based
on cash flow, Company-created income (for example, income due to Company
initiated cost reductions or productivity improvements), and relative total
return to stockholders. Had Company performance met the established goal for
each performance measure, cash flow performance would have contributed 40% of
the total award; Company-created income performance would have contributed 40%;
and relative total return to stockholders performance would have contributed
20%.
The Company exceeded threshold performance targets for Company-created
income and relative total return to stockholders. The performance goal for cash
flow was not met. Based on 1996 performance, 1996 bonuses were lower than 1995
bonuses.
In determining the actual awards for 1996 under the Executive MIP to the
executive officers, the Committee considered each executive's performance
against personal goals as well as the Company's overall performance against
established goals. The net result of performance relative to the 1996
performance guidelines and the Committee's review of individual executive
officer performance resulted in an average award to the executive officers of
approximately 20% of each executive officer's salary, as compared to 42% of each
executive officer's salary in 1995.
Under the terms of the Executive MIP, as more fully described in footnote 1
to the Summary Compensation Table appearing on page 14, 40% of any award under
the Executive MIP to the executive officers, including the Chief Executive
Officer, is paid in the form of restricted stock awarded under the Company's
1995 Incentive Stock Plan (the "Incentive Stock Plan"). Recipients of awards
under the Executive MIP may also elect to receive the balance of any such award
in the form of restricted stock, so that up to 100% of any award under the
Executive MIP may be paid in the form of restricted stock. To the extent that
any award is paid in the form of stock, that payment is enhanced by a 25%
premium, i.e. for every $100 otherwise available under the Executive MIP to an
executive, $125 worth of restricted stock is awarded to that executive. With
respect to 1996 awards under the Executive MIP, approximately 89% of those
awards were paid in the form of restricted stock.
In addition to bonuses awarded under the Executive MIP, executive officers
may also receive incentive awards under the Incentive Stock Plan. These
incentives may be granted in the form of
12
<PAGE> 15
stock options, stock appreciation rights, and other stock awards which may
include restricted stock and performance incentive stock. These awards are used
in conjunction with salary and bonus awards to create an executive compensation
package that meets the Committee's above described compensation philosophy and
that is competitive with comparable companies. As noted in the Summary
Compensation Table appearing on page 14, executive officers, other than the
Chief Executive Officer, received options to acquire an aggregate of 47,500
shares of Common Stock under the Incentive Stock Plan in 1996. The Committee
believes that such awards will serve as incentives to the Company's executive
officers by tying their interests directly with those of the Company and its
stockholders.
In 1995, the Committee granted long-term performance-based stock awards
under the Incentive Stock Plan to the executive officers, including the Chief
Executive Officer. The awards of Common Stock are fully contingent on
achievement of three performance measures (relative total return to
stockholders, average return on equity, and cumulative Company created-income)
over a three-year performance period beginning on January 1, 1995 and ending on
December 31, 1997. With these long-term performance-based stock awards, the
Committee intends to encourage superior performance over time.
CHIEF EXECUTIVE OFFICER
In late 1995, The Wyatt Company reviewed the compensation level of the
Chief Executive Officer of the Company. As a result of that review, The Wyatt
Company recommended that the base salary of Mr. Patient be adjusted based on
competitive practices. The Committee considered the recommendations of The Wyatt
Company and the Chief Executive Officer's current compensation and approved a
salary increase for Mr. Patient effective January 8, 1996, which placed his
salary at a level approximately equal to the recommended midpoint.
With respect to incentive compensation to Mr. Patient, as noted above, the
Company exceeded the 1996 threshold performance targets for Company-created
income and relative total return, but did not meet the performance goal for cash
flow. Based on these factors and a review of Mr. Patient's individual
performance, Mr. Patient received an award of $127,600 under the Executive MIP.
This award represents approximately 20% of his salary, as compared to his 1995
award of $260,000 which represented approximately 50% of his 1995 salary. As
more fully described in footnote 1 to the Summary Compensation Table appearing
on page 14, 100% of this amount was deferred in the form of restricted stock.
Mr. Patient also received options under the Incentive Stock Plan to acquire
35,000 shares of Common Stock of the Company at an exercise price of $26 per
share. In determining the amount of this award, the Committee reviewed and rated
Mr. Patient's performance relative to the established financial performance
measures for the year 1995, as well as an assessment of his leadership of the
Company.
