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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
P.H. Glatfelter Company
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
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Notes:
[LOGO]
P. H. GLATFELTER COMPANY
96 SOUTH GEORGE STREET, SUITE 500
YORK, PENNSYLVANIA 17401
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 24, 2002
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TO THE SHAREHOLDERS:
The 2002 annual meeting of shareholders of P. H. Glatfelter Company will be
held at the Company's Spring Grove mill, 228 South Main Street, Spring Grove,
Pennsylvania, on Wednesday, April 24, 2002 at 10:00 a.m. for the following
purposes:
1. To elect five members of the Board of Directors, one to serve a two-year
term expiring in 2004 and four to serve for full three-year terms
expiring in 2005; and
2. To transact such other business as may properly come before the meeting.
Only holders of record of the Company's common stock at the close of
business on February 27, 2002 will be entitled to notice of and to vote at the
annual meeting.
It is important that your shares be represented and voted at the annual
meeting. Whether or not you currently plan to attend the meeting, please
complete, date and sign the accompanying proxy card and return it promptly in
the enclosed, self-addressed envelope requiring no postage if mailed in the
United States. If you choose, you may still vote in person at the meeting even
though you previously submitted a proxy card.
/s/ M. R. MUELLER
M. R. MUELLER,
Secretary
April 9, 2002
P. H. GLATFELTER COMPANY
PROXY STATEMENT
This proxy statement and the accompanying proxy card are being solicited by
the Board of Directors of P. H. Glatfelter Company (the Company), 96 South
George Street, Suite 500, York, Pennsylvania 17401, in connection with the
2002 annual meeting of shareholders of the Company (the annual meeting or
meeting) to be held on Wednesday, April 24, 2002. This proxy statement and the
accompanying proxy card are being mailed to the Company's shareholders on or
about April 9, 2002.
ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the annual meeting, shareholders will act upon the following matters:
. electing five directors of the Company, one to serve a two-year term
expiring at the Company's 2004 annual meeting, and four to serve for
full three-year terms expiring at the Company's 2005 annual meeting; and
. transacting any other business that may properly be brought before the
meeting.
In addition, the Company's management will report on the Company's business
during the year ended December 31, 2001, and respond to questions from
shareholders.
WHO IS ENTITLED TO VOTE AT THE MEETING?
Only holders of record of the Company's common stock at the close of
business on the record date, February 27, 2002, are entitled to receive notice
of and to vote at the meeting. Each holder of the Company's common stock is
entitled to one vote per share owned of record on all business presented at
the meeting, except that shareholders have cumulative voting rights in
electing directors. Cumulative voting means that each shareholder is entitled
to as many votes in electing directors as is equal to the number of his or her
shares of common stock multiplied by the number of directors to be elected. A
shareholder may cast all such votes for a single nominee or may distribute
them between two or more nominees as he or she sees fit. The persons named in
the accompanying proxy card as proxy holders will vote the shares as
designated by the shareholder, including any exercise of cumulative voting
rights through the distribution of votes among the nominees as indicated on
the proxy card. Absent such designation, the proxy holders will have the right
to vote as they see fit, including the right to vote cumulatively.
HOW DO I VOTE?
If you complete and properly sign the accompanying proxy card and return it
to the Company, it will be voted as you specify. If you are a holder of record
of the Company's common stock on the record date and attend the meeting, you
may deliver your completed proxy card in person or vote in person at the
meeting. The votes will be counted by judges of election appointed by the
Company.
WHAT CONSTITUTES A QUORUM?
A quorum is necessary to permit a particular matter to be considered and
acted upon at the meeting. The presence at the meeting, in person or by proxy,
of shareholders entitled to cast at least a majority of the votes that all
shareholders are entitled to cast on a particular matter will constitute a
quorum for the purposes of such matter. The Company had 42,965,633 shares of
common stock outstanding on the record date.
1
WHAT VOTE IS REQUIRED TO ELECT A DIRECTOR?
The four nominees for election as directors for terms expiring in 2005
receiving the highest number of votes cast, in person or by proxy, by
shareholders entitled to vote thereon and the nominee for election as director
for a term expiring in 2004 receiving the highest number of votes cast, in
person or by proxy, by shareholders entitled to vote thereon, will be elected
to serve on the Board. Votes withheld with respect to the election of a
director will not be voted with respect to such director, although they will
be counted in determining whether there is a quorum. Accordingly, votes
withheld will have no effect on the result of the vote.
HOW DOES DISCRETIONARY VOTING AUTHORITY APPLY?
If you sign and return the accompanying proxy card, but do not make any
selections, you give discretionary authority to the persons named as proxy
holders in the proxy card. Your shares will then be voted as recommended by
the Board of Directors.
WHAT IS THE BOARD'S RECOMMENDATION?
The Board of Directors recommends a vote FOR election of its four nominees
for director, Nicholas DeBenedictis, Patricia Foulkrod, J. Robert Hall and M.
A. Johnson II, for terms expiring in 2005 and FOR election of its nominee for
director, Lee C. Stewart, for a term expiring in 2004.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy card, you may change your
vote at any time before the proxy is exercised by filing with the Company's
Secretary either a notice of revocation or a duly executed proxy bearing a
later date. The powers of the proxy holders to vote your proxy will be revoked
if you attend the meeting in person and request to change your vote, vote in
person or revoke your proxy, although attendance at the meeting will not by
itself revoke a previously granted proxy.
WHO BEARS THE COST OF SOLICITATION OF PROXIES?
The Company bears the cost of preparing, printing, assembling and mailing
this proxy statement and other Board proxy solicitation materials. The Company
will also reimburse brokers and other custodians, nominees and fiduciaries for
their reasonable out-of-pocket expenses for forwarding proxy and solicitation
materials to the owners of the Company's common stock. In addition to the
solicitation of proxies by mail, some of the officers and other employees of
the Company may solicit proxies personally, by telephone and by other means.
These persons receive no special compensation for any solicitation activities.
WHEN ARE SHAREHOLDER PROPOSALS DUE FOR INCLUSION IN PROXY STATEMENT FOR THE
2003 ANNUAL MEETING?
To be included in the proxy statement for the Company's 2003 annual
meeting, shareholder proposals must be submitted in writing to the Company's
Secretary no later than December 10, 2002. If any shareholder proposal is
submitted after February 23, 2003, the proxy holders will be allowed to use
their discretionary voting authority when the proposal is made at the
Company's 2003 annual meeting, without any discussion of the matter in the
proxy statement for that meeting.
WHO ARE THE COMPANY'S AUDITORS?
In accordance with the recommendations of the Company's Audit Committee,
the Board of Directors has not selected an external auditor at the time of the
mailing of this document. The Company is negotiating with Deloitte & Touche
LLP, independent certified public accountants, the terms of an arrangement to
audit the consolidated financial statements of the Company and its
consolidated subsidiaries for the year ending December 31, 2002. Deloitte &
Touche LLP, was the Company's independent auditor in 2001. A representative
2
of Deloitte & Touche is expected to attend the annual meeting, will be given
the opportunity to make a statement if he or she desires to do so and will be
available to respond to appropriate shareholder questions.
WHAT DID THE COMPANY PAY ITS AUDITORS IN 2001?
For the year ended December 31, 2001, the Company paid its principal
independent accounting firm, Deloitte & Touche LLP, the member firms of
Deloitte Touche Tohmatsu, and their respective affiliates (collectively
"Deloitte & Touche"), aggregate fees as follows:
Audit Fees...................................................... $ 471,982
Financial Information Systems Design and Implementation Fees.... 0
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Total Audit Fees.............................................. $ 471,982
==========
Other Fees
- Audit-Related............................................... $ 43,995
- Non Audit-Related........................................... 153,599
- Tax-Related................................................. 1,137,078
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Total Other Fees............................................ $1,334,672
==========
3
ELECTION OF DIRECTORS
Four directors are to be elected at the annual meeting to serve three-year
terms expiring on the date of the Company's 2005 annual meeting and until
their respective successors are elected and qualified, and one director is to
be elected at the annual meeting to serve a two-year term expiring on the date
of the Company's 2004 annual meeting and until his respective successor is
elected and qualified. The Board of Directors proposes that Nicholas
DeBenedictis, Patricia G. Foulkrod, J. Robert Hall, and M. A. Johnson II, be
elected as directors for terms expiring in 2005 and that Lee C. Stewart be
elected as a director for a term expiring in 2004. Nicholas DeBenedictis,
Patricia G. Foulkrod, and M. A. Johnson II, are currently serving as directors
of the Company. J. Robert Hall has been nominated to fill the vacancy created
by the retirement of G. H. Glatfelter. Lee C. Stewart has been nominated to
fill a newly created position on the Board. The nominees have consented to
serve if elected to the Board. If a nominee is unable to serve as a director
at the time of the meeting, an event which the Board does not anticipate, the
persons named in the accompanying proxy card will vote for such substitute
nominee as may be designated by the Board, unless the Board reduces the number
of directors accordingly.
