UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. _____)
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/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
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/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Materials Pursuant to Rule 14a-11(c) or Rule 14a-12
EMERSON ELECTRIC CO.
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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)
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NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
[Emerson logo]
St. Louis, Missouri
December 16, 2005
TO THE STOCKHOLDERS OF
EMERSON ELECTRIC CO.:
The Annual Meeting of the Stockholders of Emerson Electric Co. will be
held at the office of the Company, 8000 West Florissant Avenue, St. Louis,
Missouri on Tuesday, February 7, 2006, commencing at 10:00 a.m., at which
meeting only holders of the common stock of record at the close of business
on November 29, 2005, will be entitled to vote, for the following purposes:
1. To elect four Directors;
2. To approve the Emerson Electric Co. 2006 Incentive Shares Plan;
3. To ratify the appointment of our independent registered public
accounting firm;
4. To vote upon the stockholder proposal described in the
accompanying proxy statement, if properly presented at the
meeting; and
5. To transact such other and further business, if any, as lawfully
may be brought before the meeting.
EMERSON ELECTRIC CO.
By /s/ David N Farr
Chairman of the Board,
Chief Executive Officer and
President
/s/ W. Wayne Withers
Secretary
EVEN THOUGH YOU MAY PLAN TO ATTEND THE MEETING IN PERSON, PLEASE VOTE
BY TELEPHONE OR THE INTERNET, OR EXECUTE THE ENCLOSED PROXY CARD AND MAIL
IT PROMPTLY. A RETURN ENVELOPE (WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES) IS ENCLOSED FOR YOUR CONVENIENCE. TELEPHONE AND INTERNET
VOTING INFORMATION IS PROVIDED ON YOUR PROXY CARD. SHOULD YOU ATTEND THE
MEETING IN PERSON, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON.
IMPORTANT
PLEASE NOTE THAT A TICKET IS REQUIRED FOR ADMISSION TO THE MEETING. IF
YOU PLAN TO ATTEND IN PERSON AND ARE A STOCKHOLDER OF RECORD, PLEASE CHECK
THE BOX ON YOUR PROXY CARD AND BRING THE TEAR-OFF ADMISSION TICKET WITH YOU
TO THE MEETING. IF YOUR SHARES ARE HELD BY SOMEONE ELSE (SUCH AS A BROKER)
PLEASE BRING WITH YOU A LETTER FROM THAT FIRM OR AN ACCOUNT STATEMENT
SHOWING YOU WERE A BENEFICIAL HOLDER ON NOVEMBER 29, 2005.
EMERSON ELECTRIC CO.
8000 WEST FLORISSANT AVENUE, ST. LOUIS, MISSOURI 63136
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD FEBRUARY 7, 2006
This proxy statement is furnished to the stockholders of Emerson
Electric Co. in connection with the solicitation of proxies for use at the
Annual Meeting of Stockholders to be held February 7, 2006, and at all
adjournments thereof, for the purposes set forth in the accompanying Notice
of Annual Meeting of Stockholders. This proxy statement and the enclosed
form of proxy are first being mailed to stockholders on or about December
16, 2005.
If you plan to attend and have a disability which requires
accommodation at the meeting, please call 314-553-2197; requests must be
received by January 18, 2006.
REGISTERED STOCKHOLDERS CAN SIMPLIFY THEIR VOTING AND SAVE EMERSON
EXPENSE BY CALLING 1-866-540-5760 AND VOTING BY TELEPHONE, OR VOTING BY
INTERNET ON THE WEBSITE OF OUR TRANSFER AGENT AT www.proxyvoting.com/emr.
Telephone and Internet voting information is provided on your proxy card. A
Control Number, located on the proxy card, is designed to verify your
identity and allow you to vote your shares and confirm that your voting
instructions have been properly recorded.
IF YOU VOTE BY TELEPHONE OR INTERNET, YOU NEED NOT MAIL BACK YOUR PROXY
CARD.
If your shares are held in the name of a bank or broker, follow the
voting instructions on the form you receive from that firm. The
availability of telephone or Internet voting will depend on that firm's
voting processes.
If you choose not to to vote by telephone or Internet, please return
your proxy card, properly signed, and the shares represented will be voted
in accordance with your directions. You can specify your choices by marking
the appropriate boxes on the proxy card. If your proxy card is signed and
returned without specifying choices, the shares will be voted FOR the
nominees in Proposal 1, FOR Proposal 2, FOR Proposal 3, AGAINST Proposal 4,
and otherwise in the discretion of the proxies. The Company knows of no
reason why any of the nominees for Director named herein would be unable to
serve. In the event, however, that any nominee named should, prior to the
election, become unable to serve as a Director, your proxy (unless
designated to the contrary) will be voted for such other person or persons
as the Board of Directors of the Company may recommend.
You may revoke your proxy at any time before it is voted (in the case
of proxy cards) by giving notice to the Secretary of the Company or by
executing and mailing a later-dated proxy. To revoke a proxy or change your
vote by telephone or Internet, you must do so by telephone or Internet,
respectively (following the directions on your proxy card), by twelve
midnight Eastern time on February 6, 2006.
The close of business on November 29, 2005 was fixed by the Board of
Directors as the record date for the determination of stockholders entitled
to vote at the Annual Meeting of Stockholders. As of the record date, there
were outstanding and entitled to be voted at such meeting 411,184,724
shares of our common stock, par value $0.50 per share. The holders of the
common stock will be entitled on each matter to one vote for each share of
common stock held of record on the record date. There is no cumulative
voting with respect to the election of directors.
A copy of the Company's Annual Report to Stockholders for the fiscal
year ended September 30, 2005 accompanies this proxy statement.
This proxy is solicited by the Board of Directors of the Company. The
solicitation will be by mail and the expense thereof will be paid by the
Company. The Company has retained Morrow & Co., Inc. to assist in the
solicitation of proxies at an estimated cost of $7,500 plus expenses. In
addition, solicitation of proxies may be made by telephone by Directors,
officers or regular employees of the Company.
2
I. ELECTION OF DIRECTORS
NOMINEES AND CONTINUING DIRECTORS
The Board of Directors is divided into three classes, with the terms of
office of each class ending in successive years. Four Directors of the
Company are to be elected for terms ending at the Annual Meeting in 2009,
or until their respective successors have been elected and have qualified.
Certain information with respect to the nominees for election as Directors
proposed by the Company, as well as the other Directors whose terms of
office as Directors will continue after the Annual Meeting, is set forth
below.
SHARES OF
EMERSON
SERVED AS COMMON STOCK
NAME, AGE, PRINCIPAL OCCUPATION DIRECTOR BENEFICIALLY
OR POSITION, OTHER DIRECTORSHIPS SINCE OWNED(1)(2)(3)
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NOMINEES FOR TERMS ENDING IN 2009
A. A. Busch III, 68......................................... 1985 31,940(4)
Chairman of the Board of Anheuser-Busch Companies, Inc.,
brewery, container manufacturer and theme park operator
He is also a Director of SBC Communications Inc.
A. F. Golden, 59............................................ 2000 7,612
Partner of Davis Polk & Wardwell, lawyers
V. R. Loucks, Jr., 71....................................... 1979(5) 11,990
Retired Chairman and Chief Executive Officer of Baxter
International Inc.
J. B. Menzer, 54............................................ 2002 4,706
Vice Chairman of Wal-Mart Stores, Inc.
He is also a Director of Wal-Mart de Mexico and The Seiyu,
Ltd. (a Japanese supermarket chain)
TO CONTINUE IN OFFICE UNTIL 2008
D. N. Farr, 50.............................................. 2000 708,823(4)
Chairman of the Board, Chief Executive Officer and
President of Emerson
He is also a Director of Delphi Corp.
D. C. Farrell, 72........................................... 1989 22,141
Retired Chairman and Chief Executive Officer of The May
Department Stores Company
R. B. Horton, 66............................................ 1987 10,852
Executive Chairman of the Sporting Exchange, Ltd., Retired
Chairman of BP p.l.c. and Railtrack Group PLC and
Former Chairman of Chubb plc
C. A. Peters, 50............................................ 2000 270,604
Senior Executive Vice President of Emerson
J. W. Prueher, 63........................................... 2001 4,901
Retired Admiral, U.S. Navy, and Former U.S. Ambassador to
The People's Republic of China
He is also a Director of Merrill Lynch & Company, Inc.,
The New York Life Insurance Company, Dyncorp
International, Inc. and Fluor Corporation
3
SHARES OF
EMERSON
SERVED AS COMMON STOCK
NAME, AGE, PRINCIPAL OCCUPATION DIRECTOR BENEFICIALLY
OR POSITION, OTHER DIRECTORSHIPS SINCE OWNED(1)(2)(3)
-------------------------------- --------- --------------
TO CONTINUE IN OFFICE UNTIL 2007
C. Fernandez G., 39......................................... 2001 14,430
Chairman and Chief Executive Officer of Grupo Modelo, S.A.
de C. V., brewer
He is also a Director of Anheuser-Busch Companies, Inc.
and Grupo Televisa, S.A.
W. J. Galvin, 59............................................ 2000 408,818(4)
Senior Executive Vice President and Chief Financial
Officer of Emerson
He is also a Director of Factory Mutual Insurance Company
G. A. Lodge, 73............................................. 1974 15,940
Retired general partner of InnoCal venture funds
R. L. Ridgway, 70........................................... 1995 9,450
Former Assistant Secretary of State for Europe and Canada
She is also a Director of The Boeing Company, Manpower,
Inc., Sara Lee Corporation and 3M Company and is Trustee
of three funds in the American Family Funds: EuroPacific
Growth Fund, New Perspective Fund and New World Fund
All Directors and Executive Officers as a Group
(17 persons).............................................. 2,475,986(6)(7)
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(1) Beneficial ownership of Emerson common stock is stated as of September
15, 2005, except in the cases of Messrs. Galvin and Withers and one
other executive officer, for whom ownership is stated as of September
26, 2005. Under rules of the Securities and Exchange Commission,
persons who have power to vote or dispose of securities, either alone
or jointly with others, are deemed to be the beneficial owners of such
securities. Each person reflected in the table has both sole voting
power and sole investment power with respect to the shares included in
the table, except as described in the footnotes below and except that
with respect to the following shares the person named has no investment
power: Mr. Farr-240,000; Mr. Berges (who was a director and an
executive officer of the Company and is named in the Summary
Compensation Table)-110,000; Mr. Galvin-68,000; Mr. Peters-42,000; Mr.
Withers (who is also an executive officer of the Company named in the
Summary Compensation Table)-42,000; Mr. Fernandez-4,390; Mr.
Golden-4,584; Mr. Menzer-2,706; Adm. Prueher-3,990; each other
non-management Director-8,340; and all Directors and executive officers
as a group-601,043 shares.
(2) Includes the following shares which such persons have or will have
within 60 days after September 15, 2005 the right to acquire upon the
exercise of employee stock options: Mr. Farr-374,110; Mr.
Berges-400,000; Mr. Galvin-198,333; Mr. Peters-144,338; and Mr.
Withers-112,755. In computing the number of shares beneficially owned
by a person, shares of common stock subject to options held by that
person that are currently exercisable or that are exercisable within 60
days after September 15, 2005 are deemed to be outstanding. Such shares,
however, are not deemed outstanding for the purposes of counting the
percentage ownership of each other person.
(3) No person reflected in the table owns more than 0.5% of the outstanding
shares of Emerson common stock. To the Company's knowledge, no person
or group beneficially owns more than 5% of the Company's common stock.
(4) Includes 34,216 shares held by the spouse and/or children of Mr. Farr;
39,283 shares held by the spouse and/or children of Mr. Berges; and
35,865 shares held by or in trust for the spouse and/or children of Mr.
Galvin, of which Mr. Galvin disclaims beneficial ownership as to 12,339
shares. Includes 60,081 shares and options exercisable with respect to
36,878 of the shares referred to in footnote 2 held by the Galvin
Family Partnership. Includes 600 shares held by Mr. Busch as co-trustee
of a trust, as to which Mr. Busch shares voting and investment power
and disclaims beneficial ownership.
(5) Mr. Loucks previously served as a Director from April 1974 to December
1975.
(6) Includes 1,301,548 shares of common stock which executive officers
have, or will have within 60 days after September 15, 2005 the right to
acquire upon exercise of employee stock options. Shares owned as a
group represent 0.60% of the outstanding common stock of the Company.
The shares issuable upon exercise of options
4
were deemed to be outstanding for purposes of calculating the percentage
of outstanding shares. Such shares, however, are not deemed outstanding
for the purposes of counting the ownership of other persons.
(7) The total includes shares owned by J. G. Berges and W. W. Withers, the
only executive officers of the Company named in the Summary
Compensation Table not otherwise shown individually in this table. Mr.
Berges beneficially owned 667,512 shares and Mr. Withers beneficially
owned 158,156 shares. Also includes 128,111 shares beneficially owned
by other executive officers of the Company.
Each of the nominees and continuing Directors has had the same position or
other executive positions with the same employer during the past five
years, except as follows:
* Sir Robert Horton retired as Chairman of Railtrack Group PLC in July
1999. He was named Deputy Chairman of Chubb plc in September 2002 and
Chairman in December 2002 (both are non-executive positions), and
served as Chairman of Chubb plc, which was acquired by United
Technologies Corp., until November 2003. He was appointed Chairman of
The Sporting Exchange, Ltd. in March 2004 and Executive Chairman in
November 2005.
* Admiral Prueher served as Ambassador to the People's Republic of
China from November 1999 to May 2001. Prior thereto he served as a
Consulting Professor and Senior Advisor to the Stanford-Harvard
Preventive Defense Program and a Senior Fellow at the Center for
Naval Analysis. Admiral Prueher completed 35 years of service in the
United States Navy in May 1999, and was Commander-in-Chief of the
U.S. Pacific Command from 1996 until his retirement.
* Mr. Lodge retired from ICAL2, Inc., a venture capital management
company as of January 1, 2005. Mr. Lodge does retain a limited
partnership interest in that entity. See "Certain Business
Relationships and Transactions" below.
* Mr. Farr was elected as President of Emerson on November 1, 2005,
following the retirement of Mr. Berges.
* Mr. Menzer served as Executive Vice President of Wal-Mart Stores,
Inc. and as President and Chief Executive Officer of Wal-Mart
International from 1999 to 2005.
CERTAIN BUSINESS RELATIONSHIPS AND TRANSACTIONS
Prior to January 1, 2005, G. A. Lodge, a director, was employed by
ICAL2, Inc. ("ICAL") which manages InnoCal II, L.P. ("InnoCal Fund II"), a
$100 million private venture capital fund. Prior to January 1, 2005, Mr.
