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
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11c or Section 240.14a-12
BRUSH ENGINEERED MATERIALS INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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BRUSH ENGINEERED MATERIALS INC.
17876 ST. CLAIR AVENUE
CLEVELAND, OHIO 44110
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders of Brush Engineered Materials Inc. will
be held at The Forum, One Cleveland Center, 1375 East Ninth Street, Cleveland,
Ohio 44114, on May 4, 2004 at 11:00 a.m., local time, for the following
purposes:
(1) To elect three directors, each to serve for a term of three years and
until a successor is elected and qualified; and
(2) To transact any other business that may properly come before the
meeting.
Shareholders of record as of the close of business on March 5, 2004 are
entitled to notice of the meeting and to vote at the meeting or any adjournment
or postponement of the meeting.
Michael C. Hasychak
Secretary
March 15, 2004
IMPORTANT -- YOUR PROXY IS ENCLOSED.
PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ACCOMPANYING ENVELOPE.
BRUSH ENGINEERED MATERIALS INC.
17876 ST. CLAIR AVENUE
CLEVELAND, OHIO 44110
PROXY STATEMENT
MARCH 15, 2004
GENERAL INFORMATION
Your Board of Directors is furnishing this proxy statement to you in
connection with our solicitation of proxies to be used at our annual meeting of
shareholders to be held on May 4, 2004.
If you sign and return the enclosed proxy card, your shares will be voted
as indicated on the card. Without affecting any vote previously taken, you may
revoke your proxy by delivery to us of a new, later dated proxy with respect to
the same shares, or by giving written notice to us before or at the annual
meeting. Your presence at the annual meeting will not, in and of itself, revoke
your proxy.
At the close of business on March 5, 2004, the record date for the
determination of shareholders entitled to notice of, and to vote at, the annual
meeting, we had outstanding and entitled to vote 16,711,853 shares of common
stock.
Each outstanding share of common stock entitles its holder to one vote on
each matter brought before the meeting. Under Ohio law, shareholders have
cumulative voting rights in the election of directors, provided that the
shareholder gives not less than 48 hours notice in writing to the President, any
Vice President or the Secretary of Brush Engineered Materials that the
shareholder desires that voting at the election be cumulative, and provided
further that an announcement is made upon the convening of the meeting informing
shareholders that notice requesting cumulative voting has been given by the
shareholder. When cumulative voting applies, each share has a number of votes
equal to the number of directors to be elected, and a shareholder may give all
of the shareholders' votes to one nominee or divide the shareholder's votes
among as many nominees as he or she sees fit. Unless contrary instructions are
received on proxies given to Brush Engineered Materials, in the event that
cumulative voting applies, all votes represented by the proxies will be divided
evenly among the candidates nominated by the Board of Directors, except that if
voting in this manner would not be effective to elect all the nominees, the
votes will be cumulated at the discretion of the Board of Directors so as to
maximize the number of the Board of Directors' nominees elected.
In addition to the solicitation of proxies by the use of the mails, we may
solicit the return of proxies in person and by telephone, telecopy or e-mail. We
will request brokerage houses, banks and other custodians, nominees and
fiduciaries to forward soliciting material to the beneficial owners of shares
and will reimburse them for their expenses. We will bear the cost of the
solicitation of proxies.
At the annual meeting, the inspectors of election appointed for the meeting
will tabulate the results of shareholder voting. Under Ohio law, our articles of
incorporation and our code of regulations, properly signed proxies that are
marked "abstain" or are held in "street name" by brokers and not voted on one or
more of the items before the meeting will, if otherwise voted on at least one
item, be counted for purposes of determining whether a quorum has been achieved
at the annual meeting. Votes withheld in respect of the election of directors
will not be counted in determining the election of directors.
1
1. ELECTION OF DIRECTORS
Our articles of incorporation and code of regulations provide for three
classes of directors whose terms expire in different years. At the present time
it is intended that proxies will be voted for the election of Joseph P.
Keithley, William R. Robertson and John Sherwin, Jr.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THESE NOMINEES.
If any of these nominees becomes unavailable, it is intended that the
proxies will be voted as the Board of Directors determines. We have no reason to
believe that any of the nominees will be unavailable. The three nominees
receiving the greatest number of votes will be elected as directors of Brush
Engineered Materials.
The following table sets forth information concerning the nominees and the
directors whose terms of office will continue after the meeting:
DIRECTORS WHOSE TERMS END IN 2007 CURRENT EMPLOYMENT
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Joseph P. Keithley Chairman, Chief Executive Officer and
Director since 1997 President,
Member -- Governance Committee, Keithley Instruments, Inc.
Organization and Compensation Committee (Electronic Test and Measurement Products)
and Retirement Plan Review Committee
Age -- 55
Mr. Keithley has been Chairman of the Board of Keithley Instruments, Inc. since 1991. He has
served as Chief Executive Officer of Keithley Instruments, Inc. since November 1993 and as
its President since May 1994. He is a director of Keithley Instruments, Inc. and Nordson
Corporation.
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William R. Robertson Managing Partner,
Director since 1997 Kirtland Capital Partners
Member -- Audit Committee, Organization (Private Equity Investments)
and Compensation Committee and
Retirement Plan Review Committee
Age -- 62
Mr. Robertson has been a Managing Partner of Kirtland Capital Partners since September 1997.
