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
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The Lubrizol Corporation
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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THE LUBRIZOL CORPORATION
29400 Lakeland Boulevard
Wickliffe, Ohio 44092
NOTICE OF ANNUAL MEETING
To Our Shareholders:
The 2002 Annual Meeting of Shareholders of The Lubrizol Corporation will be
held at the Radisson Hotel & Conference Center - Eastlake, 35000 Curtis
Boulevard, Eastlake, Ohio, on Monday, April 22, 2002, at 10:00 a.m. At the
meeting, we will ask you to:
1. Elect three directors for three-year terms;
2. Confirm the appointment of Deloitte & Touche LLP as independent
auditors; and
3. Transact other business that is properly presented at the meeting.
Shareholders of record at the close of business on March 1, 2002, may vote
at the meeting. The procedures for voting are described in the attached proxy
statement.
The business of the meeting and other information of interest to
shareholders is described in the attached proxy statement. After the meeting, we
will report on current operations and plans and have a question and answer
period.
At the 2001 meeting, approximately 90% of the shares were voted either in
person or by proxy. Your continued support is appreciated, and we hope that you
will be able to join us at the April 22 meeting.
L. M. Reynolds
Secretary
Wickliffe, Ohio
March 13, 2002
RETURN OF PROXIES REQUESTED
YOUR VOTE IS IMPORTANT. YOU CAN VOTE BY
TELEPHONE, OVER THE INTERNET OR BY
MAILING THE ENCLOSED PROXY CARD.
PROXY STATEMENT
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VOTING INFORMATION
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What may I vote on?
The Board of Directors asks for your vote on two proposals:
-- Election of nominees to serve on the Board of Directors; and
-- Approval of the appointment of Deloitte & Touche LLP as our
independent auditors.
Who can vote?
People who owned shares at the close of business on March 1, 2002, can vote
at the annual meeting. On March 1, 2002, there were 51,232,974 outstanding
shares of Lubrizol. Each share is entitled to one vote. This proxy statement and
the enclosed proxy card were first mailed to shareholders on or about March 13,
2002.
How do I vote?
You can vote any one of three ways:
-- By Telephone: Call the toll-free number (at no cost to you) on
your proxy card to vote by telephone. Telephone voting is
available 24 hours a day. Easy-to-follow voice prompts allow you
to vote your shares and confirm that your vote has been properly
recorded. Our telephone voting procedures are designed to verify
shareholders by using the individual control numbers provided on
the proxy cards.
IF YOU VOTE BY TELEPHONE, YOU DO NOT NEED TO RETURN YOUR PROXY
CARD.
-- Over the Internet: Visit the Web site listed on your proxy card to
vote over the Internet. Internet voting is available 24 hours a
day. As with telephone voting, you will use the control number
listed on your proxy card, and you will be given the opportunity
to confirm that your vote has been properly recorded.
IF YOU VOTE OVER THE INTERNET, YOU DO NOT NEED TO RETURN YOUR
PROXY CARD.
-- By Mail: Mark, sign, date and mail the enclosed proxy card to
American Stock Transfer & Trust Company in the enclosed
postage-paid envelope.
If you sign and return your proxy card or use the telephone or Internet
voting procedures, but do not indicate how you wish to vote, your shares will be
voted FOR the two proposals. If you indicate that you abstain, you will be
counted as present at the annual meeting for purposes of determining whether
there is a majority of outstanding shares at the meeting and you will be counted
as voting (but not for or against) that issue. Any broker nonvote also will be
counted as present at the annual meeting for purposes of determining whether
there is a majority of outstanding shares at the meeting but will not be counted
as voted.
We are not aware of any other business which will be presented at the
annual meeting. But, if there is other business that is properly presented at
the meeting, your signature on a proxy card or through the telephone or Internet
procedures gives authority to W.G. Bares, Chairman, President and Chief
Executive Officer; C.P. Cooley, Vice President and Chief Financial Officer; and
L. M. Reynolds, Corporate Secretary and Counsel, to vote on those matters in
their best judgment.
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Can I revoke my vote?
You may revoke your proxy at any time before it is voted at the meeting by:
-- notifying Lubrizol's corporate secretary in writing;
-- voting at a later time by telephone or over the Internet;
-- returning a later-dated proxy card; or
-- voting in person at the annual meeting.
Your most recent vote will be the one used as your vote.
Who tabulates the vote?
American Stock Transfer & Trust Company serves as the independent tabulator
of votes and inspector of elections. It will report the voting results to us.
However, it will not identify to us how you voted on any issue unless:
-- there is a contested election for the Board of Directors;
-- it is required by law; or
-- you request it.
Who is paying for this proxy solicitation?
We are paying for the cost of soliciting your vote, including the cost of
mailing the proxy statement and proxy card as well as the costs of the telephone
and Internet voting procedures. We will, upon request, reimburse brokerage
houses, custodians, nominees and others for the out-of-pocket and reasonable
clerical expenses they incur in connection with this proxy solicitation.
Can I help Lubrizol save money by reducing the number of proxy materials sent to
my house?
Yes. In accordance with the notice we sent with your December 2001
dividend, we are saving money on printing and mailing costs by sending only one
proxy statement and annual report to you and another shareholder if you have the
same last name and address (unless you have told us otherwise). If you want to
receive a separate copy of the annual report or proxy statement either now or in
the future, you can contact our transfer agent at the following address:
American Stock Transfer & Trust Company, 59 Maiden Lane, Plaza Level, New York,
NY 10038, or by telephone at 1-800-627-2303. If you currently share an address
with another Lubrizol shareholder and in the future wish to have just one proxy
statement and annual report sent to your address, please contact our transfer
agent at the address or telephone number above.
If you hold stock through a bank, broker or other holder of record, you can
contact them about receiving single or multiple copies of the proxy statements
and annual reports.
Instead of receiving a paper copy, can I access the proxy statement and the
annual report electronically?
The proxy statement and 2001 annual report are on our Internet site at
www.lubrizol.com.
You can elect to view future proxy statements and annual reports over the
Internet instead of receiving paper copies in the mail. You can choose this
option and save us the cost of producing and mailing these documents by
following the instructions provided on your proxy card. If you chose this
option, we will furnish you with instructions next year containing the Internet
address to access our proxy statement and annual report, but you will not
receive paper copies of either document.
If you hold stock through a bank, broker or other holder of record, check
the information provided by them for instructions on how to elect to view future
proxy statements and annual reports over the Internet. Most shareholders who
hold stock through a bank, broker or other holder of record and who elect
electronic access will receive an e-mail next year containing the Internet
address to access our proxy statement and annual report.
2
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ELECTION OF DIRECTORS
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Lubrizol has eleven directors, divided into three classes. Two classes have
four members each and one class has three members. The directors in each class
are elected for three-year terms so that the term of office of one class of
directors expires at each annual meeting.
The Organization and Compensation Committee has recommended, and the Board
of Directors has approved, the nomination of the following three persons for
election as directors at this annual meeting:
-- William G. Bares
-- David H. Hoag
-- Peggy Gordon Miller
Each of these persons is currently a director and is being nominated for a
three-year term that will end in 2005. If any of these persons becomes
unavailable for election, your signed proxy will be voted for the election of
any person who is recommended by the Organization and Compensation Committee or
will be voted in favor of holding a vacancy to be filled by the directors. The
nominated persons who receive the greatest number of votes will be elected to
the open director positions.
The following information is presented for each person who is being
nominated for election as a director and for each other director who will
continue in office after the meeting:
NOMINEES FOR ELECTION
W. G. BARES, age 60, is Chairman of the Board, President and
Chief Executive Officer of The Lubrizol Corporation. Mr.
[W. G. BARES PHOTO] Bares joined Lubrizol as a development engineer in 1963 and
was appointed Director of the Pilot Plant in 1972. He was
elected Vice President in 1978, Executive Vice President in
1980, President in 1982 and Chief Operating Officer in 1987
and became Chief Executive Officer on January 1, 1996. He
was elected a director of Lubrizol in 1981 and Chairman of
the Board in 1996. A 1963 graduate of Purdue University with
a B.S. degree in chemical engineering, he earned an M.B.A.
from Case Western Reserve University in 1969. He is a member
of the American Petroleum Institute and the American
Institute of Chemical Engineers, having served as past
chairman of its Cleveland section, and is a trustee for Case
Western Reserve University. In addition, he is a director of
Oglebay Norton Company, KeyCorp and Applied Industrial
Technologies and an Executive Board Member of the Greater
Western Reserve Council of the Boy Scouts of America.
