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OMNOVA Solutions Inc.
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To the Shareholders of OMNOVA Solutions Inc.: |
February 15, 2005 Fairlawn, Ohio |
1. | Election of the following individuals to serve as directors for a term of three years, ending in the year 2008: Edward P. Campbell, David A. Daberko and William R. Seelbach; | |
2. | Ratification of the appointment of Ernst & Young LLP as the Companys independent registered public accounting firm for the fiscal year ending November 30, 2005; and | |
3. | Any other business properly brought before the meeting. |
Kristine C. Syrvalin | |
Secretary |
OMNOVA SOLUTIONS INC.
QUESTIONS & ANSWERS
What is the purpose of this Proxy Statement?
This Proxy Statement is being mailed to shareholders beginning on or about February 15, 2005 in connection with the Companys solicitation of proxies for the Annual Meeting of Shareholders to be held on March 23, 2005 at the Hilton Akron-Fairlawn, 3180 West Market Street, Fairlawn, Ohio.
Who can vote?
Record holders of OMNOVA Solutions Inc. common stock at the close of business on January 31, 2005 are entitled to vote at the meeting. Shareholders are entitled to one vote for each full share held on the January 31, 2005 record date. On that date, there were 40,800,533 shares outstanding.
How do I vote?
You can vote your shares by marking, signing, dating and returning the accompanying proxy card to the Companys transfer agent, The Bank of New York, in the envelope provided. If you properly complete the accompanying proxy card, and return it in the envelope provided, it will be voted in accordance with your instructions.
Any shares held for the account of a shareholder participating in the OMNOVA Solutions dividend reinvestment program for which a completed proxy is returned will be voted in accordance with the shareholders instructions.
Any shares held for the account of a participant in the OMNOVA Solutions Stock Fund of the Companys retirement savings plan will be voted by the Trustee for the plan in accordance with the confidential voting instructions provided by the participant on a completed proxy returned to The Bank of New York. If a participant does not return a completed proxy, the participants shares will be voted by the Trustee in accordance with instructions provided by the Benefits Management Committee for the plan.
Registered shareholders and beneficial owners of shares held in street name may also vote in person at the meeting. If you are a registered shareholder and attend the meeting, you may deliver your completed proxy card in person. Additionally, written ballots will be available for any shareholder that wishes to vote in person at the meeting. Beneficial owners of shares held in street name who wish to vote at the meeting will need to obtain a legal proxy from the institution that holds their shares.
May I change my vote?
Your proxy may be revoked at any time before it is voted. You may change your vote after you send in your proxy card by:
| Sending a written notice addressed to the Secretary of the Company and received prior to the Annual Meeting, stating that you want to revoke your proxy. | |
| Submitting another proxy that is received by the Company prior to the Annual Meeting that has a later date than the previously submitted proxy and that is properly signed. |
| Attending the Annual Meeting and voting in person. The mere presence of a shareholder at the meeting will not automatically revoke any proxy previously given. |
Who is soliciting proxies?
The enclosed proxy is being solicited by the Board of Directors of the Company, and the Company will pay the cost of the solicitation.
The Company has retained Georgeson Shareholder Communications Inc. to assist in the solicitation of proxies for a fee of $8,500 plus reimbursement of normal expenses. Solicitations may be made by personal interview, mail, telephone, telegram, facsimile, electronic mail and other electronic means. It is anticipated that the solicitations will consist primarily of requests to brokerage houses, custodians, nominees and fiduciaries to forward the soliciting material to the beneficial owners of shares held of record by those persons. The Company will reimburse brokers and other persons holding shares for others for their reasonable expenses in sending soliciting material to the beneficial owners.
In addition, certain officers and other employees of the Company may, by telephone, letter, personal interview, facsimile, electronic mail, telegram or other electronic means, request the return of proxies.
When are shareholder proposals due for the next Annual Meeting?
Shareholders who want to have their proposals considered for inclusion in the Companys proxy materials for the 2006 Annual Meeting of Shareholders must submit their proposals to the Company no later than October 18, 2005. The Companys Compensation and Corporate Governance Committee will consider shareholder suggestions for nominees for election to the Companys Board if such suggestions are in writing, accompanied by the written consent of each such nominee, mailed to the Compensation and Corporate Governance Committee, OMNOVA Solutions, Attention: Secretary, and received by the Secretary no later than December 17, 2005. Notice of any other proposal that a shareholder wants to have considered at the 2006 Annual Meeting must be provided to the Company no later than December 17, 2005 and in accordance with the requirements set forth in the Companys Code of Regulations.
The Companys Code of Regulations includes additional requirements for all shareholder proposals. All proposals for inclusion in the Companys proxy materials, notices of proposals, suggestions for nominees for election to the Companys Board of Directors and requests for copies of the Companys charter documents should be sent to OMNOVA Solutions Inc., Attn: Secretary, 175 Ghent Road, Fairlawn, Ohio 44333.
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PROPOSAL 1:
ELECTION OF DIRECTORS
Nominees for election this year are Edward P. Campbell, David A. Daberko and William R. Seelbach. Each of the nominees currently serves as a director and has agreed to stand for re-election. Biographical information on each of the nominees is set forth on the following page.
If any of the nominees is unable to stand for election, the Board of Directors may designate a substitute. Shares represented by proxies may be voted for the substitute but will not be voted for more than three nominees. The three nominees receiving the greatest number of votes will be elected.
A quorum, consisting of a majority of the voting power of the Company, whether in person or by proxy, is required to conduct the business of the Annual Meeting. Proxies containing abstentions and non-votes are counted as present for purposes of determining whether a quorum is present at the meeting.
Directors are elected by a plurality of the votes cast (i.e., the nominees receiving the greatest number of votes will be elected). Each shareholder is entitled to vote his or her shares for three nominees. He or she may not, however, cumulate his or her shares in voting for director nominees, as explained on page 29 of this Proxy Statement under the caption Other Information Cumulative Voting. What this means is that a shareholder who owns 100 shares of OMNOVA common stock may vote 100 shares for each of three nominees. The shareholder may not, however, vote more than 100 shares for any one nominee, nor vote for more than three nominees.
Votes cast for a nominee will be counted in favor of election. Withheld votes and broker non-votes will not count either in favor of or against election of a nominee. It is the intention of the persons appointed as proxies in the accompanying proxy card, unless authorization to do so is withheld, to vote for the election of the Boards nominees.
Your Board of Directors recommends a vote FOR these nominees. Shares represented by proxy will be voted FOR the nominees unless you specify otherwise on your proxy card.
BOARD OF DIRECTORS
The Companys Code of Regulations provides that the number of directors of the Company will not be less than seven nor more than seventeen. Currently, there are eight directors.
Set forth on the following pages is biographical information on the nominees for election and the other continuing directors with unexpired terms of office. All information is given as of January 31, 2005, unless otherwise indicated.