Prior to that time, he was President and a director of National City Corporation from
October 1995 until July 1997. He also served as Deputy Chairman and a director from August
1988 until October 1995. He is a director of Gries Financial LLC, Fairport Asset Management
LLC and Instron Corporation. Mr. Robertson is a member of the Board of Managers of the
Prentiss Foundation and a member of and a vice president of the Board of Trustees of the
Cleveland Museum of Art.
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John Sherwin, Jr. President,
Director since 1981 Mid-Continent Ventures, Inc.
Member -- Audit Committee, Organization (Venture Capital Company)
and Compensation Committee and
Retirement Plan Review Committee
Age -- 65
Mr. Sherwin has been President of Mid-Continent Ventures, Inc. during the past five years.
Mr. Sherwin is a director of John Carroll University and Shorebank Cleveland, a trustee of
The Cleveland Clinic Foundation and Chairman of the Cleveland Foundation.
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2
DIRECTORS WHOSE TERMS END IN 2005 CURRENT EMPLOYMENT
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Albert C. Bersticker Non-Executive Chairman,
Director since 1993 Oglebay Norton Company
Member -- Governance Committee and (Mining of Nonmetallic Minerals)
Organization and Compensation Committee
Age -- 69
Mr. Bersticker was appointed Non-executive Chairman of Oglebay Norton Company in May of
2003. Mr. Bersticker was Chairman of Ferro Corporation from February 1996 and retired in
1999. He served as Chief Executive Officer of Ferro Corporation from 1991 until January of
1999 and as its President from 1988 until February 1996. In addition to serving on the Board
of Oglebay Norton Company, Mr. Bersticker currently Secretary, Treasurer and a member of the
Board of Directors of St. John's Medical Center in Jackson, Wyoming.
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William G. Pryor Retired President,
Director since 2003 Van Dorn Demag Corporation
Member -- Organization and Compensation (Plastic Injection Molding Equipment)
Committee and Retirement Plan Review
Committee
Age -- 64
Mr. Pryor was President of Van Dorn Demag Corporation from 1993 and retired in 2002. He had
also served as President and Chief Executive Officer of Van Dorn Corporation, predecessor to
Van Dorn Demag Corporation. Mr. Pryor is currently on the Board of Directors of Oglebay
Norton Company and Oxis International, Inc.
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N. Mohan Reddy, Ph.D. Professor
Director since 2000 The Weatherhead School of Management, Case
Member -- Audit Committee and Western Reserve University
Organization and Compensation Committee
Age -- 50
Dr. Reddy has been a professor at the Weatherhead School of Management, Case Western Reserve
University for the past five years. Dr. Reddy is a director of Keithley Instruments, Inc.
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3
DIRECTORS WHOSE TERMS END IN 2006 CURRENT EMPLOYMENT
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Gordon D. Harnett Chairman of the Board, President
Director since 1991 and Chief Executive Officer,
Age -- 61 Brush Engineered Materials Inc.
Mr. Harnett has been Chairman of the Board and Chief Executive Officer of Brush Engineered
Materials (and its predecessor, Brush Wellman Inc.) during the past five years. He has been
President from 1991 to 2001 and since May 2002. He is a director of Lubrizol Corporation,
EnPro Industries, Inc. and PolyOne Corporation.
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David H. Hoag Retired Chairman, and Chief Executive
Director since 1999 Officer
Member -- Governance Committee, The LTV Corporation
Organization and Compensation Committee (Integrated Steel Producer and Metal
and Retirement Plan Review Committee Fabricator)
Age -- 64
Mr. Hoag retired as Chairman of the Board of The LTV Corporation in January of 1999. He had
served as its Chairman since June 1991, as Chief Executive Officer from February 1991 until
September 1998 and as President from January 1991 until July 1997. The LTV Corporation filed
for Chapter 11 bankruptcy protection in December of 2000. Mr. Hoag is a director of Lubrizol
Corporation, NACCO Industries, Inc., PolyOne Corporation and The Chubb Corporation. He is
also a member of the Boards of Trustees of Allegheny College and University Hospitals of
Cleveland.
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William B. Lawrence Former Executive Vice President,
Director since 2003 General Counsel & Secretary,
Member -- Audit Committee and TRW, Inc.
Organization and Compensation Committee (Advanced Technology Products and Services)
Age -- 59
Prior to the sale of TRW, Inc. to Northrop Grumman Corporation in December 2002, Mr.
Lawrence served as TRW's Executive Vice President, General Counsel and Secretary since 1997
and held various other executive positions at TRW since 1976. Mr. Lawrence also serves on
the Board of Directors of Ferro Corporation.
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William P. Madar Chairman of the Board
Director since 1988 Nordson Corporation
Member -- Governance Committee and (Industrial Application Equipment
Organization and Compensation Committee Manufacturer)
Age -- 64
Mr. Madar was elected Chairman of the Board of Nordson Corporation effective October 1997.
Prior to that time, he served as Vice Chairman of Nordson Corporation from August 1996 until
October 1997 and as Chief Executive Officer from February 1986 until October 1997. From
February 1986 until August 1996, he also served as its President. He is a director of
Lubrizol Corporation.
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4
CORPORATE GOVERNANCE; COMMITTEES OF THE BOARD OF DIRECTORS
The New York Stock Exchange has recently adopted new corporate governance
requirements, which will become effective immediately after our annual meeting.