BOARD OF DIRECTORS
The following table sets forth information as to the nominees and the other
persons who are to continue as directors of the Company after the annual
meeting. The offices referred to in the table are offices of the Company
unless otherwise indicated. For information concerning the number of shares of
the Company's common stock owned by each director and all directors and
executive officers as a group as of February 27, 2002, see "Ownership of
Common Stock."
PRINCIPAL OCCUPATION AND
YEAR FIRST BUSINESSES DURING LAST FIVE
ELECTED A YEARS AND CURRENT
NAME AGE DIRECTOR DIRECTORSHIPS
---- --- ---------- ---------------------------
Nominees to be elected for terms expiring in 2005:
Nicholas DeBenedictis....... 56 1995 Chairman, Chief Executive
Officer and Director of
Philadelphia Suburban
Corporation since May 1993.
Mr. DeBenedictis also serves
as a Director of Met Pro
Corp. and Provident Mutual
Life Insurance Company.
Community volunteer since
Patricia G. Foulkrod(1)..... 57 1999 1995.
M. Alanson Johnson II....... 68 1970 Retired since 1993; former
Executive Vice President,
Treasurer and Chief Financial
Officer.
J. Robert Hall.............. 49 -- Chief Executive Officer of
Ardale Enterprises LLC since
1998; President, Lenox
Brands, Lenox from 1996 to
1998. Mr. Hall also serves as
Chairman of PEP Snack Food,
Inc., a holding company for
Wise Foods, Inc., a leading
regional snack food company
and as a Director of Frozen
Specialties, Inc.
Nominee to be elected for a term expiring in 2004:
Lee C. Stewart.............. 53 -- Since June 2001, partner of
Daniel Stewart & Company, a
private investment and equity
bank located in London.
Executive Vice President and
Chief Financial Officer of
Foamex International, Inc.,
from March 2001 to May 2001.
A Vice President of Union
Carbide Corporation from 1996
to 2001. Mr. Stewart is also
a Director of AEP Industries,
Inc. and a member of the
board of directors of
Marsulex, Inc., a Toronto
listed chemical company,
since 2000. He also serves on
the advisory board of
Fletcher International, a
money management firm.
4
PRINCIPAL OCCUPATION AND
YEAR FIRST BUSINESSES DURING LAST FIVE
ELECTED A YEARS AND CURRENT
NAME AGE DIRECTOR DIRECTORSHIPS
---- --- ---------- ---------------------------
Directors continuing for terms expiring in 2004:
Robert P. Newcomer.......... 53 1998 President and Chief Operating
Officer since February 2001;
Executive Vice President from
June 2000 to February 2001;
Executive Vice President and
Chief Financial Officer from
June 1998 to June 2000;
Senior Vice President and
Chief Financial Officer from
October 1995 to June 1998.
Kathleen Dahlberg........... 49 2001 Founder, Open Vision
Partners, a consortium of
business and technical
professionals bringing new
technologies and businesses
to market, and a consultant
to businesses on the
application of new
technologies for business
improvement and process
change since September 2001.
From 1997 to 2001, Vice
President--e-business at BP
Amoco; from 1996 to 1997,
Chief Information Officer and
Vice President Downstream at
BP Amoco.
Directors continuing for terms expiring in 2003:
Robert E. Chappell 57 1989 Chairman and Chief Executive
Officer, Penn Mutual Life
Insurance Company, since
January 1997; President and
Chief Executive Officer, Penn
Mutual Life Insurance
Company, from April 1995 to
December 1996. Mr. Chappell
also serves as Director of
Quaker Chemical Corporation.
George H. Glatfelter II(1) 50 1992 Chairman since April 2000;
Chief Executive Officer since
June 1998; President from
June 1998 to February 2001;
Senior Vice President from
September 1995 to June 1998.
Ronald J. Naples 56 2000 Chairman and Chief Executive
Officer, Quaker Chemical
Corporation, since October
1995.
Richard L. Smoot 61 1994 Regional Chairman, PNC Bank,
National Association,
Philadelphia/South Jersey
markets since December 2000;
President and Chief Executive
Officer, PNC Bank, National
Association, Philadelphia/
South Jersey markets, from
July 1991 to December 2000.
Mr. Smoot also serves as
Director of Philadelphia
Suburban Corporation.
--------
(1) Patricia G. Foulkrod is the first cousin of George H. Glatfelter II.
5
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
HOW OFTEN DID THE BOARD MEET DURING 2001?
The Board of Directors held 9 meetings during 2001, including one retreat
to discuss strategic issues. Each of the incumbent directors attended at least
75% of the aggregate of all meetings of the Board and committees thereof on
which he or she served in 2001.
WHAT COMMITTEES HAS THE BOARD ESTABLISHED?
The standing committees of the Board are the Executive Committee, the Audit
Committee, the Compensation Committee, the Finance Committee, the Nominating
and Corporate Governance Committee and the Employee Benefits Committee. The
members of all of these committees are appointed by the Board. As of the end
of his current term in April 2002, Mr. G. H. Glatfelter will retire from the
Board. Mr. Glatfelter served on the Executive Committee, and the Board will
fill the vacancy created on the Executive Committee by his retirement as it
deems necessary.
Executive Committee. The Executive Committee currently consists of four
members of the Board: G. H. Glatfelter, G. H. Glatfelter II, M. A. Johnson II,
and R. L. Smoot. The Executive Committee has the authority to exercise all of
the powers of the Board of Directors between meetings of the Board, except the
power to amend the Company's by-laws, submit matters to shareholders for
approval, create or fill vacancies on the Board and repeal or modify any prior
action of the Board that by its terms can be repealed or amended only by the
Board. The Executive Committee held no meetings during 2001.
Audit Committee. Until November 2001, the Audit Committee consisted of
three members of the Board: R. E. Chappell, N. DeBenedictis and J. M. Sanzo,
all of whom are independent from the Company and its management as
independence is defined in the New York Stock Exchange's listing standards.
Mr. J. M. Sanzo resigned from the Board at the end of November 2001. For each
of the two meetings following Mr. Sanzo's resignation, the Audit Committee
appointed one director as an ad hoc member of the Audit Committee. For the
first meeting, the ad hoc member was Mr. Naples and for the second meeting it
was Mr. Smoot. Both Mr. Smoot and Mr. Naples meet the requirements of the New
York Stock Exchange Listed Company Manual for Audit Committee members. The
Board will fill the vacancy on the Audit Committee created by Mr. Sanzo's
resignation with one or more independent directors. In accordance with its
written charter, the Audit Committee (i) recommends to the Board of Directors
the independent auditors to be appointed for the Company, (ii) meets with the
independent auditors, the chief internal auditor and corporate officers to
review matters relating to corporate financial reporting and accounting
procedures and policies, adequacy of financial, accounting and operating
controls and the scope of the audits of the independent auditors and internal
auditors, including in the case of the independent auditors, the fees for such
services and (iii) reviews and reports on the results of such audits to the
Board. The Audit Committee held four meetings during 2001.
Compensation Committee. The Compensation Committee currently consists of
five members of the Board: R. E. Chappell, K. Dahlberg, N. DeBenedictis, R. J.
Naples, and R. L. Smoot, none of whom are members of the Company's management.
The responsibilities of the Compensation Committee are described below (see
"Report of Compensation Committee on Executive Compensation"). The
Compensation Committee held seven meetings during 2001.
Finance Committee. The Finance Committee currently consists of four members
of the Board: P. G. Foulkrod, G. H. Glatfelter II, M. A. Johnson II, and R. P.
Newcomer. The Finance Committee is responsible for overseeing the Company's
financial affairs and recommending such financial actions and policies,
including those with respect to dividends, as are most appropriate to
accommodate the Company's operating strategies while maintaining its sound
financial condition. The Finance Committee held five meetings during 2001.
Nominating and Corporate Governance Committee. The Nominating and Corporate
Governance Committee currently consists of two members of the Board: G. H.
Glatfelter II and R. L. Smoot. The
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responsibilities of the Nominating and Corporate Governance Committee include
the identification and recruitment of effective candidates for nomination as
directors and officers of the Company and general oversight over corporate
governance issues. The Nominating and Corporate Governance Committee held two
meetings during 2001. The Nominating and Corporate Governance Committee will
consider as nominees for election to the Board persons recommended by the
holders of common stock of the Company. Any shareholder desiring to recommend
a nominee for election at the 2003 annual meeting of shareholders should
submit such nomination in writing to the Secretary of the Company by December
10, 2002.