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DAVID H. HOAG, age 62, retired in 1999 as Chairman of The
LTV Corporation, having retired in 1998 as Chief Executive
[DAVID H. HOAG PHOTO] Officer of The LTV Corporation and as Chief Executive
Officer of LTV Steel Company. Mr. Hoag was appointed to the
position of Chairman in June 1991 after having been elected
President and Chief Executive Officer in January of that
year. Mr. Hoag became Executive Vice President of The LTV
Corporation in July 1986 and was concurrently named a member
of LTV's Board of Directors. Mr. Hoag became a Lubrizol
director in 1989. He is a native of Pittsburgh and attended
Allegheny College in Meadville, Pennsylvania, receiving a
Bachelor's Degree in 1960. He is a director of Brush
Engineered Materials Inc., The Chubb Corporation, PolyOne
Corporation and NACCO Industries, Inc., and is Chairman of
the Cleveland Federal Reserve Board.
PEGGY GORDON MILLER, age 64, is President of South Dakota
[PEGGY GORDON MILLER State University. Prior to joining South Dakota State in
PHOTO] 1998, Dr. Miller was Acting Vice President for Academic and
International Programs at the American Association of State
Colleges and Universities. She has also served as a Senior
Fellow at the National Center for Higher Education,
President of The University of Akron and Chancellor of
Indiana University Northwest. She became a Lubrizol director
in 1993. Dr. Miller is also a director of A. Schulman, Inc.
She is a member of the National Competitiveness Council and
chairs the Global Priorities Commission for state colleges
and universities. Dr. Miller holds degrees from Transylvania
University, Northwestern University and Indiana University.
DIRECTORS WHOSE TERMS OF OFFICE WILL CONTINUE AFTER THE MEETING
JERALD A. BLUMBERG, age 62, resigned in June 2000 as
[JERALD A. BLUMBERG President and Chief Executive Officer of Ambar, Inc., a
PHOTO] privately held oilfield services company. Prior to joining
Ambar, Inc. in January 1998, Mr. Blumberg held various
international and management positions during a 37-year
career with E. I. du Pont de Nemours & Company, Inc. From
October 1995 until his retirement on December 31, 1997, he
was an Executive Vice President, Chairman of DuPont Europe
and a member of the Office of the Chief Executive. Mr.
Blumberg became a Lubrizol director in 1999. Mr. Blumberg
received a B.S. in chemical engineering from Michigan
Technological University in 1960. He is a director of
Burlington Industries, Inc. and NOVA Chemicals Corporation,
a member of the National Society of Professional Engineers
and the American Institute of Chemical Engineers. Mr.
Blumberg's term as a Lubrizol director expires in 2003.
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FOREST J. FARMER, SR., age 61, is President and Chief
[FOREST J. FARMER SR. Executive Officer of Enerflex Solutions LLC, which provides
PHOTO] value-added subassemblies to the automotive industry. He is
also Chairman, Chief Executive Officer and President of
Trillium Teamologies, a technology and engineering services
company. Mr. Farmer was associated with Chrysler Corporation
from 1968 to 1994 where he held various management positions
including General Plants Manager for Car and Truck Assembly
Operations. From 1988 until 1994, he was President of
Acustar, Inc., an automotive components subsidiary of
Chrysler Corporation. Mr. Farmer became a Lubrizol director
in 1997. Mr. Farmer graduated from Purdue University in 1965
with a B.S. degree in biology and physical education. He is
a member of the Board of Directors of Saturn Electronics and
Engineering, Inc., American Axle & Manufacturing, the St.
John Health System, the Macomb Hospital Corporation, Friends
of Scouting and Public Broadcasting System station WTVS-56
in Detroit, Michigan. Mr Farmer's term as a Lubrizol
director expires in 2003.
GORDON D. HARNETT, age 59, is Chairman and Chief Executive
Officer of Brush Engineered Materials Inc., the world's
[GORDON D. HARNETT largest producer of beryllium and beryllium-containing
PHOTO] engineered products. Prior to joining Brush Wellman in 1991,
Mr. Harnett had been Senior Vice President of The BFGoodrich
Company. From 1977 to 1988, he had held a series of senior
executive positions with Tremco Inc., a wholly owned
subsidiary of BFGoodrich, including President and Chief
Executive Officer from 1982 to 1988. From 1969 through 1976,
Mr. Harnett worked for McKinsey & Co., including a two-year
assignment in Tokyo. Mr. Harnett became a Lubrizol director
in 1995. Mr. Harnett graduated from Miami University in 1964
with a B.S. degree in business administration. He received
an M.B.A. from Harvard University in 1969. Mr. Harnett is a
director of National City Bank and PolyOne Corporation. In
addition, he is a trustee of Hathaway Brown, Cleveland
Tomorrow and Greater Cleveland Growth Association and is
Chairman of Cleveland Development Advisors, Inc. and the
Greater Cleveland International Trade Alliance. Mr.
Harnett's term as a Lubrizol director expires in 2004.
VICTORIA F. HAYNES, age 54, is President of the Research
Triangle Institute, which provides government and industry
[VICTORIA F. HAYNES clients with research and development services in health,
PHOTO] pharmaceuticals, environmental protection, advanced tech-
nologies and public policy. Prior to joining Research
Triangle Institute in June 1999, Dr. Haynes was Vice
President-Research and Development and Chief Technical
Officer of The BFGoodrich Company, a specialty chemicals and
aerospace company. Dr. Haynes became a Lubrizol director in
1995. Dr. Haynes graduated from the University of California
at Berkeley in 1969 with a B.S. in chemistry. She received
an M.A. in college teaching in 1971 and a Ph.D. in
physical/organic chemistry in 1975 from Boston University
and followed with a post doctoral associate assignment at
Purdue University for two years. Dr. Haynes is a director of
Nucor Corporation, Ziptronix, Inc., Microelectronics Center
of North Carolina, North Carolina Biotechnology Center and
the North Carolina Board of Science and Technology. In
addition, she is on the advisory board at Pacific Northwest
Laboratory and is active in the Council on Competitiveness.
Dr. Haynes' term as a Lubrizol director expires in 2004.
5
WILLIAM P. MADAR, age 62, is Chairman of the Board of
Nordson Corporation. He was Chief Executive Officer of
[WILLIAM P. MADAR Nordson until he retired from that position in 1997. Nordson
PHOTO] Corporation manufactures and worldwide markets industrial
equipment, along with the software and application
technologies that enhance its use. He is also Chairman of
the Board of cPref, a developer of software for the market
research service industry. A 1961 graduate of Purdue
University with a B.S. degree in chemical engineering, he
earned an M.B.A. from Stanford University in 1965. Mr. Madar
became a Lubrizol director in 1992. He is a director of
Nordson Corporation, National City Bank and Brush Engineered
Materials Inc. Mr. Madar is a trustee of the Northeast Ohio
Council on Higher Education, Cleveland Museum of Art and the
Cleveland Clinic Foundation. He is also co-chairman of the
Advisory Committee for the Ohio Innovation Fund, an early
stage venture capital fund. Mr. Madar's term as a Lubrizol
director expires in 2004.
RONALD A. MITSCH, age 67, retired in 1998 as Vice Chairman
and Executive Vice President-Industrial and Consumer Markets
[RONALD A. MITSCH of 3M, a manufacturer of products for industrial,
PHOTO] commercial, health care and consumer markets. He began his
career with 3M in 1960 as a Senior Research Chemist. He
served various assignments in research and in 1979 was named
Managing Director, 3M Netherlands. He returned to the United
States in 1981 as Research and Development Vice President,
Life Sciences Sector. He was named Group Vice President,
Traffic and Personal Safety Products in 1985, Senior Vice
President, Research and Development in 1990, Executive Vice
President in 1991 and Vice Chairman in 1995. Dr. Mitsch
graduated from Hamline University in 1956 with a B.S. in
chemistry. He received an M.S. in organic chemistry in 1958
and a Ph.D. in organic chemistry in 1960 from the University
of Nebraska. Dr. Mitsch became a Lubrizol director in 1991.