We have adopted a Policy Statement on Significant Corporate Governance Issues
and a Code of Business Conduct and Ethics in compliance with these new New York
Stock Exchange and Securities and Exchange Commission requirements. These
materials, along with the charters of the Audit, Governance, Organization and
Compensation, and Retirement Plan Review Committees of our Board of Directors,
which also comply with these new requirements, are available on our website at
www.beminc.com, or upon request by any shareholder to Secretary, Brush
Engineered Materials Inc., 17876 St. Clair Avenue, Cleveland, Ohio 44110. We
also make our reports on Forms 10-K, 10-Q and 8-K available on our website, free
of charge, as soon as reasonably practicable after these reports are filed with
the Securities and Exchange Commission. Any amendments or waivers to our Code of
Business Conduct and Ethics, Committee Charters and Policy Statement on
Significant Corporate Governance Issues will also be made available on our
website. The information on our website is not incorporated by reference into
this proxy statement or any of our periodic reports.
Board Independence
Our Board of Directors has affirmatively determined that each of our
directors, other than Mr. Harnett, is: "independent" within the meaning of that
term which will be defined in new Section 303A.02(b) of the New York Stock
Exchange listing standards; a "non-employee director" within the meaning of that
term as defined in Rule 16b-3(b)(3) promulgated under the Securities Exchange
Act of 1934 (the "Exchange Act"); and an "outside director" within the meaning
of that term as defined in the regulations promulgated under Section 162(m) of
the Internal Revenue Code of 1986.
With respect to Section 303A.02(a) of the New York Stock Exchange's new
listing standards, our Board of Directors has affirmatively determined that each
director named as independent has no material relationship with the Company,
either directly or as a partner, shareholder or officer of an organization that
has a relationship with the Company, that would compromise his independence from
the Company's management. Mr. William B. Lawrence served as the Executive Vice
President, General Counsel and Secretary of TRW, Inc. prior to its acquisition
by Northrop Grumman Corporation in December 2002, and resigned on February 1,
2003, prior to becoming a director of the Company on August 11, 2003. Although
Northrop Grumman and certain of its affiliates including TRW are customers of
the Company, because Mr. Lawrence is no longer employed in any capacity by or
otherwise associated with either company, our Board of Directors has
affirmatively determined that he has no material relationship with Northrop
Grumman or its affiliates that would compromise his independence from the
Company's management. After appropriate diligence, our Board or Directors has
identified no other potentially material relationships with our other directors
identified as independent.
Charitable Contributions
Within the last three years, we have made no charitable contributions
during any single fiscal year to any charity in which a director serves as an
executive officer, of over the greater of $1 million or 2% of the Company's
consolidated gross revenues.
Board Communication
Our Policy Statement on Significant Corporate Governance Issues provides
that the Chairman of the Organization and Compensation Committee, presently Mr.
William P. Madar, will be the lead non-management director. Shareholders may
communicate with the Board of Directors as a whole, the lead non-management
director or the non-management directors as a group, by forwarding relevant
information in writing to Chairman, Organization and Compensation Committee, c/o
Secretary, Brush Engineered Materials Inc., 17876 St. Clair Avenue, Cleveland,
Ohio 44110. Any other communication to individual directors or committees of the
Board of Directors may be similarly addressed to the appropriate recipients, c/o
our Secretary.
5
Audit Committee
The Audit Committee held eight meetings in 2003. The Audit Committee
membership consists of Messr. Robertson, as Chairman, Messrs. Lawrence, Reddy
and Sherwin. In February 2004, a revised charter for the Audit Committee was
adopted, which is attached as Appendix A to this proxy statement. Under that
charter, the Audit Committee's principal functions include assisting our Board
of Directors in fulfilling its oversight responsibilities with respect to:
- the integrity of our financial statements and our financial reporting
process;
- compliance with ethics policies and legal and other regulatory
requirements;
- our independent auditor's qualifications and independence;
- our systems of internal accounting and financial controls; and
- the performance of our independent auditors and of our internal audit
functions.
The Audit Committee also prepared the Audit Committee report included under
the heading "Audit Committee Report" in this proxy statement.
Audit Committee Expert
Although our Board of Directors has determined that more than one member of
the Audit Committee has the accounting and related financial management
expertise to be an "audit committee financial expert", as defined by the SEC, it
has named the Audit Committee Chairman, Mr. Robertson, as the named financial
expert. Each member of the Audit Committee is financially literate, and each
member of the Audit Committee satisfies the heightened independence requirements
in Section 303.01(B)(2)(a) and (3) of the New York Stock Exchange listing
standards.
Governance Committee
The Governance Committee held four meetings in 2003. The Governance
Committee membership consists of Messr. Bersticker, as Chairman, Messrs. Hoag,
Keithley and Madar. All the members are independent in accordance with the NYSE
Rules. Its principal functions include:
- evaluation of candidates for board membership, including any nominations
of qualified candidates submitted in writing by shareholders to our
Secretary;
- making recommendations to the full Board of Directors regarding
directors' compensation;
- making recommendations to the full Board of Directors regarding Board of
Directors governance matters; and
- overseeing the evaluation of the Board and management of the Company.