Employee Benefits Committee. The Employee Benefits Committee currently
consists of two members of the Board, G. H. Glatfelter II and R. P. Newcomer,
and three officers of the Company, G. MacKenzie, J. R. Anke and William T.
Yanavitch. The responsibilities of the Employee Benefits Committee include the
general overview of the provisions of various pension plans of the Company and
periodic review of pension fund performance. The Employee Benefits Committee
is also responsible for administering the Company's various profit sharing and
401(k) savings plans and for conducting a periodic review of profit sharing
and savings plan fund performance. The Employee Benefits Committee held three
meetings during 2001.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee has reviewed and discussed the Company's audited
financial statements with both the Company's management and the Company's
independent auditors, Deloitte & Touche LLP. The Company's management has
advised the Audit Committee that all such audited financial statements were
prepared in accordance with generally accepted accounting principles.
The Audit Committee has discussed with Deloitte & Touche LLP certain
matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees. The Audit Committee has also discussed
with Deloitte & Touche LLP their independence from the Company and its
management. The Audit Committee has received the written disclosures and
letter from Deloitte & Touche LLP required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees, disclosing all
relationships between Deloitte & Touche LLP and its related entities and the
Company. In addition to the information provided by Deloitte & Touche LLP, the
Audit Committee considered the level of non-audit and tax services provided by
Deloitte & Touche LLP in determining that they were independent.
Based on the review and discussions described above, the Audit Committee
has recommended to the Company's Board of Directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2001, for filing with the Securities and
Exchange Commission.
N. DeBenedictis (Chairman)
R. E. Chappell
DIRECTOR COMPENSATION
HOW ARE DIRECTORS COMPENSATED?
Base Compensation. The Company pays non-employee directors an annual
retainer fee of $18,000. The directors receive shares of the Company's common
stock in an amount that equals 2/3 of this fee, with the balance paid in cash.
In addition, the Company pays non-employee directors $1,500 for attendance at
the annual board retreat, $1,000 for every board meeting attended and $1,000
for every committee meeting attended with the exception of back to back
meetings, in which case Committee members are paid $600 per meeting and
chairpersons are paid $700 per meeting. The Company also pays non-employee
committee chairpersons an annual committee-related retainer of $2,500.
7
Deferred Compensation. Pursuant to the Company's Deferred Compensation Plan
for Directors (the plan), every year each director may elect to defer 50%, 75%
or 100% of his or her retainer to be earned in that year and following years.
For each director who participates in the plan, the Company will credit a
deferred fee account with phantom shares of the Company's common stock (stock
units) at such time as the retainer would otherwise have been paid. The number
of stock units credited to a director's deferred account is the quotient of
the amount of the deferred retainer divided by the fair market value of the
Company's common stock on such date. Additional stock units are credited to
each director's account as of each payment date for dividends on the Company's
common stock, based on the number of stock units credited to a director's
account on the record date for such dividends. Once a participant in the plan
ceases to be a member of the Board of Directors, such participant is entitled
to receive an amount in cash equal to the product of the number of stock units
credited to his or her deferred account multiplied by the fair market value of
the Company's common stock, payable in lump sum or in installments.
Options. Each non-employee director receives, on May 1st of each year, non-
qualified stock options to purchase 2,500 shares of common stock of the
Company for a purchase price per share equal to the fair market value per
share of the common stock of the Company on the date such options are granted.
The options vest in full on the first anniversary of the date of the grant and
expire on the earlier of the date on which the optionee ceases to be a member
of the Board of Directors or ten years from the date of the grant; provided,
however, that (i) in the event of the optionee's retirement from the Board,
such options are exercisable until the first to occur of five years from the
date of such retirement or ten years from the date of the grant and (ii) in
the event that an optionee ceases to be a member of the Board by reason of
death or disability, such options are exercisable until the first to occur of
one year from the date of such death or disability or ten years from the date
of the grant.
Benefits. Each non-employee director is covered by the Company's directors
and officers liability insurance as well as the Company's travel accident
insurance.
8
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
of the chief executive officer of the Company and each of the Company's six
other most highly compensated executive officers in 2001, including R. L.
Miller and L. R. Hall, executive officers who resigned as officers on
September 1, 2001, and August 17, 2001, respectively:
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-----------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------- --------------------- -------
RESTRICTED
STOCK SECURITIES LTIP ALL OTHER
NAME AND PRINCIPAL FISCAL OTHER ANNUAL AWARDS UNDERLYING PAYOUTS COMPENSATION
POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION($)(2) ($)(3) OPTIONS(#) ($)(4) ($)(5)
------------------ ------ --------- ----------- ------------------ ---------- ---------- ------- ------------
G. H. Glatfelter II..... 2001 463,596 252,864 -- -- 79,000 49,560 5,250
Chairman and 2000 428,264 313,166 -- -- 92,100 41,332 2,125
Chief Executive Officer 1999 377,580 251,296 -- -- 59,400 74,910 0
R. P. Newcomer.......... 2001 374,988 190,965 -- -- 52,200 49,560 5,125
President and 2000 326,280 188,030 -- -- 50,700 41,322 5,125
Chief Operating Officer 1999 277,884 150,606 -- -- 32,700 74,910 4,825
D. C. Parrini........... 2001 212,696 78,247 -- -- 21,300 0 5,100
Vice President-- 2000 162,954 81,479 -- -- 21,200 0 5,100
Sales and Marketing 1999 140,546 53,075 -- -- 7,600 0 4,800
Robert S. Wood(6)....... 2001 211,802 89,069 -- -- 0 14,489 5,100
Chief Strategy Officer 2000 184,310 96,846 -- -- 24,800 9,997 5,100
1999 145,778 67,914 -- -- 13,700 18,145 4,752
C. M. Smith............. 2001 211,752 89,049 -- -- 10,100 14,489 5,100
Corporate Controller 2000 183,750 96,817 -- -- 24,800 12,114 5,100
1999 144,708 67,515 -- -- 13,700 22,004 4,800
R. L. Miller............ 2001 219,192 86,903 -- -- 0 28,730 5,125
Formerly Vice Presi-
dent-- 2000 212,400 110,217 21,240 -- 24,800 23,991 5,125
Special Projects 1999 180,000 88,200 20,000 -- 16,000 43,382 5,125
Leland R. Hall.......... 2001 225,492 81,005 -- -- 0 24,975 5,125
Formerly Vice Presi-
dent-- 2000 218,496 124,281 -- -- 24,800 20,879 5,125
New Product Development 1999 190,008 98,121 -- -- 16,000 37,717 4,825
--------
(1) Reflects distributions under a broad-based profit sharing plan payable to
all salaried employees and bonuses under the Management Incentive Plan for
executive officers and other senior level employees. For 1999 and 2000,
Mr. Wood deferred $14,646 and $21,087 respectively, and for 2001, Mr. Hall
deferred $32,723 of the listed amounts, as provided for under the
Management Incentive Plan.
(2) Reflects a bonus for foreign services of $20,000 and $21,240 paid to Mr.
Miller for 1999 and 2000, respectively. No executive officer named in the
Summary Compensation Table received personal benefits or perquisites in
excess of the lesser of $50,000 or 10% of his total salary and bonus.
(3) At December 31, 2001, Messrs. Glatfelter, Newcomer, Parrini, Wood, Smith,
Miller and Hall held restricted stock awards in the aggregate of 68,400,
39,441, 12,903, 12,828, 14,858, 14,166 and 14,166 shares of common stock,
respectively. At December 31, 2001, the fair market value of the shares
subject to awards held by Messrs. Glatfelter, Newcomer, Parrini, Wood,
Smith, Miller and Hall was $1,065,672, $614,491, $176,367, $201,029,
$199,860, $220,706 and $220,706, respectively. Restricted stock vests at
the end of the fourth year after it is awarded. An amount equal to the
cash dividends per share paid on the Company's common stock during the
four-year period accrues with respect to each share of restricted stock
and is payable at the end of the four-year period. Further information
concerning restricted stock awarded in 2001 is set forth under "Long-Term
Incentive Plan Awards."
(4) Represents the payout to Messrs. Glatfelter, Newcomer, Wood, Smith, Miller
and Hall for performance shares, which were awarded in 1995, 1996 and
1997, pursuant to the 1992 Key Employee Long-Term Incentive Plan, and had
four-year performance periods ending December 31, 1999, 2000 and 2001,
respectively.
(5) Other compensation reported for 2001 represents (a) matching contributions
under the Company's 401(k) Savings Plan and (b) in the case of Messrs.
Newcomer, Miller and Hall the $25 payable to them as employees at the
Company's Spring Grove mill with service in excess of 25 years.
(6) Mr. Wood will resign as an officer of the Company effective March 31,
2002. See section entitled "Termination of Employment and Change-in-
Control Agreements" for further information.