Lodge received compensation of $100,000 per year from ICAL and had an
indirect limited partnership interest of 0.175% in InnoCal Fund II, and an
interest in the investment gains of InnoCal Fund II of 3.5%. The Company
has invested $7 million and committed to invest an additional $3 million in
InnoCal Fund II. On January 1, 2005, Mr. Lodge retired from ICAL, but
retains his limited partnership interest.
Mr. Golden, a director, is a partner of the law firm of Davis Polk &
Wardwell, which firm the Company retained in fiscal 2005 and expects to
retain in fiscal 2006. The Company is advised that its payments to Davis
Polk & Wardwell constitute less than one-half of one percent of that firm's
revenues.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors has determined that the following of its members
are independent, as that term is defined under the general independence
standards in the listing standards of the New York Stock Exchange: A. A.
Busch III, D. C. Farrell, C. Fernandez G., A. F. Golden, R. B. Horton, G.
A. Lodge, V. R. Loucks, Jr., J. B. Menzer, J. W. Prueher, and R. L.
Ridgway. The Board has adopted its own categorical standards to assist it
in making determinations of director independence. All Directors identified
as independent in this proxy statement meet these standards; a copy of
these standards is attached as Appendix A.
The members of the Board are elected to various committees. The
standing committees of the Board (and the respective chairmen) are:
Executive Committee (Farr), Audit Committee (Busch), Compensation and Human
Resources Committee (Loucks), Corporate Governance and Nominating Committee
(Farrell), Finance Committee (Horton), and Pension Committee (Lodge).
The Audit Committee met five times in fiscal 2005. The members of the
Audit Committee are A. A. Busch III, Chairman, C. Fernandez G., J. B.
Menzer and R. L. Ridgway, all of whom are independent. The functions of the
5
Audit Committee are described under "Report of the Audit Committee" at page
8 below. The Audit Committee operates under a written charter (attached as
Appendix B) adopted by the Board of Directors. The Board has determined
that all of the Audit Committee members are independent, as that term is
defined under the enhanced independence standards for audit committee
members in the Securities Exchange Act of 1934 (the "Exchange Act") and
rules thereunder, as incorporated into the listing standards of the New
York Stock Exchange. The Board has also determined that J. B. Menzer is an
Audit Committee Financial Expert as that term is defined in the rules
issued pursuant to the Sarbanes-Oxley Act of 2002. See the "Report of the
Audit Committee" at page 8 below.
The Compensation and Human Resources Committee discharges the Board's
responsibilities related to compensation of the Company's executives;
administration of the Company's stock option and incentive shares plans;
determining if necessary when service by officers and Directors with
another entity is eligible for indemnification under the Company's Bylaws;
authorizing Company contributions to benefit plans; and adopting and
terminating benefit plans not the prerogative of management. The Committee
met five times in fiscal 2005. The members of the Compensation and Human
Resources Committee are V. R. Loucks, Jr., Chairman, D. C. Farrell, and J.
W. Prueher, all of whom are independent. See the "Report of the
Compensation and Human Resources Committee on Executive Compensation" at
page 9 below.
The Corporate Governance and Nominating Committee reviews the Company's
corporate governance principles and independence standards; oversees the
annual self-evaluation by the Board and its committees; discharges the
Board's responsibilities related to compensation of Directors; identifies
and evaluates individuals for Board and committee membership and chairs;
makes recommendations to the Board concerning the selection of Director
nominees; makes recommendations as to the size and composition of the Board
and its committees; and approves and/or reviews the Company's conflict of
interest policies, codes of ethics, political activities and compliance
with laws and regulations, and oversees management's implementation
thereof. For a description of the process used by the Committee in
evaluating and recommending Director nominees, see "Nomination Process" at
page 7 below. The Corporate Governance and Nominating Committee met six
times in fiscal 2005. The members of the Committee are D. C. Farrell,
Chairman, A. F. Golden, G. A. Lodge, V. R. Loucks, Jr. and R. L. Ridgway,
all of whom are independent.
The Company's Corporate Governance Principles and Practices and the
charters of all Board Committees are available on the Company's Web site at
www.gotoemerson.com, Investor Relations, Corporate Governance. The
foregoing documents are available in print to stockholders upon written
request delivered to Emerson Electric Co., 8000 West Florissant Avenue, St.
Louis, MO 63136, Attn: Secretary.
There were nine meetings of the Board of Directors during fiscal 2005.
All of the Directors attended at least 75% of the meetings of the Board and
committees on which they served. Directors are strongly encouraged to
attend the Annual Meeting of Stockholders unless extenuating circumstances
prevent them from attending, although the Company has no formal, written
policy requiring such attendance. In 2005, all Directors attended the
Annual Meeting of Stockholders, except Ambassador Ridgway, who was absent
due to illness.
The Board of Directors has appointed a Discussion Leader who will chair
meetings of non-management Directors, as provided in the Company's
Corporate Governance Principles and Practices. The Discussion Leader
position will rotate annually among the chairs of each of the independent
Board Committees in the following order: Audit, Pension, Compensation and
Human Resources, Corporate Governance and Nominating, and Finance.
Stockholders and other interested persons may contact the Discussion Leader
in writing c/o Emerson Electric Co., 8000 West Florissant Avenue, St.
Louis, MO 63136, Attn: Secretary. All such letters will be forwarded
promptly to the Discussion Leader.
Stockholders may communicate with any of our Directors by sending a
letter to the Director, c/o Emerson Electric Co., 8000 West Florissant
Avenue, St. Louis, MO 63136, Attn: Secretary. All such letters will be
forwarded promptly to the relevant Director.
DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive any
compensation for service as Directors. Each non-management Director is
currently paid an annual retainer of $140,000, a portion of which is paid
in restricted stock, and fees of $1,500 plus expenses for attendance at
each Board meeting. The percentage of the annual retainer paid in restricted
stock each year is determined by or upon the recommendation of the Corporate
Governance and Nominating Committee. For fiscal 2006, $50,000 of the annual
retainer will be paid in cash on a monthly basis, and
6
$90,000 of the annual retainer will be paid in restricted stock on the date
of the Company's annual meeting to those non-management Directors who are
elected or re-elected at, or who continue in office after, such annual
meeting. Such restricted stock does not vest and cannot be sold until the
Director's retirement or earlier death, disability or a change of control of
the Company. If a Director's tenure on the Board ends for any other reason,
the restrictions will lapse unless it is determined that the participant has
acted in a manner detrimental to the Company or has failed to fulfill his or
her responsibilities in a satisfactory manner. If the restrictions on the
shares do not lapse, such shares will be forfeited to, and acquired at no
cost by, the Company.
Each committee chairman is currently paid an annual retainer of $8,000,
except the chair of the Audit Committee who is paid an annual retainer of
$12,000, and each committee member is paid $1,250 plus expenses for
attendance at each committee meeting.
Directors may elect to defer all or a part of such cash compensation;
such deferred amounts are credited with interest quarterly at the prime
rate charged by Bank of America, N.A. In the alternative, Directors may
elect to have deferred fees converted into units equivalent to shares of
Emerson common stock and their accounts credited with additional units
representing dividend equivalents. All deferred fees are payable only in
cash.
The Company has eliminated its Continuing Compensation Plan for
Non-Management Directors who assumed office on or after June 4, 2002. A
non-employee Director who assumed office prior to June 4, 2002, and who
serves as a Director for at least five years will, after the later of
termination of service as a Director or age 72, receive for life a
percentage of the annual $30,000 cash retainer for Directors in effect on
June 4, 2002. Such percentage is 50% for five years' service and increases
by 10% for each additional year of service to 100% for ten years' or more
service. In the event that service as a covered Director terminates because
of death, the benefit will be paid to the surviving spouse for five years.
In 2005, in conjunction with a regularly scheduled Board meeting, the
Company held an offsite two-day strategy meeting and paid the expenses for
accompanying spouses of non-management directors. The cost of these
expenses, together with the related tax reimbursements, was less than
$10,000 for any director.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's Directors and executive officers are required, pursuant
to Section 16(a) of the Exchange Act, to file statements of beneficial
ownership and changes in beneficial ownership of common stock of the
Company with the Securities and Exchange Commission and the New York Stock
Exchange, and to furnish copies of such statements to the Company. Based
solely on a review of the copies of such statements furnished to the
Company and written representations that no other such statements were
required, the Company believes that during fiscal year 2005 its Directors
and executive officers complied with all such requirements, except that two
gifts made by Mr. Withers to the United Way (each from prior fiscal years)
were reported late.
CODE OF ETHICS
The Company has adopted a Code of Ethics that applies to the Company's
chief executive officer, chief financial officer, chief accounting officer,
and controller; has posted such Code of Ethics on its Web site; and intends
to satisfy the disclosure requirement under Item 5.05 of Form 8-K by
posting such information on its Web site at www.gotoemerson.com, Investor
Relations, Corporate Governance. The Company has adopted a Code of Business
Ethics for Directors, officers and employees, which is available at the
same location on the Company's Web site. Printed copies of the foregoing
documents are available to stockholders upon written request delivered to
Emerson Electric Co., 8000 West Florissant Avenue, St. Louis, MO 63136,
Attn: Secretary.
NOMINATION PROCESS
The Corporate Governance and Nominating Committee regularly reviews the
appropriate size and composition of the Board and anticipates future
vacancies and needs of the Board. In the event the Committee recommends an
increase in the size of the Board or a vacancy occurs, the Committee may
consider nominees from several sources, including current Board members,
management of the Company, director search firms, stockholders or other
persons.
In evaluating possible Director nominees, the Committee considers the
knowledge, experience, integrity and judgment of possible candidates, their
potential contribution to the diversity of backgrounds, experience and
skills of the Board, and their ability to devote sufficient time and effort
to their duties as Directors. The Company's Statement
7
of Corporate Governance Principles and Practices sets forth the minimum
qualifications for Director nominees which include, among other criteria
determined by the Board, senior management experience in business,
government and/or other relevant organizations. Important experience
includes the field of manufacturing, international exposure and Board
membership with major organizations. No Director may be elected, or
re-elected, after attaining the age of 72.
The Committee evaluates Director nominees at regular or special
Committee meetings pursuant to the criteria described above and reviews
qualified Director nominees with the Board. The Committee evaluates
candidates that meet the Director criteria, and the Committee selects
nominees that best suit the Board's current needs and recommends one or
more of such individuals for election to the Board.
The Committee will consider candidates recommended by stockholders
provided the names of such nominees, accompanied by relevant biographical
information, are properly submitted in writing to the Secretary of the
Company in accordance with the manner described for stockholder nominations
in "VI. Stockholders' Proposals" at page 22 below. The Corporate Secretary
will send properly submitted stockholder recommendations to the Committee.
Individuals recommended by stockholders in accordance with these procedures
will receive the same consideration received by individuals identified to
the Committee through other means.
In addition, the Company's Bylaws permit stockholders to nominate
Directors at an annual meeting of stockholders or at a special meeting at
which Directors are to be elected in accordance with the notice of meeting.
The procedures for making such nominations are discussed in "VI.
Stockholders' Proposals" at page 22 below.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee assists the Board in providing oversight of the
systems and procedures relating to the integrity of the Company's financial
statements, the Company's financial reporting process, its systems of
internal accounting and financial controls, the internal audit process, the
annual independent audit process of the Company's annual financial
statements, the Company's compliance with legal and regulatory requirements
and the qualification and independence of the Company's independent
registered public accounting firm. Management has the responsibility for
the implementation of these activities. In fulfilling its oversight
responsibilities, the Committee reviewed and discussed the audited
financial statements in the Annual Report on Form 10-K with management,
including a discussion of the quality and the acceptability of the
Company's financial reporting and controls.
The Company's independent registered public accounting firm is
responsible for expressing an opinion on the conformity of those audited
financial statements with U.S. generally accepted accounting principles and
on management's assessment of the effectiveness of the Company's internal
control over financial reporting. In addition, the independent registered
public accounting firm will express its own opinion on the effectiveness of
the Company's internal control over financial reporting. The Committee
reviewed with the independent registered public accounting firm their
judgments as to the quality and the acceptability of the Company's
financial reporting and such other matters as are required to be discussed
with the Committee under auditing standards of the Public Company
Accounting Oversight Board (United States), including the matters required
to be discussed by Statement on Auditing Standards No. 61, as may be
modified or supplemented. In addition, the Committee has discussed with the
independent registered public accounting firm the firm's independence from
management and the Company, including the impact of non-audit-related
services provided to the Company and the matters in the independent
registered public accounting firm's written disclosures required by
Standard No. 1 of the Independence Standards Board, as may be modified or
supplemented.
The Committee also discussed with the Company's internal auditors and
the independent registered public accounting firm in advance the overall
scope and plans for their respective audits. The Committee meets regularly
with the internal auditor and the independent registered public accounting
firm, with and without management present, to discuss the results of their
examinations, their evaluations of the Company's internal controls, and the
overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, the
Committee recommended to the Board of Directors that the audited financial
statements be included in the Annual Report on Form 10-K for the fiscal
year ended September 30, 2005 for filing with the Securities and Exchange
Commission. The Committee also reappointed the Company's independent
registered public accounting firm for fiscal 2006.
Audit Committee
A. A. Busch III, Chairman J. B. Menzer
C. Fernandez G. R. L. Ridgway
8
FEES PAID TO KPMG LLP
The following are the fees of KPMG LLP, the Company's independent
registered public accounting firm, for services rendered in 2004 and 2005
($ in Millions):
2004 2005
----- -----
Audit Fees.............................................. $11.1 $16.7
Audit-Related Fees...................................... 2.5 2.3
Tax Fees................................................ 3.5 3.0
All Other Fees.......................................... 0 0
----- -----
Total KPMG LLP Fees................................. $17.1 $22.0
===== =====
Audit Fees primarily represent amounts expected to be paid for the
audit of the Company's annual financial statements, reviews of SEC Forms
10-Q and 10-K and statutory audit requirements at certain non-U.S.
locations. The increase in 2005 Audit Fees compared to 2004 was driven
primarily by the additional cost of compliance with audit requirements of
the Sarbanes-Oxley Act that came into effect for the first time in 2005.
Audit-Related Fees are primarily related to audits of employee benefit
plans, acquisition/divestiture due diligence and certification of statutory
filings.
Tax Fees are primarily related to tax compliance services, which
represent $2.8 million and $2.9 million in 2005 and 2004, respectively. The
remaining tax fees represent tax consulting services and represent $0.2
million and $0.6 million in 2005 and 2004, respectively.
The Audit Committee approved in advance all services provided by KPMG
LLP. The Audit Committee's pre-approval policies and procedures are
included within the Audit Committee Charter, which is attached hereto as
Appendix B and incorporated herein by reference.