He is a director of NCR, Material Sciences Corporation, WTC
Industries, Dandy Corporation, GaMra Composites, Inc. and
the SEI Center for Advanced Studies in Management,
Philadelphia, Pennsylvania (associated with the Wharton
School of Business of The University of Pennsylvania). In
addition, he is the Chairman for the Board of Trustees of
Hamline University. Dr. Mitsch's term as a Lubrizol director
expires in 2003.
M. THOMAS MOORE, age 67, retired in 1997 as Chairman and
Chief Executive Officer of Cleveland-Cliffs Inc., the
[M. THOMAS MOORE world's largest iron ore pellet producer. After a series of
PHOTO] financial and general posts with Cleveland-Cliffs, he was
elected Chief Financial Officer in 1983, President in 1986,
Chief Executive Officer in 1987 and Chairman in 1988. Mr.
Moore became a Lubrizol director in 1997 and has served on a
number of other corporate boards during his career. He is on
the boards of the Cleveland Clinic Foundation and its
Western Region Health System and on the oversight panel for
the Mining Industry of the Future project of the U.S. Energy
Department and National Mining Association. He began his
career in the management training program of United States
Steel Corporation and held various positions with U.S.
Steel, American-Standard Corporation and Celanese
Corporation before joining Cleveland-Cliffs. He graduated
from Indiana University of Pennsylvania in 1956 and did his
graduate studies in business administration at several
universities. Mr. Moore's term as a Lubrizol director
expires in 2004.
6
DANIEL E. SOMERS, age 54, is Vice Chairman of Blaylock &
Partners LP, a minority-owned investment banking group in
[DANIEL E. SOMERS New York. He retired in October 2001 as President and Chief
PHOTO] Executive Officer of AT&T Broadband, which provides local
and long distance service, high speed Internet access and
home entertainment service. Previously, Mr. Somers was
Senior Executive Vice President and Chief Financial Officer
of AT&T from May 1997 to December 1999. Prior to joining
AT&T, Mr. Somers was Chairman and Chief Executive Officer of
Bell Cablemedia, plc, of London for two years. From 1992 to
1995, he was Executive Vice President and Chief Financial
Officer of Bell Canada International, Inc. Prior to joining
Bell Canada, Mr. Somers held a number of senior executive,
financial and operating-management positions with Radio
Atlantic Holdings Ltd. and Imasco Ltd. Mr. Somers became a
Lubrizol director in 1999. Mr. Somers received a B.S. degree
in finance from Stonehill College in North Easton,
Massachusetts, in 1969. Mr. Somers is Vice Chairman of the
Board of Trustees of Stonehill College. Mr. Somers' term as
a Lubrizol director expires in 2003.
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BOARD COMMITTEES
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The Board of Directors held eight meetings during 2001. The board has
several standing committees, including an Organization and Compensation
Committee and an Audit Committee.
ORGANIZATION AND COMPENSATION COMMITTEE
The Organization and Compensation Committee held seven meetings during
2001. Its principal functions are to:
-- Review corporate governance annually.
-- Review and recommend candidates for election as directors.
-- Review and recommend candidates for election as officers.
-- Review and authorize compensation for directors and officers.
-- Evaluate the performance of the chief executive officer.
-- Designate employees to receive grants of stock options and other
stock awards and determine the type and size of the awards.
-- Determine the size of the fund pools for the profit sharing plan,
year-end variable compensation plan and the performance pay plan.
-- Designate employees to receive awards under the performance pay
plan.
This committee will consider shareholder recommendations for director
nominations. These recommendations should be submitted in writing to Lubrizol's
corporate secretary by January 1 before the annual meeting.
The members of this committee are all of the outside directors and are
unrelated to Lubrizol. The chairman of this committee serves as the lead outside
director for purposes of chairing regularly scheduled meetings of outside
directors and for other responsibilities which the outside directors designate.
Gordon D. Harnett, chairman of this committee, currently is lead outside
director.
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AUDIT COMMITTEE
The principal functions of the Audit Committee are to:
-- Annually recommend to the board the appointment of the independent
auditors.
-- Annually evaluate with management the performance of the
independent auditor. The independent auditor is ultimately
accountable to the board and the Audit Committee.
-- Review with the independent and internal auditors the planned
scope and results of audits.
-- Hold conferences and reviews with the auditors as desired by the
committee or the auditors.
-- Review matters that affect financial statements and the results of
the independent auditor's reviews, annual audit and report.
-- Review the adequacy and effectiveness of the internal audit
function.
-- Oversee Lubrizol's internal control structure.
-- Provide oversight of the activities of the chief ethics officer
and review procedures for monitoring compliance with Lubrizol's
Policy on Ethical and Legal Conduct.
-- Report to the board the results of these reviews and conferences
and submit to the board any recommendations of the committee.
The Board of Directors has adopted a written charter for this committee. In
performing its functions, the Audit Committee acts in an oversight capacity for
Lubrizol's management processes and systems, internal control structure,
financial reporting and risk management. It is not responsible for preparing or
assuring the accuracy of Lubrizol's financial statements or filings, or
conducting audits of the financial statements.
The members of the Audit Committee are David H. Hoag (Chairman), Victoria
F. Haynes, William P. Madar, Ronald A. Mitsch and Daniel E. Somers. Each of the
members is independent under the rules of the New York Stock Exchange.
AUDIT COMMITTEE REPORT
The Audit Committee reviews Lubrizol's financial reporting process on
behalf of the Board of Directors. The committee held four meetings during 2001.
During these meetings, the committee reviewed and discussed the audited
financial statements for 2001 separately with management and Lubrizol's
independent auditors, Deloitte & Touche LLP. The discussions with Deloitte &
Touche included matters required to be discussed by the Statement on Auditing
Standards No. 61. In addition, the committee received from Deloitte & Touche
written independence disclosures and the letter required by Independence
Standards Board Standard No. 1 and discussed with Deloitte & Touche its
independence. Based on the review of the audited financial statements and the
discussions described above, the committee recommended to the Board of Directors
that the audited financial statements be included in Lubrizol's Annual Report on
Form 10-K for the year ended December 31, 2001, for filing with the Securities
and Exchange Commission.
David H. Hoag, Chairman Ronald A. Mitsch
Victoria F. Haynes Daniel E. Somers
William P. Madar
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DIRECTOR COMPENSATION
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Directors who are not Lubrizol employees receive a yearly cash retainer fee
of $16,000, plus $1,000 for each board meeting they attend and $1,000 for each
committee meeting they attend. If a committee meeting is held on a different day
from a board meeting, they receive $1,200 for the committee meeting.
Directors who are not Lubrizol employees may participate in a deferred
compensation plan for directors. Under this plan, directors may defer all or any
portion of their yearly fee and meeting attendance fees and have these amounts
credited to various cash investment accounts and/or a share unit account. The
investment returns of the cash investment accounts equal the performance of the
investment portfolios designated by the Organization and Compensation Committee.
The number of share units credited to the share unit account is based on the
price of Lubrizol shares on the day the share units are credited to the account
and includes additional share units credited for quarterly dividends paid on
Lubrizol shares. When a person is no longer a director, cash is distributed from
the person's cash account and Lubrizol shares are issued equal to the number of
share units in the person's share unit account.
On the date of each annual meeting, each director who is not a Lubrizol
employee automatically receives an option to purchase 2,500 Lubrizol shares
under the 1991 Stock Incentive Plan. In 2001, each of these directors received a
one-time additional option to purchase 2,500 Lubrizol shares as an incentive
relating to Lubrizol's five year strategic initiatives.
Directors who are not Lubrizol employees also participate in a deferred
stock compensation plan. Under this plan, each nonemployee director receives 500
share units on each October 1 and is credited with additional share units for
quarterly dividends paid on Lubrizol shares. When a person is no longer a
director, Lubrizol shares are issued equal to the number of share units in the
person's account.
The Lubrizol Corporation Board of Directors Guidelines are attached as
Appendix A to this proxy statement.
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SHARE OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS
AND LARGE BENEFICIAL OWNERS
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The following table shows the number of shares beneficially owned on
January 31, 2002, by each director and each executive officer named in the table
below and by all executive officers and directors as a group. Each person has
sole voting and investment power for all the shares shown, unless otherwise
noted. Mr. Bares beneficially owns 1.6% of Lubrizol shares based on the total
shown in the table below. No other executive officer or director owns more than
1% of Lubrizol shares. All executive officers and directors as a group
beneficially own approximately 4.6% of Lubrizol shares.