9
OPTION GRANTS
The following table sets forth information concerning the number of options
granted during 2001 and the value of unexercised options to purchase common
stock held by the named executive officers at December 31, 2001. Under the
terms of the stock options granted during 2001, none of the options are
exercisable until 2003.
OPTION GRANTS IN LAST FISCAL YEAR
NUMBER OF % OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#)(1) DURING 2001 ($/SH)(1) DATE ($)(2)
---- -------------- ------------- --------- ---------- -------------
G. H. Glatfelter II..... 79,000 14.2 15.47 12/17/11 246,085
R. P. Newcomer.......... 52,200 9.4 15.47 12/17/11 162,603
D. C. Parrini........... 21,300 3.8 15.47 12/17/11 66,349
R. S. Wood.............. 0 0 0 -- 0
C. M. Smith............. 10,100 1.8 15.47 12/17/11 31,461
R. L. Miller............ 0 0 0 -- 0
L. R. Hall.............. 0 0 0 -- 0
--------
(1) With respect to Messrs. Glatfelter, Newcomer, Parrini and Smith, the
options were granted on December 18, 2001, and 25% of the total number of
shares becomes exercisable on each January 1 of 2003 through 2006. Upon
retirement, the grantees may exercise these options until the first to
occur of three years from the date of such retirement or December 17,
2011.
(2) The estimated present value at grant date of options granted on December
18, 2001, has been calculated using the Black-Scholes option pricing
model, based upon the following assumptions: estimated time until
exercise--ten years; a risk-free interest rate of 5.57%, representing the
interest rate on a U.S. Government zero-coupon bond on the date of grant
with a remaining term corresponding to the expected life of the options; a
volatility rate of 29.7%; and a dividend yield of 4.58% representing the
current $.70 per share annualized dividends divided by the fair market
value of the common stock on the date of grant. The approach used in
developing the assumptions upon which the Black-Scholes valuation was done
is consistent with the requirements of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation."
10
YEAR-END OPTION VALUES
The following table sets forth information concerning options exercised in
2001 and the value of unexercised options to purchase common stock held by the
named executive officers at December 31, 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED ON FISCAL YEAR END (#) AT FISCAL YEAR END ($)(1)
EXERCISE VALUE ------------------------- -------------------------
NAME (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
G. H. Glatfelter II..... 0 n/a 125,740 252,916 143,952 463,138
R. P. Newcomer.......... 0 n/a 106,477 149,453 79,294 255,962
D. C. Parrini........... 6,240 17,914 0 52,541 0 85,250
R. S. Wood.............. 7,823 24,754 40,267 43,876 7,873 114,161
C. M. Smith............. 0 n/a 50,805 53,976 33,190 115,272
R. L. Miller............ 0 n/a 65,203 47,884 38,816 122,434
L. R. Hall.............. 9,000 32,397 49,058 47,634 9,690 122,929
--------
(1) Value is measured by the difference between the closing price for the
Company's common stock on the New York Stock Exchange on December 31,
2001, and the exercise price of the option.
LONG-TERM INCENTIVE PLAN AWARDS
The following table sets forth information concerning the number of shares
of restricted stock awarded in 2001 under the Company's 1992 Key Employee
Long-Term Incentive Plan.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE BASED
NUMBER OF PERFORMANCE OR PLAN
SHARES, UNITS OTHER PERIOD -----------------------------
OR OTHER UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME RIGHTS (#)(1) OR PAYOUT (2) SHARES(#) SHARES(#) SHARES(#)
---- ------------- ---------------- --------- --------- ---------
G. H. Glatfelter II..... 15,910 4 years -- 15,910 --
R. P. Newcomer.......... 10,520 4 years -- 10,520 --
D. C. Parrini........... 4,290 4 years -- 4,290 --
R. S. Wood.............. 0 -- -- 0 --
C. M. Smith............. 2,030 4 years -- 2,030 --
L. R. Hall.............. 0 -- -- 0 --
R. L. Miller............ 0 -- -- 0 --
--------
(1) Represents restricted stock awarded in 2001 under the 1992 Key Employee
Long-Term Incentive Plan that will vest at the end of four years, subject
to the achievement by the Company of a minimum level of earnings per share
over the four-year period. An amount equal to the cash dividends per share
paid on the Company's common stock during the four-year period shall
accrue with respect to each share of restricted stock and be payable at
the end of the four-year period to the extent a payout is earned. The
restricted stock will be forfeited upon termination of employment during
the four-year period for any reason other than retirement, death or
disability.
(2) Restricted stock will vest on December 31, 2005.
11
EMPLOYEE RETIREMENT PLANS
WHAT EMPLOYEE RETIREMENT PLANS HAS THE COMPANY ESTABLISHED?
Pension Plan. Officers and directors who are full-time employees of the
Company participate in the P. H. Glatfelter Company Retirement Plan for
Salaried Employees (the pension plan). Benefits payable under the pension plan
are based upon years of service and average annual compensation for the five
consecutive calendar years during the ten years preceding the year of
retirement that yield the highest average. Retirement benefits under the
pension plan are not subject to any deduction for Social Security benefits.
Annual compensation for purposes of the pension plan generally includes salary
and bonus as listed in the Summary Compensation Table for the prior year. To
the extent deferral of an award under the Company's Management Incentive Plan
causes a reduction in a participant's pension under the pension plan, a
pension supplement (the MIP adjustment supplement) will be paid from the
Company's Supplemental Management Pension Plan.
Employees of the Spring Grove mill who earned a vested benefit under the
pension plan before May 1, 1970 (grandfathered Spring Grove participants) may
receive a benefit, if greater than the usual benefit, which does not give
effect to years of service and is based on a percentage of the participant's
earnings, as defined in the plan for this purpose, which consist of the sum of
(i) the participant's annual base salary as of the April 30th (or other
effective date for annual compensation adjustments) closest to the retirement
date or, if earlier, the April 30th (or other effective date for annual
compensation adjustments) closest to the participant's 60th birthday and (ii)
the participant's average compensation in excess of annual base salary for the
five year period prior to the year of actual retirement, or, if earlier, the
year in which the employee attains age 60. Annual compensation for such
participants generally means the salary and bonus amounts listed in the
Summary Compensation Table.
The pension plan has been amended to reflect three voluntary early
retirement enhancement programs (the VEREPs) effective in 1998, 1999 and 2000
for certain groups of eligible salaried employees of the Company. Eligible
employees who have elected to participate in one of the VEREPs generally
receive enhanced benefits under the pension plan based on the addition of five
years of credited service and five years of additional age, but not beyond age
65.
Supplemental Executive Retirement Plan. The Company has a Supplemental
Executive Retirement Plan (the SERP) consisting of two benefits, either or
both of which are available to those management and executive employees who
have been selected by the Company's Compensation Committee for participation
therein. The first benefit, known as the restoration pension, provides an
additional pension benefit based on the participant's pension benefit earned
under the terms of the pension plan, which is intended to restore that portion
of the pension plan's benefit which cannot be paid from that plan due to legal
limitations on the compensation and total benefits payable thereunder.
Participants may receive the restoration pension in a single sum or in any
form permitted under the pension plan, as elected by the participant at the
time he or she first becomes a participant.
The second benefit, known as the FAC pension, pays a monthly pension
benefit equal to a designated percentage of the participant's final average
compensation (as defined below), offset by the actuarially equivalent value of
the participant's benefits under the pension plan and certain Company-
sponsored nonqualified defined benefit pension arrangements, including (if
applicable) the restoration pension. The designated percentage is 2%
multiplied by the participant's years of credited service under the pension
plan, but not in excess of 55%. The FAC pension is payable following the
participant's retirement at or after age 62 in the form of a joint and 75%
survivor annuity with the participant's spouse or, if so requested by the
participant and approved by the Company's Compensation Committee, as a single
sum. The FAC pension can also be paid on an early retirement basis as early as
age 55, but reduced by 2.5% for each year by which the early benefit
commencement precedes the participant's attainment of age 62. A survivor
benefit is also payable to the participant's surviving spouse if the
participant dies before his or her benefit commencement date. Final average
compensation means the annualized average of the participant's eligible
compensation for the sixty (60) calendar months immediately preceding his or
her retirement, which generally means the salary and bonus amounts listed in
the Summary Compensation Table.
12
WHAT ARE THE ESTIMATED ANNUAL RETIREMENT BENEFITS OF THE COMPANY'S
EXECUTIVES?
The following table shows the estimated annual retirement benefits, payable
in the form of a joint and 75% survivor annuity beginning at age 62, to those
executives, including Messrs. Glatfelter, Newcomer, Parrini, Wood, Smith, and
Miller, who are eligible for the FAC pension under the SERP. This benefit
consists of the sum of the executive's pension plan benefits and the
additional amount necessary to yield the benefit calculated under the FAC
pension.