Nomination of Director Candidates
The Governance Committee will consider candidates recommended by
shareholders for nomination as directors of the Company. Any shareholder
desiring to submit a candidate for consideration by the Governance Committee
should send the name of the proposed candidate, together with biographical data
and background information concerning the candidate, to the Governance
Committee, c/o our Secretary. The Governance Committee did not receive any
recommendation for a candidate from a shareholder or shareholder group as of
March 5, 2004.
In recommending candidates to the Board of Directors for nomination as
directors, the Governance Committee's charter requires it to consider such
factors as it deems appropriate, consistent with our Policy Statement on
Significant Corporate Governance Issues. Such factors should include judgment,
skills, diversity, integrity, age, experience with comparable businesses, the
interplay of the candidate's experience with the experience of other Board
members, and the extent to which the candidate would be a desirable addition to
6
the Board of Directors and any committees of the Board. The Governance
Committee's evaluation of candidates recommended by shareholders does not differ
materially from its evaluation of candidates recommended from other sources.
A shareholder of record entitled to vote in an election of directors who
timely complies with the procedures set forth in our code of regulations and
with all applicable requirements of the Exchange Act and the rules and
regulations thereunder, may also directly nominate individuals for election as
directors at a shareholders' meeting. Copies of our Code of Regulations are
available by a request addressed to our Secretary.
Organization and Compensation Committee
The Organization and Compensation Committee held seven meetings in 2003.
Its membership consists of Messr. Madar, as Chairman, Messrs. Bersticker, Hoag,
Keithley, Lawrence, Pryor, Reddy, Robertson and Sherwin. Its principal functions
include:
- reviewing executive compensation;
- taking action where appropriate or making recommendations to the full
Board of Directors with respect to executive compensation;
- recommending the adoption of executive benefit plans;
- granting stock options and other awards; and
- reviewing and recommending actions to the full Board of Directors on
matters relating to management succession, retention and development and
changes in organization structure.
Retirement Plan Review Committee
The Retirement Plan Review Committee held three meetings in 2003. Its
membership consists of Messr. Sherwin as Chairman, and Messrs. Hoag, Keithley,
Pryor and Robertson. Its principal functions include:
- reviewing defined benefit pension plans as to current and future costs,
funded position, and actuarial and accounting assumptions used in
determining benefit obligations;
- establishing and reviewing policies and strategies for the investment of
defined benefit pension plan assets; and
- reviewing investment options offered under employee savings plans and the
performance of those investment options.
Board Attendance
Our Board of Directors held eight meetings in 2003. All of the directors
attended at least 75% of the Board and assigned committee meetings during 2003.
Our policy is that directors are expected to attend all meetings, including the
annual meeting of shareholders. All of our directors attended last year's annual
meeting of shareholders.
DIRECTOR COMPENSATION
Each director who is not an officer of Brush Engineered Materials receives
an annual retainer fee of $16,500 for each calendar year. The Chairman of each
committee, if not an officer, receives an additional $5,000 on an annual basis
and the Chairman of the Audit Committee receives an additional $8,000 annually.
In addition, each director who is not an officer of Brush Engineered Materials
receives a meeting fee of $17,500 on an annual basis.
7
Brush Engineered Materials maintains a Deferred Compensation Plan for
Non-employee Directors. This plan provides each non-employee director the
opportunity to defer receipt of all or a portion of the compensation payable for
his services as a director. Brush Engineered Materials, in turn, transfers an
amount equal to the reduction in compensation to a trust, which is invested at
the director's discretion. The Deferred Compensation Plan for Non-employee
Directors was amended during 2001 to allow for additional investment choices as
may be approved by the Administrative Committee. Prior to the amendment, the
investment choices were limited to Brush Engineered Materials common stock or in
accordance with the Brush Engineered Materials investment policy. The amendment
permits a director who is age 55 or older to change his election with respect to
amounts previously credited to his account, and also permits a director,
regardless of age, to change his election from time to time with respect to
future additions to his deferred compensation account. A director may also elect
to receive a distribution of part or all of his deferred compensation account in
one or more distributions subject to a 10% penalty. Directors are encouraged to
take all or a portion of their compensation in the form of common stock. For
2002 and 2003, directors elected to receive an aggregate of $69,000 and $73,667
worth of Brush Engineered Materials common stock on a deferred basis under this
plan, respectively.
Dr. Charles F. Brush III, retired from our Board of Directors after over 45
years of continuous service, effective December 31, 2003, but will continue to
serve as Director Emeritus. Dr. Brush will continue to defer the receipt of
shares of Company common stock he previously received under the 1997 Stock
Incentive Plan for Non-employee Directors and has waived any right to receive
future awards under that plan.
We previously maintained a Stock Option Plan for Non-employee Directors,
which authorized a one-time grant of a non-qualified option to purchase 5,000
shares of Company common stock, at fair market value at the date of grant, to
each non-employee director who had never been an employee of the Company. There
are no more shares available under this plan. The 1997 Stock Incentive Plan for
Non-employee Directors, which replaced the Stock Option Plan for Non-employee
Directors, provides newly elected directors with the same one-time stock option
grant that was previously available under the Stock Option Plan for Non-employee
Directors. In addition, this plan provides for an automatic grant of 500
deferred shares of common stock to each eligible director on the business day
following the annual meeting of shareholders. During 2003, eight directors were
credited with 500 shares each of Company common stock.