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Edward P. Campbell
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Term:
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Expires in 2005; Director since October 1999 | |
Recent Business Experience: | Mr. Campbell has been Chairman of the Board of Directors of Nordson Corporation, Westlake, Ohio (an international manufacturer of industrial application equipment) since March 2004 and Chief Executive Officer and a Director of Nordson Corporation since 1997. | |
Other Directorships:
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Nordson Corporation, Westlake, Ohio and KeyCorp, Cleveland, Ohio. | |
Committees:
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Member of the Audit Committee of the OMNOVA Solutions Board. | |
Age:
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55 | |
David A. Daberko
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Term:
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Expires in 2005; Director since November 1999 | |
Recent Business Experience: | Mr. Daberko has been Chairman and Chief Executive Officer of National City Corporation, Cleveland, Ohio (a diversified financial services company) since 1995. Previously, Mr. Daberko served as President and Chief Operating Officer of National City Corporation from 1993 to 1995 and Deputy Chairman of National City Corporation and President, National City Bank, Cleveland, from 1987 to 1993. | |
Other Directorships:
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National City Corporation, Cleveland, Ohio and The Marathon Oil Company, Houston, Texas. | |
Committees:
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Chairman of the Compensation and Corporate Governance Committee and member of the Executive Committee of the OMNOVA Solutions Board. | |
Age:
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59 | |
William R. Seelbach
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Term:
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Expires in 2005; Director since April 2002 | |
Recent Business Experience: | Mr. Seelbach has been the President and CEO of the Ohio Aerospace Institute (an organization that brings together collaborators from industry, universities, and federal laboratories to work together to build Ohios aerospace economy) since April 2003. Previously, he was President of Brush Engineered Materials, Inc., Cleveland, Ohio (a manufacturer of high performance engineered materials) from 2001 to May 2002. Prior to that, he served as President, Brush Wellman Inc. from 2000 to 2001 and as President, Alloy Products division of Brush Wellman from 1998 to 2000. From 1987 to 1998, Mr. Seelbach was Chairman and Chief Executive Officer of Inverness Partners, a limited liability company engaged in acquiring and operating Midwestern manufacturing companies. | |
Other Directorships:
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Corrpro Companies, Inc., Medina, Ohio. | |
Committees:
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Member of the Compensation and Corporate Governance Committee of the OMNOVA Solutions Board. | |
Age:
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56 | |
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CONTINUING DIRECTORS | ||
David J. DAntoni
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Term:
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Expires in 2007; Director since November 2003 | |
Recent Business Experience: | In September 2004, Mr. DAntoni retired from his positions as Senior Vice President and Group Operating Officer of Ashland Inc. (a chemical, energy and transportation construction company), positions which he had held since 1988 and 1999 respectively. Mr. DAntoni also previously served as President of APAC, Inc. and as President of Ashland Chemical Company. | |
Other Directorships:
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State Auto Financial Corporation, Columbus, Ohio and Compass Minerals International, Inc., Overland Park, Kansas. | |
Committees:
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Member of the Compensation and Corporate Governance Committee of the OMNOVA Solutions Board. | |
Age:
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60 | |
Diane E. McGarry
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Term:
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Expires in 2007; Director since October 1999 | |
Recent Business Experience: | In January 2005, Ms. McGarry retired from her position as Chief Marketing Officer, Xerox Corporation, Stamford, Connecticut (a manufacturer of copiers and electronic office equipment), a position she held since October 2001. Previously, she was President, North American General Markets Operations of Xerox since January 2000; Senior Vice President, Eastern Operations, North American Solutions Group of Xerox Corporation, Rochester, New York from January 1999 to January 2000; Vice President/General Manager, Color Solutions Business Unit of Xerox from March 1998 to January 1999; and Chairman, President and Chief Executive Officer of Xerox Canada Inc., North York, Ontario, Canada, from 1993 to March 1998. | |
Committees:
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Member of the Audit Committee of the OMNOVA Solutions Board. | |
Age:
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55 | |
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Kevin M. McMullen
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Term:
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Expires in 2006; Director since March 2000 | |
Recent Business Experience: | Mr. McMullen has been Chairman of the Board, Chief Executive Officer and President of the Company since February 2001. Prior to that, Mr. McMullen served as Chief Executive Officer and President of the Company from December 2000 and as a Director from March 2000. From January 2000 to December 2000, Mr. McMullen served as President and Chief Operating Officer of the Company, and from September 1999 to January 2000, Mr. McMullen served as Vice President of the Company and President, Decorative & Building Products. Previously, Mr. McMullen was Vice President of GenCorp Inc. and President of GenCorps Decorative & Building Products business unit from September 1996 until the spin-off of OMNOVA Solutions in October 1999. Prior to that, Mr. McMullen was General Manager of General Electric Corporations Commercial & Industrial Lighting business from 1993 to 1996 and General Manager of General Electric Lightings Business Development and Strategic Planning activities from 1991 to 1993. Mr. McMullen was a management consultant with McKinsey & Co. from 1985 to 1991. | |
Other Directorships:
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STERIS Corporation, Mentor, Ohio. | |
Committees:
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Chairman of the Executive Committee of the OMNOVA Solutions Board. | |
Age:
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44 | |
Steven W. Percy
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Term:
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Expires in 2007; Director since October 1999 | |
Recent Business Experience: | Mr. Percy was Senior Vice President Refining, Marketing & Transportation of Phillips Petroleum, Bartlesville, Oklahoma (a petroleum extraction, refining and distribution company) from June 2000 to March 2001. Previously, Mr. Percy served as Chairman and Chief Executive Officer of BP America, Inc., from 1996 to March 1999, and as Executive Vice President of BP America and President of BP Oil in the United States from 1992 to 1996. | |
Other Directorships:
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Non-Executive Chairman of Wavefront Energy and Environmental Services, Inc., Edmonton, Alberta, Canada. | |
Committees:
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Chairman of the Audit Committee of the OMNOVA Solutions Board. | |
Age:
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57 | |
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R. Byron Pipes
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Term:
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Expires in 2006; Director since October 1999 | |
Recent Business Experience: | Dr. Pipes has been the John L. Bray Distinguished Professor of Engineering at Purdue University, West Lafayette, Indiana, since September 2004. Prior to that, Dr. Pipes was the Goodyear Professor of Polymer Engineering at the University of Akron, Akron, Ohio, from December 2001 to August 2004. Previously, Dr. Pipes served as a Distinguished Visiting Scientist at the College of William and Mary, Williamsburg, Virginia from 1998 to 2001; Seventeenth President of Rensselaer Polytechnic Institute, Troy, New York from 1993 to 1998; and Provost of the University of Delaware from 1991 to 1993 and Dean of the College of Engineering from 1985 to 1993. | |
Committees:
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Member of the Compensation and Corporate Governance and the Executive Committees of the OMNOVA Solutions Board. | |
Age:
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62 | |
| review and discuss the independent registered public accounting firms quality control; | |
| review and discuss the independence of the independent registered public accounting firm; | |
| review and discuss the audit plan and the conduct of the audit; | |
| review and discuss the financial statements and disclosures; |
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| review and discuss earnings press releases; | |
| review and discuss internal audit plans and reports; | |
| review and discuss the systems of internal controls; | |
| review and discuss audit results; | |
| discuss risk management policies; | |
| obtain reports regarding conformity with legal requirements and the Companys code of business conduct and ethics; and | |
| review and discuss material contingent liabilities. |
The Audit Committee has adopted a written charter, which is reviewed and reassessed annually. The Audit Committee charter is available on the Companys website at www.omnova.com.
The Audit Committee met eight times during fiscal year 2004. The Audit Committee Report is set forth beginning on page 26 of this Proxy Statement.
Compensation and Corporate Governance Committee
Members of the Compensation and Corporate Governance Committee are: David A. Daberko, Chairman, David J. DAntoni, R. Byron Pipes and William R. Seelbach, each of whom has been determined to be independent as defined by the New York Stock Exchanges listing standards. The Committee has adopted a written charter, which is available on the Companys website at www.omnova.com.