PENSION PLAN TABLE
ESTIMATED ANNUAL RETIREMENT BENEFIT BASED ON
AVERAGE ANNUAL YEARS OF SERVICE(1)
(FIVE YEAR) ----------------------------------------------------------------
COMPENSATION ($) 15 20 25 27.5 OR MORE
---------------- ------- ------- ------- ------------
125,000 37,500 50,000 62,500 68,750
150,000 45,000 60,000 75,000 82,500
175,000 52,500 70,000 87,500 96,250
200,000 60,000 80,000 100,000 110,000
250,000 75,000 100,000 125,000 137,500
300,000 90,000 120,000 150,000 165,000
400,000 120,000 160,000 200,000 220,000
500,000 150,000 200,000 250,000 275,000
600,000 180,000 240,000 300,000 330,000
700,000 210,000 280,000 350,000 385,000
800,000 240,000 320,000 400,000 440,000
900,000 270,000 360,000 450,000 495,000
--------
(1) Pension benefit paid as a joint and 75% survivor annuity.
The following executive officers who participate in the pension plan had
the indicated credited years of service at December 31, 2001: G. H. Glatfelter
II: 25 years; R. P. Newcomer: 29 years; R. L. Miller: 34 years; L. R. Hall: 42
years; and R. S. Wood: 21 years.
The foregoing table assumes that the executive is a participant in the FAC
pension under the SERP. Of the named executive officers at December 31, 2001,
Mr. Hall is not eligible for the FAC pension and therefore is entitled to
receive a pension determined under the pension plan, together with, as
applicable, the restoration pension and the MIP adjustment supplement. Mr.
Parrini is a participant in the FAC pension under the SERP, however, at
December 31, 2001, he had not yet fulfilled the 5-year vesting requirement
under the Company's pension plans.
The accrued annual benefits for Mr. Hall under the pension plan, the
restoration pension and the MIP adjustment supplement are $108,003. These
accrued benefits are payable in the form of a single life annuity beginning at
age 65. Mr. Hall also is eligible to receive a 3-year early retirement
supplement (under the Company's Supplemental Management Pension Plan) which is
paid if he retires before attaining age 65 and elects to defer receipt of
benefits under the pension plan until age 65 or, if earlier, until the first
day of the 36th month following his retirement. This benefit pays, for up to
three years, a monthly benefit equal to that calculated under the pension plan
and (if applicable) the restoration pension under the SERP, but with the
addition of up to three years to his age.
TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL AGREEMENTS
WHAT TERMINATION OF EMPLOYMENT CONTRACTS HAS THE COMPANY ENTERED INTO?
The Company has entered into separation agreements with each of Messrs.
Miller, Hall and Wood in connection with their termination of employment
effective February 28, 2002, April 30, 2002, and March 31,
13
2002, respectively. The agreements for Messrs. Miller and Hall essentially
provide for continued employment through to the date of termination and
thereafter standard retiree benefits under the Company's retirement and
pension plans, with the exception that, in the case of Mr. Miller, his FAC
pension and SERP benefit are calculated and paid based on an assumed age of 60
on the termination date. Both individuals will receive all incentive
compensation earned during 2001 under the Company's Management Incentive Plan
and profit sharing program and, with respect to the Long-Term Incentive Plan,
both will receive (in shares or cash) all performance and/or restricted shares
vested as of the termination date and Mr. Hall also will receive the benefit
of a pro rata share of restricted stock awards that remain unvested as of the
termination date.
Under the terms of his severance agreement, Mr. Wood will receive salary
continuation severance for a period of 31 weeks, together with a one-time
payment of $599,000 in lieu of further awards or vesting under the Management
Incentive Plan, profit sharing program, and Long-Term Incentive Plan during
2002 or on account of service in 2002. He also will be reimbursed for certain
costs of outplacement services, an executive development program, relocation
expenses not otherwise covered by a new employer, legal and financial planning
services in connection with the severance agreement, and life and long-term
disability insurance. Mr. Wood will receive an enhanced early retirement
benefit payable on or after age 55 in an amount that approximates his pension
benefit under the Company's Final Average Compensation Plan. He also may
exercise during a 3-year period extending after his termination date all stock
options that are vested as of that date.
WHAT CHANGE-IN-CONTROL ARRANGEMENTS HAS THE COMPANY ENTERED INTO?
The Company has entered into change in control employment agreements with
each of Messrs. Glatfelter, Newcomer, Parrini, Smith and Wood. Under the
agreements, each executive will become entitled to additional payments and
benefits if his employment is terminated under certain conditions within two
years following a change in control (as defined in the agreements) of the
Company during the term of the agreements. Under the agreements, each
executive's employment with the Company will continue for two years from the
date of a change in control. During such period, the executive shall continue
in the position he held prior to the change in control and shall receive
compensation and benefits from the Company at least equal to those paid to him
prior to the change in control.
If, within two years following a change in control, an executive's
employment is terminated by the Company other than for cause, death or
disability or is terminated by the executive for good reason (as defined in
the agreements), he will receive his then current base salary through the date
of termination, plus a lump sum payment, payable within thirty days after the
date of termination, representing certain severance benefits (in lieu of
further salary payments and in lieu of any severance benefits otherwise
payable by the Company). The severance benefits under the agreements consist
of: (i) a prorated bonus for the year in which the date of termination occurs,
on the basis of a target bonus under the Management Incentive Plan and a 7.5%
of base salary profit-sharing bonus; (ii) an amount equal to two times (three
times in the case of Mr. Glatfelter) (a) the executive's base salary (at the
highest rate achieved before the date of termination) plus (b) his annual
bonus for the last full fiscal year before the date of termination; (iii)
continued health, disability and life insurance coverage for two years (three
years in the case of Mr. Glatfelter) at substantially similar levels of
coverage, or at the Company's option payment to the executive of an amount
equal to the Company's cost of providing such benefits; and (iv) full vesting
and payout under all deferred compensation plans.
If an executive's employment is terminated by the Company for cause, death
or disability, or is terminated by the executive (including voluntary
retirement) without good reason, in lieu of the severance benefits above, such
executive will receive a lump sum cash payment of his then current base salary
through the date of termination, together with all compensation and benefits
to which he is entitled under the Company's benefit plans for periods
preceding the date of termination.
The agreements provide that if any payment or benefit to an executive,
whether pursuant to the agreements or otherwise, is subject to the excise tax
imposed by the Internal Revenue Code on "excess parachute
14
payments," then an additional payment will be made to such executive so that
the amount he receives on a net basis will be the same amount that he would
have received absent the applicability of the excise tax.
COMPENSATION COMMITTEE INTERLOCK
AND INSIDER PARTICIPATION
The Compensation Committee currently consists of five members of the Board
of Directors: R. E. Chappell (Chairman), N. DeBenedictis, K. Dahlberg, R. J.
Naples, and R. L. Smoot. No member of this Committee was at any time during
the Company's 2001 fiscal year, or at any other time, an officer or employee
of the Company.
No executive officer of the Company has served on the board of directors or
compensation committee of any other entity that has or has had one or more
executive officers serving as a member of the Company's Board of Directors.
Mr. Smoot has been an officer of a banking institution that has a banking
relationship with the Company and provides general banking services and credit
facilities. See "Certain Relationships and Related Transactions."
REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
WHAT ARE THE RESPONSIBILITIES OF THE COMPANY'S COMPENSATION COMMITTEE?
The Compensation Committee reviews and approves the elements of the
Company's executive compensation program and assesses the effectiveness of the
program as a whole. In accordance with its written charter, the Compensation
Committee's responsibilities include: (i) reviewing annually (A) with the
Company's chief executive officer the job performance of certain senior
corporate officers and (B) the job performance of the Company's chief
executive officer as measured against financial and other objectives and the
Company's achievements as compared to certain other companies in the paper and
forest products industry as well as in the specialty chemicals industry, (ii)
reviewing and establishing the level of salaries and benefits for the chief
executive officer and certain senior corporate officers, including but not
limited to benefits under the Company's long-term incentive plan, profit
sharing plans, defined benefit and contribution plans and other welfare
benefit plans, and (iii) reviewing and approving certain participants in, and
the operating rules for awards under, the Company's Management Incentive Plan.
The Compensation Committee from time to time reviews the Company's entire
executive compensation structure through an examination of compensation
information for comparable companies and certain broader-based data, compiled
by the Company and by compensation and other consulting firms. The comparable
companies are other companies in the paper and forest products industry (both
publicly and privately owned) and companies in the specialty chemicals
industry identified by management, which on an overall basis are most similar
to the Company in relation to size, products and financial and other
characteristics and in certain cases include also general industry and
nondurable manufacturing companies of roughly the same revenue size as the
Company. The companies that comprise the Peer Group in the Stock Performance
Chart below are the Company's industry-based comparable companies. Certain of
the comparable companies are included in the S&P MidCap 400, and therefore are
represented in two indices in the Stock Performance Chart.