An amendment to the 1997 Stock Incentive Plan for Non-employee Directors
was approved by shareholders at the 2001 annual meeting. Under the plan as
amended, each non-employee director receives the grant of an option to purchase
up to 2,000 shares of Brush Engineered Materials common stock annually. In 2003,
eight directors received stock option grants for 2,000 shares of common stock
each at an exercise price of $5.59.
8
BENEFICIAL OWNERSHIP TABLE
The following table sets forth, as of February 16, 2004, information with
respect to the beneficial ownership of Brush Engineered Materials common stock
by each person known by Brush Engineered Materials to be the beneficial owner of
more than 5% of the common stock, by each present director of Brush Engineered
Materials, by executive officers of Brush Engineered Materials and by all
directors and executive officers of Brush Engineered Materials as a group.
Unless otherwise indicated in the note to this table, the shareholders listed in
the table have sole voting and investment power with respect to shares
beneficially owned by them. Shares that are subject to stock options that may be
exercised within 60 days of February 16, 2004 are reflected in the number of
shares shown and in computing the percentage of Brush Engineered Materials
common stock beneficially owned by the person who owns those options.
NUMBER OF PERCENT
SHARES OF CLASS
--------- --------
NON-OFFICER DIRECTORS
Albert C. Bersticker........................................ 25,184(1)(2) *
David H. Hoag............................................... 21,101(1)(2) *
Joseph P. Keithley.......................................... 16,090(1)(2) *
William B. Lawrence......................................... 5,000(1) *
William P. Madar............................................ 32,189(1)(2) *
William G. Pryor............................................ 5,000(1) *
N. Mohan Reddy.............................................. 23,497(1)(2) *
William R. Robertson........................................ 42,065(1)(2)(3) *
John Sherwin, Jr............................................ 20,950(1)(2)(4) *
NAMED EXECUTIVE OFFICERS
Gordon D. Harnett........................................... 306,980(1) 1.8%
Daniel A. Skoch............................................. 100,011(1) *
John D. Grampa.............................................. 63,888(1) *
All directors and executive officers as a group (including
the Named Executive Officers) (12 persons)................ 661,955(5) --
OTHER PERSONS
SSB Citi Fund Management LLC
388 Greenwich Street
New York, New York 10013.................................. 3,178,651(6) 18.5%
Dimensional Fund Advisors
1299 Ocean Avenue
Santa Monica, California.................................. 1,181,720(7) 6.9%
Brush Engineered Materials Inc. Savings and Investment
Plan...................................................... 935,475(8) 5.4%
---------------
* Less than 1% of common stock.
(1) Includes shares covered by outstanding options exercisable
within 60 days as follows: Mr. Harnett 272,500 Mr. Skoch
97,000; Mr. Grampa 57,000; 5,000 for each of Messrs.
Lawrence and Pryor; 6,000 each for Messrs. Bersticker, Madar
and Sherwin and 11,000 each for Messrs. Hoag, Keithley,
Reddy and Robertson. Also includes 2,000 restricted shares
granted to Mr. Grampa in 2004 pursuant to the 1995 Stock
Incentive Plan, as amended, which are subject to forfeiture
if Mr. Grampa is not continuously employed in his current
capacity for a period of three years ending on February 3,
2007.
(2) Includes deferred shares under the Deferred Compensation
Plan for Non-employee Directors, and 1997 Stock Incentive
Plan for Non-employee Directors as follows: Mr. Bersticker
18,684; Mr. Hoag 9101; Mr. Keithley 4,090; Mr. Madar 24,989;
Dr. Reddy 12,497; Mr. Robertson 20,565; and Mr. Sherwin
6,101.
(3) Includes 500 shares owned by Mr. Robertson's wife of which
Mr. Robertson disclaims beneficial ownership.
9
(4) Includes 4,647 shares owned by Mr. Sherwin's wife and
children of which Mr. Sherwin disclaims beneficial
ownership.
(5) Includes 498,500 shares subject to outstanding options held
by officers and directors and exercisable within 60 days.
(6) According to a Schedule 13G filed with the Securities and
Exchange Commission on February 17, 2004, as of December 31,
2003, Citigroup Inc. had shared voting power and shared
dispositive power over 2,256,471 shares; Salomon Smith
Barney Holdings Inc. had shared voting power and shared
dispositive power over 2,256,471 shares; and SSB Citi Fund
Management LLC, formerly SSBC Fund Management Inc., had
shared voting power and shared dispositive power over
2,049,021 shares. SSB Citi Fund Management LLC is a
wholly-owned subsidiary of Salomon Smith Barney Holdings
Inc. Salomon Smith Barney Holdings Inc. is a wholly-owned
subsidiary of Citigroup Inc. Each reported that it is an
Investment Advisor under either the Investment Advisors Act
of 1940 or a similar state law.
(7) Dimensional Fund Advisors, an Investment Advisor registered
under the Investment Advisors Act of 1940, reported on a
Schedule 13G filed with the Securities and Exchange
Commission on February 6, 2004 that, as of December 31,
2003, it had sole voting and dispositive power with respect
to 1,181,720 shares. Dimensional possesses voting and
dispositive power by virtue of its role as investment
advisor to four investment companies registered under the
Investment Company Act of 1940 and as investment manager for
commingled group trusts and separate accounts. The shares
over which Dimensional exercises voting and dispositive
power are owned by the four investment companies and other
group trusts and separate accounts and Dimensional disclaims
ownership of these shares.