The Compensation and Corporate Governance Committees responsibilities include:
| establishing executive compensation policies and programs; | |
| reviewing and approving executive officer compensation; | |
| making recommendations to the Board with respect to all executive incentive compensation plans and equity-based compensation plans; | |
| administering compensation plans; | |
| making recommendations to the Board concerning the appointment and removal of officers of the Company; | |
| reviewing and approving employment agreements and severance or retention plans or agreements applicable to any executive officer; | |
| overseeing the Companys employee benefit, savings and retirement plans; | |
| periodically reviewing director compensation in relation to other comparable companies; | |
| developing and recommending to the Board, Corporate Governance Guidelines and, annually thereafter, reviewing the guidelines to determine whether they are being effectively adhered to and implemented; | |
| assisting in succession planning; | |
| reviewing possible conflicts of interest of Board members and executive officers; and | |
| overseeing the Boards annual evaluation process. |
The Compensation and Corporate Governance Committee also serves as the nominating committee for the Board of Directors. In its capacity as the nominating committee, members of the Compensation and Corporate Governance Committee, among other things, establish and periodically review the criteria for Board membership, identify new director candidates, evaluate incumbent directors and make recommendations to the Board regarding the appropriate size of the Board and the appointment of members to the Boards committees. The Committee may occasionally retain a third-party search firm to assist it in identifying potential new director candidates.
The Committee will consider shareholders suggestions for nominees for election to the Companys Board of Directors in 2006 if any such suggestion is made in writing, includes
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| Possess the integrity and mature judgment essential to effective decision making. | |
| Have the ability and willingness to commit necessary time and energy to prepare for, attend and participate in meetings of the Board and one or more of its standing Committees and not have other directorships, trusteeships or outside involvements which would materially interfere with responsibilities as a director of the Company. | |
| Have the willingness and availability to serve at least one term. | |
| Have the willingness and ability to represent the interests of all shareholders of the Company rather than any special interest or constituency while keeping in perspective the interests of the Companys employees, customers, local communities and the public in general. | |
| Have background and experience that complement the background and experience of other Board members. | |
| Be a shareholder or willing to become a shareholder of the Company. | |
| Be free from interests that are or would present the appearance of being adverse to, or in conflict with, the interests of the Company. | |
| Have a proven record of competence and accomplishment through demonstrated leadership in business, education, government service, finance or the sciences, including director, CEO or senior management experience; academic experience; scientific experience; financial and accounting experience; or other relevant experiences which will provide the Board with perspectives that will enhance Board effectiveness, including perspectives that may result from diversity in ethnicity, race, gender, national origin or nationality. |
These criteria have been established by the Compensation and Corporate Governance Committee as criteria that any director nominee, whether suggested by a shareholder or otherwise, should satisfy. A nominee for election to the Board of Directors that is suggested by a shareholder (in compliance with the procedures described above) will be evaluated by the Compensation and Corporate Governance Committee in the same manner that any other nominee for election to the Board (other than directors standing for re-election) is evaluated. The evaluation process will include a comprehensive background and reference check, a series of personal interviews by, at a minimum, the Chairman of the Board and the Chairman of the Compensation and Corporate Governance Committee, and a thorough review by the full Committee of the nominees qualifications and other relevant characteristics, taking into consideration the criteria that are set forth in the Corporate Governance Guidelines. Finally, if the Committee determines that a candidate should be nominated for election to the Board of Directors, the Committee presents its findings and recommendation to the full Board of Directors for approval.
The Compensation and Corporate Governance Committee met five times during fiscal year 2004. The report of the Compensation and Corporate Governance Committee is set forth beginning on page 20 of this Proxy Statement.
Executive Committee
During the intervals between meetings of the Board of Directors, the Executive Committee, unless restricted by resolution of the Board, may exercise, under the control and direction of the Board, all of the powers of the Board of Directors in the management and control of the business of the Company. The Executive Committee did not meet during fiscal year 2004. Members of the Executive Committee are: Kevin M. McMullen, Chairman, David A. Daberko and R. Byron Pipes.
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CORPORATE GOVERNANCE
Corporate Governance Guidelines
The Board of Directors has adopted the OMNOVA Solutions Inc. Corporate Governance Guidelines. These guidelines outline the responsibilities of the Board of Directors, director selection criteria and procedures, board composition criteria and various policies and procedures designed to ensure effective and responsive governance. These guidelines will be reviewed annually by the Compensation and Corporate Governance Committee to determine whether the guidelines are being effectively adhered to and implemented. The guidelines may be revised from time to time in response to regulatory requirements or best practices that develop. The OMNOVA Solutions Corporate Governance Guidelines are available on our website at www.omnova.com.
Code of Ethics
Each of our officers, employees and directors are required to comply with the OMNOVA Solutions Business Conduct Policies, a code of business conduct and ethics adopted by the Company. It is the objective of the Company that our business is conducted in accordance with the highest standards of personal and professional ethics. The OMNOVA Solutions Business Conduct Policies set forth policies covering a broad range of subjects, including sales practices, conflicts of interest, insider trading, financial reporting, harassment and confidential information, and require strict adherence to laws and regulations applicable to OMNOVAs business. The OMNOVA Solutions Business Conduct Policies are available on our website at www.omnova.com.
Executive Sessions
The non-management directors meet in executive session without members of management present at least two times each year. The Chairman of the Compensation and Corporate Governance Committee presides at these executive sessions.
Communicating with the Board of Directors
Shareholders who wish to communicate with the Board of Directors or a particular director may do so by sending a letter to the Secretary of the Company at 175 Ghent Road, Fairlawn, Ohio 44333. The mailing envelope must contain a clear notation indicating that the enclosed letter is a Shareholder-Board Communication or Shareholder-Director Communication. All such letters must identify the author as a shareholder and clearly state whether the intended recipients are all members of the Board or certain specified individual directors. The Secretary will make copies of all such letters and circulate them to the appropriate director or directors.
Director Independence
OMNOVAs Corporate Governance Guidelines require that a majority of directors meet the criteria for independence set forth in the listing standards of the New York Stock Exchange. The listing standards provide that, in order to be considered independent, the Board must determine that a director has no material relationship with OMNOVA other than as a director. As permitted by the listing standards, the Board of Directors has adopted categorical standards to assist it in determining whether its members have such a material relationship with the Company. These standards provide that the following relationships are deemed to be immaterial and would not, in and of themselves, impair a directors independence:
| a director is an executive officer or employee, or an immediate family member of a director is an executive officer, of a company that makes payments to, or receives payments from OMNOVA or any of its subsidiaries, for property or services in an amount which in any single fiscal year of the Company does not exceed the greater of $1 million or 2% of such other companys consolidated gross revenues; or |
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| a director serves as an executive officer of a charitable organization and OMNOVAs charitable contributions to that organization (excluding the amount of any matching contributions under the Companys matching gifts program) in any fiscal year of the Company are not more than the greater of $1 million or 2% of the charitable organizations consolidated gross revenues. |
The Board has reviewed the independence of its members considering these standards and any other commercial, banking, consulting, legal, accounting and familial relationships between the directors and OMNOVA and has determined that none of the seven nonemployee directors has a material relationship with the Company and that each such director is independent in accordance with the listing standards of the New York Stock Exchange.
COMPENSATION OF DIRECTORS
Directors who are also employees of the Company are not compensated separately for serving on the Board and are not paid a retainer or additional compensation for attendance at Board or committee meetings.
Each nonemployee director receives a retainer of $26,000 per year and an attendance fee of $1,200 for each Board and committee meeting attended. A nonemployee director who serves as chairman of a committee of the Board receives an annual fee of $2,000 in consideration of such service.