WHAT IS THE COMPANY'S PHILOSOPHY REGARDING EXECUTIVE OFFICER COMPENSATION?
The Compensation Committee has generally structured the Company's executive
compensation program (i) to be competitive with compensation programs of
comparable companies to enable the Company to attract, retain and motivate a
highly qualified executive management team, (ii) to provide a significant
portion of variable-based compensation that is contingent upon objectively-
measured performance criteria to align executive officers'
15
interests with those of the Company's shareholders, and (iii) to include
appropriate and flexible design features in such programs which will be
responsive to the peculiarities of the paper industry and to the changing
needs of the Company. The elements of the Company's executive compensation
program are salary and annual incentive compensation comprised of profit
sharing, management incentive compensation and long-term incentive
compensation and other benefits. From time to time the Compensation Committee
solicits the advice of compensation and other consulting firms to evaluate the
Company's executive compensation program in order to ensure that such program
is competitive with compensation programs of comparable companies. In
establishing executive compensation for 2001, the Compensation Committee
considered a competitive market compensation analysis for a broad cross-
section of benchmark management positions throughout the Company, including
all executive officer positions, prepared by the Company's compensation
consultant.
WHAT ARE THE COMPONENTS OF EXECUTIVE COMPENSATION?
Base Salary. The Company's policy is to pay competitive salaries at levels
which are sufficient to attract and retain high caliber individuals based on
the relative value of each position, as measured against comparable companies.
The Compensation Committee assigns each executive position a salary grade with
a base salary range, including a midpoint, based on the base salary level for
similar positions at comparable companies. Ranges are adjusted by the
Compensation Committee periodically and executives are moved to different
salary grades as their job responsibilities change.
Generally, executive officer base salaries are reviewed and approved
annually. Effective June 1, 2001, the salary review cycle for all officers was
aligned with the calendar year and salary adjustments were made in conjunction
with changes in job responsibilities and/or salary grades for certain
executives. The salary for each executive is set by the Compensation Committee
after an assessment of his or her performance and the relation of his or her
salary to the midpoint for the applicable salary range. The factors that were
considered in granting salary increases to executive officers for 2001 were as
follows: (i) the base salaries for most executives were below the midpoint of
their respective salary ranges and below the median base salaries for
positions of similar scope and responsibility at comparable companies, (ii)
the objective of moving base salaries to the midpoint of salary ranges within
a reasonable period of time, and (iii) the Compensation Committee's assessment
of certain senior executive officers' performance as reported by the chief
executive officer.
Profit Sharing Plan. The Company has established a profit sharing plan,
which covers all of its domestic salaried employees. The plan is intended to
incent participants to enhance Company performance by offering them a shared
interest in profits each year, up to a maximum of 15% of base salary.
To establish financial targets for payment of profit sharing awards for
2001, the Compensation Committee established separate profit centers for the
Company's global operations and for each of the domestic facilities. The
Company's senior executives were participants in the global profit center in
2001. The operating rules established by the Compensation Committee for profit
sharing in 2001 provide for awards of up to 15% of base salary depending on
the percentage return on shareholders' equity for the operations included in
the global profit center or, in the case of the domestic facilities' profit
centers, on the individual facility financial performance for the year.
The 2001 financial performance of the Company's global profit center
resulted in profit sharing awards of less than half of the maximum award
attainable under the plan.
Management Incentive Plan. The Compensation Committee establishes
additional incentive bonus opportunities under its Management Incentive Plan,
which are designed to encourage greater efforts on the part of key salaried
employees to increase the profits of the Company. The incentive bonus
opportunities potentially represent a significant portion of total
compensation and are intended to correlate with the financial and other
performance of the Company. The underlying objectives of the Company's
Management Incentive Plan are to assure that incentive bonus awards are at
risk annually, to reward senior executives and key management personnel on the
basis of corporate financial and other results and to provide an incentive
bonus award that is similar to that of comparable companies.
16
To establish financial targets for payment of incentive awards for 2001,
the Compensation Committee established separate profit centers for the
Company's global operations, each of its domestic facilities and its Gernsbach
facility. The Company's senior executives were participants in the global
profit center in 2001. Under the operating rules established by the
Compensation Committee for the Management Incentive Plan for 2001, the
incentive bonus awards for all profit centers were based on the following
weighted factors: (a) return on capital employed, (b) savings under the
Company's cost savings initiative, "DRIVE", (c) specific measurements under
the Company's IMPACT project, and (d) the achievement of certain individually
established performance metrics.
The Compensation Committee established annual maximum, target and minimum
financial objectives to be achieved for each factor of the Management
Incentive Plan. When establishing the return on capital employed objectives,
the Compensation Committee considered the Company's 2001 budget, the Company's
estimated consolidated financial results for 2000 and the actual consolidated
financial results for 1999. When establishing the cost savings under the DRIVE
initiative, the Compensation Committee considered the actual costs of goods
sold for 1999 as the baseline. When establishing the specific measurements
under the Company's IMPACT project, the Compensation Committee considered
whether the key elements designed to accomplish a successful implementation of
the enterprise resource planning system under the IMPACT project were
completed as planned. When establishing the achievement of certain
individually established performance metrics, the Compensation Committee
considered, among others, operating profit and revenue growth for individual
products and the accomplishment of certain other cost savings initiatives.
This methodology is intended to induce management to enhance the
profitability of the Company throughout the full business cycle, and therefore
to provide value to the shareholders of the Company. The Compensation
Committee believes that executive officers should not receive any incentive
bonus if the Company does not achieve annually established minimum financial
objectives. If the minimum financial objectives are achieved, the incentive
award for an executive officer is the sum of the percentages derived from each
of the factors of the Management Incentive Plan multiplied by the midpoint of
the salary range for such officer's salary grade.
For purposes of the Management Incentive Plan, the performance of the
global profit center for 2001 was modestly less than the target objectives but
above the minimum objectives established by the Compensation Committee.
Although the Company's financial performance in 2001 was below budget, the
incentive bonus payments for certain executive officers were slightly higher
in 2001 than in 2000. This is due to the fact that effective January 1, 2001,
the salary ranges for each salary grade were increased across the board and
these senior executives were promoted into higher salary grades during 2001
commensurate with increased responsibilities, causing incentive bonuses for
2001 to be based on salary grades with higher salary range midpoints than for
2000.
Long-Term Incentive Compensation. The Company's Long-Term Incentive Plan
enables the Company to offer key employees equity interests in the Company and
other incentive awards, including performance-based stock incentives. Certain
features of the plan (i.e. stock options, performance shares, performance
units and restricted stock) are similar to long-term incentives offered by
many of the comparable companies. The primary purposes of the plan are to (i)
attract, retain, motivate and reward key employees, (ii) provide target long-
term incentive award opportunities which are competitive with comparable
companies, (iii) assure that the awards issued pursuant to the plan reflect
the cyclical and long-term nature of the paper industry, (iv) enable senior
executives to acquire appropriate levels of equity interest in the Company in
order to increase the alignment of their interests with those of shareholders
and (v) otherwise strengthen the mutuality of interests between key employees
and the Company's shareholders.
In 1995, the Company adopted a long-term incentive program, developed at
the direction of the Compensation Committee by an executive compensation
consulting firm, under which stock options and/or performance shares were
granted annually through January 1998 to key employees. The value of such
awards was based upon the value of awards granted to positions of similar
scope and responsibility within comparable companies. Stock options have an
exercise price equal to the fair market value of the Company's common stock
17
at the time of the grant and generally become exercisable in annual 25%
increments commencing one year after the date of grant. Contingent awards of
performance shares are generally made on the first day of a four-year
performance period. At the end of the four-year performance period, the number
of shares earned is based upon the level of achievement of two factors: return
on average shareholders' equity and pre-tax earnings relative performance. If
the threshold return on average shareholders' equity is not attained, no
shares are earned. Above the threshold goals, the contingent award is reduced
if the target goals are not met and such contingent award is supplemented if
the target goals are exceeded. Payouts of earned performance shares are made
at the discretion of the Committee in cash or in common stock of the Company
at the end of the four-year performance period. The last four-year performance
period under the long-term incentive program ended on December 31, 2001. The
payouts were moderately below the target amounts for such period.