REPORT OF THE COMPENSATION AND HUMAN RESOURCES COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation and Human Resources Committee, composed of three
independent Directors, establishes and administers the executive
compensation program for the Company's top executives. The program supports
the Company's commitment to enhancing stockholder value. It is designed to
attract and retain high-quality executives, to encourage them to make
career commitments to the Company, and to accomplish the Company's short-
and long-term objectives. The executive compensation program has uniquely
served the Company's stockholders since 1977 by rewarding and motivating
executives for the accomplishment of the Company's objectives. The
executive compensation program is a focused, well-defined management tool
that reinforces the Company's culture and commitment to stockholders.
The Committee has historically viewed compensation as a total package
that includes base salary and variable short- and long-term
(performance-based) compensation. The total program is structured to
deliver a significant percentage of pay through at-risk pay programs which
reward executives if the performance of the Company warrants. Basic
principles underlying the pay programs are the following:
* Maximize stockholder value.
* Retain, reward and motivate key executives.
* Compensate for performance rather than create a sense of entitlement.
* Reward team results.
* Build executive ownership of Company stock.
COMPONENTS OF EXECUTIVE COMPENSATION
To determine the competitive level of total compensation (including
total annual cash and long-term incentives), the Committee sets the total
pay target in a competitive compensation range as benchmarked against
published survey data and data derived through special studies of
comparable industries, including those shown in the peer group performance
graph.
9
TOTAL ANNUAL CASH COMPENSATION: Cash compensation consists of base
salary and annual cash incentive (bonus), with the sum of the two referred
to as "Total Cash Compensation." Currently, approximately 1,200 key
executives participate in the Total Cash Compensation program. A Total Cash
Compensation target, including base salary and incentive, is established
for each executive officer position using benchmark survey comparisons.
Annual increases, if any, are based on individual merit and Company
affordability. The annual incentive (at-risk) opportunities represent from
25% to 60% of Total Cash Compensation. Payment of the annual cash incentive
portion is based on the financial performance of the Company against
pre-established targets. The Committee each year establishes and approves
annual financial targets which are important to the Company and its
stockholders. Typical targets include sales, earnings per share, earnings
before interest and taxes, net profits, return on total capital, return on
equity, and asset management. The relative importance of each target is
determined each year by the Committee, and may vary depending upon the
Company's financial objectives for that year.
LONG-TERM COMPENSATION INCENTIVES: Long-term incentive awards,
consisting of performance shares, stock options and restricted stock, are a
substantial portion of the total compensation packages of certain key
senior executives and are specifically focused on the Company's longer-term
strategic objectives. Long-term plan participation and size of awards are
determined by the individual's potential to make significant contributions
to the Company's financial results, level of management responsibility and
individual performance and potential. Long-term programs are paid primarily
in stock. The Company's continuing philosophy is that executives are
expected to hold stock earned under the Company's programs. The value of
current executive stock holdings is significant, in absolute terms and in
relation to base pay, though the Company does not establish specific
ownership targets.
PERFORMANCE SHARES: The performance shares program reinforces the
Company's long-term objectives and rewards executives for achieving those
objectives. The Company has had an effective performance shares program
since 1977. Participation in this program is limited, and only executives
who can most directly influence the Company's long-term financial success
are included. Awards are denominated in share units with cash dividend-
equivalent payments on 40% of the share units awarded during the
performance period. The Committee approves the performance measures and
evaluates the performance of the Company against those measures.
Historically, the Company's plans have targeted earnings per share growth
objectives and other financial measures deemed appropriate to accomplish
the Company's performance targets. The final payout (paid primarily in
stock and partially in cash) can range from 0% to 100% of the target award,
depending upon the level of achievement of the established financial
targets.
STOCK OPTIONS: The stock option program provides the long-term focus
for a larger group of key employees. Currently, approximately 2,500 key
employees are eligible to be considered for participation in the stock
option program. Awards are intended to be made approximately every three
years and generally vest one-third each year. Options are granted at 100%
of the fair market value of the Company's common stock on the date of grant
and expire ten years from the date of grant. In fiscal 2003 the Company
began expensing stock options for grants awarded on or after October 1,
2002.
RESTRICTED STOCK: The restricted stock program is designed primarily to
retain key executives and potential top management of the Company while
building stock ownership, long-term equity and linking pay directly with
stockholder return. Participation has been highly selective and limited to
a very small group of executives. The Committee views this program as an
important management succession planning and retention tool. The
restriction period for awards is three to ten years.
The Company's incentive compensation programs are designed to reward
executives for achievement of the Company's performance objectives. The
plans, as approved by stockholders, are designed to comply with Internal
Revenue Code Section 162(m) to ensure tax deductibility. The Committee
considers it important to retain the flexibility to design compensation
programs that are in the best interest of the Company and the stockholders.
CEO COMPENSATION
In fiscal 2005, the Company achieved record sales of more than $17.3
billion, a 10.8% increase over fiscal 2004. Earnings per share rose 19.1%
to $3.55 in fiscal 2005, excluding the one-time $0.15 tax impact of
repatriating $1.4 billion of cash under the American Jobs Creation Act.
Reported earnings per share were a record $3.40 for the year, increasing
14.1%. The Company also reached its fifth consecutive year of strong
working capital performance, strengthening the balance sheet and improving
liquidity. The Committee noted that return on total capital, a key measure
of creating shareholder value, increased 1.9% points over fiscal 2004 to
16.1% (as reported, an increase of 1.3% points to 15.5%, including the 0.6%
tax impact of the repatriation), with operating cash flow of $2.2 billion
for
10
the year. This substantial cash flow allowed Emerson to return
approximately $1.3 billion of cash to shareholders in the form of dividends
and share repurchases during fiscal 2005.
The Committee agreed that David N. Farr continues to provide
exceptional leadership to Emerson as it delivers this increased value to
shareholders. Mr. Farr has been Chief Executive Officer of the Company
since October 11, 2000, Chairman of the Board of Directors since September
17, 2004, and President of the Company since November 1, 2005. In reviewing
Mr. Farr's performance in fiscal 2005, the Committee determined he and the
Emerson management team he leads excelled in delivering outstanding
financial results, solid global growth programs and extended industry
innovation and technology leadership. Mr. Farr continued to aggressively
manage all assets, maximize operating and capital efficiency, and achieve
superior cost positions in the face of global price and competitive
pressures. His sustained emphasis on the Company's key growth initiatives
has raised Emerson's growth profile in existing and emerging markets. His
continued focus on technology investments has widened Emerson's lead as the
technology innovator among the industries and customers it serves. Further,
he directed a series of strategic acquisitions in fiscal 2005 that form a
solid basis for future growth. Finally, Mr. Farr's sustained focus on the
development of the current and future management talent at Emerson
continues to be a key factor in maintaining and growing the Company's
performance in the future.
As a result of his performance, the Committee awarded Mr. Farr a fiscal
year 2005 bonus of $2,000,000. He received a base salary of $1,050,000. Mr.
Farr was awarded 55,000 shares of restricted stock, which award will vest
six (6) years from the date of grant. As part of the normal award cycle, in
October of 2004, the Committee awarded Mr. Farr 125,000 stock options under
the stock option program, which is described at page 10 and in the
"Option/SAR Grants in Last Fiscal Year" table at page 14 of this proxy
statement. Also reported in the Summary Compensation Table on page 12 and
described in footnote (4) on page 13 of this proxy statement is the
long-term compensation plan payout for the four-year performance period
ending September 30, 2005. Mr. Farr does not have an employment agreement
with the Company.
Compensation and Human Resources Committee
V. R. Loucks, Jr., Chairman
D. C. Farrell
J. W. Prueher
11
EXECUTIVE COMPENSATION
The following information relates to compensation received or earned by
the Company's Chief Executive Officer and each of the other four most
highly compensated executive officers of the Company for the last fiscal
year of the Company (the "named executive officers") and the compensation
received or earned by them for the two prior fiscal years.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION(1)
-----------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUT
---------------------------------------------------------------------------------------------------
SECURITIES LONG-
OTHER UNDERLYING TERM ALL
ANNUAL RESTRICTED OPTIONS/ INCENTIVE OTHER
NAME AND FISCAL COMPEN- STOCK SARS PLAN COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($)(2) AWARD(S)($)(3) (#) PAYOUTS($)(4) SATION($)(5)
------------------ ------ --------- -------- ------------ -------------- ---------- ------------- ------------
D. N. Farr 2005 1,050,000 2,000,000 147,641 3,887,950 125,000 6,938,500 66,980
Chairman of the Board, 2004 1,000,000 1,500,000 149,099 3,162,750 -- -- 50,409
Chief Executive Officer 2003 1,000,000 1,000,000 167,442 2,251,000 -- -- 37,755
and President(6)
J. G. Berges 2005 935,000 815,000 78,147 -- 100,000 6,938,500 43,690
Former President(7) 2004 905,000 700,000 -- -- -- -- 37,118
2003 872,500 540,000 -- -- -- -- 34,715
W. J. Galvin 2005 620,000 675,000 -- 1,767,250 85,000 3,122,325 32,133
Senior Executive Vice 2004 600,000 560,000 -- -- -- -- 27,099
President and Chief 2003 568,750 432,000 -- 900,400 -- -- 24,723
Financial Officer
W. W. Withers 2005 480,000 500,000 -- -- 50,000 2,081,550 27,203
Executive Vice President, 2004 465,000 420,000 -- -- -- -- 22,430
Secretary and General 2003 440,000 350,000 -- 500,000 -- -- 20,032
Counsel
C. A. Peters 2005 465,000 500,000 -- 1,413,800 50,000 2,081,550 24,124
Senior Executive Vice 2004 450,000 410,000 -- -- -- -- 20,034
President 2003 418,750 335,000 -- -- -- -- 18,599
--------
(1) The Company's stock option plans, incentive shares plans and
supplemental executive retirement and savings investment plans
generally provide for acceleration of vesting in the event of a change
in control of the Company.
(2) Consistent with applicable regulations, certain non-cash compensation
need not be reported, the aggregate of which does not exceed the lesser
of $50,000 or 10% of any named executive officer's salary and bonus.
Pursuant to the Company's security program established by the Board of
Directors, the Chairman and Chief Executive Officer is required to use
Company aircraft for all travel. While these security procedures,
including personal use of Company aircraft, are required for the
benefit of the Company, the Company is voluntarily reporting the
valuation of the personal use of this benefit by the Chairman and Chief
Executive Officer in fiscal years 2005, 2004 and 2003 in the amounts of
$67,852, $65,949 and $81,742 and related tax gross-up of $34,030,
$45,829 and $56,804, respectively. The amount for 2005 represents the
incremental cost to the Company, calculated based on the variable
operating costs per hour of operation, which include fuel costs,
maintenance, and associated travel costs for the crew. The amounts for
2004 and 2003 were previously reported and calculated in accordance
with Internal Revenue Service guidelines for imputed income for
personal use of corporate aircraft. For Mr. Berges, the incremental
cost to the Company of the personal use of Company aircraft, less
reimbursements made by Mr. Berges, was $23,605 for 2005.
(3) The number of shares of restricted stock held by the named executive
officers at September 30, 2005 (the end of fiscal 2005), and the
aggregate value of such shares, are as follows: D. N. Farr, 240,000
shares having a value of $17,232,000; J. G. Berges, 110,000 shares
having a value of $7,898,000; W. J. Galvin, 68,000 shares having a
value of $4,882,400; W. W. Withers, 42,000 shares having a value of
$3,015,600; and C. A. Peters, 42,000 shares having a value of
$3,015,600. On October 4, 2005, D. N. Farr, W. J. Galvin and C. A.
Peters were awarded 55,000, 25,000 and 20,000 shares of restricted stock,
respectively, which awards are included in the table for fiscal 2005.
The Company pays dividends on restricted stock. The restricted stock
awards have a restriction period and are earned
12
over a period of five to ten years and vest at the end of such period;
the shares are payable if the executive is employed with the Company
and in good standing at the end of the restriction period. The amounts
shown in the table represent the dollar value based on the stock price
per share at award date and do not reflect any payment to the individual.
(4) Long-term performance awards earned at the end of fiscal 2005 were
based on achievement of performance objectives over a four-year period
ending September 30, 2005, and were paid after the end of fiscal 2005.
The awards were made in fiscal 2001 and were disclosed as to the then
named executive officers in the Company's proxy statement for the 2002
Annual Meeting. The amounts shown also include the following amounts
attributable to the following shares of restricted stock vesting at the
same time as the long-term performance awards payouts: D. N.
Farr-$2,775,400 (40,000 shares); J. G. Berges-$2,775,400 (40,000
shares); W. J. Galvin-$1,248,930 (18,000 shares); W. W.
Withers-$832,620 (12,000 shares); and C. A. Peters-$832,620 (12,000
shares). These shares of restricted stock were granted in fiscal 2001
and were previously included in the Summary Compensation Table in
applicable years.
(5) No premiums were paid in fiscal 2005 by the Company for the named
executive officers in the Company's former "split dollar" insurance
program, which was terminated during the fiscal year. Participants
could elect to cancel the policy and receive its cash value or to
convert the policy into an ongoing term life insurance policy with the
same coverage, in which case the Company would make premium payments as
long as the named executive officer remains an employee. Each of the
named executive officers elected conversion to term insurance. The
table includes for fiscal 2005: (a) the value of premiums paid on
behalf of the named executive officers for fiscal 2005 for term life
insurance in the following amounts: D. N. Farr-$2,824; J. G.
Berges-$3,789; W. J. Galvin-$810; W. W. Withers-$4,703 and C. A.
Peters-$2,733; and (b) contributions by the Company on behalf of the
named individuals to the Company's matched savings plans in the
following amounts: D. N. Farr-$64,156; J. G. Berges-$39,901; W. J.
Galvin-$31,323; W. W. Withers-$22,500; and C. A. Peters-$21,391.
(6) Mr. Farr was elected Chairman of the Board of Directors on September
17, 2004 and President on November 1, 2005.