13
<PAGE> 16
THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
J.A. Fred Brothers, Chairperson
Gale Duff-Bloom
J. Douglas Campbell
Harry A. Hammerly
D. Larry Moore
March 14, 1997
The following table sets forth the compensation received for the three
years ended December 31, 1996 by the Company's Chief Executive Officer and the
persons who were at December 31, 1996 the five other most highly paid executive
officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------------
AWARDS
ANNUAL COMPENSATION -------------------- PAYOUTS
---------------------------------- OPTIONS/ ----------------
OTHER ANNUAL RESTRICTED SARs LTIP ALL OTHER
NAME AND COMPEN- STOCK (# OF PAYOUTS COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS(1) SATION(2) AWARDS(3) SHARES) (# OF SHARES)(4) SATION(5)
- -------------------------- ---- -------- -------- ------------ --------- -------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William F. Patient, 1996 $578,308 $159,500 $ 52,706 $ -0- 35,000 -0- $44,269
Chairman of the Board, 1995 534,616 325,000 57,111 -0- 35,000 7,329 51,576
President, and Chief 1994 458,462 483,000 38,319 -0- 20,000 -0- 47,281
Executive Officer
Edward C. Martinelli, 1996 267,308 62,500 54,350 -0- 11,000 -0- 19,789
Senior Vice President, 1995 249,346 137,500 12,426 -0- 11,000 2,675 25,625
Commercial 1994 232,482 191,185 10,035 -0- 7,500 -0- 20,795
Thomas A. Waltermire, 1996 249,193 75,000 34,581 -0- 11,000 -0- 19,451
Chief Financial Officer, 1995 228,092 125,000 35,236 -0- 11,000 2,094 21,186
Senior Vice President, 1994 195,046 182,498 17,634 -0- 7,000 -0- 17,308
Human Resources
Donald P. Knechtges, 1996 222,058 49,500 24,920 -0- 9,000 -0- 38,596
Senior Vice President, 1995 210,470 94,600 16,454 -0- 10,000 2,512 40,004
Technology/Engineering 1994 188,696 149,600 12,205 -0- 5,500 -0- 38,205
Louis M. Maresca, 1996 204,423 45,000 33,268 -0- 9,000 -0- 29,892
Vice President, 1995 189,462 87,750 12,362 -0- 9,000 2,512 32,079
Operations 1994 172,892 131,995 12,152 -0- 6,000 -0- 27,941
Gregory L. Rutman, 1996 194,577 48,750 29,825 -0- 7,500 -0- 37,219
Vice President, General 1995 183,681 87,500 24,479 -0- 8,000 2,233 37,591
Counsel, & Secretary 1994 174,519 146,248 11,749 -0- 4,500 -0- 38,336
</TABLE>
- ---------------
(1) Amounts represent the aggregate bonus payments to the named executive under
the Executive MIP for 1996 and 1995 and the MIP for 1994. The Executive MIP
and, in 1994, the MIP each provided that a minimum of 40% of the named
executives' bonus awards, if any, under the respective plans would be paid
in the form of restricted stock awarded under the Company's incentive stock
plans. The participant may also elect to receive all or any portion of the
balance in the form of restricted stock.
14
<PAGE> 17
For each $1 of the bonus amount paid in the form of restricted stock, $1.25
worth of restricted stock is awarded. The portion of the award, if any, not
paid in restricted stock is paid in cash. Under the terms of the restricted
stock award, the restricted stock awarded may not be transferred for the
three-year period following the date of award. In the event a participant
leaves the employ of the Company prior to the lapse of the restrictions
(other than by reason of death, disability or retirement), the participant
will forfeit up to 100% of the 25% premium received in respect of the award.
The amount of cash (including payments in respect of fractional shares) and
the market value and number of the shares of restricted stock received by
the named executive officers, respectively, in respect of the 1996 bonus
payments for each of the named executive officers is as follows: W.F.
Patient, $3 and $159,497 (8,025 shares); E.C. Martinelli, $13 and $62,487
(3,144 shares); T.A. Waltermire, $12 and $74,988 (3,773 shares); D.P.
Knechtges, $27,001 and $22,499 (1,132 shares); L.M. Maresca, $20,017 and
$24,983 (1,257 shares); and G.L. Rutman, $16 and $48,734 (2,452 shares). For
1995, such amounts were as follows: W.F. Patient, $14 and $324,986 (13,231
shares); E.C. Martinelli, $24 and $137,476 (5,597 shares); T.A. Waltermire,
$1 and $124,999 (5,089 shares); D.P. Knechtges, $51,616 and $42,984 (1,750
shares); L.M. Maresca, $39,018 and $48,732 (1,984 shares); and G.L. Rutman,
$8 and $87,492 (3,562 shares). For 1994, such amounts were as follows: W.F.
Patient, $2 and $482,998 (18,056 shares); E.C. Martinelli, $40,261 and
$150,924 (5,642 shares); T.A. Waltermire, $9 and $182,489 (6,822 shares);
D.P. Knechtges, $81,601 and $67,999 (2,542 shares); L.M. Maresca, $72,021
and $59,974 (2,242 shares); and G.L. Rutman, $6 and $146,242 (5,467 shares).