In December 1998, the Compensation Committee revised the long-term
incentive program by making awards of restricted stock in lieu of awards of
performance shares. The grant of stock options continued. In addition, the
grants and awards were made effective the day of the December Compensation
Committee meeting, whereas in prior years such grants and awards were approved
in December, but made effective on January 1 of the following year. Restricted
stock was substituted by the Committee for performance shares because the
Committee viewed restricted stock, subject to future vesting, as simpler, more
understandable and better serving the objective of retaining key senior
executives. Stock options continue to provide the necessary long-term
incentive. In December 2001, the Compensation Committee made stock option
grants and restricted stock awards to executives consistent with the program
instituted in December 1998. The value of the stock option grants and
restricted stock awards made in December 2001 was based on a percentage of the
midpoint of the salary range for each executive. The stock options that were
granted in December 2001 had terms and conditions similar to the stock options
granted effective on December 14, 1999 and December 19, 2000, and 25% of the
total number of shares becomes exercisable on each January 1, 2003 through
2006. Upon retirement, the grantees may exercise these options until the first
to occur of three years from the date of such retirement or the expiration of
the option's exercise period. The restricted stock awards made in December
2001, like the restricted stock awards made in December 1999 and December
2000, are subject to the continued service of the executive for four years,
except in cases of death, disability or retirement, and achievement of a
threshold earnings level established by the Committee.
HOW IS THE COMPANY ADDRESSING INTERNAL REVENUE CODE LIMITS ON DEDUCTIBILITY
OF COMPENSATION?
The Compensation Committee intends that awards made under the Long-Term
Incentive Plan and the Management Incentive Plan will qualify as performance-
based compensation that will be deductible for federal income tax purposes
under Section 162(m) of the Internal Revenue Code.
HOW IS THE COMPANY'S CHIEF EXECUTIVE OFFICER COMPENSATED?
The base salary of George H. Glatfelter II, Chairman and Chief Executive
Officer of the Company, was increased by 10.0%, effective January 1, 2001,
consistent with the goal of advancing his base salary to the mid-point of the
salary range for his salary grade over the next one or two years. In approving
this increase, the Compensation Committee also considered Mr. Glatfelter's
role in guiding the Company as its chief executive during 2000, a period in
which the Company's business and the paper industry in general continued to
experience dramatic changes.
Mr. Glatfelter's annual management incentive bonus award for 2001 was less
than in 2000, reflecting the fact that the performance of the Company's global
profit center for 2001 with respect to the various elements of the Management
Incentive Plan was slightly less than the respective target objectives
established by the Compensation Committee.
18
The Compensation Committee also granted Mr. Glatfelter nonqualified stock
options under the Long-Term Incentive Plan effective December 18, 2001, with a
value intended to approximate 50% of the midpoint of the salary range for Mr.
Glatfelter's salary grade. The remaining 50% consisted of an award of
restricted stock by the Compensation Committee vesting December 31, 2005,
subject to the achievement of a minimum net income level over the four-year
vesting period. The Compensation Committee believes that this form of stock
compensation more closely aligns Mr. Glatfelter's interests with those of the
shareholders of the Company.
R. E. Chappell, Chairman
N. DeBenedictis
K. Dahlberg
R. J. Naples
R. L. Smoot
19
STOCK PERFORMANCE GRAPH
The following chart compares the yearly percentage change in the cumulative
total return on the Company's common stock during the five years ended December
31, 2001 with the cumulative total return on the S&P MidCap 400 Index and the
Company's Peer Group(1). The comparison assumes $100 was invested on
December 31, 1996 in the Company's common stock and in each of the foregoing
indices and assumes reinvestment of dividends.
[PERFORMANCE CHART]
1996 1997 1998 1999 2000 2001
Glatfelter Return % 7.67 -30.49 24.11 -8.85 31.44
Cum $ $100.00 $107.67 $74.84 $92.88 $84.55 $111.27
S&P
MIDCAP 400 Return % 32.25 19.11 14.72 17.50 -0.61
Cum $ $100.00 $132.25 $157.52 $180.71 $212.35 $211.06
Peer Group Return % 4.78 -4.10 29.93 -7.84 3.26
Only Cum $ $100.00 $104.78 $100.48 $130.55 $120.32 $124.24
--------
(1) The Company's Peer Group consists of companies in the same industry as the
Company. The returns of each Company in the Peer Group have been weighted
according to their respective stock market capitalization for purposes of
arriving at the Peer Group average. The members of the Peer Group are as
follows: Bowater, Inc., Chesapeake Corporation, Mead Corporation, Pope and
Talbot, Inc., Potlatch Corporation, Schweitzer-Mauduit International, Inc.,
Wausau Mosinee Paper Mills Corporation, Westvaco Corporation and Willamette
Industries.
20
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Smoot, a director of the Company, was President and Chief Executive
Officer until December 2000, and has been Regional Chairman thereafter, of PNC
Bank, National Association, Philadelphia/South Jersey markets. PNC Bank,
National Association (PNC Bank), an indirect subsidiary of The PNC Financial
Services Group, Inc., has a banking relationship with the Company and provides
general banking services and credit facilities. PNC Bank is one of five
lending institutions under a $200,000,000 Credit Agreement dated December 22,
1997, which was used to finance the Company's acquisition of the Schoeller &
Hoesch specialty paper business. PNC Bank's committed share of this credit
facility is $31,250,000. As of December 31, 2001, the Company's borrowing
under the Credit Agreement was approximately $122,500,000; PNC Bank's portion
of this loan was approximately $19,140,000. All transactions between the
Company and PNC Bank have been made in the ordinary course of business and on
substantially the same terms as those prevailing at the time for comparable
transactions with other persons.
21
OWNERSHIP OF COMMON STOCK
The following table sets forth as of February 27, 2002, (except as
otherwise noted) the holdings of (i) each person who is known by the Company
to own beneficially more than 5% of the common stock of the Company, (ii) each
director, each director nominee and certain executive officers and (iii) all
directors and executive officers of the Company as a group. All stock with
respect to which a person has the right to acquire beneficial ownership within
60 days is considered beneficially owned by that person.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
(NUMBER OF SHARES)
--------------------
VOTING PERCENTAGE
AND/OR OF CLASS
INVESTMENT (IF GREATER
NAME DIRECT(1) POWER(2) THAN 1%)
---- --------- ---------- -----------
Principal Holders
The PNC Financial Services Group, Inc.
(formerly PNC Bank Corp.)............... 0 15,319,181(3) 35.7%
Fifth Ave. & Wood St.
Pittsburgh, Pa.
P. H. Glatfelter Family.................. 0 12,515,174(4) 29.1%
Shareholders' Voting Trust
c/o PNC Bank
1600 Market Street
Philadelphia, Pa.
G. H. Glatfelter......................... 0 3,788,819(5) 8.8%
Spring Grove, Pa.
Dimensional Fund Advisors Inc............ 0 2,472,600(6) 5.8%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Directors, nominees for director and certain officers (other than those listed
above)
R. E. Chappell........................... 2,000 4,500(7) --
N. DeBenedictis.......................... 5,000 4,500(7) --
K. Dahlberg.............................. 0 0 --
P. G. Foulkrod........................... 0 956,645(8) 2.2%
G. H. Glatfelter II...................... 4,777 185,636(9) --
L. R. Hall............................... 401 46,655(10) --
J. R. Hall............................... 0 0 --
M. A. Johnson II......................... 10,544 6,036(7) --
R. L. Miller............................. 1,966 86,972(12) --
R. J. Naples............................. 1,000 0(16) --
R. P. Newcomer........................... 11,513 86,893(13) --
D. C. Parrini............................ 0 1,443 --
C. M. Smith.............................. 2,727 55,946(11) --
R. L. Smoot.............................. 1,500 4,500(7) --
L. C. Stewart............................ 0 0 --
R. S. Wood............................... 233 55,014(14) --
All directors and executive officers as a
group.................................... 44,608 5,365,909(15) 12.5%
--------
(1) Reported in this column are shares held of record.
(2) Does not include shares reported in Direct ownership column. For purposes
of the table, shares of common stock are considered beneficially owned by
a person if such person has or shares voting or investment power with
respect to such stock. As a result, the same security may be beneficially
owned by more than one person and, accordingly, in some cases, the same
shares are listed opposite more than one name in the table. Also includes,
in some cases, shares beneficially held by spouses or minor children, as
to which beneficial ownership is disclaimed.
22
(3) Consists of 9,229,979 shares as to which The PNC Financial Services Group,
Inc. (PNC) has sole voting power; 5,989,336 shares as to which PNC has
shared voting power; 9,461,216 shares as to which PNC has sole investment
power; and 5,535,898 shares as to which PNC has shared investment power.