(8) Fidelity Management Trust Company, trustee for the Brush
Engineered Materials Inc. Savings and Investment Plan holds
the shares in trust. All participants share voting power
with the trustee of the Plan with respect to shares
attributable to their accounts.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and officers and
persons who own 10% or more of our common stock to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission. Directors, officers and 10% or greater shareholders are required by
Securities and Exchange Commission regulations to furnish us with copies of all
Forms 3, 4 and 5 they file.
Based solely on our review of copies of forms that we have received, and
written representations by our directors, officers and 10% or greater
shareholders, all of our directors, officers and 10% or greater shareholders
complied with all filing requirements applicable to them with respect to
transactions in our equity securities during the fiscal year ended December 31,
2003.
10
SUMMARY COMPENSATION TABLE
The following table sets forth the before-tax compensation for the years
shown for Mr. Harnett and the remaining executive officers.
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
------------------------------------------------------- --------------------
BONUS($) SECURITIES
-------------------------------------- UNDERLYING LTIP ALL OTHER
SALARY ANNUAL SPECIAL TOTAL OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(2) INCENTIVE(3) + AWARD(4) = BONUS (#) ($)(5) ($)(2)(6)
--------------------------- ---- ------- ------------ -------- ------- ---------- ------- ------------
Gordon D. Harnett 2003 590,400 313,440(2) 597,425 910,865 28,500 601,088 9,558
Chairman of the Board, 2002 585,000 46,800(2) 0 46,800 35,000 0 89,208
President and Chief 2001 583,366 0 0 0 35,000 0 19,275
Executive Officer
Daniel A. Skoch 2003 260,383 100,455(2) 85,531 185,986 15,000 176,760 4,370
Senior Vice President 2002 258,000 30,960(2) 0 30,960 15,000 0 20,769
Administration 2001 257,808 0 0 0 12,000 0 11,351
John D. Grampa 2003 242,215 93,447 0 93,447 15,000 164,400 1,065
Vice President Finance 2002 240,000 28,800(2) 0 28,800 15,000 0 3,231
and Chief Financial Officer 2001 239,231 0 0 0 10,000 0 10,283
---------------
(1) Several columns and headings to this table have been omitted because no
compensation was reportable thereunder.
(2) Salary and Bonus for 2003, 2002 and 2001 includes compensation the executive
elected to replace with options to purchase property other than Brush
Engineered Materials securities under the Company's Key Employee Share
Option Plan as follows: Mr. Harnett $26,232, $23,100 and $31,050; Mr. Skoch
$5,481, $13,694 and $5,923 and Mr. Grampa $0, $20,000 and $30,000.
All Other Compensation for 2003, 2002 and 2001 includes amounts in
connection with options to purchase property other than Brush Engineered
Materials securities under the Company's Key Employee Share Option Plan as
follows: Mr. Harnett $6,558, $5,775 and $14,175; Mr. Skoch $1,370, $870 and
$6,251; and Mr. Grampa $0, $700 and $5,183.
The Key Employee Share Option Plan provides for options covering property
with an initial value equal to the amount of compensation they replace,
divided by 75%, and with an exercise price equal to the difference between
that amount and the amount of compensation replaced. Thus, the executive may
receive the increase or decrease in market value of the entire amount of the
property covered by the option, including the exercise price.
(3) The annual performance compensation plan provides for single-sum cash
payments that are based on achieving pre-established financial objectives
and other qualitative performance factors. For 2003, the amounts for the
annual performance plan were $313,440 and $100,455 under the Annual
Incentive column for the Bonus category for Mr. Harnett and Mr. Skoch,
respectively. See Compensation Committee Report on Executive Compensation on
page 13 under the category of "Annual Performance Compensation".
(4) In 2002, the Company discontinued its Supplemental Retirement Benefit Plan
for Mr. Harnett and Mr. Skoch in exchange for amounts paid in settlement of
the Company's obligation. In 2003, in lieu of a supplemental plan and in
order to retain a competitive position in the marketplace, the Committee
exercised its discretion to authorize a special award included under the
Special Award column for the Bonus category for 2003 for Mr. Harnett in the
amount of $597,425 and Mr. Skoch in the amount of $85,531. See Compensation
Committee Report on Executive Compensation on page 14 under the category of
"Special Award".
(5) Payout in 2003 was a cash award based on a two-year performance period
measured by improvement in the corporation's operating profit and working
capital from January 1, 2002 through December 31, 2003. See Compensation
Committee Report on Executive Compensation on page 13 under the category of
"Long-term Incentives."
(6) Except as noted in (2), amounts in All Other Compensation consist of Company
matching contributions to the Brush Engineered Materials Inc. Savings and
Investment Plan.