(2) For 1996, amounts include tax gross-ups on personal benefits as follows:
W.F. Patient, $22,542; E.C. Martinelli, $17,484; T.A. Waltermire, $10,383;
D.P. Knechtges, $10,443; L.M. Maresca, $11,897; and G.L. Rutman, $11,987.
For 1995, amounts include tax gross-ups on personal benefits as follows:
W.F. Patient, $24,514; E.C. Martinelli, $1,769; T.A. Waltermire, $14,439;
D.P. Knechtges, $4,740; L.M. Maresca, $4,432; and G.L. Rutman, $6,690. For
1994, amounts include dividends on performance shares awarded in 1992 under
the BFG Long-Term Incentive Plan (the "BFG LTIP"), which was adopted by the
Company in 1993, and tax gross-ups on personal benefits. Those amounts were,
respectively, as follows: W.F. Patient, $25,935 and $12,384; E.C.
Martinelli, $8,606 and $1,429; T.A. Waltermire, $7,839 and $9,795; D.P.
Knechtges, $8,318 and $3,887; L.M. Maresca, $8,318 and $3,834; and G.L.
Rutman, $7,839 and $3,910.
(3) Except as described in footnote 1, there were no awards of restricted stock
in 1996, 1995 or 1994 to the named executive officers.
(4) Amounts for 1995 represent number of shares paid out January 1, 1995 in
respect of performance shares awarded to the named executive officers in
1992 under the BFG LTIP. The number of shares awarded was based on the
Company's achievement of performance objectives specified under the BFG LTIP
(and converted at the time of the IPO into performance objectives for the
Company rather than BFG) for the three-year period ended December 31, 1994,
(net of withholding taxes).
(5) Amounts for 1996 represent, respectively, the Company's cash contributions
on behalf of the named executives to the Company's Retirement Savings Plan,
amounts accrued under a benefit restoration plan providing for benefits in
excess of the amounts permitted to be contributed under the Retirement
Savings Plan and amounts accrued with respect to the Executive MIP, and
premium payments by the Company under a split dollar life insurance program
as follows: W.F. Patient, $9,000, $35,269, and $0; E.C. Martinelli, $9,000,
$10,789, and $0; T.A. Waltermire, $9,000, $10,451, and $0; D.P. Knechtges,
$9,000, $8,770, and $20,826; L.M. Maresca, $9,000, $7,105, and $13,787; and
G.L. Rutman, $9,000, $5,599, and $22,620.
15
<PAGE> 18
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------ POTENTIAL REALIZABLE
NO. OF VALUE AT ASSUMED ANNUAL
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/ RATES OF STOCK PRICE
OPTIONS/SARs SARs GRANTED APPRECIATION FOR OPTION
GRANTED TO EMPLOYEES EXERCISE OR TERM(2)
(# OF IN FISCAL BASE PRICE EXPIRATION -----------------------
NAME SHARES)(1) YEAR ($/SH) DATE 5% 10%
- ----------------------- ------------ ------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
W. F. Patient.......... 35,000 11.3% $26 1-5-06 $572,294 $1,450,306
E. C. Martinelli....... 11,000 4.0 26 1-5-06 179,864 455,810
T. A. Waltermire....... 11,000 4.0 26 1-5-06 179,864 455,810
D. P. Knechtges........ 9,000 3.3 26 1-5-06 147,161 372,936
L. M. Maresca.......... 9,000 3.3 26 1-5-06 147,161 372,936
G. L. Rutman........... 7,500 2.7 26 1-5-06 122,643 310,780
</TABLE>
- ---------------
(1) The options granted to W. F. Patient were immediately exercisable. The
options granted to the other named individuals become exercisable 35% after
one year, 70% after two years and 100% after three years. All of the options
were granted with limited stock appreciation rights which generally entitle
the optionee to elect to receive the appreciation on the option in cash for
a 60-day period following a "change of control" and were granted with
exercise prices not less than 100% of the fair market value of Common Stock.
(2) Amounts represent assumed annual compound rates of appreciation over the
ten-year life of the options calculated in accordance with the proxy
regulations of the Securities and Exchange Commission. They are not
indicative of, nor are they intended to be a forecast of, actual future
appreciation, if any, of the Company's Common Stock price. The actual value,
if any, of the options will depend on the market price of the Company's
Common Stock on the date the options are exercised.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS/SARs AT IN-THE-MONEY
FY-END OPTIONS/SARs AT
(# OF SHARES) FY-END ($) (2)
SHARES ACQUIRED ------------------ --------------------
ON EXERCISE VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (# OF SHARES) ($) (1) UNEXERCISABLE UNEXERCISABLE
- ----------------------- --------------- -------------- ------------------ --------------------
<S> <C> <C> <C> <C>
W. F. Patient.......... -0- $ -0- 146,299/175,000 $ 148,242/$328,125
E. C. Martinelli....... -0- -0- 72,566/ 80,399 114,367/ 112,500
T. A. Waltermire....... 7,165 72,339 59,164/ 80,249 84,991/ 112,500
D. P. Knechtges........ -0- -0- 9,462/ 77,149 1,638/ 112,500
L. M. Maresca.......... -0- -0- 13,428/ 76,649 10,058/ 112,500
G. L. Rutman........... -0- -0- 29,021/ 74,049 12,500/ 112,500
</TABLE>
16
<PAGE> 19
- ---------------
(1) Represents the difference between the option exercise price and the last
sale price of a share of Common Stock as reported on the New York Stock
Exchange on the date prior to exercise.