Amount and Nature of Beneficial Ownership
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Name of Direct Employee Exercisable Deferred
Beneficial Owner Total Ownership(1) Plan(2) Options(3) Share Units(4)
---------------- --------- ------------ -------- ----------- --------------
W. G. Bares................... 798,865 127,016 9,757 652,810 9,282
Jerald A. Blumberg............ 8,533 1,000 2,750 4,783
C. P. Cooley.................. 90,635 2,036 2,008 73,250 13,341
Forest J. Farmer, Sr. ........ 11,617 225 6,750 4,642
Gordon D. Harnett............. 21,148 200 8,750 12,198
Victoria F. Haynes............ 14,650 500 8,750 5,400
G. R. Hill.................... 310,731 44,716 2,876 263,139
David H. Hoag................. 26,444 4,061 16,750 5,633
J. E. Hodge................... 146,038 5,614 6,209 119,463 14,752
S. F. Kirk.................... 156,428 11,750 6,799 129,948 7,931
William P. Madar.............. 32,862 1,000 16,750 15,112
Peggy Gordon Miller........... 20,561 1,100 14,750 4,711
Ronald A. Mitsch.............. 23,429 1,424 16,750 5,255
M. Thomas Moore............... 8,468 1,000 4,750 2,718
Daniel E. Somers.............. 6,515 500 2,750 3,265
All Executive Officers and
Directors as a Group........ 2,359,133 237,949 76,664 1,923,162 121,358
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(1) This column includes shares owned by or jointly with family members,
including 4,134 of Mr. Hodge's shares, 11,750 of Mr. Kirk's shares and
20,602 of the shares held by the group, for which they have shared voting
and investment power.
(2) This column shows shares held in the profit sharing and savings plan, for
which the persons indicated have sole voting power and limited investment
power.
(3) This column shows shares covered by stock options that are currently
exercisable or will be exercisable by March 31, 2002.
(4) This column shows the indirect share ownership held by directors and
officers under various deferred compensation plans described in this proxy
statement.
SHARE OWNERSHIP GUIDELINES
We have share ownership guidelines that require executive officers to hold
shares having a value between 1.5 and 4 times their fixed pay, depending on
their position.
10
FIVE PERCENT BENEFICIAL OWNERS
The following table lists each person we know to be an owner of more than
5% of our shares on December 31, 2001.
Amount and Nature
of Beneficial Percent
Name and Address of Beneficial Owner Ownership of Class
------------------------------------ ----------------- --------
Alliance Capital Management L.P............................. 6,986,119(1) 13.7%
1290 Avenue of the Americas
New York, New York 10104
Brandes Investment Partners, LP............................. 4,974,400(2) 9.7%
Suite 500
11988 El Camino Real
San Diego, CA 92130
---------------
(1) This information was obtained from a Schedule 13G dated February 11, 2002,
filed by Alliance Capital Management L.P., which is an investment adviser
registered under the Investment Advisers Act of 1940. Alliance Capital
Management L.P. reported sole voting power as to 3,986,514 shares, shared
voting power as to 699,605 shares, sole investment power as to 6,584,519
shares and shared investment power as to 401,600 shares. Alliance Capital
Management L.P. also serves as an investment advisor for Lubrizol's pension
and profit sharing plans. However, under investment guidelines applicable to
Lubrizol's pension and profit sharing plans, investment advisors are not
permitted to invest our plans' assets in Lubrizol shares. Lubrizol paid
Alliance Capital Management L.P. approximately $225,000 for investment
advisory services rendered during 2001.
(2) This information was obtained from a Schedule 13G dated February 14, 2002,
filed by Brandes Investment Partners, L.P., which is an investment adviser
registered under the Investment Advisers Act of 1940. Brandes Investment
Partners, L.P. reported shared voting power as to 3,460,688 shares and
shared investment power as to all 4,974,400 shares.
11
--------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
The following table shows the compensation for 2001, 2000 and 1999 of the
chief executive officer and the next four highest-paid executive officers.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
-------------------------------------
Awards Payouts
Annual Compensation ------------------------- ---------
------------------------------------- Securities
Other Restricted Underlying Long-term
Name and Annual Stock Options/ Incentive
Principal Position Year Salary Bonus Compensation(1) Awards SARs(No.)(2) Payouts
------------------ ---- -------- -------- --------------- ---------- ------------ ---------
W. G. Bares
Chairman of the Board,
President and Chief
Executive Officer.................. 2001 $802,581 $304,000 $10,113 0 245,934 N/A
2000 762,013 465,000 5,325 0 115,000 N/A
1999 690,491 840,000 5,283 0 105,000 N/A
G. R. Hill
Senior Vice President.............. 2001 362,563 98,000 3,625 0 80,000 N/A
2000 350,393 155,000 2,875 0 40,000 N/A
1999 337,359 310,000 3,084 0 35,000 N/A
C. P. Cooley
Vice President and Chief
Financial Officer.................. 2001 290,208 80,000 3,229 0 54,000 N/A
2000 277,752 117,000 2,556 0 27,000 N/A
1999 264,570 220,000 5,567 0 20,000 N/A
S. F. Kirk
Vice President..................... 2001 269,107 82,000 3,229 0 60,679 N/A
2000 253,130 112,000 4,531 0 27,000 N/A
1999 233,531 220,000 1,715 0 20,000 N/A
J. E. Hodge
Vice President..................... 2001 267,936 72,000 2,683 0 54,000 N/A
2000 252,940 108,000 2,556 0 27,000 N/A
1999 229,566 198,000 1,704 0 20,000 N/A
Name and All Other
Principal Position Compensation(3)
------------------ ---------------
W. G. Bares
Chairman of the Board,
President and Chief
Executive Officer.................. $39,943
41,821
24,464
G. R. Hill
Senior Vice President.............. 23,014
19,238
13,589
C. P. Cooley
Vice President and Chief
Financial Officer.................. 11,108
15,337
11,348
S. F. Kirk
Vice President..................... 11,761
14,747
10,392
J. E. Hodge
Vice President..................... 26,749
14,215
10,270
---------------
(1) This column reflects gross-up payments to cover taxes related to the use of
financial planning services.
(2) This column reflects the number of shares covered by stock options granted
during the year.
(3) This column reflects our contributions to the profit sharing and savings
plan for these executives, including accruals to the related supplemental
defined contribution plan and amounts expensed under the executive death
benefit program, described on pages 18 and 19. These amounts have not been
received by these executives.
STOCK INCENTIVE PLANS
Our 1991 Stock Incentive Plan allows grants of incentive and nonstatutory
stock options, as well as stock appreciation rights and restricted and
nonrestricted stock awards. Any of our employees and our subsidiaries' employees
may be selected to participate in the plan. The plan is administered by the
Organization and Compensation Committee, which selects participants and
determines the type and amount of awards granted.
The number of shares available under the plan during a calendar year is 1%
of the outstanding shares on January 1 of that year, plus any unused shares from
previous years. The option price for stock options is not less than the average
of the high and the low market prices of shares on the grant date. The term of
each option is fixed by the committee. Participants can exercise their
12
options 50% after one year, 75% after two years and 100% after three years. All
outstanding options become fully exercisable upon a change of control.
Under this plan, any person who pays the option price of options granted
prior to March 27, 2000, under the plan with shares already owned will
automatically receive a new option grant for the number of shares used to pay
the option price. These option grants are called reload options. For options
granted on or after March 27, 2000, the committee in its discretion may grant a
reload option for the number of shares used to pay the option price. Persons may
not transfer shares acquired from the exercise of a reload option while still an
employee or director unless they have met any applicable share ownership
guidelines.
We also have options outstanding under our 1985 Employee Stock Option Plan.
The only options granted under this plan are reload options to employees who pay
the option price of options granted under this plan with shares they already
own. In these cases, the committee in its discretion may grant a reload option
under this plan for the number of shares used to pay the option price.
The following tables show option transactions for the named executive
officers during 2001. No stock appreciation rights were granted, exercised or
outstanding in 2001.