(7) As previously reported in a Current Report on Form 8-K filed on
November 4, 2005, on November 1, 2005, Mr. Berges retired as a member
of the Board of Directors and as President. Simultaneously, he entered
into a letter agreement and a related two-year consulting agreement
with the Company to provide services for up to 40 days per year for an
annual consulting fee of $250,000 and will be provided a company car,
financial planning, and club membership, with an estimated annual
aggregate value of less than $25,000. Subject to his compliance with
five-year non-competition and non-solicitation covenants, a
confidentiality covenant and his release of claims against the Company,
and subject to forfeiture in the event of noncompliance, Mr. Berges (i)
pursuant to the Company's stock options plans, will have up to five
years from the date of his retirement (but no longer than the original
term of his respective options) to exercise his previously granted
outstanding stock options, including previously unvested options (which
vested on his retirement date), (ii) will be eligible to receive a
pro-rata portion (50% or 52,500 shares) of his previous performance
shares award under the Company's 2004 Performance Share program
(previously disclosed in the Company's proxy statement for the last
year), subject to the Company's meeting previously established
performance targets during the four-year performance period; (iii) will
continue to vest in two previous restricted stock awards with 10 year
terms scheduled to vest in October 2007 and October 2010, as
applicable; and (iv) will be eligible to receive his regular monthly
pension benefits earned as of his retirement under the Company's
all-employee retirement plan and the related supplemental plan, reduced
as provided by the plans for early retirement (as described herein
under "Pension Plan Table").
13
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS(1)
--------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(2)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 0% ($) 5% ($) 10% ($)
---- ------------ ------------ ----------- ---------- ------ ------ -------
D. N. Farr............... 125,000 5.65 63.255 10/5/2014 0 4,972,591 12,601,522
J. G. Berges............. 100,000 4.52 63.255 10/5/2014 0 3,978,073 10,081,218
W. J. Galvin............. 85,000 3.84 63.255 10/5/2014 0 3,381,362 8,569,035
W. W. Withers............ 50,000 2.26 63.255 10/5/2014 0 1,989,036 5,040,609
C. A. Peters............. 50,000 2.26 63.255 10/5/2014 0 1,989,036 5,040,609
All Optionees(3)(4)...... 2,213,216 100 63.605 various 0 88,476,602 224,214,152
All Stockholders......... n/a n/a n/a n/a 0 19 billion 47 billion
Optionees Gain as % of
All Stockholders'
Gain................... n/a n/a n/a n/a 0 Less than Less than
1% 1%
-------
(1) The options were granted at 100% of the market price on the date of
grant. Options generally become exercisable one-third after one year
from the date of grant, an additional one-third after two years from
the date of grant, and are exercisable in full after three years from
the date of grant.
(2) The dollar amounts under these columns are the result of calculations
at 0% and at the 5% and 10% rates set by the Securities and Exchange
Commission and therefore are not intended to forecast possible future
appreciation, if any, of the Company's stock price. Potential
realizable value of all stockholders is based on 410,651,564 shares
outstanding at September 30, 2005 and a per share price of $71.80.
(3) Based on total number of options awarded in fiscal year 2005. The
exercise or base price is the average exercise price for all options
granted, which ranged from $63.255 to $71.635.
(4) No gain to the optionees is possible without an increase in stock
price, which will benefit all stockholders commensurately. A zero
percent stock price appreciation will result in zero dollars for the
optionee.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
VALUE OPTIONS AT FY-END(#) AT FY-END($)(1)
SHARES ACQUIRED REALIZED --------------------------- ---------------------------
NAME ON EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
D. N. Farr................ 0 0 332,444 125,000 5,148,069 1,047,500
J. G. Berges.............. 30,526 705,303 300,000 100,000 4,195,000 838,000
W. J. Galvin.............. 27,802 668,722 170,000 85,000 3,317,088 712,300
W. W. Withers............. 2,351 55,854 96,089 50,000 1,883,712 419,000
C. A. Peters.............. 0 0 127,672 50,000 2,285,492 419,000
-------
(1) The values represent the difference between the exercise price of the
options and the market price of the Company's common stock at fiscal
year-end.
14
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE
PAYOUTS UNDER
PERFORMANCE OR NON-STOCK
NUMBER OF OTHER PERIOD PRICE-BASED PLANS
PERFORMANCE UNTIL MATURATION TARGET/MAXIMUM
NAME UNITS OR PAYOUT (# OF SHARES)
---- ----------- ---------------- -----------------
D. N. Farr...................................... n/a n/a n/a
J. G. Berges.................................... n/a n/a n/a
W. J. Galvin.................................... n/a n/a n/a
W. W. Withers................................... n/a n/a n/a
C. A. Peters.................................... n/a n/a n/a
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth aggregate information regarding the
Company's equity compensation plans as of September 30, 2005:
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER
TO BE ISSUED UPON EXERCISE PRICE OF EQUITY COMPENSATION
EXERCISE OF OUTSTANDING PLANS (EXCLUDING
OUTSTANDING OPTIONS, OPTIONS, WARRANTS SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS COLUMN (a))
------------- ------------------- ----------------- -----------------------
(a) (b) (c)
Equity compensation plans approved by
security holders(1)..................... 13,334,793 $54.47 9,147,784
Equity compensation plans not approved by
security holders(2)..................... -- -- --
Total..................................... 13,334,793 $54.47 9,147,784
-------
(1) Includes the Company's Stock Option and previously approved Incentive
Shares Plans. Included in column (a) are 2,398,860 shares reserved for
performance share awards (awarded primarily in 2004), which represent
the right to receive common shares contingent upon the Company
achieving certain financial objectives by the end of fiscal year 2007.
Also included in column (a) are 1,044,995 shares reserved for
performance share awards (awarded primarily in 2001), which will be
issued primarily in shares of common stock and paid partially in cash
in early fiscal 2006 as a result of achieving certain financial
objectives by the end of fiscal 2005. As provided by the Company's
Incentive Shares Plans, performance share awards represent a commitment
to issue such shares without cash payment by the employee, contingent
upon achievement of such objectives and the performance of services by
the employee. The price in column (b) represents the weighted-average
exercise price for outstanding options. Included in column (c) are
814,068 shares remaining available for award under the previously
approved 1997 Incentive Shares Plan and 238,930 shares remaining
available under the previously approved Restricted Stock Plan for
Non-Management Directors.
(2) Excludes 13,735 outstanding options assumed in connection with
acquisitions with a weighted-average exercise price of $35.27.
Information regarding stock option plans and incentive shares plans set
forth in Note 14 of Notes to Consolidated Financial Statements of the 2005
Annual Report is hereby incorporated by reference.
15
PENSION PLAN TABLE
The following table shows the annual benefits payable upon retirement
at age 65 for various compensation and years of service combinations under
the Emerson Electric Co. Retirement Plan and a related supplemental
executive retirement plan.
ANNUAL RETIREMENT BENEFIT AT AGE 65 AFTER
------------------------------------------------------------------------------------------
10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
AVERAGE ANNUAL OF OF OF OF OF OF
COMPENSATION SERVICE SERVICE SERVICE SERVICE SERVICE SERVICE
-------------- -------- -------- -------- -------- -------- --------
$ 600,000.............. $ 87,565 $131,348 $ 175,130 $ 218,913 $ 262,696 $ 306,478
$ 900,000.............. $132,565 $198,848 $ 265,130 $ 331,413 $ 397,696 $ 463,978
$1,200,000.............. $177,565 $266,348 $ 355,130 $ 443,913 $ 532,696 $ 621,478
$1,500,000.............. $222,565 $333,848 $ 445,130 $ 556,413 $ 667,696 $ 778,978
$1,800,000.............. $267,565 $401,348 $ 535,130 $ 668,913 $ 802,696 $ 936,478
$2,100,000.............. $312,565 $468,848 $ 625,130 $ 781,413 $ 937,696 $1,093,978
$2,400,000.............. $357,565 $536,348 $ 715,130 $ 893,913 $1,072,696 $1,251,478
$2,700,000.............. $402,565 $603,848 $ 805,130 $1,006,413 $1,207,696 $1,408,978
$3,000,000.............. $447,565 $671,348 $ 895,130 $1,118,913 $1,342,696 $1,566,478
$3,300,000.............. $492,565 $738,848 $ 985,130 $1,231,413 $1,477,696 $1,723,978
$3,600,000.............. $537,565 $806,348 $1,075,130 $1,343,913 $1,612,696 $1,881,478
Retirement benefits under the plans are computed on the basis of an
annuity with five years certain, unless the participant elects another
method of payment. The benefit amounts in the Pension Plan Table above have
already been adjusted for Social Security (or any other benefits). The
dollar amounts in the salary and bonus columns of the Summary Compensation
Table above are substantially the same as the compensation covered by the
plans, but deferred bonuses may cause such amounts to vary from the amounts
set forth in the Summary Compensation Table.
The credited years of service covered by the plans for each of the
persons named in the Summary Compensation Table above are as follows: D. N.
Farr, 25; J. G. Berges, 30; W. J. Galvin, 33; W. W. Withers, 16; and C. A.
Peters, 26. Payment of the specified retirement benefits is contingent upon
continuation of the plans in their present form until the employee retires.
The benefits of certain employees may be reduced under the Emerson
Electric Co. Retirement Plan to meet the limits of the Internal Revenue
Code. An employee who is subject to a reduction of benefits under the
Internal Revenue Code may be selected to participate in a non-qualified
supplemental executive retirement plan not subject to Internal Revenue Code
limitations. Participation in the supplemental plan is by award, subject to
the sole approval by the Compensation and Human Resources Committee. D. N.
Farr, J. G. Berges, W. J. Galvin and W. W. Withers have been selected to
participate in the supplemental plan. The estimated annual retirement
benefits payable upon retirement at age 65 to D. N. Farr, W. J. Galvin, W.
W. Withers, and C. A. Peters are 56%, 56%, 20%, and 16%, respectively, of
the dollar amounts shown in the salary and bonus columns of the Summary
Compensation Table for fiscal year 2005. As a result of his early
retirement and resulting reduction in benefits as required by the plans,
Mr. Berges' benefit under the Emerson Electric Co. Retirement Plan and the
related supplemental plan will be reduced to 26% of the dollar amounts
shown in the salary and bonus columns of the Summary Compensation Table for
fiscal year 2005.
16
PERFORMANCE GRAPH
The following graph compares cumulative total returns (assuming
reinvestment of dividends) on the Company's common stock against the
Standard & Poor's Composite 500 Stock Index (S&P 500) and the Dow Jones
Electrical Components and Equipment Index (DJEE) for the five-year period
ended September 30, 2005 and the Compound Annual Growth Rate (CAGR).
[GRAPH]
*$100 invested on 9/30/00 in stock or index-including reinvestment of
dividends. Fiscal year ending September 30.
Copyright (C)2002, Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. All rights reserved. www.researchdatagroup.com/S&P.htm
--------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 CAGR
---- ---- ---- ---- ---- ---- ----
EMERSON $100 $ 72 $ 69 $ 85 $103 $123 4.2%
S&P 500 100 73 58 73 83 93 (1.5)
DJEE 100 39 25 40 40 44 (15.2)
--------------------------------------------------------------------------
The information above in the Report of the Audit Committee, the Report
of the Compensation and Human Resources Committee on Executive
Compensation, and the Performance Graph shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission or subject to Regulation 14A or 14C or to the liabilities of
Section 18 of the Exchange Act, nor shall it be deemed to be incorporated
by reference into any filing under the Securities Act of 1933 or the
Exchange Act, except to the extent that the Company specifically
incorporates this information by reference.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The functions and members of the Compensation and Human Resources
Committee are set forth above under "Board of Directors and Committees."
All Committee members are independent and none of the Committee members has
served as an officer or employee of the Company or a subsidiary of the
Company.
17
II. PROPOSAL TO APPROVE THE 2006 INCENTIVE SHARES PLAN
Emerson is requesting stockholders to approve the Emerson Electric Co.
2006 Incentive Shares Plan (the "2006 Plan"). On November 1, 2005, the
Board of Directors of the Company adopted the 2006 Plan, subject to
approval by the stockholders. All prior incentive shares plans were
approved by Emerson's stockholders. The 2006 Plan authorizes the issuance
of up to 10,000,000 shares of common stock, plus shares reserved but not
used under the 1997 Incentive Shares Plan (not to exceed 700,000 shares),
subject to adjustment, in the form of awards of Performance Shares and
Restricted Shares. As part of the Company's continuing program of key
executive incentive compensation, the 2006 Plan is designed to benefit the
Company and its stockholders and protect their interests by:
* Keeping and attracting the best executive talent, which the Board
deems critical to the Company's continued success in the challenging
marketplace in which the Company operates;
* Providing for independent plan administration by the Board's
Compensation and Human Resources Committee, all of whose members are
independent under the listing standards of the New York Stock
Exchange;
* Providing a moderate "burn" rate (the speed with which the Company
uses its shares available for awards) and a low dilutive effect
(small impact of awards of Emerson stock relative to total shares
outstanding); and
* Providing extended vesting periods for awards to Plan participants
(the periods during which achievement of performance objectives are
determined and for which awards are made).
The 2006 Plan was adopted as part of a continuing program of key
executive incentive compensation authorized by the Company's Board of
Directors in 1977. At that time the directors approved an initial
performance shares plan which anticipated that it would be supplemented by
a further similar plan or plans, and subsequently it was supplemented by
the Company's 1981 Performance Shares Bonus Plan, the 1985 Performance
Shares Bonus Plan, the Incentive Shares Plan adopted in 1988, the Incentive
Shares Plan adopted in 1993 and the Incentive Shares Plan adopted in 1997.
Approximately 680,000 shares of the Company's common stock, par value $0.50
per share, remain available for awards under the 1997 Plan; all of the
other prior plans have previously expired. The 2006 Plan, a continuation of
the prior plans, has as its purpose increasing motivation on the part of
senior executives by creating an incentive for them to remain in the employ
of the Company, to work for the achievement of the Company's strategic
growth objectives, and to align their interests with those of the
stockholders. This purpose is intended to be accomplished by granting
Incentive Shares of common stock to such key personnel.
The complete text of the 2006 Plan is set forth as Appendix C to this
proxy statement. The following summary of certain provisions of the 2006
Plan is qualified by reference to the text of the 2006 Plan.
Participants in the 2006 Plan will be those key employees of the
Company or any of its subsidiaries or affiliates who are determined by the
Compensation and Human Resources Committee, or other designated committee
(the "Committee") of the Company's Board of Directors to be senior
management personnel who are important to the growth of the Company's
business and to whom the Committee shall make an award under the 2006 Plan.
All of the members of the Compensation and Human Resources Committee have
been determined by the Board to be independent under the listing standards
of the New York Stock Exchange. There are approximately 300 persons
eligible to participate in the 2006 Plan. No more than 10,000,000 shares,
plus shares reserved but not used under the 1997 Incentive Shares Plan (not
to exceed 700,000 shares), adjusted to reflect subsequent stock dividends,
stock splits, spin-offs and similar matters, may be awarded under the 2006
Plan.
Shares may be awarded as Performance Shares which are designed to meet
the requirements for a performance-based plan under Section 162(m) of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder.