(2) Based on the last sale price of a share of Common Stock of $19 5/8 as
reported on the New York Stock Exchange on December 31, 1996. The ultimate
realization of profit, if any, on the sale of Common Stock underlying the
option is dependent upon the market price of the shares on the date of sale.
RETIREMENT PENSIONS
The Company has in effect a pension plan for salaried employees which
provides pensions payable at retirement to each eligible employee. The plan
makes available a pension which is paid from funds provided through
contributions by the Company and contributions by the employee, if any, made
prior to 1972. The amount of an employee's pension depends on a number of
factors including Final Average Earnings ("FAE") and years of credited service
to the Company. The following chart shows the annual pension amounts currently
available to employees who retire with the combinations of FAE and years of
credited service shown in the chart, which should be read in conjunction with
the notes following the chart. As of January 1, 1989, the plan generally
provides a benefit of 1.15% of FAE times all years of pension credit plus 0.45%
of FAE in excess of covered compensation times years of pension credit up to 35
years. In addition, employees actively at work on December 31, 1989 may receive
an additional pension credit of up to 4 years up to a maximum of 24 years of
pension credit. Benefits become vested after 5 years of service.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
---------------------------------------------------------------------------------------------
15 20 25 30 35
FINAL ----------------------- ----------------------- --------- --------- ---------
AVERAGE EARNINGS (1) (2) (1) (2)
- ------------------ --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 100,000...... $ 22,022 $ 27,894 $ 29,363 $ 35,235 $ 36,703 $ 44,044 $ 51,385
200,000...... 46,022 58,295 61,363 73,635 76,703 92,044 107,385
300,000...... 70,022 88,695 93,363 112,035 116,703 140,044 163,385
400,000...... 94,022 119,094 125,363 150,435 156,703 188,044 219,385
500,000...... 118,022 149,495 157,363 188,835 196,703 236,044 275,385
600,000...... 142,022 179,895 189,363 227,235 236,703 284,044 331,385
700,000...... 166,022 210,294 221,363 265,635 276,703 332,044 387,385
800,000...... 190,022 240,695 253,363 304,035 316,703 380,044 443,385
900,000...... 214,022 271,095 285,636 342,435 356,703 428,044 499,385
1,000,000...... 238,022 301,494 317,363 380,835 396,703 476,044 555,385
1,100,000...... 262,022 331,895 349,363 419,235 436,703 524,044 611,385
1,200,000...... 286,022 362,295 381,363 457,635 476,703 572,044 667,385
</TABLE>
- ---------------
(1) Assumes actively employed January 1, 1990 and after.
(2) Includes an additional 4 years of service applicable to pre-January 1, 1990
employees.
17
<PAGE> 20
(3) The pension plan uses either a "final average earnings" formula or a
"service credit" formula to compute the amount of an employee's pension,
applying the formula which produces the higher amount. The above chart was
prepared using the FAE formula, since the service credit formula would
produce lower amounts than those shown. Under the FAE formula, a pension is
based on the highest four consecutive calendar years of an employees'
earnings. Earnings include salary, overtime pay, holiday pay, vacation pay,
and certain incentive payments including annual cash bonuses, but exclude
awards under long-term incentive programs and the Company match in the
Company savings plans. As of December 31, 1996, final average earnings for
the individuals named in the Summary Compensation Table were as follows:
W.F. Patient - $740,096; E.C. Martinelli - $350,591; T.A.
Waltermire - $302,072; D.P. Knechtges - $279,342; L.M. Maresca - $256,203
and G.L. Rutman - $254,416.
(4) In computing the pension amounts shown, it was assumed that an employee
would retire at age 65 and elect to receive a five year certain and
continuous annuity under the pension plan and that the employee would not
elect any of the available "survivor options," which would result in a lower
annual pension. Pensions are not subject to any reduction for Social
Security or any other offset amounts.
(5) As of December 31, 1996, the six executive officers named in the cash
compensation table had the following years of credited service under the
pension plan or subsidiary plans or supplemental agreements: W.F. Patient, 7
years, 6 months; E.C. Martinelli, 33 years, 3 months; T.A. Waltermire, 22
years, 6 months; D.P. Knechtges, 31 years, 6 months; L.M. Maresca, 5 years,
8 months; and G.L. Rutman, 22 years, 2 months.