OPTION GRANTS IN 2001
Individual Grants
--------------------------------------------------- Potential Realizable Value
Number of % of Total at Assumed Annual Rates
Securities Options of Stock Price Appreciation
Underlying Granted to Exercise for Option Term(2)
Options/SARs Employees or Base Expiration ----------------------------------------
Name Granted in 2001 Price(1) Date 0% 5% 10%
---- ------------ ---------- ---------- ---------- --- ----------------- --------------
W. G. Bares............... 115,000 7.87% $30.3650 03/26/2011 $ 0 $ 2,196,075 $ 5,565,310
115,000 7.87% 30.3650 03/26/2011 0 2,196,075 $ 5,565,310
15,394(3) 1.05% 30.3650 03/22/2009 0 223,182 534,557
G. R. Hill................ 40,000 2.74% 30.3650 03/26/2011 0 763,852 1,935,760
40,000 2.74% 30.3650 03/26/2011 0 763,852 1,935,760
C. P. Cooley.............. 27,000 1.85% 30.3650 03/26/2011 0 515,600 1,306,638
27,000 1.85% 30.3650 03/26/2011 0 515,600 1,306,638
S. F. Kirk................ 27,000 1.85% 30.3650 03/26/2011 0 515,600 1,306,638
27,000 1.85% 30.3650 03/26/2011 0 515,600 1,306,638
3,665(3) 0.25% 31.1800 03/25/2001 N/A N/A N/A
3,014(3) 0.21% 30.3650 03/22/2009 0 43,697 104,661
J. E. Hodge............... 27,000 1.85% 30.3650 03/26/2011 0 515,600 1,306,638
27,000 1.85% 30.3650 03/26/2011 0 515,600 1,306,638
All Optionees............. 1,461,945 100.00% 30.3945 (4) 0 27,944,932 70,818,809
All Shareholders.......... (5) (5) (5) (5) 0 977,997,595 2,478,114,976
Optionees' Gain as % of
Shareholders' Gain...... 2.86% 2.86%
---------------
(1) This column shows the average of the high and low sales prices as reported
on the New York Stock Exchange on the grant date.
(2) The assumed rates of appreciation shown are established by the Securities
and Exchange Commission and are not meant to represent either past or future
appreciation rates for Lubrizol shares. If the assumed annual appreciation
rates were applied to the fair market value of Lubrizol shares at December
31, 2001 ($35.16 per share), then at the end of a 10-year option term, the
per share market price of the shares would be $35.16 at a 0% appreciation
rate, $57.27 at a 5% appreciation rate and $91.20 at a 10% appreciation
rate.
(3) The amount shown reflects a reload option granted in an amount equal to the
number of common shares used in the payment of the exercise price of another
option.
13
(4) Expiration dates range from March 25, 2001, through September 4, 2011.
(5) The amounts shown are the hypothetical returns to all shareholders assuming
they purchased their shares at a price of $30.39, the average exercise price
for all options granted during 2001, and that all shareholders hold the
shares continuously for ten years. The number of outstanding shares on
December 31, 2001, was 51,152,107.
AGGREGATED OPTION EXERCISES IN 2001 AND DECEMBER 31, 2001, OPTION VALUES
Number of Securities
Underlying
Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired at December 31, 2001 at December 31, 2001(2)
on Value --------------------------- ---------------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ----------- ----------- ------------- ----------- -------------
W. G. Bares.......... 82,894 $506,062 482,810 313,750 $1,682,919 $1,777,224
G. R. Hill........... 10,000 74,937 204,389 108,750 792,058 612,632
C. P. Cooley......... 0 0 34,500 72,500 249,247 405,012
S. F. Kirk........... 8,216 52,237 91,198 72,500 330,213 405,012
J. E. Hodge.......... 2,500 9,622 80,713 72,500 339,964 405,012
---------------
(1) The amounts in this column are the differences between the fair market value
at the exercise date of the Lubrizol shares acquired through the option
exercises and the exercise price of the option.
(2) The amounts in these columns are the differences between the fair market
value of Lubrizol shares at December 31, 2001 ($35.16 per share), and the
exercise price of the option. An option is considered in-the-money when the
fair market value of the shares is greater than the exercise price of the
option.
REPORT OF THE ORGANIZATION AND COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Organization and Compensation Committee approves the compensation
packages for executive officers. The committee consists of all the outside
directors.
Factors Considered by the Committee
In carrying out its responsibilities in 2001, the committee considered the
following:
-- Advice from independent consultants on all aspects of Lubrizol's
compensation policies, including comparisons to the policies and
practices of other companies;
-- Relevant trends in executive compensation practices;
-- Lubrizol's financial performance;
-- Lubrizol's business performance;
-- Lubrizol's compensation policies and practices for employees
generally;
-- Recommendations of executive management on compensation of key
employees including executive officers; and
-- The committee's and Lubrizol's historical philosophy to reward
according to Lubrizol's performance and according to individual
contribution, including the individual's commitment to Lubrizol.
14
Cash Compensation of Employees Generally
The cash compensation of employees, including the executive officers named
in the compensation table in this proxy statement, consists of (1) base salary,
(2) quarterly pay and (3) variable pay.
Quarterly pay is a fixed percentage of base salary determined by an
employee's length of service. Employee base salary plus quarterly pay is
designed to be within the mid-level range of salaries for persons having similar
jobs in the chemical and related industries.
Variable pay authorized by the committee for employees, other than
executive officers and other key employees, is paid in the first quarter and is
based upon a percentage of the previous year's net income. Variable pay is
allocated to employees based on a uniform percentage of each employee's base
salary.
Cash Compensation of Executive Officers
The base salary and quarterly pay practices for employees also apply to
executive officers.
For executive officers, eight separate surveys selected by the committee's
compensation consultant are used to determine base salary plus quarterly pay.
These surveys include more companies than the published industry
line-of-business indices used to compare total shareholder return on page 17 of
this proxy statement; however, 10 peer chemical companies are included in both
the salary surveys and the published industry indices. In addition, for the five
highest paid executives, total compensation levels and practices are analyzed
using compensation data published in each peer organization's proxy statement.
This analysis considers fixed salary, annual incentive, total cash compensation,
long-term incentives and total compensation.
The committee also reviews Lubrizol's three-year performance compared to a
peer group of 17 companies by analyzing total shareholder return, economic value
added, return on equity, return on assets and growth in earnings per share. This
analysis helps ensure that total executive pay is in alignment with Lubrizol's
performance relative to its peer group.
The committee administers the executive compensation policy with the
objective of keeping executive compensation comparable with other companies in
the chemical and related industries. The average executive base salary plus
quarterly pay in 2001 was slightly below the mid-level range when compared to
fixed compensation paid by companies in the surveys.
Executive officers and other key employees can receive variable cash
compensation under a performance pay plan. The committee determines a percentage
of annual net income to establish the amount available under this plan. For
2001, this percentage was based on objective financial measures and objective
and subjective performance measures for initiatives relating to our strategies
for (1) running the business and (2) changing the business. The objective
financial measures include earnings per share, value added per share,
contribution income from the fluid technologies for industry segment, working
capital efficiency and PuriNOx(TM) sales. Value added per share is a measure of
profits in excess of the cost of capital calculated on a per share basis.
Seventy-six percent of the weighting for all the performance measures is
based upon financial measures with the largest portion weighted to earnings per
share. The payout under the performance pay plan will vary based upon goal
accomplishment. Even if other goals are reached, earnings per share must reach a
minimum predetermined target before the plan will make payments.
The committee has the discretion to adjust the amount available under the
performance pay plan and to determine individual payouts under the performance
pay plan based upon an executive's level of responsibility, recommendations by
executive management and a subjective judgment by the committee of the
executive's contribution to Lubrizol's financial and business performance.
15
Stock Compensation for Executive Officers
Lubrizol uses stock options and performance share stock awards as forms of
long-term incentive compensation for executive officers and other key employees.
Stock Options
The committee determines the number of stock options granted to an
executive based on the individual's level of responsibility and performance,
recommendations by executive management and a subjective judgment by the
committee of the executive's contribution to financial and business performance.
The committee does not take into consideration existing awards held by the
executive when making new grants. For 2001, the committee set the total number
of stock options for annual grants to the five highest-paid executive officers
at the mid-level range of long-term incentive awards within the peer chemical
companies. For the other executive officers, the comparison was with general
industrial companies. In 2001, the committee granted to executive officers a
one-time additional number of stock options equal to the 2001 annual grant as an
incentive relating to Lubrizol's five-year strategic initiatives.
Performance Share Stock Awards
The committee granted performance share stock awards to executive officers
in 1997. Newly elected executive officers receive proportional performance share
stock awards at the time of hire or promotion. When the performance share stock
awards vest, Lubrizol will issue shares equal to the number of performance share
stock awards granted. These performance share stock awards will vest if the
closing market price of Lubrizol shares reaches $45 for ten consecutive trading
days. Otherwise, these awards will not vest until March 24, 2003. No performance
shares vested in 2001, and the committee will not grant replacement awards while
these awards are outstanding.