One-half of each nonemployee directors annual retainer is automatically deferred into phantom shares of OMNOVA Common Stock pursuant to a deferred compensation plan for nonemployee directors. Nonemployee directors may also elect to defer all or a percentage of the remainder of their retainer, any committee chairmans fee and meeting attendance fees. The deferred compensation plan is unfunded. Amounts deferred at the election of the director are credited with phantom shares in the OMNOVA Solutions Stock Fund, an S&P 500 index fund or a cash deposit program, as selected by the director. Deferred amounts and earnings are payable in either a lump sum or installments as elected by the director commencing, at the directors election, (i) 30 days after termination of his service as a director, (ii) on a fixed future date specified by the director at the time of his deferral election or (iii) upon the directors attainment of a certain age specified by him at the time of his deferral election.
In February 2000, the Board of Directors discontinued availability of the Retirement Plan for Nonemployee Directors to any subsequently elected directors and, in lieu thereof, decided to offer new nonemployee directors a stock-based compensation component. Additionally, then current nonemployee directors were given a one-time choice of (i) continuing with the current compensation package consisting of participation in the retirement plan and receipt of an annual restricted stock grant of 250 shares of OMNOVA common stock or (ii) freezing their participation in the retirement plan but discontinuing participation going forward and receiving a discretionary annual option grant covering 2,500 shares of OMNOVA common stock.
Of the current nonemployee directors, two elected to receive 250 restricted shares of common stock and continue their participation in the Retirement Plan for Nonemployee Directors and three have frozen their participation in the plan and elected to receive option grants covering 2,500 shares of OMNOVA common stock. Two nonemployee directors joined the Board after February 2000 and, therefore, never participated in the Retirement Plan for Nonemployee Directors. These directors receive discretionary annual option grants covering 2,500 shares of OMNOVA common stock. These restricted share and option grants are made under the OMNOVA Solutions Amended and Restated 1999 Equity and Performance Incentive Plan.
Dividends, if any, on restricted shares are automatically reinvested through the Companys dividend reinvestment program unless a director chooses otherwise. All shares may be voted, but ownership may not be transferred until service on the OMNOVA Solutions Board terminates.
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Each nonemployee director who was a nonemployee director prior to February 2, 2000 and who terminates his or her service on the Board after at least sixty months of service (including service on the Board of Directors of GenCorp Inc., prior to the spin-off of OMNOVA Solutions in October 1999) will receive an annual retirement benefit equal to the retainer in effect on the date the directors service terminates or participation was frozen, payable in monthly installments, until the number of monthly payments made equals the lesser of (a) the individuals months of applicable service as a director or (b) 120 monthly payments. In the event of death prior to payment of the applicable number of installments, the aggregate amount of unpaid monthly installments will be paid, in a lump sum, to the retired directors surviving spouse or other designated beneficiary, if any, or to the retired directors estate. For those nonemployee directors who elected to freeze their participation in the retirement plan, their benefits were fully vested as of February 2, 2000, at which time they ceased to accrue additional benefits. As noted previously, the Retirement Plan for Nonemployee Directors is no longer available for nonemployee directors whose service as a director commences after February 2, 2000.
Under the Boards retirement policy, a director will not be nominated for reelection to the Board following his or her seventieth birthday.
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Number of Shares of | Percent of Outstanding | |||||||||||
Common Stock | Phantom | Shares of Common | ||||||||||
Name | Beneficially Owned(1) | Share Units(2) | Stock(3) | |||||||||
Edward P. Campbell
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7,517 | 9,426 | * | |||||||||
David A. Daberko
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12,388 | (4) | 33,232 | * | ||||||||
David J. DAntoni
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4,250 | (4) | 2,984 | * | ||||||||
Diane E. McGarry
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12,468 | (4) | 6,580 | * | ||||||||
Steven W. Percy
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11,720 | (4) | 61,738 | * | ||||||||
R. Byron Pipes
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3,317 | 4,510 | * | |||||||||
William R. Seelbach
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5,625 | (4) | 5,868 | * | ||||||||
Kevin M. McMullen
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1,116,856 | (4), (5) | N/A | 2.7 | % | |||||||
Michael E. Hicks
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260,604 | (4), (5) | N/A | * | ||||||||
James J. Hohman
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217,355 | (4), (5) | N/A | * | ||||||||
James C. LeMay
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196,989 | (4), (5) | N/A | * | ||||||||
Robert H. Coleman
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20,515 | (4), (5) | N/A | * | ||||||||
Directors and Officers as a group
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2,257,493 | (4) | 124,338 | 5.6 | % |
* | Less than 1%. |
(1) | Except as otherwise indicated below, beneficial ownership means the sole power to vote and dispose of shares. |
(2) | This column shows phantom units of OMNOVA Solutions common stock that have been credited under the OMNOVA Solutions Deferred Compensation Plan for Nonemployee Directors. |
(3) | Calculated using 40,687,229 shares as the number of outstanding shares. |
(4) | Includes shares subject to stock options which may be exercised within 60 days of January 14, 2005 as follows: Mr. Daberko, 7,500 shares; Mr. DAntoni, 1,250 shares; Ms. McGarry, 10,625 shares; Mr. Percy, 10,625 shares; Mr. Seelbach, 5,625 shares; Mr. McMullen, 1,061,617 shares; Mr. Hicks, 211,941 shares; Mr. Hohman, 174,676 shares; Mr. LeMay, 157,424 shares; Mr. Coleman, 11,250 shares; and all directors and executive officers as a group, 1,977,739 shares. |
(5) | Includes the approximate number of shares credited to the individuals account as of January 14, 2005 under the OMNOVA Solutions Retirement Savings Plan. |
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Number of Shares of | Percent of | |||||||
Common Stock | Outstanding Shares | |||||||
Name | Beneficially Owned | of Common Stock | ||||||
The Baupost Group, L.L.C.
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6,137,660 | (1) | 15.1 | % | ||||
10 St. James Avenue Suite 2000 Boston, MA 02116 |
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Gabelli Asset Management Inc., et al
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4,903,341 | (2) | 12.1 | % | ||||
One Corporate Center Rye, NY 10580 |
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Putnam Investment Management, LLC
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3,489,860 | (3) | 8.6 | % | ||||
One Post Office Square Boston, MA 02109 |
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State Street Research & Management
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3,412,720 | (4) | 8.4 | % | ||||
One Financial Center Boston, MA 00211-2690 |
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FMR Corp.