The maximum number of Performance Shares which may be awarded to any
individual for any performance period shall be 800,000 Shares (subject to
anti-dilution provisions). An award of Performance Shares will represent
the right to receive payment (as described below) if specified performance
objectives are achieved. The Committee may also authorize the payment of an
amount equal to the cash dividends on Performance Shares or on a portion
thereof awarded to participants. The performance objectives may be
established from time to time by the Committee. Performance objectives need
not be the same for all participants and may be established separately for
the Company as a whole or for its various groups, divisions, subsidiaries
and affiliates. The Committee, in its discretion, at the time it
establishes the targeted performance objectives, may establish a minimum
performance target and provide for reduced payment if the targeted
performance objective is not achieved but the minimum performance target is
met.
18
The performance objectives shall be established at the beginning of the
applicable performance period and shall be based upon one or more of the
following criteria: sales, earnings, earnings per share, net earnings,
pre-tax earnings, earnings before interest and taxes, return on equity,
return on total capital and asset management. The performance criteria may
include or exclude specified items of an unusual, non-recurring or
extraordinary nature including, without limitation, changes in accounting
methods, changes in inventory methods, changes in corporate taxation,
unusual accounting gains and losses, changes in financial accounting
standards, or other extraordinary events causing dilution or diminution in
the Company's earnings, all as the Committee may deem necessary or
desirable to accomplish the purposes of the performance program. The period
over which achievement of any performance objective shall be determined may
not be less than three years, although the typical performance period is
four years.
Under the plan, the Committee may establish one or more performance
programs, with specified objectives and performance periods and may award
participants Performance Shares in any one or more of the performance
programs. During a performance period, the Committee may, in its
discretion, award Performance Shares to new participants in the performance
program, or, if circumstances of significant promotion or additional
responsibility so warrant, to any one or more existing participants in the
performance program, subject to the maximum number of shares under the
plan. Performance periods will be accelerated in the event of a Change of
Control, which generally means: (1) the acquisition by any person or group
of beneficial ownership of 20% or more of the Company's voting securities;
(2) the consummation of a reorganization, merger or consolidation pursuant
to which the persons who were stockholders of the Company prior thereto do
not thereafter own more than 50% of the voting power of the surviving
corporation or a liquidation or dissolution of the Company or the sale or
lease of all or substantially all of the assets of the Company; or (3) the
persons who constitute the Board of Directors as of the date of the 2006
Plan ceasing to constitute a majority of the Board, provided that any
director subsequent to the date of the plan whose election was approved by
the Board will generally be considered as though such person has been a
member of the Board since the inception of the plan.
If the applicable performance objective is achieved, a participant will
receive an amount equal to the market value of one share of Company common
stock on the date that the Committee determines that the applicable
performance period objective is met (following expiration of the applicable
performance period) multiplied by the number of Performance Shares held.
Payment may be made in shares of common stock and cash or in any
combination as determined by the Committee, but the aggregate number of
shares of the Company's common stock issued under the 2006 Plan may not
exceed the number specified above (or as such number may be adjusted as
provided in the 2006 Plan). At the discretion of the Committee, a
participant may elect to defer payment, in which event during the period of
deferral the participant's account will be credited with an amount equal to
the dividends paid on the Company's common stock for the number of shares
credited to the participant's account. Any such deferral must be made in
accordance with the requirements of Section 409A of the Internal Revenue
Code of 1986, as amended, and the regulations thereunder. The Committee may
not increase the amount of payment that would otherwise be due upon
attainment of a performance objective. Prior to making a Performance Share
payment, the Committee shall certify in writing the achievement of the
applicable performance objective(s) and the amount of payments to be made
to each Participant.
Unless otherwise determined by the Committee, in order to receive
payment of Performance Shares a participant must have been continuously
employed by the Company or a subsidiary from the date of the award through
the expiration of the performance period, and must remain employed with the
Company, except for approved leaves of absence, on the payment date,
subject to proration of payments at the discretion of the Committee in the
event of retirement at age 65 or termination of employment due to death,
disability or otherwise.
The Committee may also grant Restricted Shares which are not subject to
performance objectives. Holders of Restricted Shares will be entitled to
all dividends and voting rights with respect to such shares during the
restriction period. Restricted Shares will be forfeited if the holder
resigns or is discharged from the employ of the Company or a subsidiary
during the restriction period specified by the Committee, which will not be
less than three years. Restricted Shares may also be forfeited on such
other terms and conditions as the Committee may specify. The Committee in
its discretion may waive any term and condition of any such award and
reduce the restriction period, except that the Committee may not reduce the
restriction period to less than three years. In the event of a Change of
Control during the restriction period, the Restricted Shares will
automatically vest.
In the event an award of Shares is cancelled, the Committee may again
award such Shares. The Committee may amend the Plan, except that no
amendment may be made without stockholder approval if such amendment would
increase the aggregate number of shares which may be granted or securities
which may be issued under the 2006 Plan.
19
The 2006 Plan will terminate at such time as the Board, in its
discretion, elects to terminate the 2006 Plan or replace it with a
successor plan, but the termination will not affect any awards with
performance or restriction periods which extend beyond such date.
No determination has been made with respect to the grant of any awards
under the 2006 Plan. In addition, the benefits or amounts which would have
been received by participants in the last completed fiscal year, if the
plan had been in effect, are not determinable. On November 29, 2005, the
closing market price of the Company's common stock was $75.57.
BOARD RECOMMENDATION. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
--------------------
VOTE FOR APPROVAL OF THE 2006 INCENTIVE SHARES PLAN.
---
III. RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
In accordance with its charter, the Audit Committee has selected KPMG
LLP, independent registered public accounting firm, to audit the Company's
consolidated financial statements for fiscal 2006. KPMG LLP served as the
Company's independent registered public accounting firm for fiscal 2005.
The Audit Committee is asking the stockholders to ratify the appointment of
KPMG LLP as the Company's independent registered public accounting firm for
the fiscal year ending September 30, 2006.
The Audit Committee is not required to take any action as a result of
the outcome of the vote on this proposal. In the event stockholders fail to
ratify the appointment, the Audit Committee may reconsider this
appointment. Even if the appointment is ratified, the Audit Committee, in
its discretion, may direct the appointment of a different independent
accounting firm at any time during the year if the Audit Committee
determines that such a change would be in the Company's and the
stockholders' best interests.
The Audit Committee has approved in advance all services provided by
KPMG LLP. A member of KPMG LLP will be present at the meeting with the
opportunity to make a statement and respond to appropriate questions from
stockholders.
BOARD AND AUDIT COMMITTEE RECOMMENDATION. THE BOARD OF DIRECTORS AND
----------------------------------------
THE AUDIT COMMITTEE UNANIMOUSLY RECOMMEND A VOTE FOR THE RATIFICATION OF
---
THE APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM.
IV. STOCKHOLDER PROPOSAL ON SEVERANCE AGREEMENTS
A stockholder has informed the Company that it intends to present the
following proposal at the meeting:
RESOLVED, that the stockholders of Emerson Electric Co. ("Emerson" or
the "Company") urge the Compensation and Human Resources Committee of the
Board of Directors (the "Board") to establish a policy to seek stockholder
approval for future severance agreements with senior executives that
provide benefits in an amount exceeding 2.99 times the sum of the
executive's base salary plus bonus. "Future severance agreements" mean
employment agreements containing severance provisions; change of control
agreements; retirement agreements; and agreements renewing, modifying or
extending existing such agreements. "Benefits" include lump-sum cash
payments; and the estimated present value of periodic retirement payments,
fringe benefits, perquisites, consulting fees and other amounts to be paid
to the executive after or in connection with termination of employment.
SUPPORTING STATEMENT
Current Emerson Chairman and CEO David Farr has no employment agreement
with the Company. In our opinion, the absence of an agreement setting forth
the severance compensation payable to Mr. Farr could expose the Board to
pressure if it needed to effect an involuntary termination. A policy like
the one urged in this proposal would permit severance payouts exceeding the
threshold described above, but only if Emerson's stockholders approved the
arrangements as being in the Company's best interests.
The arrangements entered into with Emerson former Chairman and CEO
Charles Knight, who resigned as a Company employee on September 17, 2004,
reinforces our belief that a policy on severance payments would be in the
interests of Emerson stockholders. Mr. Knight's employment agreement
entitled him to post-employment compensation that we believe is excessive
and not in the interest of stockholders.
The agreement provides that Mr. Knight will "continue to have access to
Company facilities and services on the same basis as during his employment,
including the Company's aircraft, car, driver, security, financial planning
and
20
club memberships, the estimated value of which is less than $200,000."
(2004 Emerson proxy statement) These perquisites extend through 2019.
Corporate governance experts and leading institutional investors favor
severance approval policies like the one we advocate in the proposal. The
Council of Institutional Investors, a trade association of pension funds
with over $3 trillion in assets, states that stockholders should approve
all agreements "providing for severance, change-in-control or other special
payments to executives exceeding 2.99 times average annual salary plus
annual bonus for the previous three years." (See
http://www.cii.org/policies/compensation/emp_contracts.htm) Institutional
Shareholder Services, the nation's largest proxy voting advisor, also favors
stockholder ratification, as long as prior approval is not required. (See
http://www.issproxy.com/governance/publications/2005archived/006.jsp)
We urge stockholders to vote FOR this proposal.
The Company will provide to stockholders the name and address of the
proponent and the number of shares of Emerson stock held by it promptly
upon receiving an oral or written request therefor.
BOARD RECOMMENDATION. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
--------------------
VOTE AGAINST THIS PROPOSAL.
-------
The Board believes that the Company's long-standing policies and
practices fully achieve the underlying objective of this proposal - to
place appropriate limits on severance payments to senior executives. More
importantly, the Board believes that implementation of the proposal
actually would result in the Company's making, on average, higher severance
payments to senior executives, and receiving less favorable non-competition
and other restrictive promises in return. Consequently, adoption of the
proposal is not in the best interests of the Company's stockholders.
As more fully described in the Report of the Compensation and Human
Resources Committee on Executive Compensation at page 9 above, the
Company's executive compensation programs have long been based on the
fundamental principle of competitive payment for performance, not excessive
compensation or creation of a sense of entitlement. The Committee's
effective application of this principle is demonstrated by the following:
* The Company has no written or oral employment agreements with its
--
executive officers that contain severance or "golden parachute"
provisions, and has no current intention of entering into any such
agreements.
* Executive cash compensation (base salary and bonus opportunity) is
targeted at the 50th percentile of benchmark companies with
comparable sales and performance.
* Stockholder dilution from long-term executive stock compensation is
well below the average for the 200 largest public U.S. industrial and
service corporations. As reported in the Pearl Meyer & Partners 2004
Equity Stake Study of Management Equity Participation in the Top 200
Corporations, dilution from the Company's long-term stock
compensation plans is currently less than 7%, versus the industry
average of 16+%.
* The Company is sparing in its use of stock options as incentive
compensation, and it has been expensing them since fiscal 2003.
The Company applies its fundamental principle of competitive payment
for performance to executive severance arrangements. The Company's practice
is not to provide lump-sum, non-forfeitable severance payments, but instead
to:
* Obtain from departing executives extended agreements not to compete,
which agreements the Company deems vital to protect its competitive
position, proprietary information and stockholders' interests; and
* Where appropriate, and as permitted under the applicable
stockholder-approved stock option plan, provide additional time (not
to exceed the time permitted in the stock option plan) to exercise
stock options or continue his or her previously granted participation
(without accelerated vesting) in existing long-term stock award
-------
plans, subject to the Company's performance. These items are
forfeited if the executive breaches his or her obligations under the
extended non-competition agreement.
The Company believes that implementation of this proposal would, on
average, increase severance payments. By establishing a fixed numerical
severance cap of 2.99 times the sum of an executive's base salary and
bonus, the proposal would likely (1) create an expectation by Emerson's
officers that they are entitled to severance equal to or approaching this
cap, and (2) make it more difficult for the Company to procure extended
non-competition agreements without making higher severance payments than it
currently makes. These consequences would directly
21
conflict with the Company's policies of discouraging a sense of
entitlement, and being in the strongest possible position to protect its
assets, its competitive interests and the interests of its stockholders
when an executive departs.
Finally, the Board believes that this proposal is significantly
misleading in characterizing Charles F. Knight's post-retirement
compensation as "excessive". Since his retirement as Chairman and an
Executive Officer of the Company in 2004, Mr. Knight has not been entitled
to and has not received any salary from the Company. The estimated annual
value of Mr. Knight's fees and perquisites for consulting services is less
than $300,000. Furthermore, as stated in Emerson's Proxy Statement for the
2005 Annual Meeting, Mr. Knight has indicated his intention to waive his
consulting fee for the foreseeable future, and he has continued to do so.
FOR THESE REASONS, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
AGAINST APPROVAL OF THE STOCKHOLDER PROPOSAL ON SEVERANCE AGREEMENTS.
-------
V. VOTING
Shares may be represented by proxy at the meeting by completing and
returning the proxy card or voting by telephone or by Internet. If a quorum
is present, the affirmative vote of a majority of the shares entitled to
vote which are present in person or represented by proxy at the 2006 Annual
Meeting is required to elect Directors, to approve the Company's 2006
Incentive Shares Plan, to ratify the appointment of KPMG LLP as the
Company's independent registered public accounting firm for fiscal 2006, to
approve the stockholder proposal, and to act on any other matters properly
brought before the meeting. Shares represented by proxies which are marked
or voted "withhold authority" with respect to the election of any one or
more nominees for election as Directors, proxies which are marked or voted
"abstain" on the proposal to approve the Company's 2006 Incentive Shares
Plan and to ratify the appointment of KPMG LLP as the Company's independent
registered public accounting firm for fiscal 2006, or on the stockholder
proposal, and proxies which are marked or voted to deny discretionary
authority on other matters will be counted for the purpose of determining
the number of shares represented by proxy at the meeting. Such proxies will
thus have the same effect as if the shares represented thereby were voted
against such nominee or nominees, against the proposals to approve the
Company's 2006 Incentive Shares Plan and to ratify the appointment of KPMG
LLP as the Company's independent registered public accounting firm for
fiscal 2006, against the stockholder proposal and against such other
matters, respectively. If a broker indicates on the proxy that it does not
have discretionary authority as to certain shares to vote on a particular
matter, those shares will not be considered as present and entitled to vote
with respect to that matter. In addition, under the rules of the New York
Stock Exchange, the shares present and entitled to vote (excluding broker
non-votes) on the proposal to approve the Company's 2006 Incentive Shares
Plan must represent more than 50% of all shares entitled to vote thereon.
The Company knows of no other matters to come before the meeting. If
any other matters properly come before the meeting, the proxies solicited
hereby will be voted on such matters in the discretion of the persons
voting such proxies, except proxies which are marked to deny discretionary
authority.