(6) W.F. Patient became vested in benefits immediately and earns an additional
benefit equal to 1.6 percent of his final average annual earnings for each
of his first 15 years with the Company. These benefits are payable under an
unfunded, non-qualified supplemental plan.
(7) Benefits shown in the chart that exceed the level of benefits permitted to
be paid from a tax-qualified pension plan under the Internal Revenue Code of
1986, as amended (the "Code"), and certain additional benefits not payable
under the qualified pension plan because of certain exclusions from
compensation taken into account thereunder, are payable under an unfunded,
non-qualified supplemental pension plan.
MANAGEMENT CONTINUITY AGREEMENTS
The Company has entered into management continuity agreements (the
"Continuity Agreements") with certain employees, including all of the executive
officers named in the Summary Compensation Table. The purpose of the Continuity
Agreements is to encourage the individuals to carry out their duties in the
event of the possibility of a "change of control" of the Company. The Continuity
Agreements do not provide any assurance of continued employment unless there is
a change of control. The Continuity Agreements generally provide for a two-year
period of employment commencing upon a change of control, which generally is
deemed to have occurred if: (i) any person becomes the beneficial owner of 20%
or more of the combined voting power of the Company's outstanding securities
(subject to certain exceptions), (ii) there is a change in the majority of the
Board of Directors of the Company, (iii) certain corporate reorganizations occur
18
<PAGE> 21
where the existing stockholders do not retain more than 60% of the common stock
and combined voting power of the outstanding voting securities of the surviving
entity, or (iv) there is shareholder approval of a complete liquidation or
dissolution of the Company.
The Continuity Agreements generally provide for the continuation of
employment of the individuals in the same positions and with the same
responsibilities and authorities that they possessed immediately prior to the
change of control and with the same benefits and level of compensation,
including average annual increases. If the individual's employment is terminated
by the Company or its successor for reasons other than "cause" or is terminated
voluntarily by the individual for "good reason" (in each case as defined in the
Continuity Agreements), generally the individual would be entitled to receive:
(i) compensation for a period of up to three years, commencing at the
individual's base salary rate in effect at the time of the termination and
including average annual increases thereafter, (ii) the continuation of all
employee benefits and perquisites, and (iii) a lump sum equal to the total of
(A) up to three times the individual's annualized incentive compensation, which
shall be equal to the greater of that paid with respect to the calendar year
prior to such termination or the "target incentive amount" (as defined in the
Continuity Agreements) for the year of the change of control or the year of
termination and (B) up to three times the "calculated market value" of the
"restricted stock" and "performance stock" awarded to the individual in the
Company's most recent "plan cycle" (in each case as defined in the Continuity
Agreements). The Continuity Agreements also provide for a tax gross-up for any
excise tax due under the Code for any payments or distributions made under the
agreements.
COMPANY STOCK PERFORMANCE
Following is a graph which compares the cumulative return from investing
$100 at April 29, 1993, the time of the IPO, the S&P 500 index and the S&P
Chemicals index, with dividends assumed to be reinvested when received. The S&P
Chemicals index includes a broad range of chemical manufacturers. Because of the
relationship of the Company's business within the chemical industry, it is felt
that comparison with this broader index is also appropriate.
19
<PAGE> 22
[GRAPH]
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG THE GEON COMPANY, S&P 500
INDEX AND S&P CHEMICALS INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) THE GEON COMPANY S&P CHEMICALS S&P 500
<S> <C> <C> <C>
4/29/93 $100.0 $100.0 $100.0
12/31/93 $128.2 $105.5 $108.5
12/31/94 $151.2 $122.2 $110.0
12/31/95 $137.2 $159.5 $151.2
12/31/96 $112.9 $210.6 $185.8
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; CERTAIN OTHER
RELATIONSHIPS
As discussed on page 5, the Compensation Committee is currently comprised
of J.A. Fred Brothers, Gale Duff-Bloom, J. Douglas Campbell, Harry A. Hammerly,
and D. Larry Moore. Mr. Brothers is Executive Vice President of Ashland Inc.
Ashland Chemical Co., a wholly-owned subsidiary of Ashland Inc., purchased,
directly and indirectly through affiliates, approximately $50 million of product
from the Company in 1996 and expects to continue to purchase product from the
Company in the future. The amount of purchases and prices thereof were, and will
continue to be, determined on an arms-length basis.
20
<PAGE> 23
John D. Ong is currently Chairman of the Board of BFG and served as Chief
Executive Officer of BFG until December 1996.