|
2,950,080 | (5) | 7.3 | % | ||||
82 Devonshire Street Boston, MA 02109 |
||||||||
Reich & Tang Asset Management
|
2,277,300 | (6) | 5.6 | % | ||||
600 Fifth Avenue, 8th Floor New York, NY 10020 |
||||||||
OMNOVA Solutions Retirement Savings Plan
|
2,140,608 | (7) | 5.3 | % | ||||
175 Ghent Road Fairlawn, Ohio 44333 |
(1) | Pursuant to a Schedule 13F-HR filed with the Securities and Exchange Commission on November 12, 2004, The Baupost Group, L.L.C. reported that, as of September 30, 2004, it had sole voting and dispositive power over 6,137,660 shares. |
(2) | Pursuant to a Schedule 13F-HR filed with the Securities and Exchange Commission on November 15, 2004, Gabelli Asset Management Inc., et al, reported that, as of September 30, 2004, Gabelli Funds, LLC had sole investment discretion and voting power over 1,231,300 shares, and Gabelli Asset Management Company shared with certain affiliated entities investment discretion over 3,672,041 shares, with respect to which Gabelli Asset Management Company held sole voting power over 3,548,041 shares, shared voting power over 4,000 shares and held no voting power over 120,000 shares. |
(3) | Pursuant to a Schedule 13F-HR/ A filed with the Securities and Exchange Commission on November 16, 2004, Putnam, LLC reported that, as of September 30, 2004, it shared investment discretion with its affiliate, The Putnam Advisory Company, LLC, over 1,176,760 shares, of which Putnam, LLC had sole voting power over 975,040 shares and no voting power over 201,720 shares; and that it shared investment discretion with its affiliate, Putnam Investment Management, LLC, over 2,313,100 shares, over which Putnam, LLC had no voting power. |
(4) | Pursuant to a Schedule 13G/A filed with the Securities and Exchange Commission on January 27, 2005, State Street Research & Management Co. reported that, as of December 31, 2004, it had investment discretion and voting power over 3,412,720 shares. |
(5) | Pursuant to a Schedule 13F-HR filed with the Securities and Exchange Commission on November 15, 2004, FMR Corp. reported that, as of September 30, 2004, it shared investment discretion with its affiliated entities, Fidelity Management & Research Company and FMR Co., Inc., over 2,674,180 shares, over which it holds no voting power; and that it shared investment discretion with its affiliated entity, Fidelity Management Trust Company, over 275,900 shares, with respect to which it holds sole voting power. |
(6) | Pursuant to a Schedule 13F-HR filed with the Securities and Exchange Commission on November 12, 2004, Reich & Tang Asset Management L.P. reported that, as of September 30, 2004, it shared with certain affiliated entities investment discretion and voting power over 2,277,300 shares. |
(7) | National City Bank, 1900 East Ninth Street, Cleveland, OH 44101 serves as Trustee of the OMNOVA Solutions Retirement Savings Plan. National City reports that, as of January 14, 2005, the Plan held 2,140,608 shares. National City disclaims beneficial ownership of these shares as it does not retain discretionary authority to buy, sell or vote the shares. |
14
Annual Compensation | Long Term Compensation | |||||||||||||||||||||||||||||||
Awards | Payouts | |||||||||||||||||||||||||||||||
Restricted | Securities | |||||||||||||||||||||||||||||||
Stock | Underlying | LTIP | All Other | |||||||||||||||||||||||||||||
Salary(1) | Bonus | Other | Awards(2) | Options/SARs | Payouts | Compensation(3) | ||||||||||||||||||||||||||
Name | Year | ($) | ($) | ($) | ($) | (#) | ($) | ($) | ||||||||||||||||||||||||
Kevin M. McMullen
|
2004 | 568,000 | | | 120,549 | 50,000 | | 26,452 | ||||||||||||||||||||||||
Chairman, Chief Executive
|
2003 | 568,000 | | | | 240,000 | | 12,862 | ||||||||||||||||||||||||
Officer and President
|
2002 | 568,000 | | | | 215,000 | | 54,828 | ||||||||||||||||||||||||
Michael E. Hicks
|
2004 | 266,800 | | | 53,419 | | | 5,660 | ||||||||||||||||||||||||
Senior Vice President and
|
2003 | 251,700 | | | | 45,000 | | 1,043 | ||||||||||||||||||||||||
Chief Financial Officer; Treasurer
|
2002 | 251,700 | | | | 38,000 | | 14,090 | ||||||||||||||||||||||||
James J. Hohman
|
2004 | 239,295 | | | 47,914 | | | 6,635 | ||||||||||||||||||||||||
Vice President; President,
|
2003 | 225,750 | | | | 45,000 | | 1,174 | ||||||||||||||||||||||||
Performance Chemicals
|
2002 | 225,750 | | | | 40,000 | | 16,038 | ||||||||||||||||||||||||
James C. LeMay
|
2004 | 234,635 | | | 48,115 | | | 6,240 | ||||||||||||||||||||||||
Senior Vice President,
|
2003 | 226,700 | | | | 45,000 | | 943 | ||||||||||||||||||||||||
Business Development;
|
2002 | 226,700 | | | | 38,000 | | 13,002 | ||||||||||||||||||||||||
General Counsel
|
||||||||||||||||||||||||||||||||
Robert H. Coleman
|
2004 | 231,750 | | | 47,755 | | | 6,240 | ||||||||||||||||||||||||
President, Decorative Products
|
2003 | 225,000 | | | | 22,500 | | 39 |
(1) | Salary reported for each year reflects the salary in effect for each of the named executive officers on November 30th, the last day of the Companys fiscal year. Actual salary earned during the years reported may be less due to the timing of salary increases, if any, in a particular year and the Companys pay cycles. |
With respect to Mr. Colemans 2003 salary, Mr. Coleman joined the Company on July 28, 2003. Actual salary paid to Mr. Coleman in fiscal 2003 was $77,885. |
(2) | The values reported in the Summary Compensation Table for restricted stock were calculated by multiplying the number of shares awarded by $5.90, the closing price per share of OMNOVA Common Stock on the New York Stock Exchange on July 9, 2004, the date of grant. On that date, the named executive officers were granted restricted shares of OMNOVA Common Stock in the following amounts: Mr. McMullen 20,432 shares; Mr. Hicks 9,054 shares; Mr. Hohman 8,121 shares; Mr. LeMay 8,155 shares; and Mr. Coleman 8,094 shares. These restricted shares vest in two installments, with restrictions on one-half of the shares lapsing on July 9, 2005 and restrictions on the remainder of the shares lapsing on July 9, 2006. |
The agreements pursuant to which these restricted shares were awarded provide that, during the restriction period, the executive shall have the right to vote the shares and to receive all dividends and other distributions, if any, paid with respect to the shares. | |
The total number of restricted shares of OMNOVA Common Stock held by each of the named executive officers and their respective values at November 30, 2004, based on the closing price per share of OMNOVA Common Stock on the New York Stock Exchange on that date of $5.71 were: Mr. McMullen 20,432 shares with an aggregate value of $116,667; Mr. Hicks 9,054 shares with an aggregate value of $51,698; Mr. Hohman 8,121 shares with an aggregate value of $46,371; Mr. LeMay 8,155 shares with an aggregate value of $46,565; and Mr. Coleman 8,094 shares with an aggregate value of $46,217. |
(3) | Includes Company contributions to the executives account in the OMNOVA Solutions Retirement Savings Plan and, where applicable, the amount credited to the executives account in the OMNOVA Solutions Benefits Restoration Plan, a nonfunded plan which restores to the individuals account amounts otherwise excluded due to limitations imposed by the Internal Revenue Code on contributions and includable compensation under qualified plans. Amounts contributed or credited during fiscal 2004 were: Mr. McMullen, $15,729; Mr. Hicks, $5,570; Mr. Hohman, $6,377; Mr. LeMay, $6,150; and Mr. Coleman, $6,150. |
Also includes income imputed to the executives for company paid life insurance as follows: Mr. McMullen, $10,723; Mr. Hicks, $90; Mr. Hohman, $258; Mr. LeMay, $90; and Mr. Coleman, $90. |
15
Potential Realizable | ||||||||||||||||||||||||
Individual Grants | Value at Assumed | |||||||||||||||||||||||
Annual Rates of Stock | ||||||||||||||||||||||||
Number of | Percent of Total | Price Appreciation for | ||||||||||||||||||||||
Securities | Options/SARs | Option Term (Ten | ||||||||||||||||||||||
Underlying | Granted to | Exercise or | Years)(3), (4) | |||||||||||||||||||||
Option/SARs | Employees in | Base Price | Expiration | |||||||||||||||||||||
Name | Granted(#)(1) | Fiscal Year | ($/Share)(2) | Date | 5%($) | 10%($) | ||||||||||||||||||
Kevin M. McMullen
|
50,000 | 64.1% | $ | 5.90 | 7/9/2014 | 185,524 | 470,154 | |||||||||||||||||
Michael E. Hicks
|
| N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||