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986 limits the
deductibility of compensation paid to specified executive officers of public
companies. All compensation paid for 2001 to Lubrizol executive officers,
including the compensation element of shares received under Lubrizol's stock
option plans, qualified for deduction.
Compensation of the Chief Executive Officer
The committee's intent is to set Mr. Bares' base salary plus quarterly pay
within a range that is competitive with the fixed salaries of chief executive
officers in the chemical and related industries. The committee increased Mr.
Bares' base salary by 5% effective February 2001. Mr. Bares' base salary and
quarterly pay is almost equal to the mid-level range of comparable salaries.
Mr. Bares received 27% of his total cash compensation for 2001 from the
performance pay plan. For 2001, earnings per share exceeded the 2001 minimum
target.
In setting Mr. Bares' total compensation, the committee considers various
other aspects of corporate performance including market position, productivity,
product leadership, personnel development, employee attitudes, public
responsibility, quality practices and the balancing of short-term and long-term
goals. For 2001, Mr. Bares' total compensation was at the mid-level range of
comparable total compensation of chief executive officers of peer chemical
companies.
In determining the number of stock options granted to Mr. Bares in 2001,
the committee considered the factors described immediately above, as well as his
position within Lubrizol and stock option grant comparisons with peer chemical
companies. As with the other executive officers, in addition to the annual grant
of stock options, the committee granted to Mr. Bares a one-time additional
number of stock options equal to his 2001 annual grant as an incentive relating
to Lubrizol's five-year strategic initiatives.
16
Lubrizol's share ownership guidelines require Mr. Bares to hold shares
valued at four times his annual fixed pay. At year end, he owned over six times
his annual fixed pay in shares.
Gordon D. Harnett, Chairman William P. Madar
Jerald A. Blumberg Peggy Gordon Miller
Forest J. Farmer, Sr. Ronald A. Mitsch
Victoria F. Haynes M. Thomas Moore
David H. Hoag Daniel E. Somers
PERFORMANCE COMPARISONS
The following chart compares our combined total shareholder returns for the
five years ended December 31, 2001, to the combined total shareholder returns of
(a) the Standard & Poor's Industrial Index, (b) the Dow Jones Chemical Index and
(c) the Standard & Poor's Specialty Chemical Index.
We believe we have a peer group relationship with companies in these last
two indices. However, no single peer index or peer company is totally comparable
to our business. The peer company indices used include companies which supply
specialty chemicals to a wide variety of markets. Some of our direct competitors
are chemical divisions that represent small portions of large oil companies.
These chemical divisions are not included in the peer comparison because
information is not available to us which shows those divisions separately from
the parent company.
The chart assumes the investment of $100 on December 31, 1996, and the
immediate investment of all dividends.
[PERFORMANCE COMPARISONS CHART]
S&P SPECIALTY
LUBRIZOL S&P INDUSTRIALS DJ CHEMICALS CHEMICALS
-------- --------------- ------------ -------------
1996 100 100 100 100
1997 122.2 131.02 120.78 123.83
1998 87.92 175.18 106.83 105.46
1999 109.85 220.51 130.94 116.74
2000 95.67 184.67 113.88 103.84
2001 134.81 163.12 113.54 97.31
-----------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
-----------------------------------------------------------------------------------------
Lubrizol 100.00 122.20 87.92 109.85 95.67 134.81
-----------------------------------------------------------------------------------------
S&P Industrials 100.00 131.02 175.18 220.51 184.67 163.12
-----------------------------------------------------------------------------------------
Dow Jones Chemicals 100.00 120.78 106.83 130.94 113.88 113.54
-----------------------------------------------------------------------------------------
S&P Specialty Chemicals 100.00 123.83 105.46 116.74 103.84 97.31
-----------------------------------------------------------------------------------------
17
--------------------------------------------------------------------------------
EMPLOYEE AND EXECUTIVE OFFICER BENEFIT PLANS
--------------------------------------------------------------------------------
In addition to the stock option and variable compensation plans described
in this proxy statement and the group health, life and disability insurance
plans available to all employees, we also have the following plans for employees
and executive officers.
PENSION PLANS
We have a qualified pension plan for all employees. We also have a basic
supplemental defined benefit plan which provides highly paid employees with the
portion of their retirement benefits not payable from the pension plan because
of tax law limitations. In addition, we have a special officers' supplemental
defined benefit plan which currently covers two officers and is described in the
paragraph below the pension table.
Benefits under the pension plan and the related basic supplemental plan are
based on a final average pay formula or a career average pay formula, whichever
produces the higher benefit to the employee. The table below uses the final
average pay formula because it produces the higher benefit at the pay levels
shown.
Final average pay is an average of an employee's highest five consecutive
years out of the last ten years of pay. Pay for the plans consists of base
salary (unreduced for elective before-tax savings contributions and before-tax
cafeteria plan contributions), quarterly pay, overtime pay, shift premium
differentials, vacation and holiday pay, paid variable compensation, long-term
disability benefits and (for purposes of the basic and special supplemental
plans) cash compensation deferrals. Pay used to determine benefits for each of
the named executive officers is equal to the amounts shown in the salary and
bonus columns for them in the summary compensation table in this proxy
statement.
Benefits are based on a 10-year certain and life annuity. Employees hired
before February 1, 1984, may elect a lump sum option. Other payment options
available to all employees are a joint and 100% or 50% survivor annuity.
The final average pay formula limits years of service to 30. The estimated
credited years of service for each of the named executive officers (after this
30-year service limitation) is as follows: Mr. Bares, 30 years; Mr. Hodge, 30
years; Mr. Kirk, 29 years; Dr. Hill, 19 years; and Mr. Cooley, 4 years.
The following table shows the estimated annual retirement benefits payable
at age 65 under the pension plan and the basic supplemental defined benefit plan
in the final average pay and years of service categories shown. The benefits are
shown as a 10-year certain and life annuity.
Final Credited Years of Service
Average --------------------------------------------------------------------
Pay 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
---------- -------- -------- -------- -------- -------- --------
$ 200,000 ................ 27,140 40,710 54,280 67,850 81,420 81,420
400,000 ................ 56,140 84,210 112,280 140,350 168,420 168,420
600,000 ................ 85,140 127,710 170,280 212,850 255,420 255,420
800,000 ................ 114,140 171,210 228,280 285,350 342,420 342,420
1,000,000 ................ 143,140 214,710 286,280 357,850 429,420 429,420
1,200,000 ................ 172,140 258,210 344,280 430,350 516,420 516,420
1,400,000 ................ 201,140 301,710 402,280 502,850 603,420 603,420
1,600,000 ................ 230,140 345,210 460,280 575,350 690,420 690,420
18
As of December 31, 2001, Mr. Bares and Dr. Hill were participants in the
special officers' supplemental defined benefit plan. Benefits under this plan
are based on an average of the highest three consecutive years of pay during the
last ten years. The plan limits years of service to 30 and computes benefits on
the basis of a 10-year certain and life annuity. Benefits are reduced for Social
Security and payments made under other Lubrizol benefit plans. After making all
the deductions required under the plan, the estimated additional annual benefit
payable under this plan at age 65 (assuming current final average pay) to Mr.
Bares is $1.4 million and to Dr. Hill is $31,000.
PROFIT SHARING AND SAVINGS PLAN
We have a qualified profit sharing and savings plan for all employees. Each
year, the Board of Directors determines the portion of Lubrizol profits that
will be contributed to the plan. Profit sharing contributions are allocated to
employees' accounts based on their pay.
In addition, employees may contribute up to 18% (16% for highly compensated
employees) of base pay to the plan as a before-tax contribution. Lubrizol
matches 50% of the employee's before-tax contributions up to 4% of the
employee's base pay. The matching contribution is invested in Lubrizol shares.
Employees also may make after-tax contributions subject to an overall limit of
18% (16% for highly compensated employees) of base pay for their total
before-tax and after-tax contributions.
Employees may direct the investment of their contributions among a Lubrizol
share fund and ten other funds with a range of investment characteristics.
Employees vest in profit sharing and matching contributions at a rate of
20% per year of service. The plan allows distribution of an employee's vested
account balance after retirement, death or other termination of employment.