VI. STOCKHOLDERS' PROPOSALS
Proposals of stockholders intended to be presented at the 2007 Annual
Meeting scheduled to be held on February 6, 2007, must be received by the
Company by August 18, 2006 for inclusion in the Company's proxy statement
and proxy relating to that meeting. Upon receipt of any such proposal, the
Company will determine whether or not to include such proposal in the proxy
statement and proxy in accordance with regulations governing the
solicitation of proxies.
In order for a stockholder to nominate a candidate for Director, under
the Company's Bylaws timely notice of the nomination must be received by
the Company in advance of the meeting. Ordinarily, such notice must be
received not less than 90 nor more than 120 days before the meeting, i.e.,
between October 9 and November 8, 2006 for the 2007 Annual Meeting (but if
the Company gives less than 100 days' (1) notice of the meeting or (2)
prior public disclosure of the date of the meeting, then such notice must
be received within 10 days after notice of the meeting is mailed or other
public disclosure of the meeting is made). The stockholder filing the
notice of nomination must describe various matters regarding the nominee,
including, but not limited to, such information as name, address,
occupation and shares held.
In order for a stockholder to bring other business before a stockholder
meeting, timely notice must be received by the Company within the time
limits described in the preceding paragraph. Such notice must include a
description of the proposed business, the reasons therefor, and other
specified matters. These requirements are separate from the
22
requirements a stockholder must meet to have a proposal included in the
Company's proxy statement. The foregoing time limits also apply in
determining whether notice is timely for purposes of rules adopted by the
Securities and Exchange Commission relating to the exercise of
discretionary voting authority.
In each case the notice must be given to the Secretary of the Company,
whose address is 8000 West Florissant Avenue, St. Louis, Missouri 63136.
Any stockholder desiring a copy of the Company's Bylaws will be furnished
one without charge upon written request to the Secretary. A copy of the
Bylaws is available on the Company's Web site at www.gotoemerson.com,
Investor Relations, Corporate Governance, Bylaws.
VII. MISCELLANEOUS
HOUSEHOLDING OF PROXIES
The Securities and Exchange Commission has adopted rules that permit
companies and intermediaries such as brokers to satisfy delivery
requirements for annual reports and proxy statements with respect to two or
more stockholders sharing the same address by delivering a single annual
report and/or proxy statement addressed to those stockholders. This
process, which is commonly referred to as "householding," potentially
provides extra convenience for stockholders and cost savings for companies.
The Company and some brokers household annual reports and proxy materials,
delivering a single annual report and/or proxy statement to multiple
stockholders sharing an address unless contrary instructions have been
received from the affected stockholders.
Once you have received notice from your broker or the Company that your
broker or the Company will be householding materials to your address,
householding will continue until you are notified otherwise or until you
revoke your consent. You may request to receive at any time a separate copy
of our annual report or proxy statement, by sending a written request to
Emerson Electric Co., 8000 West Florissant Avenue, St. Louis, Missouri
63136, Attn: Investor Relations, or by telephoning 314-553-2197 or by
visiting our website.
If, at any time, you no longer wish to participate in householding and
would prefer to receive a separate annual report and/or proxy statement in
the future, please notify your broker if your shares are held in a
brokerage account or the Company if you hold registered shares. You can
notify the Company by sending a written request to Emerson Electric Co.,
8000 West Florissant Avenue, St. Louis, Missouri 63136, Attn: Investor
Relations, or by telephoning 314-553-2197.
If, at any time, you and another stockholder sharing the same address
wish to participate in householding and prefer to receive a single copy of
the Company's annual report and/or proxy statement, please notify your
broker if your shares are held in a brokerage account or the Company if you
hold registered shares. You can notify the Company by sending a written
request to Emerson Electric Co., 8000 West Florissant Avenue, St. Louis,
Missouri 63136, Attn: Investor Relations, or by telephoning 314-553-2197.
ADDITIONAL FILINGS
The Company's Forms 10-K, 10-Q, 8-K and all amendments to those reports
are available without charge through the Company's Web site on the Internet
as soon as reasonably practicable after they are electronically filed with,
or furnished to, the Securities and Exchange Commission. They may be
accessed as follows: www.gotoemerson.com, Investor Relations, SEC filings.
23
APPENDIX A
EMERSON DIRECTOR INDEPENDENCE STANDARDS
In order to be considered independent under the rules of the New York
Stock Exchange, the Board must determine that a director does not have any
direct or indirect material relationship with Emerson Electric Co.
("Emerson"). The Board has established the following guidelines to assist
it in determining director independence under the NYSE rules. Any Director
who meets the following standards will be deemed independent by the Board:
1. The Director was not employed by Emerson, and no immediate family
member of the Director was employed by Emerson as an executive officer,
within the preceding three years;
2. The Director is not a partner or employee of Emerson's independent
auditor, and no immediate family member of the Director is a partner of, or
employed in the audit, assurance or tax compliance practices of Emerson's
independent auditor, and neither the Director nor any immediate family
member has been within the preceding three years a partner of or employed
by Emerson's independent auditor and personally worked on Emerson's audit;
3. The Director was not employed by, and no immediate family member of
the Director was employed as an executive officer by, any company at the
same time any Emerson executive officer served as a member of such
company's compensation committee within the preceding three years;
4. Neither the Director, nor any member of the Director's immediate
family received in any twelve-month period during any of Emerson's last
three fiscal years direct compensation in excess of $100,000 from Emerson
other than regular director compensation, pension and other deferred
payments that are not in any way contingent on continued service to
Emerson, compensation received by an immediate family member for service as
a non-executive officer of Emerson, and compensation received by an
immediate family member for service as a non-executive officer of Emerson;
5. If the Director is an executive officer or an employee of, or if
any immediate family member is an executive officer of, another
organization that does business with Emerson, the annual sales to, or
purchases from, Emerson by such company in each of the last three fiscal
years were less than the greater of two percent of the annual revenues of
such company or $1,000,000;
6. If the Director is an executive officer of another organization
which is indebted to Emerson, or to which Emerson is indebted, the total
amount of either company's indebtedness to the other is less than two
percent of the total consolidated assets of the company the Director serves
as an executive officer;
7. If the Director is, or is a director, executive officer or greater
than 10% owner of an entity that is, a paid advisor, paid consultant or
paid provider of professional services to Emerson, any member of Emerson's
senior management or any immediate family member of a member of Emerson's
senior management, the amount of such payments is less than the greater of
2% of such firm's annual revenues or $1,000,000 during Emerson's current
fiscal year;
8. If the Director is a partner, principal or counsel in a law firm
that provides professional services to Emerson, the amount of payments for
such services is less than the greater of 2% of such law firm's annual
revenues or $1,000,000 during Emerson's current fiscal year;
9. If the Director serves as an officer, director or trustee of a
charitable organization to which Emerson makes contributions: (i) Emerson's
discretionary contributions to such organization are less than the greater
of two percent of such organization's total annual charitable receipts or
$1 million; (ii) Emerson's contributions are normal matching charitable
gifts and similar programs available to all employees and independent
directors; or (iii) the charitable donation goes through the normal
corporate charitable donation approval processes, and is not made "on
behalf of" a Director;
10. The Director's ownership of Emerson stock, direct or indirect, is
less than 1% of the total outstanding Emerson stock;
11. If the Director is affiliated with, or provides services to, an
entity in which Emerson has an ownership interest, such ownership interest
is less than 20%; and
12. Any other relationship between the Director and Emerson not covered
by the standards set forth above is an arrangement that is usually and
customarily offered to customers of Emerson.
If any relationship exists between Emerson and any Director that is not
addressed by the standards set forth above, the Directors meeting these
standards shall determine whether such relationship impairs the
independence of such Director.
A-1
APPENDIX B
EFFECTIVE AUGUST 2, 2005
AUDIT COMMITTEE CHARTER
-----------------------
ORGANIZATION
This charter governs the operation of the Audit Committee (the
"Committee"). The Committee shall review and reassess the adequacy of this
charter at least annually and obtain the approval of the Board of Directors
for any proposed changes to the charter. The Committee and its Chair shall
be appointed by the Board of Directors, to serve at the discretion of the
Board, and shall be comprised of at least three Directors, each of whom
meets the independence requirements set forth in applicable rules of the
Securities and Exchange Commission ("SEC") and the New York Stock Exchange
("NYSE"). All Committee members shall be financially literate, and at least
one member shall be an "audit committee financial expert" as that term is
defined by applicable rules of the SEC.
MEETINGS
The Committee shall meet regularly, or more frequently as the Committee
as a whole or the Chair may from time to time determine to be appropriate.
At all meetings of the Committee a majority of the Committee members shall
be necessary to constitute a quorum for the transaction of business.
Members of the Committee may participate in meetings by means of conference
telephone or similar communications equipment whereby all persons
participating in the meeting can hear each other, and such participation
shall constitute presence in person at the meeting. The Committee may also
act as otherwise permitted by law or the Company's Bylaws.
STATEMENT OF POLICY
The Audit Committee shall assist the Board in providing oversight of
the systems and procedures relating to the integrity of the Company's
financial statements, the Company's financial reporting process, its
systems of internal accounting and financial controls, the internal audit
process, the annual independent audit process of the Company's annual
financial statements, the Company's compliance with legal and regulatory
requirements and the qualification and independence of the Company's
primary independent audit firm (the "Auditor"). The Committee is not
responsible for the implementation of the foregoing activities. Such
implementation is the sole responsibility of management. In discharging its
oversight role, the Committee is empowered to investigate any matter
brought to its attention with full access to all books, records,
facilities, and personnel of the Company and authority to engage
independent legal, accounting or other advisors as it deems necessary to
carry out its duties, at Company expense.
Management and the Auditor are responsible for planning and conducting
audits and determining that the audited financial statements are complete,
accurate and in accordance with U.S. Generally Accepted Accounting
Principles. The Committee, in carrying out its oversight responsibilities,
shall discuss with the Auditor and management their respective judgments
regarding the quality and the acceptability of the Company's financial
reporting.
B-1
RESPONSIBILITIES AND PROCESSES
The following shall be the principal recurring processes of the Audit
Committee in carrying out its oversight responsibilities:
Independent Auditor
-------------------
* The Auditor reports directly to the Committee. Annually, the
Committee shall evaluate and appoint the Auditor. The Committee shall
have the sole authority to select, evaluate and, where it deems
appropriate, replace or rotate the Auditor. The Committee shall
receive from the Auditor an annual report on (1) the Auditor's
quality control procedures, (2) any material issues raised by the
most recent internal quality control review, or peer review, of the
Auditor, or by any inquiry or investigation by governmental or
professional authorities, within the preceding five years, with
respect to audits carried out by the Auditor, (3) as necessary, the
timetable for the rotation of partners under legal requirements, (4)
all relationships between the Auditor and the Company, and (5) such
other reports as the Committee deems appropriate from the Auditor
regarding the Auditor's independence, and discuss with the Auditor
such reports and the matters included in the written disclosures
required by the Independence Standards Board Standard No. 1. If
necessary, the Committee shall take appropriate action with respect
to the independence of the Auditor.
* The Committee shall pre-approve all audit and non-audit services (and
related fees) provided by the Company's Auditor, as outlined below,
and implement procedures so that the Auditor does not perform any
service that is prohibited under the NYSE and SEC rules.
Audit Fees:
----------
Annually, the Committee will review and approve the audit services
and the estimated audit fees for the following fiscal year. The
projections will be updated quarterly and the Committee will
pre-approve any amounts exceeding the original estimates.
Non-Audit Services and Fees:
---------------------------
Annually, and otherwise as necessary, the Committee will review and
approve all non-audit services and the estimated fees for such
services for the current fiscal year. For recurring services such as
employee benefit plans, tax compliance, due diligence, expatriate tax
returns, internal control reviews, statutory filings and
import/export reviews, the Committee will review and approve the
services and estimated total fees therefor by category of service.
The projections will be updated quarterly and the Committee will
pre-approve any amounts exceeding the original estimates. For
non-recurring services such as tax or other consulting, the Committee
will review and approve the services and estimated fees by category
of service and all individual projects exceeding an amount determined
by the Committee from time to time. The projections will be updated
quarterly and the Committee will pre-approve any amounts exceeding
the original estimates and any new projects exceeding an amount
determined by the Committee from time to time.
Approval Matrix:
---------------
Should an engagement need pre-approval before the next Committee
meeting, authority to grant such approval is delegated to the Audit
Committee Chairman. Such approval will be reviewed with the entire
Committee at the next quarterly meeting.
* The Committee shall monitor management's compliance with the
following hiring policy for employees and former employees of the
Auditor. The Company shall not hire an employee or former employee of
the Auditor who has provided audit, review, or attest services for
the Company during the last two previous fiscal years into an
"accounting role or financial reporting oversight role" as defined by
the SEC. This definition includes the following Corporate positions:
Members of the Board of Directors, Chief Executive Officer,
President, Chief Financial Officer, Chief Operating Officer, General
Counsel, Chief Accounting Officer, Controller, Director of Internal
Audit, VP of Internal Audit, Director of Financial Reporting, and
Treasurer.
Internal Controls and Audit Process
-----------------------------------
The audit function is designed to provide a check that a system of
internal controls is maintained throughout the Company which protects the
assets of the Company and provides the proper authorization and recording
of transactions such that the financial information is reliable and
materially accurate; and financial statements fairly present, in all
material respects, the financial condition and results of operations of the
Company in accordance with U.S. Generally Accepted Accounting Principles
("GAAP").
B-2
* The Committee shall discuss with the internal auditors and the
Auditor the overall scope and plans for their respective audits.
Also, the Committee shall discuss with management, the internal
auditors and the Auditor the adequacy and effectiveness of the
Company's accounting and financial controls.
The Committee shall discuss with the Auditor the responsibilities,
budget and staffing of the Company's internal audit department.
The Committee shall review with management the Company's major
financial risk exposures and the steps management has taken to
monitor, mitigate and control such exposures.
Annual Audit and Quarterly Reviews
----------------------------------
* The Committee will discuss with the Auditor the results of the annual
audit and quarterly reviews, the Company's critical accounting
policies and practices, all alternative treatments within GAAP
discussed with management (including ramifications of use of
alternatives, and the preferred method of the Auditor), other written
material communication (including any management letter or schedule
of unadjusted differences), any audit problems or difficulties and
management's response, and any other matters required to be
communicated to the Committee by the Auditor under Generally Accepted
Auditing Standards.