In connection with the IPO, the Company and BFG entered into a Separation
Agreement governing the transition of the Company from a division of BFG to a
publicly-held company and certain ongoing relationships between the Company and
BFG. The Separation Agreement provides that BFG and the Company will give each
other reasonable access to their respective employees and books and records
following the IPO for the purpose of preparing financial statements and reports
to be filed with the Securities and Exchange Commission, complying with ongoing
contractual obligations and responding to judicial, quasi-judicial,
administrative and arbitration proceedings.
The Company and BFG are also parties to other agreements, including an
Assumption of Liabilities Agreement, a Plant Services Agreement, a Technology
Agreement, a Tax Allocation Agreement, and an Intermediates Supply Agreement,
providing for additional matters related to the separation from BFG.
Assumption of Liabilities Agreement. The Assumption of Liabilities
Agreement provides that the Company will indemnify BFG for, among other things,
any and all environmental liabilities associated with the Company's business,
including all environmental liabilities associated with the chlor-alkali,
ethylene and utilities operations of the former Geon Vinyl Division of BFG
located principally at Calvert City, Kentucky, which were retained by BFG
following the IPO (the "Calvert Facilities"), arising prior to the date of the
IPO.
Plant Services Agreement. Four of the Company's owned manufacturing
facilities are located at sites that historically have been shared with
manufacturing facilities of the Specialty Polymers and Chemicals Division of
BFG. These facilities were designed with common utilities and infrastructure
assets to provide services economically to each business. These common assets
were divided between the Company and BFG in connection with the IPO, although in
certain cases the benefit and cost of such assets continue to be shared. The
Plant Services Agreement provided that the owner or operator of the facilities
will provide services to the other party generally on a cost basis. Where
additional capital may be required, a number of methods will be used to
compensate such party for the use of its capital.
Technology Agreement. Generally, BFG has transferred patents, patent
applications, know-how and trademarks to the Company that are primarily used in
the Company's PVC business, and the Company has granted back to BFG an
irrevocable, nonexclusive, royalty-free license to use these assets in other
than the PVC business. BFG also granted the Company a nonexclusive, irrevocable,
royalty-free license to use all other BFG patents, patent applications and
know-how which may be useful in the Company's PVC business. There are
nonexclusive, noncompete agreements whereby generally BFG has agreed not to
compete in the PVC business for ten years and the Company has agreed not to
compete with BFG for five years, including those businesses conducted by BFG's
Specialty Polymers and Chemicals Division. In addition, the Company has
generally agreed not to compete for ten years in the manufacture, use and/or
sale of chlorinated polyvinyl chloride (CPVC).
21
<PAGE> 24
BFG has a nonexclusive license to use the Company's technology and patents to
operate the Calvert City, Kentucky ethylene, chlorine and utility plants, and to
manufacture ethylene dichloride.
Tax Allocation Agreement. In general, the Tax Allocation Agreement provides
that BFG will indemnify the Company for all United States federal, state and
local income taxes for periods ending on or before the date of the completion of
the IPO. BFG is obligated to prepare and file the income tax returns for all
periods for which it is indemnifying the Company for income taxes, and has
exclusive control over and responsibility for all proceedings arising out of
income tax returns for periods for which it is indemnifying the Company for
incomes taxes. BFG and the Company agreed in the Tax Allocation Agreement to
cooperate in the preparation of income tax returns, and the Company agreed to
provide BFG access to the Company's books and records for the purpose of filing
income tax returns, and responding to or contesting any proceedings arising out
of income tax returns, for periods for which it is indemnifying the Company for
income taxes and for the purpose of responding to or contesting any proceedings
arising out of BFG's consolidated United States federal income tax returns for
periods in which the Company was part of the consolidated group of BFG. Pursuant
to the Tax Allocation Agreement, the Company assumes, and indemnifies BFG
against, all other taxes including, but not limited to, sales, use, payroll,
real and personal property and franchise taxes accruing or owing prior to the
closing of the offering. The Tax Allocation Agreement provides that all foreign
subsidiaries of the Company shall be responsible for all past and future taxes
of any kind.