James J. Hohman
|
| N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||
James C. LeMay
|
| N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||
Robert H. Coleman
|
| N/A | N/A | N/A | N/A | N/A |
(1) | Non-qualified stock options granted pursuant to the OMNOVA Solutions Amended and Restated 1999 Equity and Performance Incentive Plan for the number of shares of OMNOVA common stock indicated. No stock appreciation rights were granted in 2004. Options granted become exercisable in 25% increments on January 6, 2005, and July 9, 2005, 2006 and 2007. See Other Compensation Arrangements on page 19 for additional terms concerning the options granted to Mr. McMullen. |
(2) | Exercise price equals the closing market price of OMNOVA common stock on the date of grant on the New York Stock Exchange. |
(3) | The 5% and 10% appreciation over 10 years option valuation method assumes a stock price of $9.61 and $15.30, respectively, at July 9, 2014. |
(4) | The potential realizable values are shown in the table in conformity with Securities and Exchange Commission regulations and are not intended to forecast possible future appreciation. The Company is not aware of any formula that will predict with reasonable accuracy the future appreciation of equity securities. No benefit can be realized by optionees without an appreciation in stock price, which will benefit all shareholders commensurately. |
Number of Securities | ||||||||||||||||
Underlying Unexercised | Value of Unexercised | |||||||||||||||
Options/SARs at | In-the-Money Options/SARs at | |||||||||||||||
Fiscal Year End (#)(1) | Fiscal Year End ($) | |||||||||||||||
Name | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||
Kevin M. McMullen
|
935,367 | 223,750 | 414,700 | 187,200 | ||||||||||||
Michael E. Hicks
|
191,191 | 32,000 | 37,882 | 35,100 | ||||||||||||
James J. Hohman
|
153,426 | 32,500 | 35,100 | 35,100 | ||||||||||||
James C. LeMay
|
136,674 | 32,000 | 35,398 | 35,100 | ||||||||||||
Robert H. Coleman
|
11,250 | 11,250 | 18,113 | 18,113 |
(1) | No SARs have been issued under the OMNOVA Solutions Amended and Restated 1999 Equity and Performance Incentive Plan. No stock options were exercised by the executive officers listed in the table during fiscal 2004. |
16
Estimated Future Payouts Under | ||||||||||||||||||||
Non-Stock Price-Based Plans(2), (3) | ||||||||||||||||||||
Number of Shares, | Performance or Other | |||||||||||||||||||
Units or Other | Period Until | Threshold | Target | Maximum | ||||||||||||||||
Name | Rights | Maturation or Payout | ($) | ($) | ($) | |||||||||||||||
Kevin M. McMullen
|
(1 | ) | 2 years | 85,200 | 170,400 | 340,800 | ||||||||||||||
Michael E. Hicks
|
(1 | ) | 2 years | 26,680 | 53,360 | 106,720 | ||||||||||||||
James J. Hohman
|
(1 | ) | 2 years | 23,930 | 47,859 | 95,718 | ||||||||||||||
James C. LeMay
|
(1 | ) | 2 years | 23,464 | 46,927 | 93,854 | ||||||||||||||
Robert H. Coleman
|
(1 | ) | 2 years | 23,175 | 46,350 | 92,700 |
(1) | Indicates awards under the OMNOVA Long-Term Incentive Program which provides participants the opportunity for a payout at the end of the performance period if specified performance goals are achieved. In March 2004, the Compensation and Corporate Governance Committee of the Board of Directors approved a long-term incentive program for the 2004-2005 performance period, pursuant to which key employees designated by the Committee would be eligible to receive incentive payments equal to certain specified percentages of average annual compensation (salary and bonus paid under the Companys Executive Incentive Compensation Program) upon attainment of specified threshold, target or maximum levels of cumulative earnings per share targets (performance goals) over the two-year 2004-2005 performance period. Additionally, the 2004-2005 long-term incentive program includes a retention feature, which provides for a payout at the threshold level if the participant continues employment with the Company through the performance period and at the date of payout. |
(2) | Percentages of average annual compensation payable to participants upon attainment of performance goals for the 2004-2005 performance period are as follows: |
Threshold | Target | Maximum | ||||||||||
Chairman and Chief Executive Officer
|
15 | % | 30 | % | 60 | % | ||||||
All other Participants
|
10 | % | 20 | % | 40 | % |
(3) | For purposes of the table above, estimated future payouts for the 2004-2005 performance period were calculated on the basis of the participants 2004 fiscal year salary and bonus shown in the Summary Compensation Table on page 15. |
17
Approximate | ||||||||
Years of Credited | Estimated Annual | |||||||
Service at Normal | Benefits Payable at | |||||||
Name | Retirement | Normal Retirement(1) | ||||||
Kevin M. McMullen
|
29 | $ | 312,654 | |||||
Michael E. Hicks
|
45 | $ | 217,516 | |||||
James J. Hohman
|
17 | $ | 77,513 | |||||
James C. LeMay
|
31 | $ | 127,302 | |||||
Robert H. Coleman
|
17 | $ | 72,735 |
(1) | Retirement benefits shown in the table for Messrs. McMullen, Hicks, Hohman, LeMay and Coleman were calculated pursuant to the terms of the OMNOVA Solutions Consolidated Pension Plan. There is no offset for Social Security payments. |
The benefits shown for Messrs. McMullen, Hicks, Hohman, LeMay and Coleman are estimated and have not been adjusted for any survivor option. Each estimated benefit is based upon the assumption that the executive will remain an employee until age 65 at a rate of compensation equivalent to that in effect on December 1, 2004 and that the pension plan under which the estimated benefit is calculated will remain unchanged. | |
Benefits for Messrs. McMullen, Hicks, Hohman, LeMay and Coleman have been determined by a formula which provides for a benefit (A) for years of service prior to December 1, 2004 of (i) 1.125% of average compensation up to the average Social Security wage base (ASSWB) plus 1.5% of average compensation in excess of the ASSWB multiplied by the total of such years of service up to 35 years and (ii) 1.5% of average compensation multiplied by the total years of service in excess of 35 years, and (B) for each year of service after December 1, 2004 (i) prior to attainment of 35 years of service, 1.625% of annual compensation up to the ASSWB plus 2.0% of annual compensation in excess of the ASSWB, and (ii) after attainment of 35 years of service, 2.0% of annual compensation. | |
The benefits shown in the table have not been reduced to reflect the limitation on includable compensation or the overall benefit limitation imposed on pension plans qualified under Section 401(a) of the Internal Revenue Code since the amount of any of those reductions will be restored to the individual pursuant to the terms of the OMNOVA Solutions Benefits Restoration Plan, a nonfunded plan with benefits payable out of the general assets of OMNOVA Solutions. |
18
OTHER COMPENSATION ARRANGEMENTS
In December 2000, the Board of Directors approved the terms of an employment agreement with Kevin M. McMullen regarding his service as Chief Executive Officer and Chairman, providing for (i) 2001 base annual salary in the amount of $550,000; (ii) annual incentive opportunity in an amount equal to 125% of base salary; (iii) long-term incentive opportunity in an amount equal to 30% of average annual compensation during each performance period; (iv) options for 200,000 shares of OMNOVA stock upon his election as Chief Executive Officer and options for 150,000 shares as an annual grant for the 2001 fiscal year; (v) country club membership; (vi) financial planning; (vii) participation in the Companys executive physical program; and (viii) company-paid supplemental life insurance in the amount of $4,000,000. The employment agreement also provides that, in the event the Company terminates Mr. McMullens employment other than for cause prior to age 65 or if Mr. McMullen elects to terminate his employment due to the Boards decision to remove him as Chairman or Chief Executive Officer, he will be entitled to (a) termination pay in an amount equal to two times the sum of (1) base annual salary and (2) the higher of his base annual salary or the highest year-end bonus which he received in the previous three fiscal years; and (b) accelerated vesting of all unvested stock options and continued exercisability of all options for the remainder of their respective 10-year terms.