Financial Reporting
-------------------
* The Committee shall review with management and the Auditor the
audited financial statements to be included in the Company's Annual
Report on Form 10-K, and the Company's quarterly financial
statements, including any disclosure by the Company under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations." Based on these reviews, the Committee shall
annually report to the Board whether the Committee recommends
inclusion of the audited financial statements in the Company's Annual
Report and Form 10-K.
* The Committee shall discuss the types of information to be included
in, and the type of presentation of, earnings press releases and
financial information and earnings guidance provided to analysts and
ratings agencies. The Committee shall be informed by management of
financial information and earnings guidance that have been provided
to analysts and ratings agencies.
Proxy Report
------------
* The Committee shall approve the report of the Committee required to
be included in the Company's annual proxy statement by the rules of
the Securities and Exchange Commission.
Other Responsibilities
----------------------
* The Committee shall establish procedures for the receipt, retention
and treatment of complaints made to the Company, by employees and
non-employees, regarding accounting, internal accounting controls or
auditing matters and for the confidential, anonymous submission by
employees of concerns regarding questionable accounting or auditing
matters.
* At least quarterly, the Committee shall meet separately with
representatives from the Auditor, the internal auditors and
management.
* The Committee shall review annually a summary of the Company's
litigation activities during the most recent fiscal year, and any
other matters relating thereto that the Committee may from time to
time deem appropriate. The Committee shall review annually a summary
of the Company's environmental activities during the most recent
fiscal year, a summary of anticipated environmental audits and
expenditures for the next fiscal year, and any other matters relating
thereto that the Committee may from time to time deem appropriate.
Other Matters
-------------
* The Committee and its members shall have unrestricted access to
management. The Committee shall have sole discretion, in its areas of
responsibility, at Company expense, to retain and terminate
independent advisors, including sole authority to approve the fees
and retention terms for such advisors, if it shall determine the
services of such advisors to be necessary or appropriate. Should any
member of the Committee believe that participation of management or
independent advisors in any discussion of a particular subject at any
meeting would be advisable, they are free to make such request.
B-3
* The Committee may, when appropriate in its discretion, delegate
authority with respect to specific matters to one or more members,
provided that all decisions of any such members are presented to the
full Committee at its next scheduled meeting.
REPORTS TO BOARD AND PERFORMANCE EVALUATION
The Committee shall report to the Board of Directors regularly regarding
issues that arise in connection with the performance of its
responsibilities outlined herein, including, but not limited to, issues
that arise with respect to the quality or integrity of the Company's
financial statements, the Company's compliance with legal or regulatory
requirements, the performance and independence of the Auditor or the
performance of the internal audit function. The Committee shall perform an
annual evaluation of its performance, pursuant to the procedures
established by the Corporate Governance and Nominating Committee.
B-4
APPENDIX C
EMERSON ELECTRIC CO.
2006 INCENTIVE SHARES PLAN
1. PURPOSE. The 2006 Incentive Shares Plan (the "Plan") of Emerson
Electric Co. ("Emerson" or the "Company"), is a part of a continuing
program of key executive compensation authorized by the Board of Directors
of the Company ("Board") on April 5, 1977. On that date the Board approved
an initial performance shares plan which anticipated that it would be
supplemented by a further similar plan or plans, and subsequently it was
supplemented by the Company's 1981 Performance Shares Bonus Plan, the 1985
Performance Shares Bonus Plan, the Incentive Shares Plan adopted in 1988,
the Incentive Shares Plan adopted in 1993 and the Incentive Shares Plan
adopted in 1997. This Plan, a continuation of the initial plan, the 1981
Plan, the 1985 Plan, and the 1988, 1993 and 1997 Incentive Shares Plans
has, as its purpose, to benefit the Company by increasing motivation on the
part of its management personnel in senior executive positions who are
materially important to the development of the Company's business, by
creating an incentive for them to remain in the employ of the Company and
to work to the very best of their abilities for the achievement of the
Company's strategic growth objectives. This purpose is intended to be
accomplished under the Plan by granting Incentive Shares of the Company's
Common Stock ("Common Stock") to such key personnel (in addition to their
annual cash compensation, including extra salary payments) which, if
performance objectives and/or service requirements with the Company are
achieved, will permit them to share in the Company's success.
2. PARTICIPANTS. Participants in the Plan shall be key employees of the
Company, its subsidiaries, or any other entities in which the Company has a
significant equity or other interest as determined by the Committee, as
defined in Section 10 (the "Committee") (such other entities hereinafter
referred to as "affiliates"), or of any subsidiary of its subsidiaries or
affiliates, who may, but need not be, officers of the Company or of its
subsidiaries, affiliates or divisions, who are determined by the Committee,
in its discretion, to be senior management personnel important to the
growth of the Company, and to whom the Committee shall make any award under
the Plan.
3. SHARES COVERED BY THE PLAN. The total number of Shares covered by
the Plan shall be 10,000,000 shares of Common Stock as presently
constituted, plus up to 700,000 shares reserved but not issued under the
1997 Incentive Shares Plan. This number shall be adjusted to reflect
subsequent stock dividends, stock splits, spin-offs, spin-outs, reverse
stock splits and similar matters affecting outstanding shares of Common
Stock. Shares not exceeding this number may be awarded as Performance
Shares or Restricted Shares, each as hereinafter defined, in the discretion
of the Committee. In the event any award of Shares is cancelled, forfeited,
terminated or otherwise expires ("cancelled") on account of termination of
a Participant's employment, failure to meet performance objectives, or for
any other reason, the Committee may again award the Shares cancelled to an
existing or new Participant.
4. PERFORMANCE SHARES; PERFORMANCE PERIOD. The Committee, in its
discretion, may award all or any part of the Shares covered by the Plan as
units representing Performance Shares. The maximum number of Performance
Shares which may be awarded to any individual for any performance period
shall be 800,000 shares (subject to the anti-dilution provisions in Section
3). Any award of Performance Shares to a Participant for a specified
performance period under the Plan which is cancelled as provided in Section
3 shall continue to be counted against the maximum number of Performance
Shares which may be granted to such Participant for such period.
Performance Shares shall not be issued at the time of award, but the award
of units shall represent the right to receive payment (as determined by the
Committee pursuant to Section 6 hereof) if specified performance objectives
are achieved. The performance objectives may be established from time to
time by the Committee. Performance objectives need not be the same in
respect of all Participants and may be established separately for the
Company as a whole or for its various groups, divisions, subsidiaries and
affiliates, all as the Committee may determine, in its discretion. The
performance objectives shall be established at the beginning of the
applicable performance period and shall be based upon one or more of the
following criteria: sales, earnings, earnings per share, net earnings,
pre-tax earnings, earnings before interest and taxes, return on equity,
return on total capital and asset management. The performance criteria may
include or exclude specified items of an unusual, non-recurring or
extraordinary nature including, without limitation, changes in accounting
methods, changes in inventory methods, changes in corporate taxation,
unusual accounting gains and losses, changes in financial accounting
standards, or other extraordinary events causing dilution of or diminution
in the Company's earnings, all as the Committee may deem necessary or
desirable to accomplish the purposes of the performance program. Except as
provided in Section 12 hereof, the performance period for which achievement
of any performance objective shall be determined shall not be less than
three years.
C-1
Awards of Performance Shares may be conditioned on the Participant's
continued employment by the Company or a subsidiary or affiliate over the
performance period or in any other manner the Committee may determine.
5. PERFORMANCE SHARE AWARDS. Performance Share Awards shall be made
pursuant to performance programs as follows:
(a) Performance Programs; Initial Grants. After the approval of this Plan
by the Board, the Committee shall, in accordance with Section 4, establish
one or more performance programs each with a specified objective or
objectives and a specified performance period over which the specified
objective is targeted for achievement. Participants may be awarded Shares
in any one or more of the performance programs. In making its determination
of who shall be Participants in any performance program the Committee shall
take into account such factors as the Participant's level of
responsibility, job performance, potential for growth, level and types of
compensation and such other factors as the Committee deems relevant.
(b) Subsequent Awards. During the performance period of a performance
program, additional Performance Shares may be awarded (subject to the
maximum number provided for above) in the discretion of the Committee,
either (i) to new Participants in the performance program or (ii) if
circumstances of significant promotion or additional responsibility so
warrant, to any one or more of the initial Participants in the performance
program.
(c) Notice of Awards. Upon the making of any award by the Committee, the
Participant shall be advised of the number of Performance Shares awarded
and of the terms of the award.
6. PERFORMANCE SHARE PAYMENT. The payment amount which a holder of
Performance Shares shall be entitled to receive if the applicable targeted
performance objective is met shall be an amount equal to the market value
of one share of Common Stock on the date that the Committee determines that
the applicable targeted performance objective is met (following the
expiration of the applicable performance period) multiplied by the number
of Performance Shares held. For the purposes hereof market value as of any
date shall be the value as of said date as reasonably determined by the
Committee.
Notwithstanding the provisions of the foregoing paragraph, the Committee,
in its discretion, may establish, at the time it establishes the targeted
performance objective, a minimum performance target and may provide for
payment on a reduced scale if the targeted performance objective is not
achieved but the minimum performance target is met or exceeded. The
Committee may not increase the amount of payment that would otherwise be
paid upon attainment of a performance objective.
Payment amounts may be paid in shares of Common Stock and cash, or in any
combination thereof as determined by the Committee; provided, however, that
in no event shall the aggregate number of shares of Performance Shares for
which payment is made, plus the number of Restricted Shares which are not
cancelled, exceed the number specified in Section 3 (or as said number may
be adjusted as provided in Section 3).
7. TIME OF PAYMENT. Subject to the provisions of the following
paragraphs of this Section 7, distribution of amounts to which a
Participant is entitled, because the applicable targeted performance
objective is met, shall be made as soon as practicable after the holder of
the Performance Shares becomes entitled thereto, unless payment of the
Performance Shares is subject to specified vesting conditions after
attainment of the performance objective, in which case payment shall be
delayed until such vesting conditions have been satisfied.
If the Committee so determines in its sole discretion, prior to receipt of
any award of Performance Shares under the Plan, a Participant shall be
advised of the award proposed to be made and at such time may make an
election to have distribution of any amount such Participant may be
entitled to receive in respect of such Shares (whether in cash, in Common
Stock, or a combination thereof) deferred until such year as the
Participant may elect, after the year in which the amount would otherwise
be paid, up to and including the year of termination of employment on
account of retirement, and at the same time (prior to the time the award is
made) may elect to have such amount paid in such deferred annual
installments over such years as the Participant shall then specify. If a
Participant elects any such deferral, the following rules shall apply to
the deferred payment:
(a) Such election shall be irrevocable and shall be made in accordance with
the requirements of Section 409A of the Internal Revenue Code of 1986, as
amended ("Code"), and the regulations and other guidance issued thereunder.
(b) The right to such deferred payment shall be fully vested and
nonforfeitable but shall be nonassignable, and any attempted transfer or
assignment, or any pledge or other hypothecation of such right, shall be
void and of no effect.
C-2
(c) In the event of the death during the deferral period of a Participant
who has elected a deferred payment, the unpaid balance of the deferred
amount owing to such Participant at the time of death shall be distributed
to the Participant's estate on the date which is six months after the date
of death, irrespective of whether or not the deferral period elected has
expired.
(d) Until payment is made to a Participant of the full deferred payment to
which such Participant is entitled, the Company will accrue for the account
of the Participant during the period of deferral an amount equal to the
dividends per share paid on Common Stock during such period multiplied by
the number of Shares still unpaid and held for such Participant's account
in accordance with the deferred payment election. At the time the
Participant is entitled to receive any amount under the Plan, in accordance
with the election, there shall also be paid to such Participant the accrued
dividend equivalent amount, either in a lump sum or in deferred annual
installments as specified by such Participant at the time of the original
deferral election.
(e) Notwithstanding anything herein to the contrary, any such deferred
payment that is otherwise scheduled to be or to begin to be distributed
upon separation from service of a Participant who is a specified employee,
as determined under Code Section 409A and the regulations and other
guidance issued thereunder, may not be made or commenced before the date
which is six (6) months after the date of such separation from service (or,
if earlier, the date of the death of the employee).
The Committee, in its discretion, may amend the foregoing provisions hereof
relating to the election of deferred payments and the rules applicable
thereto if, in its judgment, the tax benefits intended by such provisions
and rules will not be adversely affected.
8. CONDITIONS TO PAYMENTS. Except as otherwise herein provided or
determined by the Committee, a Participant, in order to be entitled to
receive any payment on Performance Shares awarded, must be in the employ of
the Company or a subsidiary or affiliate of the Company (or a subsidiary of
a subsidiary or affiliate) on the expiration of the relevant performance
period and upon the date of payment (or the date payment would have
otherwise occurred but for a deferral election), and must have been
continuously in the employ of the Company or a subsidiary or affiliate (or
a subsidiary of a subsidiary or affiliate) from the date of the award of
the Performance Shares except for leaves of absence which may be approved
by the Committee. No vested interest in any payment under the Shares shall
accrue during the term of the performance period and no payment in respect
of the Shares shall be required to be made to any Participant whose
employment with the Company or a subsidiary or affiliate (or a subsidiary
of a subsidiary or affiliate) is terminated, with or without cause, prior
to the time such Participant is entitled or would have otherwise been
entitled to receive a distribution hereunder but for a deferral election;
provided, however, (a) that if a Participant in the Plan retires upon the
attainment of age 65 prior to the time such Participant is to receive
distribution (or would have received such distribution but for a deferral
election) on any Performance Shares awarded, the amount of payment to such
Participant shall be pro-rated in such manner as the Committee shall
reasonably determine, and (b) that the Committee, in its absolute
discretion, may provide for such pro-rata or other payment (or no payment),
as it may determine, to a Participant whose employment terminates (on
account of death, disability or otherwise) prior to the time the
Participant is entitled to receive distribution of Performance Shares and
prior to the Participant's retirement at age 65; provided, however, that
any such distribution shall be subject to any deferral election in effect
and the provisions of Section 7 hereof. If termination is on account of
death, the Committee may provide for payment of any distribution it
authorizes to the Participant's surviving spouse, heirs or estate, as the
Committee may determine.
9. RESTRICTED SHARES. In addition to Performance Shares the Committee
may grant to eligible Participants shares covered by the Plan which are not
subject to performance programs or performance objectives. Such other share
grants shall be Restricted Shares. Unless otherwise approved by the
Committee, Restricted Shares shall be forfeitable if the holder resigns or
is discharged from the employ of the Company (or a subsidiary or affiliate,
or a subsidiary of a subsidiary or affiliate, as the case may be) during a
Restriction Period specified by the Committee, which shall be not less than
three years from the date of the award. Such shares shall be forfeitable on
such other terms and conditions as may be specified by the Committee in an
award agreement which shall be signed by the Participant at the time of the
award. After the grant of any such award the Committee, in its discretion,
may waive any of the terms and conditions thereof and may reduce the
Restriction Period applicable thereto; provided, however, that the
Committee shall not reduce such period to less than three years; and
provided further, however, that in the event any Change of Control (as
hereinafter defined) shall occur the Restriction Period applicable to all
Restricted Shares then outstanding shall be accelerated and be deemed to be
satisfied so that the holders of such Restricted Shares shall immediately,
and without any action by the Committee, hold said Shares fully vested and
without any
C-3
continuing restrictions thereon, excepting, however, such restrictions, if
any, as may then be applicable under state or federal securities laws.