Intermediates Supply Agreement. Under the Intermediates Supply Agreement,
ethylene, chlorine, and, possibly, ethylene dichloride ("EDC") may be sold by
BFG to the Company or may be exchanged between them. Until December 1995, the
Intermediates Supply Agreement also provided for sales of vinyl chloride monomer
("VCM") to the Company by BFG. With respect to ethylene and chlorine, BFG has
the right, through February 29, 2000, to sell to the Company, and the Company is
obligated to purchase from BFG, for delivery at the Company's LaPorte, Texas VCM
manufacturing plant (the "LaPorte Plant"), quantities of these chemical
intermediate products sufficient to enable BFG to meet its obligations to
Westlake Monomers Corporation ("Westlake") with respect to certain exchange
rights for ethylene and chlorine which are held by Westlake under contracts
between Westlake and BFG. Under these contracts, Westlake has the right to
exchange certain quantities of ethylene and chlorine with BFG at the LaPorte
Plant for ethylene and chlorine delivered by BFG to Westlake at Westlake's
Calvert City, Kentucky VCM Plant (the "Westlake Plant"). Pricing of these sales
by BFG to the Company shall be at a market price by reference to comparable
arms-length sales by unrelated sellers to Gulf Coast EDC/VCM producers. With
respect to VCM, BFG had the right, through December 1995, to sell to the
Company, and the Company was obligated to purchase from BFG, the entire amount
of VCM that BFG was obligated by contract to receive from Westlake at the
Westlake Plant. The price for VCM sold by BFG to the Company under this
arrangement was at a market price by reference to prevailing Gulf Coast market
prices for VCM. The Company was also obligated to deliver certain quantities of
VCM to Westlake at the LaPorte Plant sufficient to enable BFG to meet certain
exchange obligations with Westlake relating to VCM delivered by Westlake to BFG
at the Westlake Plant. With respect to EDC, BFG has the right, through February
29, 2000, to sell to the Company, and the Company is obligated to purchase from
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BFG, EDC produced by BFG at or adjacent to the Calvert Facilities, if (and only
if) BFG builds or acquires such an EDC manufacturing facility. Any such sales of
EDC will be at a market price by reference to prevailing Gulf Cost market prices
for the chlorine and ethylene components of EDC, plus a conversion fee. BFG does
not presently own or operate an EDC manufacturing facility at the BFG Calvert
City Plant and has not announced any plans to build or acquire any such
facility. In addition, the Company and BFG have entered into certain other
agreements relating to the provisions of catalysts, technical information and
various services relating to the operation of the Calvert Facilities.
Put Agreement. The Company has granted BFG the right (the "Put Option") to
require the Company to purchase the Calvert Facilities then owned by BFG (and
associated liabilities) between April 1, 2000 and March 31, 2003, at fair market
value as determined by an independent appraisal. The Put Option also extends to
any ethylene dichloride or VCM facility that BFG may build or acquire at or
adjacent to the Calvert Facilities. Any appraisal of the Calvert Facilities
would reflect the then expected market value of the products produced at the
Calvert Facilities, including caustic soda, chlorine and ethylene. Among others,
the appraisal would consider factors such as current and projected operating
income, plant design, operating efficiencies, plant operating condition,
availability and cost of delivery of raw materials, and location of markets.
BFG, in its Form 10-K annual report filed February 1996 with the Securities
and Exchange Commission for the year ended December 31, 1995, reported that
Westlake had stated an intention to purchase the Calvert Facilities at an
appraised value of approximately $170 million, including working capital. BFG's
10-K further stated that Westlake had previously asserted a value for the
Calvert Facilities as low as $40 million. Subsequently during 1996, Westlake
elected not to purchase the Calvert Facilities.
The Company believes there are too many variables to be able to predict
with any certainty what the market conditions and fair value might be between
the years 2000 and 2003. The Company believes the above noted appraisal is
overstated due to the location and age of the assets and less favorable current
industry conditions.
In 1996, sales of products to BFG (primarily PVC resin) were approximately
$26.8 million, and purchases of products from BFG (primarily ethylene) were
approximately $75.8 million.
INDEPENDENT AUDITORS
Ernst & Young LLP served as the Company's independent auditors for the
fiscal year ended December 31, 1996, and will continue to serve in that role
until the appointment of independent auditors by the Board of Directors in 1997.
The Board of Directors expects to appoint independent auditors for the fiscal
year ending December 31, 1997, upon recommendation by the Audit Committee, at
its May 1997 meeting. A representative of Ernst & Young LLP is expected to be
present at the Annual Meeting of Stockholders. The representative will be given
an opportunity to make a statement if desired and to respond to questions
regarding Ernst & Young LLP's examination of the Company's consolidated
financial statements and records for the year ended December 31, 1996.
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GENERAL
VOTING AT THE MEETING
Stockholders of record at the close of business on March 10, 1997 are
entitled to vote at the meeting. On that date, a total of 23,383,880 shares of
Common Stock were outstanding. Each share is entitled to one vote.
Holders of shares of Common Stock have no cumulative voting rights.
Directors are elected by a plurality of the votes of shares present, in person
or by proxy, and entitled to vote on the election of directors at a meeting at
which a quorum is present. The affirmative vote of a majority of the shares of
Common Stock represented and voting, in person or by proxy, at any meeting of
stockholders at which a quorum is present is required for action by stockholders
on any matter, unless the vote of a greater number of shares or voting by
classes or series is required under Delaware law.
Votes may be cast in favor of or withheld from each nominee in the election
of directors. Votes that are withheld will be excluded entirely from the vote
and will have no effect. Brokers holding shares in street name that do not
receive instructions are entitled to vote on the election of directors. Under
Delaware law, a broker nonvote will have no effect on the outcome of the
election of directors.