In July 2000, the Compensation and Corporate Governance Committee (formerly the Organization & Compensation Committee) of the Board of Directors approved an Executive Separation Policy which provides that the standard involuntary severance arrangements applicable to each of the Companys elected executive officers (other than Mr. McMullen whose employment agreement is described above) in the case of involuntary termination of the executives employment, other than in the event of a change in control or termination for cause, shall consist of: (i) salary continuation for 12 months after the date of termination; (ii) payment of a lump sum bonus equal to the prior years bonus paid, reduced to reflect the percentage of the fiscal year not completed at the time of termination; (iii) medical, dental and life insurance benefit continuation for 12 months at the same levels elected prior to termination; and (iv) outplacement assistance for a period not to exceed 12 months. There are currently five elected executive officers eligible for the benefits set forth in the Executive Separation Policy. The Companys other executive officers are eligible for similar severance benefits pursuant to the terms of their offers of employment.
The Company has also entered into change of control agreements with the Companys six elected executive officers. The change of control agreements provide for a severance payment in an amount equal to the officers base salary plus bonus (as defined in the agreements) multiplied by a factor of 3 if within three years after a change-in-control (as such term is defined in the agreements), the officers employment is terminated (i) by the Company for any reason other than death, disability or cause, or (ii) by the officer following the occurrence of one or more adverse events enumerated in the agreement. The agreements provide for payment of performance awards under the Long-Term Incentive Program, continuation of health and life benefits for 36 months, vesting of accrued retirement benefits, payment of the amount required to cover excise taxes, if any, financial counseling, outplacement and accounting fees and costs of legal representation if required to enforce the agreement. Mr. McMullens agreement includes a requirement that any amount which may become payable under the severance agreement be offset by any amount which may be paid under the individual executives employment agreement as a result of termination of employment due to a change-in-control. Mr. McMullens agreement also provides that (i) for purposes of calculating the severance payment, bonus is defined as no less than 100% of base salary in effect at the time a change-in-control occurs, and (ii) he may terminate his employment for any reason, or without reason, during the 30-day period immediately following the date six months after the occurrence of a change-in-control, with the right to severance compensation under his agreement. The change of control agreements renew annually unless terminated pursuant to their provisions.
19
Executive Compensation Philosophy |
| create and reinforce alignment among the Companys vision, strategies, goals and priorities; | |
| promote the interests of OMNOVA Solutions shareholders; | |
| differentiate compensation based on individual responsibilities and performance as well as an individuals effectiveness in achieving results in a team environment; | |
| properly balance the focus on both short and long-term Company performance; | |
| allow the Company to respond to changes in compensation for similar positions in the competitive marketplace; and | |
| administer the fiscal resources of the organization in a manner designed to achieve the Committees executive compensation philosophy and objectives. |
Annual Review |
20
Executive Compensation Structure |
Annual Compensation |
21
Long-Term Incentive Program |
Stock Options and Restricted Stock Grants |
22
Other Benefits |
23
Mr. McMullen was also a participant in the 2004 OMNOVA Executive Incentive Compensation Program. As CEO, Mr. McMullens maximum bonus opportunity is 125% of base salary. Because earnings per share and operating profit objectives were not achieved, the Committee determined that no incentive bonus would be awarded under the 2004 Executive Incentive Compensation Program to Mr. McMullen or any of the other executive officers.
Mr. McMullen is also a participant in the Companys Long-Term Incentive Program. As previously described, there was no payout pursuant to the 2003-2004 Long-Term Incentive Program. If the performance targets for the 2004-2005 performance period are met, Mr. McMullen will be eligible to receive a payout of 15% if threshold performance is achieved, 30% if target performance is achieved, and 60% if maximum performance is achieved. The 2004-2005 program also includes a retention feature which provides for a minimum payout of 15% to Mr. McMullen if he continues to be employed by the Company through the performance period and at the date of payout.
The Committee believes that Mr. McMullens total compensation, in the aggregate, is market competitive, reasonable and not excessive.
By: |
The Compensation and Corporate Governance
Committee of the Board of Directors David A. Daberko, Chairman David J. DAntoni R. Byron Pipes William R. Seelbach |
24
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return, assuming reinvestment of dividends, of the Companys common stock over the past five fiscal years with the cumulative total return, assuming reinvestment of dividends, of Standard & Poors 500 Composite Stock Price Index and the Standard & Poors Industrial Index over that same period of time.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
* | $100 invested on 11/30/99 in stock or index including reinvestment of dividends. Fiscal year ending November 30. |
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 and the rules promulgated under it require that certain officers, directors and beneficial owners of the Companys equity securities file various reports of transactions effected in OMNOVA Solutions common stock with the Securities and Exchange Commission. The Company has procedures in place to assist these persons in preparing and filing these reports on a timely basis. To the best of the Companys knowledge, all required reports were filed timely.
25
AUDIT COMMITTEE REPORT
No portion of this Audit Committee Report shall be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended (the Securities Act), or the Exchange Act of 1934, as amended (the Exchange Act), through any general statement incorporating by reference in its entirety the Proxy Statement in which this report appears, except to the extent that the Company specifically incorporates this report or a portion of it by reference. In addition, this report shall not be deemed to be filed under either the Securities Act or the Exchange Act.
The Audit Committee oversees the Companys financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the preparation, presentation and integrity of the Companys financial statements, for establishing and maintaining internal control over financial reporting and for assessing the effectiveness of the Companys internal control over financial reporting as of the end of each fiscal year. The Companys independent registered public accounting firm is responsible for planning and carrying out a proper audit of the Companys annual financial statements and the Companys internal control over financial reporting, expressing an opinion as to the conformity of the financial statements with generally accepted accounting principles, and expressing an opinion on managements assessment of the effectiveness of internal controls over financial reporting, and the effectiveness of internal control over financial reporting, based on its audits.
The Committee discussed with the Companys internal auditors and its independent registered public accounting firm the overall scope and plans for their respective audits. The Committee meets with the internal auditors and representatives of the Companys independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Companys internal controls, and the overall quality of the Companys financial reporting.
In fulfilling its oversight responsibilities, the Committee reviewed and discussed the audited financial statements in the Annual Report with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The Committee also reviewed and discussed with representatives of the Companys independent registered public accounting firm their judgments as to the quality, not just the acceptability, of the Companys accounting principles and underlying estimates in its financial statements, and the matters required to be discussed by Statement on Auditing Standards (SAS) No. 61, Communications with Audit Committees, as amended by SAS No. 90, Audit Committee Communications, and as currently in effect. The Committee has received from the independent registered public accounting firm the written disclosures regarding their independence required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, as currently in effect, and has discussed with representatives of the Companys independent registered public accounting firm the firms independence from management and the Company. Finally, the Committee has received written confirmations with respect to non-audit services performed by the independent registered public accounting firm and has considered whether such non-audit services are compatible with maintaining the firms independence.