11
OPTION EXERCISES IN LAST FISCAL YEAR
The following table provides information about stock options exercised by
the executive officers who are included in the Summary Compensation Table and
the value of each officer's unexercised options at December 31, 2003:
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED VALUE OPTIONS AT DECEMBER 31, 2003 AT DECEMBER 31, 2003,
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ---------------- ----------- ----------------------------- -------------------------
Gordon D. Harnett........ -- -- 302,500/0 $1,163,030/0
Daniel A. Skoch.......... -- -- 97,000/0 $ 405,055/0
John D. Grampa........... -- -- 57,000/0 $ 265,500/0
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information about stock option grants during
2003 to the executive officers who are included in the Summary Compensation
Table. There was one grant of options to the named executive officers during the
year.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% 10%
---- ---------- ------------- ----------- ---------- --------- ----------
Gordon D. Harnett................. 28,500 12.04 $5.55 2/11/13 $99,475 $252,090
Daniel A. Skoch................... 15,000 6.33 $5.55 2/11/13 $52,355 $132,679
John D. Grampa.................... 15,000 6.33 $5.55 2/11/13 $52,355 $132,679
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
No performance restricted shares or performance shares were awarded during
2003 pursuant to the 1995 Stock Incentive Plan, as amended.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain aggregated information relating to the
Company's equity compensation plans (including individual compensation plans, if
any) as of December 31, 2003:
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE EXERCISE FUTURE ISSUANCE UNDER
ISSUED UPON EXERCISE OF PRICE OF OUTSTANDING EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND (EXCLUDING SECURITIES
WARRANTS AND RIGHTS RIGHTS REFLECTED IN COLUMN (a))
PLAN CATEGORY (a) (b) (c)
------------- -------------------------- ------------------------- -------------------------
Equity Compensation
Plans Approved by
Security Holders... 1,474,943 $15.78 472,331
Equity Compensation
Plans Not Approved
by Security
Holders............ 0 0 0
--------- ------ -------
Total................ 1,474,943 $15.78 472,331
========= ====== =======
12
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Organization and Compensation Committee of the Board of Directors is
composed of all the independent, non-employee directors of the Board. The
Committee is responsible for developing and making policy recommendations to the
Board with respect to the Company's executive compensation. In addition, the
Committee, pursuant to authority delegated by the Board, determines on an annual
basis the compensation to be paid to the Chief Executive Officer, elected
executive officers and certain other senior management positions.
COMPENSATION PHILOSOPHY -- PAY FOR PERFORMANCE
The Committee's compensation philosophy is to recognize superior results
with superior monetary rewards. Where results are below expectations, pay will
directly reflect the less-than-targeted performance.
TOTAL COMPENSATION STRATEGY
The executive compensation strategy is to attract and retain qualified
executives and to provide appropriate incentives to achieve the long-term
success of the Company and to enhance shareholder value over the long term. The
Company employs a total compensation strategy, taking into consideration base
pay, annual performance compensation and long-term incentives. Base salary is
generally established at competitive levels, and greater weight is put on the
performance-driven portions of the compensation package.
As part of the total compensation strategy, the Committee has given
consideration to the increased retention and motivational issues caused by the
challenging and controversial environmental and legal disputes the Company has
faced.
BASE SALARY
Base salaries are established by the Committee based on an executive's job
responsibilities, level of experience, individual performance and contribution
to the business. In September, 2003, a 3% increase to base salary was granted to
the CEO and other executive officers - the first increase to base salary since
January, 2001. The CEO's annual base salary is $602,550.
ANNUAL PERFORMANCE COMPENSATION
A Management Performance Compensation Plan provides for annual, single-sum
cash payments that are based on achieving preestablished financial objectives
and qualitative performance factors. Qualitative factors include performance
against certain strategic measures, primarily related to environmental, health
and safety achievements.
An annual performance compensation target opportunity is established for
each executive by the Committee based on job responsibilities, level of
experience, overall business performance and individual contribution to the
business, as well as analyses of competitive industry practice. The Chief
Executive Officer is measured primarily on a preestablished financial objective
and to a limited extent on qualitative performance factors. In 2003, the Chief
Executive Officer was awarded $216,840 as a result of achieving the Company's
financial objective, which equated to 67.9% of the target opportunity and was
based on operating profit improvement, and $96,600 as a result of the
Committee's evaluation of his qualitative performance measures.
LONG-TERM INCENTIVES
Long-term Cash Incentive Plans. In early 2002, the Committee established a
two-year cash incentive plan with management objectives based on financial
measures with a performance period from January 1, 2002 through December 31,
2003. The plan was limited to officers and a small number of senior managers.
The financial opportunity varied according to the level of the participant's
organizational responsibility. The Chief Executive Officer can attain 150% of
his base pay as in effect on January 1, 2002, for achieving the targeted
objective, and 225% for exceeding the maximum objective. The other participants
had a lesser
13
opportunity ranging anywhere from 40% to 100% at target and 60% to 150% at
maximum. The financial measurement for this plan was the corporate or business
unit's two-year improvement in "economic profit," a blend of operating profit
and reduction in working capital. At the conclusion of the plan performance
period, 68.5% of the targeted corporate objective was achieved, which resulted
in a payout of $601,088 to the Chief Executive Officer for this two year plan.
In early 2003, the Committee established an overlapping two-year cash
incentive plan with management objectives based on financial measures with a
performance period from January 1, 2003 through December 31, 2004. The financial
opportunity varies according to the level of a participant's organizational
responsibility. The Chief Executive Officer can attain 75% of his base pay as in
effect on January 1, 2003, for achieving the targeted objective, and 112.5% for
exceeding the maximum objective. The other participants have a lesser
opportunity ranging from 20% to 50% at target and 30% to 75% at maximum. The
financial measurement for this plan is the cumulative operating profit over the
plan performance period.