The amounts specified for shared voting power and shared investment power
both include 89,348 shares held by PNC Bank, National Association (PNC
Bank) as co-trustee with G. H. Glatfelter and 52,476 shares held by PNC
Bank as co-trustee with P. G. Foulkrod. In addition, 12,515,174 shares of
the total amount of shares beneficially held by PNC are deposited in the
voting trust (see footnotes (4) and (8)). All shares beneficially held by
PNC are also considered to be beneficially held by its subsidiary, PNC
Bancorp, Inc., and by PNC Bank, a subsidiary of PNC Bancorp, Inc. All of
the above share amounts are as of December 31, 2001.
(4) Consists of shares beneficially owned as of December 31, 2001, by certain
descendants of Philip H. Glatfelter or the spouses of such descendants,
including shares beneficially owned by P. G. Foulkrod, G. H. Glatfelter
and G. H. Glatfelter II, which were deposited in the P. H. Glatfelter
Family Shareholders' Voting Trust dated July 1, 1993 (the voting trust).
Shares deposited in the voting trust may be withdrawn subject to certain
conditions. Co-trustees for the voting trust are William M. Eyster II,
Katherine G. Costello, Irene G. Fegley, Elizabeth Glatfelter, Susan M.G.
Wilson and PNC Bank. Co-trustees other than PNC Bank each represent a
family group. The shares deposited in the voting trust may be voted only
in accordance with a majority of votes cast by the co-trustees pursuant to
a weighted formula in which (i) each co-trustee (other than PNC Bank) is
entitled to cast such number of votes as is equal to the number of shares
deposited in the voting trust in which members of his or her family group
have an interest and (ii) PNC Bank is entitled to cast such number of
votes as is equal to the number of shares deposited in the voting trust in
which any fiduciary trust, of which PNC Bank is a trustee, and which is
for the benefit of one or more Glatfelter family members, has an interest.
The co-trustees have no dispositive power with regard to the shares
deposited in the voting trust. The voting trust will continue until it is
terminated by the co-trustees or all of the shares deposited in the voting
trust are withdrawn. The address for each of the co-trustees is c/o PNC
Bank, National Association, 1600 Market Street, Philadelphia, Pa.
(5) Includes 4,500 shares subject to currently exercisable options; 89,348
shares held as co-trustee with PNC Bank; 901,161 shares (of which 4,416
shares are also included in the number of shares which he holds as co-
trustee) which G. H. Glatfelter has the right to withdraw from certain
trusts of which PNC Bank is trustee; and 2,793,810 shares which G. H.
Glatfelter has the right, on certain conditions, to purchase from certain
trusts of which PNC Bank is trustee. Except for the 4,500 shares subject
to currently exercisable options and 2,306,178 shares which he has the
right to purchase, all shares beneficially owned by G. H. Glatfelter are
deposited in the voting trust (see footnote (4)). Does not include an
additional 1,500 shares subject to options which will become exercisable
on May 1, 2002.
(6) Represents 2,472,600 shares beneficially owned, as of December 31, 2001,
by Dimensional Fund Advisors Inc. (Dimensional). Dimensional, an
investment advisor registered under Section 203 of the Investment Advisors
Act of 1940, furnishes investment advice to four investment companies
registered under the Investment Company Act of 1940, and serves as
investment manager to certain other commingled group trusts and separate
accounts. These investment companies, trusts and accounts are the "Funds."
In its role as investment adviser or manager, Dimensional possesses voting
and/or investment power over shares that are owned by the Funds. All
2,472,600 shares are owned by the Funds. Dimensional disclaims beneficial
ownership of such shares.
(7) Includes 4,500 shares subject to currently exercisable options. Does not
include an additional 1,500 shares subject to options which will become
exercisable on May 1, 2002.
(8) Includes 3,000 shares subject to currently exercisable options; 1,014
shares held through a self-directed IRA which is beneficially owned by P.
G. Foulkrod's husband; 1,122 shares held in a retirement plan of which P.
G. Foulkrod's husband is trustee; 52,476 shares held as co-trustee; and
899,033 shares which P. G. Foulkrod has the right to withdraw from a trust
of which PNC Bank is trustee. Except for the shares held through the IRA
and the 1,122 shares held in the retirement plan, all shares beneficially
owned by P. G. Foulkrod are deposited in the voting trust (see footnote
(4)). Does not include an additional 1,500 shares subject to options which
will become exercisable on May 1, 2002.
23
(9) Includes 183,914 shares subject to the currently exercisable options and
216 shares which G. H. Glatfelter II has the right to withdraw from
certain trusts of which PNC Bank is trustee and which are subject to the
voting trust (see footnote (4)).
(10) Includes 46,585 shares subject to currently exercisable options.
(11) Includes 53,585 shares subject to currently exercisable options.
(12) Includes 81,910 shares subject to currently exercisable options.
(13) Includes 82,940 shares subject to currently exercisable options.
(14) Includes 54,781 shares subject to currently exercisable options.
(15) Includes 600,643 shares subject to currently exercisable options.
(16) Does not include additional 1,500 shares subject to options, which will
become exercisable on May 1, 2002.
G. H. Glatfelter, the voting trust, The PNC Financial Services Group, Inc.,
PNC Bancorp, Inc. and PNC Bank, National Association may be deemed to be
"control persons" of the Company for purposes of the proxy rules and
regulations of the Securities and Exchange Commission.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Certain officers of the Company, namely Carroll L. Missimer, Peter M.
Yaffee and William T. Yanavitch, each failed to file on a timely basis a Form
3, and Mr. Missimer failed to file on a timely basis a Form 4 covering one
transaction during the Company's most recent fiscal year. Each such individual
filed one Form 5 on February 13, 2002, to report their initial holdings of
Company securities and, in the case of Mr. Missimer, to also report such
transaction.
Nicholas DeBenedictis, a director of the Company, failed to file on a
timely basis one Form 4, covering several transactions, during the Company's
most recent fiscal year. Mr. DeBenedictis filed one Form 4 on January 11,
2001, to report such transactions.
OTHER BUSINESS
As of the date of this proxy statement, the Board of Directors knows of no
business that will be presented for consideration at the annual meeting other
than the items referred to above. If any other matter is properly brought
before the meeting for action by shareholders, which under applicable proxy
regulations need not be included in this proxy statement or which the Board
did not know would be presented a reasonable time before this solicitation,
the persons named in the accompanying proxy will have discretionary authority
to vote proxies with respect to such matter in accordance with their best
judgment.
The 2001 Annual Report of the Company, including the annual report on Form
10-K and financial statements, was mailed with this Proxy Statement. The 2001
Annual Report and Form 10-K are not incorporated in this Proxy Statement by
reference and are not deemed a part of the proxy soliciting material.
/s/ M. R. MUELLER
M. R. MUELLER,
Secretary
April 9, 2002
24
PROXY
P.H. GLATFELTER COMPANY
YORK, PENNSYLVANIA
----------------------------
PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF THE COMPANY FOR THE ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD APRIL 24, 2002.
The undersigned shareholder of P.H. Glatfelter Company hereby appoints Robert E.
Chappell, Ronald J. Naples and Richard L. Smoot and each of them, attorneys and
proxies, with power of substitution in each of them, to vote and act for and on
behalf of the undersigned at the annual meeting of shareholders of the Company
to be held at the Company's Spring Grove mill, 228 South Main Street, Spring
Grove, Pennsylvania, on Wednesday, April 24, 2002, and at all adjornments
thereof, according to the number of shares which the undersigned would be
entitled to vote if then personally present, as indicated hereon, and in their
discretion upon such other business as may come before the meeting, all as set
forth in the notice of the meeting and in the proxy statement furnished
herewith, copies of which have been received by the undersigned; and hereby
ratifies and confirms all that said attorneys and proxies may do or cause to be
done by virtue hereof.
IT IS AGREED THAT UNLESS OTHERWISE MARKED ON THE OTHER SIDE, SAID ATTORNEYS AND
PROXIES ARE APPOINTED WITH AUTHORITY TO VOTE FOR THE ELECTION OF DIRECTORS IN
THEIR DISCRETION.
(PLEASE FILL IN, SIGN AND DATE ON THE OTHER SIDE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE)
(Continued and to be signed on reverse side)
/\ FOLD AND DETACH HERE /\
Please mark
your vote as
indicated in [X]
this example
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE NOMINEES.
---
1. Election of Directors:
VOTE for all VOTE
nominees listed WITHHELD
at right, except as for all nominees
indicated below
[_] [_]
Nominees: Term Expiring in 2005: Term Expiring in 2004:
--------------------- ---------------------
01 Nicholas DeBenedictis 05 Lee C. Stewart
02 Patricia G. Foulkrod
03 M. Alanson Johnson II
04 J. Robert Hall
To withhold authority to vote for any individual nominee, write that nominee's
name in the space below:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
Signature Date Signature (if held jointly) Date
----------- ------ -------- ------
Note: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
/\ FOLD AND DETACH HERE /\