In addition, the Committee discussed with management their assessment of the effectiveness of the Companys internal controls over financial reporting, and discussed with representatives of the Companys independent registered public accounting firm their opinion as to managements assessment of the effectiveness of the Companys internal controls over financial reporting and their opinion as to the effectiveness of the Companys internal controls over financial reporting. Finally, the Committee discussed with representatives of the Companys independent registered public accounting firm any significant deficiencies in the Companys internal controls over financial reporting identified as a result of the firms audit of the Companys internal controls.
26
By: |
The Audit Committee of the Board of Directors Steven W. Percy, Chairman Edward P. Campbell Diane E. McGarry |
Fiscal Year Ended | Fiscal Year Ended | ||||||||
November 30, 2003 | November 30, 2004 | ||||||||
Audit Fees
|
$ | 898,000 | $ | 1,482,000 | |||||
Audit Related Fees
|
$ | 29,000 | $ | 48,750 | |||||
Tax Fees
|
$ | 296,000 | $ | 108,269 | |||||
All Other Fees
|
| | |||||||
Total
|
$ | 1,223,000 | $ | 1,639,019 |
27
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee annually approves the scope and fees payable for the year end audit, statutory audits and employee benefit plan audits to be performed by the independent registered public accounting firm for the next fiscal year. Management also defines and presents to the Audit Committee specific projects and categories of service, together with the corresponding fee estimates, for which the advance approval of the Audit Committee is requested. The Audit Committee reviews these requests and, if acceptable, pre-approves the engagement of the independent registered public accounting firm for these specific projects and categories of service on a fiscal year basis. On a periodic basis, management reports to the Audit Committee regarding the actual spending for such projects and services compared to the approved amounts. The Audit Committee has delegated to its Chairman the authority to pre-approve the engagement of the independent registered public accounting firm for permitted non-audit services in an aggregate amount of $50,000, provided that the Chairman reports to the Committee at each regularly scheduled meeting the nature and amount of any non-audit services that he has approved pursuant to the delegation of authority. All other services for which the Company desires to engage the independent registered public accounting firm are approved by the Committee in advance of such engagement.
All of the audit and non-audit services provided by Ernst & Young have been approved in accordance with the foregoing policies and procedures.
Appointment of Independent Registered Public Accounting Firm for 2005
Subject to ratification by the shareholders at the March 23, 2005 Annual Meeting, the Audit Committee of the Board of Directors has appointed Ernst & Young LLP as the Companys independent registered public accounting firm to examine the consolidated financial statements of the Company for the fiscal year ending November 30, 2005.
If the Committees appointment is not ratified, or if Ernst & Young LLP declines to act or becomes incapable of action, or if their appointment is discontinued, the Committee will appoint another independent registered public accounting firm whose continued appointment after the next annual meeting of shareholders will be subject to ratification by the shareholders.
Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting to respond to any shareholder questions. They will have an opportunity to make a statement at the meeting if they desire to do so.
Your Board of Directors recommends a vote FOR ratification of the appointment of Ernst & Young LLP as the Companys independent registered public accounting firm. Shares represented by proxy will be voted FOR this proposal, unless you specify a different choice on the accompanying proxy card.
28
Kristine C. Syrvalin | |
Secretary |
29
o | Please specify choices, sign,
date and return in the enclosed
postage paid envelope. |
x
Votes must be indicated (X) in Black or Blue ink. |
||||||||||||||||||||||
FOR | AGAINST | ABSTAIN | ||||||||||||||||||||||
1. | ELECTION OF DIRECTORS TO A THREE-YEAR TERM EXPIRING AT THE 2008 ANNUAL MEETING | 2. | TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2005. | o | o | o | ||||||||||||||||||
FOR o ALL |
WITHHOLD FOR ALL |
o | *EXCEPTIONS | o | 3. | Upon matters incident to the conduct of the meeting and such other business as may properly come before the meeting or any adjournments thereof. | ||||||||||||||||||
Nominees: Edward P.
Cambell, David A. Daberko and William R. Seelbach. (INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the Exceptions box and write that nominees name in the space provided below). |
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*Exceptions | |||||||
To change your address, please mark this box. | o | |||||||||||||||||||||||
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Date | Share Owner sign here | Co-Owner sign here | |||
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4735
February 15, 2005
Dear Shareholder:
Enclosed are OMNOVA Solutions 2004 Annual Report and 2005 Proxy Statement.
Market share gains, recent innovations, product price increases and an improving economy all contributed to strong sales growth for OMNOVA in 2004. Performance Chemicals and Building Products led the way, driving market share gains and taking advantage of significant rebounds in their markets.
While we are encouraged by our top-line growth, we are certainly disappointed by our results from a profitability standpoint. The prolonged and rapid escalation in oil-based raw material costs over $120 million since 2000, with nearly $80 million in 2003 and 2004 alone continued to be a challenge despite excellent work by our associates to increase product prices on several fronts. Our Decorative Products business achieved improved profitability year-over-year, thanks in part to winning some key new accounts and reducing costs, however it operated at a loss as many of its served markets remained depressed. These conditions overshadow some of the solid work by our associates across the Company to fundamentally improve our performance.
I hope you will take the opportunity to read the highlights presented in this Report which underscore our commitment to enhancing shareholder value for the near and longer term.
The 2005 Annual Meeting will be held at 9:00 a.m. on March 23, 2005 at the Hilton Akron-Fairlawn in Fairlawn, Ohio. Details are provided in the enclosed Proxy Statement.
Your vote is important to us. Whether or not you plan to attend the Annual Meeting, please take time to complete and return the attached proxy card.
Thank you for your continued support.
Sincerely,
Kevin McMullen
OMNOVA SOLUTIONS INC.
175 GHENT ROAD FAIRLAWN, OHIO 44333
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JAMES C. LEMAY, KRISTINE C. SYRVALIN and MICHAEL E. HICKS, and each of them, his proxy, with power of substitution, to vote all shares of Common Stock of OMNOVA Solutions Inc. which the undersigned is entitled to vote at the Annual Meeting of Shareholders to be held at 9:00 a.m. on March 23, 2005 at the Hilton Akron-Fairlawn, 3180 West Market Street, Fairlawn, Ohio 44333 and at any adjournments thereof, and appoints the proxyholders to vote as directed below and in accordance with their judgment on matters incident to the conduct of the meeting and any matters of other business referred to in item 3.
The shares represented by this proxy will be voted as directed by the shareholder. If no direction is given when the duly executed proxy is returned, such shares will be voted FOR all nominees in item 1, FOR item 2, and in accordance with the proxyholders judgment on matters incident to the conduct of the meeting and any matters of other business referred to in item 3. The Board of Directors recommends a vote FOR items 1 and 2.
This card also constitutes your voting instructions for any and all shares held of record by the Bank of New York for your account in the Companys Dividend Reinvestment Plan and will be considered to be CONFIDENTIAL VOTING INSTRUCTIONS to the Plan Trustee with respect to Shares held for your account under the OMNOVA Solutions Retirement Savings Plan.
OMNOVA SOLUTIONS INC. P.O. BOX 11104 NEW YORK, N.Y. 10203-0104 |