10. COMMITTEE MEMBERSHIP; AUTHORITY. The Plan shall be administered by
the members of the Compensation and Human Resources Committee of the Board
or such other committee of the Board as may be authorized from time to time
by the Board (the "Committee"). The members of the Committee shall be two
or more directors, each of whom must satisfy the stated criteria to be
considered (i) "non-employee directors" as defined under Rule 16b-3 under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), as in
effect from time to time, and (ii) "independent directors" as defined in
Section 303A of the New York Stock Exchange Listed Company Manual, as
amended from time to time. The Committee shall have plenary authority to
interpret the Plan, to determine awards and the terms thereof, to establish
any rules or regulations relating to the Plan which it determines to be
appropriate, and to make any other determination which it believes
necessary or advisable for the proper administration of the Plan. Its
decisions in matters relating to the Plan shall be final and conclusive on
the Company and all Participants. In the event the Committee shall no
longer meet the qualification requirements set forth above, the Board shall
appoint a new committee to administer the Plan, whose members shall cause
the Committee to qualify under Rule 16b-3 and Section 303A. The Committee
shall have the authority to appoint a subcommittee that meets the
requirements of Code Section 162(m), and the regulations thereunder, to
administer Performance Share awards, to the extent required to meet the
requirements of Section 162(m) and the regulations thereunder.
11. DETERMINATION OF ACHIEVEMENT OF OBJECTIVES. The Committee, in
regard to any performance program adopted by it, shall determine whether
any performance objective of any program has been met. In making this
determination, the Committee shall apply the accounting results, as audited
at the end of any fiscal year by the Company's independent registered
public accounting firm, but shall adjust such results for unusual,
nonrecurring or extraordinary items to the extent such adjustments were
preestablished by the Committee under Section 4. Prior to making a
Performance Share payment, the Committee shall certify in writing the
achievement of the applicable performance objective(s) and the amount of
the award to be paid to each Participant.
12. CHANGE OF CONTROL. In the event of a Change of Control (as
hereinafter defined) Participants then holding awards of Performance Shares
shall be entitled to receive such Shares (or equivalent value), free of any
conditions and as if the specified performance periods had elapsed and the
performance objectives relating thereto had been fully achieved; and in
this event the holders of Performance Shares shall be entitled to full
payment therefor, in Common Stock and in cash, or in such combination of
stock and cash as determined by the Committee. For the purpose hereof the
date of the expiration of the applicable performance period shall be deemed
to be the date as of which any Change of Control shall occur.
Notwithstanding the foregoing, Participants holding awards of Performance
Shares, payment for which has been deferred hereunder in accordance with
Section 7, shall be entitled to receive full payment therefor, as described
above, only in the event of a Change of Control (as hereinafter defined)
which is also determined to be a Change in Control Event under Code Section
409A and the regulations and other guidance issued thereunder.
13. AMENDMENT OF PLAN. The Committee shall have the authority to make
amendments and revisions of this Plan, provided that no amendments or
revisions of the Plan shall be made without the consent of the stockholders
of the Company if such amendment or revision would increase the aggregate
number of Shares which may be granted or securities which may be issued
under the Plan.
14. PAYMENTS IN COMMON STOCK; SOURCE OF STOCK. It is anticipated that
any shares of Common Stock delivered pursuant to the terms of the Plan will
be Treasury shares of the Company acquired prior to or during the term of
the Plan. The Committee, however, may instead utilize authorized but
unissued shares of Common Stock, subject to payment of any required par
value; and, subject to the approval of this Plan by the stockholders of the
Company, the Board and officers of the Company are authorized to take such
action as may be necessary to provide for the issuance of any or all of the
shares which may be necessary to satisfy the Company's obligations
hereunder and to cause said shares to be listed on the New York and any
other stock exchanges on which the Common Stock may at such time be listed.
Shares of Common Stock delivered to Participants hereunder in satisfaction
of Performance Share rights, and other Incentive Shares so delivered after
the release of any conditions applicable thereto may nonetheless thereafter
be restricted stock under the Securities Act of 1933, as amended (the "1933
Act"), and the certificates for such Shares may have a legend imprinted
thereon restricting the resale, hypothecation or further transfer of said
shares except in a registered offering or pursuant to an available
exemption from registration.
C-4
15. ADDITIONAL PROVISIONS. The following additional terms and
provisions apply to the Plan:
(a) The award of Performance Shares to a Participant in the Plan shall
create no rights in such Participant as a shareholder of the Company until
such time and to the extent that the Participant is delivered Shares of
Common Stock in satisfaction of such Participant's Performance Share units,
except that the Committee may authorize the payment of an amount equal to
cash dividends on Performance Shares or on a portion thereof awarded to
Participants in the Plan. Holders of Restricted Shares granted hereunder
shall have such rights as are expressly provided for herein and in the
terms of the award.
(b) No adjustment shall be made in the Incentive Shares awarded on account
of cash dividends which may be paid, or other rights which may be issued
to, the holders of Common Stock during the term of the Plan except as
stated in subparagraph (c) below.
(c) In the event of stock dividends, stock splits, spin-offs, spin-outs,
reverse stock splits or similar matters affecting outstanding shares of
Common Stock during the term of the Plan, appropriate revision shall be
made (i) in the targeted growth objectives of performance programs, and
(ii) in the Shares awarded to reflect the effect of such stock dividend,
stock split, spin-off, reverse stock split or similar matter on the
interests of the Participants in the Plan.
(d) No Participant in the Plan shall have any right as a Participant in the
Plan to continue in the employ of the Company or of any of its subsidiaries
for any period of time, or any right to a continuation of such
Participant's present or any other rate of compensation; and such rights
and powers as the Company now has or which it may have in the future to
dismiss or discharge any Participant from employment or to change the
assignments of any Participant are expressly reserved to the Company.
(e) The Committee may require the Company to withhold from any payment due
to a Participant (under this Plan or otherwise) any amount necessary to
satisfy income tax withholding requirements in respect of any payment due
under this Plan; and for this purpose may withhold cash and the Shares
deliverable in respect of Performance Shares. Alternatively, the Committee
may require the Participant to pay to the Company such cash amount or
additional cash amount as may be necessary to satisfy withholding
requirements in which case such Participant shall be entitled to receive
delivery of all Shares due hereunder. Upon vesting of the Restricted Shares
to a Participant, the Company may withhold sufficient shares to satisfy its
withholding obligations for federal, state and local income taxes on such
payment, or in its discretion may withhold cash from any amounts otherwise
payable with respect to Performance Shares.
(f) "Change of Control" of the Company shall mean:
(i) the purchase or acquisition by any person, entity or group of
persons, within the meaning of Section 13(d) or 14(d) of the 1934 Act
(excluding, for this purpose, the Company or its subsidiaries or any
employee benefit plan of the Company or its subsidiaries), of
beneficial ownership (within the meaning of Rule 13d-3 under the 1934
Act) of 20% or more of either the then-outstanding shares of common
stock of Emerson or the combined voting power of Emerson's
then-outstanding voting securities entitled to vote in the election of
directors;
(ii) the consummation of (A) any reorganization, merger,
consolidation or similar transaction involving Emerson, other than a
reorganization, merger, consolidation or similar transaction in which
the Company's shareholders immediately prior to such transaction own
more than 50% of the combined voting power entitled to vote in the
election of directors of the surviving corporation, (B) any sale,
lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets of
Emerson, or (C) the liquidation or dissolution of Emerson; or
(iii) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") ceasing for any reason to constitute at least a
majority of the Board, provided that any person who becomes a director
subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board
(other than an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to
the election of directors of the Company) shall be, for purposes of
this section, considered as though such person were a member of the
Incumbent Board.
16. TERM OF PLAN; APPROVAL BY STOCKHOLDERS. The term of the Plan shall
be for the period from the date of its approval by the Board until such
time as the Board, in its discretion, elects to terminate the Plan or
replace the Plan with a successor Plan. During the term of the Plan awards
of Performance Shares may be made under
C-5
performance programs with performance periods extending beyond the end of
the term of the Plan and Restricted Shares may be granted with conditions
or restrictions extending beyond the end of the term of the Plan.
Restrictions in respect of Incentive Shares granted during the term of the
Plan shall continue in effect after the termination of the Plan until they
shall be satisfied or forfeited in accordance with their terms. This Plan
shall be subject to approval by the stockholders of the Company.
17. NON-ASSIGNABILITY. Rights under the Plan and in respect of Shares
granted under the Plan are not transferable and may not be assigned or
pledged by any Participant at any time, and no recognition shall be
required to be given by the Company to any attempted assignment of any
rights hereunder or of any attempted assignment of the Shares. This
non-assignability shall not apply to any shares of the Common Stock
delivered to Participants hereunder after such Shares shall be fully vested
in the holder thereof, except as follows:
(a) Unless otherwise determined by the Committee, shares of Common Stock
issued in payment of Performance Shares to any Participant who is subject
to Section 16 of the 1934 Act may not be assigned for a period of six (6)
months after issuance.
(b) The resale of shares of Common Stock may be restricted by reason of the
1933 Act as set forth in Section 14 hereof.
Unless otherwise determined by the Committee, if payment of Shares to a
Participant is accelerated prior to vesting, and if the Participant is
subject to Section 16 of the 1934 Act, such Shares shall be
non-transferable for a period of six (6) months after they became fully
vested.
18. PLAN A PART OF CONTINUING COMPENSATION PROGRAM. This Plan is a part
of a continuing program of incentive compensation for senior managerial
personnel of the Company and is expected to be supplemented or continued in
effect after the term hereof by an additional plan or plans as approved by
the Board or stockholders of the Company.
19. SEPARABILITY OF PROVISIONS. With respect to Participants subject to
Section 16 of the 1934 Act, this Plan and transactions hereunder are
intended to comply with all applicable provisions of Rule 16b-3 or its
successors. To the extent that any provision of the Plan or action of the
Committee fails to so comply, it shall be deemed null and void to the
extent permitted by law and deemed advisable by the Committee.
*******
Approved by the Board of Directors on the 1st day of November, 2005,
subject to approval of the stockholders of the Company.
C-6
[Emerson logo]
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION Please
IS MADE, THIS PROXY WILL BE VOTED FOR THE NOMINEES IN Mark Here
PROPOSAL 1, FOR PROPOSAL 2, FOR PROPOSAL 3 AND AGAINST for Address
PROPOSAL 4. Change or / /
Comments
SEE REVERSE SIDE
MANAGEMENT RECOMMENDS A VOTE FOR THE FOLLOWING:
---
1. ELECTION OF DIRECTORS
FOR all nominees WITHHOLD AUTHORITY
listed below to vote for the
(except as marked nominees
to the contrary) listed below
/ / / /
01 A. A. Busch III 03 V. R. Loucks, Jr.
02 A. F. Golden 04 J. B. Menzer
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR I PLAN
ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE TO ATTEND THE
NOMINEE'S NAME IN THE LIST ABOVE.) ANNUAL MEETING / /
MANAGEMENT RECOMMENDS A VOTE FOR THE FOLLOWING:
---
2. Approval of the Emerson Electric Co. 2006 Incentive FOR AGAINST ABSTAIN
Shares Plan / / / / / /
MANAGEMENT RECOMMENDS A VOTE FOR THE FOLLOWING:
---
3. Ratification of Independent Registered Public FOR AGAINST ABSTAIN
Accounting Firm / / / / / /
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MANAGEMENT RECOMMENDS A VOTE AGAINST THE FOLLOWING:
-------
4. The stockholder proposal on severance FOR AGAINST ABSTAIN
agreements described in the proxy statement / / / / / /
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The undersigned hereby acknowledges receipt of Notice of Annual Meeting and
accompanying Proxy Statement.
SIGNATURE SIGNATURE 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.
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FOLD AND DETACH HERE
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 11:59 PM EASTERN TIME THE
DAY PRIOR TO ANNUAL MEETING DAY.
YOUR INTERNET OR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES
TO VOTE YOUR SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND
RETURNED YOUR PROXY CARD.
------------------------------------ -------------------------------- ---------------------
INTERNET TELEPHONE MAIL
http://www.proxyvoting.com/emr 1-866-540-5760 Mark, sign and date
Use the Internet to vote your proxy. Use any touch-tone telephone to your proxy card
Have your proxy card in hand when OR vote your proxy. Have your proxy OR and
you access the web site. card in hand when you call. return it in the
enclosed postage-paid
envelope.
------------------------------------ -------------------------------- ---------------------
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE, YOU DO NOT NEED TO MAIL
BACK YOUR PROXY CARD.
PLEASE ADMIT:
[EMERSON logo]
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, does hereby appoint D. N.
FARR, W. W. WITHERS, and H. M. SMITH, or any of them, with full powers
of substitution, the true and lawful attorneys in fact, agents and
proxies of the undersigned to represent the undersigned at the Annual
Meeting of the Stockholders of EMERSON ELECTRIC CO., to be held on
February 7, 2006, commencing at 10:00 A.M., St. Louis Time, at the
headquarters of the Company at 8000 West Florissant Avenue, St. Louis,
Missouri, and at any and all adjournments of said meeting, and to vote
all the shares of Common Stock of the Company standing on the books of
the Company in the name of the undersigned as specified and in their
discretion on such other business as may properly come before the
meeting. The matters stated on the reverse side were proposed by the
Company, except as indicated.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
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ADDRESS CHANGE/COMMENTS (MARK THE CORRESPONDING BOX ON THE REVERSE SIDE)
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FOLD AND DETACH HERE
[EMERSON logo]
ADMISSION TICKET
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, FEBRUARY 7, 2006
10:00 A.M.
EMERSON ELECTRIC CO. HEADQUARTERS
8000 W. FLORISSANT AVENUE
ST. LOUIS, MO 63136
==========================
PLEASE PRESENT THIS
NON-TRANSFERABLE TICKET
AT THE REGISTRATION DESK
UPON ARRIVAL
==========================
APPENDIX
Page 17 of the proxy statement contains a Performance Graph. The
information contained within the graph is presented in a tabular format
immediately following the graph.