DEFERRED COMPENSATION PLANS
We have a deferred compensation plan for executive officers. Under this
plan, executive officers may defer all or any portion of their total annual pay
and have these amounts credited to various cash investment accounts and/or a
share unit account. The investment returns of the cash investment accounts equal
the performance of the investment portfolios designated by the Organization and
Compensation Committee. The number of share units credited to the share unit
account is based on the price of Lubrizol shares on the day the share units are
credited to the account and includes additional share units credited for
quarterly dividends paid on Lubrizol shares. At the end of the deferral period,
the deferrals and earnings are distributed to the participant. Cash is
distributed from the cash account and Lubrizol shares are issued equal to the
number of share units in the participant's share unit account.
In addition, we have another deferred compensation plan for some executive
officers. Under this plan, participants may defer any amount of their variable
pay under the performance pay plan. Deferred amounts are converted into share
units based on the current market price of Lubrizol's shares, which are then
multiplied by 1.25. Additional share units are credited for quarterly dividends
paid on Lubrizol shares. At the end of the deferral period, which is at least
three years, Lubrizol shares are issued equal to the number of share units in
the participant's account.
EXECUTIVE DEATH BENEFIT PROGRAM
The Organization and Compensation Committee selects executive officers to
participate in an executive death benefit program. This program provides a
benefit to the executive officer's designated beneficiary following the
executive officer's death. For currently employed participants, the death
benefit is 250% of the participant's 1996 base salary plus quarterly pay,
reducing to 150% at age 70 and 100% at age 75.
19
EXECUTIVE AGREEMENTS
We have employment termination agreements with senior executives, including
Messrs. Bares, Hill, Cooley, Kirk and Hodge. Each termination agreement provides
that, in the event of a change in control of Lubrizol, the executive will be
employed by Lubrizol for up to three years at responsibility, salary and benefit
levels equal to those immediately preceding the change in control. If the
executive's employment is terminated during those three years for reasons other
than death, permanent disability, reaching age 65 or for cause, or if the
executive terminates employment in specified circumstances, the benefits
provided to the executive are:
(1) a lump sum payment equal to three times the salary and other forms of
cash compensation in effect at the time of termination, and
(2) continued employee benefit coverage for the remainder of the three
years.
The termination agreements also provide that the executive will receive an
amount which will cover any excise taxes that apply.
Each executive has agreed, if the executive accepts any benefits under the
termination agreement, not to compete with Lubrizol for one year after
termination of employment after a change in control.
Assuming a change in control were to occur and all of the executive
officers who have termination agreements were terminated as of January 1, 2002,
the estimated amount of payments which we would have to make under the
termination agreements (including amounts to cover excise taxes) is $36 million.
EMPLOYEE SEVERANCE COMPENSATION PLAN
We also have a severance compensation plan that provides for a severance
payment to employees if, within 15 months after a change in control of Lubrizol,
their employment is terminated for any reason other than death, permanent
disability, voluntary retirement or for cause. Executives who receive payments
under the executive termination agreements described above will not receive
severance payments under the severance compensation plan.
For an employee with five or more years of service with Lubrizol, the
benefit under the severance compensation plan is a lump sum payment equal to the
total cash compensation received by the employee in the preceding 12-month
period. Employees with less than five years but more than six months of service
would receive a lesser amount proportionate to their length of service.
--------------------------------------------------------------------------------
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
--------------------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires our officers
and directors, and some persons who own more than 10% of our shares, to file
reports of share ownership and change in ownership with the Securities and
Exchange Commission, with a copy to us. We are not aware of any shareholder who
owns more than 10% of our shares and is required to file these reports.
Based solely on a review of the copies of the forms furnished to us during
or for 2001 and written statements from officers and directors, we believe that
all officers and directors filed on time all reports required during 2001 and
any prior year except G. R. Lewis reported one reportable transaction
inadvertently late, and W. G. Bares and K. H. Hopping each reported one
reportable transaction one day late.
20
--------------------------------------------------------------------------------
APPOINTMENT OF AUDITORS
--------------------------------------------------------------------------------
Upon the recommendation of the Audit Committee, the Board of Directors
appointed Deloitte & Touche LLP, independent auditors, to audit the financial
statements of Lubrizol for the year 2002. The Board of Directors recommends that
you confirm this appointment.
During 2001, Lubrizol engaged Deloitte & Touche to render a variety of
services, including the audit of Lubrizol's financial statements. A Deloitte &
Touche representative will attend the annual meeting, will have the opportunity
to make a statement and will be available to answer questions.
AUDIT FEES
The total fees billed or expected to be billed by Deloitte & Touche LLP for
the audit of Lubrizol's financial statements for the year ended December 31,
2001, and for the reviews of the quarterly financial statements included in
Lubrizol's Forms 10-Q for 2001 is $991,737.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
Deloitte & Touche LLP did not render financial information systems design
and implementation services during 2001.
ALL OTHER FEES
The total fees billed for services rendered by Deloitte & Touche LLP to
Lubrizol during 2001, other than audit fees, was $818,846, including audit
related services of $137,940, tax services of $246,917 and other non-audit
services of $433,989. Audit related services include employee benefit plan
audits, other attest services relating to affiliated companies and due diligence
procedures associated with mergers and acquisitions. Other non-audit services
includes $393,869 paid to Deloitte Consulting for business process consulting.
After separate discussions with Deloitte & Touche and management, the Audit
Committee has considered whether the provision of these other services is
compatible with maintaining Deloitte & Touche's independence.
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SHAREHOLDER PROPOSALS FOR THE 2003 ANNUAL MEETING
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Any shareholder who wants to present a proposal at the 2003 Annual Meeting
of Shareholders and have it included in our proxy materials must send us the
proposal no later than November 13, 2002. Shareholder proposals submitted after
that date but on or before February 21, 2003, may be presented at the annual
meeting but will not be included in the proxy materials. If a shareholder
proposal is received after February 21, 2003, the persons named on the proxy
card may vote in their discretion regarding the proposal all of the shares for
which we have received proxies for the annual meeting.
THE LUBRIZOL CORPORATION
L. M. Reynolds
Secretary
March 13, 2002
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APPENDIX A
THE LUBRIZOL CORPORATION
BOARD OF DIRECTORS GOVERNANCE GUIDELINES
1. COMPOSITION
The Regulations provide that the Board will have nine to thirteen Directors
with both the shareholders and the Board having the authority to set the number
within that range. The optimum size of the Board should be ten to twelve
members, including one inside Director. The Chief Executive Officer will
normally be the Chairman of the Board.
Board members should be recruited from the broadest geographic region
possible within the U.S. The Board should also seek candidates having broad
international experience. Approximately half of the outside Directors should be
out-of-town members.
The Board should represent a broad spectrum of individuals with experience
who are able to contribute to the success of the Corporation. Assessment of new
members should include the issues of independence, diversity, age and skills
necessary to the needs of the Board at the time.
2. MEETINGS
The Board holds an organizational meeting to elect officers after each
Annual Meeting of Shareholders at which Directors are elected. The Annual
Meeting and the organizational meeting of the Board are held on the fourth
Monday of April. The Board establishes other regular meetings at such times and
places as it decides. Board meetings are usually held monthly with the exception
of January, May, August and October. Dates are determined in advance and are
usually the fourth Monday of the month. A majority of Directors then in office
constitutes a quorum for Board meetings.
Meeting days normally begin at 7:30 AM and conclude at 4:00 PM.
On a timely basis before each meeting, management will provide an agenda
for the meeting, minutes from the last meeting and background information for
important subjects to be presented at the meeting.
Proposed significant transactions normally should be on the agenda for at
least two consecutive meetings.
The corporation's strategic plan should be reviewed at one meeting each
year.
Periodically, the Board should hold meetings at other locations of the
Corporation.
3. ATTENDANCE
The expectation for attendance at meetings is 100 percent, except for
occasional illness or unavoidable conflicts. If a Director determines that it is
not possible to attend a meeting, the Director is expected to notify the
Chairman of the Board or the Secretary of the Corporation promptly to assist in
assuring a quorum for the meeting. If a Director physically cannot attend a
Board meeting but is otherwise able to participate, it may be possible for the
Director to attend by telephone if advance arrangements are made.
4. COMMITTEES
The Board may elect an Executive Committee and/or other Board committees
each consisting of not less than three Directors. Directors are expected to
serve on one or more committees.
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Committee appointments, other than for the Organization and Compensation
Committee, will be rotated as determined by the respective Committee chairman
and the Chairman of the Board.