If any of the nominees listed on pages 3 through 5 becomes unable or
declines to serve as a director, each properly signed proxy card will be voted
for another person recommended by the Board of Directors. However, the Board has
no reason to believe that this will occur.
The Board of Directors knows of no other matters that will be presented at
the meeting. However, if other matters do properly come before the meeting, the
persons named in the proxy card will vote on these matters in accordance with
their best judgment.
STOCKHOLDER PROPOSALS
Any stockholder who wishes to submit a proposal to be considered for
inclusion in next year's Proxy Statement should send the proposal to the Company
addressed to the Secretary of the Company so that it is received on or before
November 21, 1997. The Company suggests that all proposals be sent by certified
mail, return receipt requested.
PROXY SOLICITATION
The Company is making this proxy solicitation and will bear the expense of
preparing, printing, and mailing this Notice and Proxy Statement. In addition to
requesting proxies by mail, officers and regular employees of the Company may
request proxies by telephone or in person. The Company has retained Morrow &
Co., Inc., 505 Third Avenue, New York, NY 10022-4799, to assist in the
solicitation for an estimated fee of $5,000 plus reasonable expenses. The
Company will ask custodians, nominees, and fiduciaries to send proxy material to
beneficial owners in order to obtain voting instructions. The Company will, upon
request, reimburse them for their reasonable expenses for mailing the proxy
material.
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<PAGE> 27
The Company's Annual Report to Stockholders, including consolidated
financial statements for the year ended December 31, 1996, is being mailed to
stockholders of record with this Proxy Statement.
For the Board of Directors
The Geon Company
/s/ Gregory L. Rutman
Gregory L. Rutman, Secretary
March 21, 1997
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March 21, 1997
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders to be
held at The Forum Conference & Education Center, 1375 E. Ninth Street,
Cleveland, Ohio, at 9:00 a.m. on Thursday, May 1, 1997.
The Notice of Annual Meeting of Stockholders and the Proxy Statement describe
the matters to be acted upon at the meeting.
Regardless of the number of shares you own, your vote on these matters is
important. Whether or not you plan to attend the meeting, we urge you to mark
your choices on the attached proxy card and to sign, date, and return it in
the envelope provided. If you later decide to vote in person at the meeting,
you will have an opportunity to revoke your proxy and vote personally by ballot.
IF YOU PLAN TO ATTEND THE MEETING, PLEASE MARK THE BOX PROVIDED ON THE
PROXY CARD.
We look forward to seeing you at the meeting.
/s/ William F. Patient
WILLIAM F. PATIENT
Chairman of the Board,
President, and Chief
Executive Officer
Detach Proxy Card Here
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE DIRECTOR NOMINEES
LISTED IN ITEM 1.
1. ELECTION OF DIRECTORS FOR all nominees WITHHOLD AUTHORITY to vote
term to expire at next listed below [ ] for all nominees listed below.
Annual Meeting.
[ ] *EXCEPTIONS [ ]
Nominees: William F. Patient, James K. Baker, Gale Duff-Bloom, J.A. Fred
Brothers, J. Douglas Campbell, Harry A. Hammerly, D. Larry Moore,
John D. Ong and R. Geoffrey P. Styles.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED
BELOW.)
*Exceptions:_________________________________________________________________
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment
thereof and matters incident to the conduct of the meeting.
Change of Address and [ ] I Will Attend [ ]
or Comments Mark Here the Meeting
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation,
please sign in full corporate name by President or other authorized officer
and affix corporate seal. If a partnership, please sign in partnership name
by general partner.
----------------
Dated: _____________________, 1997
____________________________(SEAL)
Signature
____________________________(SEAL)
Signature if held jointly
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. [ ]
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE> 29
THE GEON COMPANY
PROXY
ANNUAL MEETING OF STOCKHOLDERS, MAY 1, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE CORPORATION'S BOARD OF DIRECTORS
The undersigned hereby appoints William F. Patient and Gregory L. Rutman,
and each of them jointly and severally, Proxies, with full power of
substitution, to vote, as designated on the reverse side, all shares
of Common Stock of The Geon Company held of record by the undersigned on
March 10, 1997, at the Annual Meeting of Stockholders to be held May 1, 1997,
or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES
TO SERVE AS DIRECTORS. The shares represented by this Proxy will be voted as
specified on the reverse side. IF NO DIRECTION IS GIVEN IN THE SPACE PROVIDED
ON THE REVERSE SIDE, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF NOMINEES
SPECIFIED IN ITEM 1.
(Continued and to be dated and signed on the reverse side.)
THE GEON COMPANY
P.O. BOX 11056
NEW YORK, N.Y. 10203-0056