The Chairman of the Board will nominate each Committee chairman, but no
Committee chairman may serve as such for more than four years.
Currently, the Board has established four standing committees: Executive
Committee, Organization and Compensation Committee, Audit Committee and
Retirement and Savings Plans Investment Committee. The Board will review and
approve the charters of the committees at the organization meeting of the Board
of Directors after the Annual Shareholders Meeting.
5. RETIREMENT
A Director will retire no later than the date of the Annual Meeting next
following the date on which such Director attains the age of 69.
6. CHANGE IN STATUS
A person whose primary job responsibilities change from those he/she held
when elected to the Board will volunteer to resign from the Board. It is the
responsibility of the Organization and Compensation Committee to either accept
the resignation or ask the Director to remain on the Board.
7. FORMER CHIEF EXECUTIVE OFFICER'S BOARD MEMBERSHIP
A former Chief Executive Officer, upon retirement from the Corporation,
will resign from the Board following a short period of time to allow for a
smooth transition to the new Chief Executive Officer.
A former Chief Executive Officer serving on the Board during this short
transition will be considered an inside Director for purposes of corporate
governance.
8. MEMBERSHIP ON OTHER BOARDS
Each Director has the responsibility to notify the Chief Executive Officer
and Chairman of the Board prior to accepting invitations to join other Boards of
Directors. This guideline is established to avoid potential conflicts of
interest or the appearance of conflicts of interest. Appropriate legal judgment
will be obtained as necessary.
9. LEAD OUTSIDE DIRECTOR
The Chairman of the Organization and Compensation Committee will serve in
the capacity of lead outside Director for the purpose of chairing meetings of
outside Directors, which shall be held periodically.
10. EXECUTIVE SESSIONS OF OUTSIDE DIRECTORS
The outside Directors of the Board will meet in Executive Session of the
Organization and Compensation Committee as required, but at least three times a
year.
11. ASSESSING BOARD PERFORMANCE
The Organization and Compensation Committee shall conduct a periodic
assessment of the Board's performance and processes.
This assessment should be of the Board's contribution as a whole and
specifically review areas in which the Board and/or the management believes
improvements can be made to increase the effectiveness of the Board.
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12. EVALUATION OF THE CHIEF EXECUTIVE OFFICER
The Organization and Compensation Committee will conduct an annual formal
evaluation of the Chief Executive Officer and communicate it to the Chief
Executive Officer by the Chairman of the Organization and Compensation Committee
and another member of the Chairman's choosing.
The evaluation will consider aspects of corporate performance, such as
profitability, market position, productivity, product leadership, personnel
development, employee attitudes, public responsibility, quality practices and
the balancing of short-term and long-term goals. The evaluation will reflect a
combination of objective and subjective judgment with an emphasis on the impact
on the Corporation's sustainability and competitiveness within its industry. As
part of the evaluation, the Chief Executive will prepare a self-evaluation in
accordance with the Corporation's performance planning and development process.
The evaluation will be used by the Organization and Compensation Committee
in the course of its deliberations when considering the compensation of the
Chief Executive Officer.
13. SUCCESSION PLANNING/MANAGEMENT DEVELOPMENT
The Chief Executive Officer will submit an annual report to the
Organization and Compensation Committee on succession planning and the
Corporation's program for management development. The Chief Executive Officer's
recommendation as to his/her successor should he/she be unexpectedly unavailable
to serve will be communicated to the Organization and Compensation Committee on
a continuing basis.
14. BOARD ACCESS TO SENIOR MANAGEMENT
Board members have complete access to Lubrizol's management. Each Board
member has the responsibility to inform the Chief Executive Officer and Chairman
of the nature of any communication with management and to provide copies of any
written communication to the Chief Executive Officer and Chairman. The Board
encourages management to bring managers into Board meetings who can provide
additional insight into the items being discussed and/or who represent future
potential that the management believes should be given exposure to the Board.
15. REVIEW OF SHAREHOLDER PROTECTION PROVISIONS
All shareholder protection provisions will be reviewed at least biannually.
16. RELATIONSHIP WITH SHAREHOLDERS AND INVESTORS
Management has the authority and responsibility to speak for Lubrizol on
behalf of the Corporation and the Board of Directors. Management will provide
periodic reports to the Board regarding shareholder communications.
17. DIRECTOR COMPENSATION
The Chief Executive Officer will report annually to the Board of Directors
on the status of Lubrizol Board compensation in relation to other comparable
U.S. manufacturing companies. The Board is authorized to set a reasonable
compensation for Directors. Any Director who is a full-time employee of the
Corporation receives no separate compensation as a Director.
18. STOCK OWNERSHIP
Directors are encouraged to own shares of the Corporation's stock and to
increase their ownership of those shares over time. It is expected that each
Director, upon taking office, will own a minimum of 100 shares. The Board
believes that the stock compensation and stock option plans for Directors are
appropriate methods to allow Directors to increase their holdings significantly
over time.
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ELECTRONIC DISTRIBUTION
If you would like to receive future The Lubrizol Corporation proxy statements
and annual reports electronically, please visit HTTP://WWW.INVESTPOWER.COM.
Next, click on "Enroll to receive mailings via e-mail" to enroll. Please refer
to the company number and account number on top of the reverse side of this
card.
ANNUAL MEETING OF SHAREHOLDERS
The Lubrizol Corporation's Annual Meeting of Shareholders will be held at 10:00
a.m. on April 22, 2002, at the Radisson Hotel & Conference Center - Eastlake,
35000 Curtis Boulevard, Eastlake, Ohio. Please see your proxy statement for
instructions should you wish to attend the meeting.
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PROXY THE LUBRIZOL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of The Lubrizol Corporation hereby appoints
W. G. Bares, C. P. Cooley and L. M. Reynolds, and each of them, as agents, with
full power of substitution, to vote the shares of the undersigned at the 2002
Annual Meeting of Shareholders of The Lubrizol Corporation to be held on April
22, 2002 and at any adjournments thereof, as indicated on the reverse side of
this proxy card. Comments:______________________________________________________
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(Comments will be collected by the Inspector of Elections and forwarded to
Lubrizol management)
PLEASE SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES ON THE REVERSE
SIDE. IF NO SPECIFICATION IS MADE, AUTHORITY IS GRANTED TO CAST THE VOTE OF THE
UNDERSIGNED FOR ELECTION OF THE NOMINEES AND FOR ITEM 2. THE AGENTS NAMED ABOVE
CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS PROXY CARD OR CHOOSE
ALTERNATIVE VOTING OPTIONS AS INDICATED ON THE REVERSE SIDE OF THIS PROXY CARD.
(CONTINUED, AND TO BE SIGNED ON OTHER SIDE)
ANNUAL MEETING OF SHAREHOLDERS OF
THE LUBRIZOL CORPORATION
Co. #_________ APRIL 22, 2002 Acct. # ___________
PROXY VOTING INSTRUCTIONS
TO VOTE BY MAIL
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PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD IN THE ENVELOPE PROVIDED AS SOON AS
POSSIBLE.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
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PLEASE CALL TOLL-FREE 1-800-PROXIES (776-9437) AND FOLLOW THE INSTRUCTIONS. HAVE
YOUR CONTROL NUMBER AND THE PROXY CARD AVAILABLE WHEN YOU CALL
VOTE BY INTERNET
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PLEASE ACCESS THE WEB PAGE AT "WWW.VOTEPROXY.COM" AND FOLLOW THE ON-SCREEN
INSTRUCTIONS. HAVE YOUR CONTROL NUMBER AVAILABLE WHEN YOU ACCESS THE WEB PAGE.
YOUR CONTROL NUMBER IS ______________
Please Detach and Mail in the Envelope Provided
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A [X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election [ ] [ ] DIRECTOR NOMINEES: 2. Appointment of Deloitte & Touche LLP [ ] [ ] [ ]
of William G. Bares as independent auditors.
Directors David H. Hoag
Peggy Gordon Miller
For, except vote withheld from the following nominee(s): THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ABOVE PROPOSAL.
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If you have a change of address, please indicate Change [ ]
new address below and mark box to right. of
Address
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Attend [ ]
------------------------------------------------- Meeting
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SIGNATURE(S) ________________ DATE _____ SIGNATURE(S) _______________ DATE _____
Note: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. In case of a corporation, a
duly authorized officer should sign on its behalf.