Stock Options. Stock options are typically granted annually to executives
and other selected employees whose contributions and skills are important in the
long-term success of the Company. The options are granted with the exercise
price equal to the market price of the Company's stock on the day of grant, vest
over a period of up to four years and expire after ten years.
In 2003, a total of 156 selected employees were awarded options. The
overall number of option shares granted was 1.43% of total shares outstanding.
The Committee established a range of potential option awards for the Chief
Executive Officer and the other executive officers. The specific number of stock
options granted to an executive was determined by the Committee based upon the
individual's level of responsibility, recommendations by management, and a
subjective judgment by the Committee of the executive's contribution to the
performance of the Company. The number of options currently held by each
executive was not taken into consideration. In 2003, the Committee granted the
Chief Executive Officer a stock option covering 28,500 shares of Brush
Engineered Materials common stock.
SPECIAL AWARD
In 2002 the Company discontinued its Supplemental Retirement Benefit Plan
for the Chief Executive Officer as well as a few other participants in exchange
for amounts paid in settlement of the Company's obligation. As a result, their
retirement benefit is limited to the amount provided by the qualified pension
plan.
In 2003, in lieu of a supplemental plan and in order to retain a
competitive position in the marketplace, the Committee exercised its discretion
to authorize special awards to the Chief Executive Officer and the other former
participants. The Chief Executive Officer was awarded $597,425. Although the
Company is not obligated under any supplemental plan or otherwise to make such
an award, the Committee determined to authorize payment of an actuarially
derived amount based upon the objective of providing a present value benefit
equivalent to what would have been accrued under the former supplemental plan
taking into account prior amounts paid. It is anticipated that the Committee may
exercise its discretion to make similar awards in future years, as appropriate
to the Company's circumstances.
Additional considerations in so structuring the "special award" are as
follows:
- the calculation used for estimating an equivalent to the pension plan
uses the same benefit formula as for any other salaried employee and
included only income above the statutory compensation limit, taking into
account in the case of the Chief Executive Officer all service for which
credit would have been recognized under the former supplemental plan
- the payment is fully taxable as ordinary income to the recipient
- no part of the special award is for deferred compensation
14
- there are no guarantees on the assumed rate of returns to the individual
once the special award has been paid
- the Company no longer accrues a future benefit on its balance sheet
DEDUCTIBILITY OF COMPENSATION IN EXCESS OF $1 MILLION A YEAR
Section 162(m) of the U.S. Internal Revenue Code of 1986 limits
deductibility of compensation in excess of $1 million paid to the Company's
Chief Executive Officer and to each of the other four highest-paid executive
officers. However, some "performance-based" compensation is specifically exempt
from the deduction limit. While the Committee generally takes into consideration
the deductibility of its executive officers' compensation, the Committee retains
the flexibility to make payments or awards whether or not such payments or
awards qualify for tax deductibility under Section 162(m).
The foregoing report has been furnished by the Organization and
Compensation Committee of the Board of Directors.
William P. Madar (Chairman) Joseph P. Keithley N. Mohan Reddy, Ph.D.
Albert C. Bersticker William B. Lawrence William R. Robertson
David H. Hoag William G. Pryor John Sherwin, Jr.
15
CUMULATIVE SHAREHOLDER RETURN AND PERFORMANCE PRESENTATION
The following graph sets forth the cumulative shareholder return on Brush
Engineered Materials common stock as compared to the cumulative total return of
the S&P 500 Index, the S&P Small-Cap 600 Index and the Russell 2000 Index. Brush
is a component company of the S&P Small-Cap 600 Index and the Russell 2000
Index. In the 2003 proxy, we added the S&P Small-Cap 600 Index, as we believe it
provides a comparative benchmark that more closely reflects the diverse mix of
the Company's businesses. In previous years a self-constructed peer group had
been used for comparative purposes. However, due to Brush's unique business and
changes affecting companies within the self-constructed peer group, we no longer
believe that this peer group is an appropriate comparison. This year the Company
is adding the Russell 2000 Index which is a better comparison than the S&P 500
Index because the Company is included in this index. In the future, the S&P 500
Index will be eliminated from this performance comparison(1).
[PERFORMANCE GRAPH]
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
Brush Engineered Materials.................... $100 $ 99 $122 $ 89 $ 34 $ 96
S&P Small Cap 600............................. $100 $112 $126 $134 $114 $159
S&P 500....................................... $100 $121 $110 $ 97 $ 76 $ 97
Russell 2000.................................. $100 $121 $118 $121 $ 96 $141
---------------
(1) Assumes that the value of Brush Engineered Materials common stock and each
index was $100 on December 31, 1998 and that all applicable dividends were
reinvested.
16
PENSION AND RETIREMENT BENEFITS
The Brush Engineered Materials Inc. Pension Plan ("qualified pension plan")
is a defined benefit plan under which Messrs. Harnett, Skoch and Grampa are
currently accruing benefits. As of December 31, 2003, the Company's Supplemental
Retirement Benefit Plan ("supplemental plan") benefit accrued for Mr. Grampa was
frozen. During early 2004, Mr. Grampa received compensation in exchange for his
agreement to forego benefits under the supplemental plan in the amount of
$35,270. As a result, his retirement benefit will be limited to that amount
provided by the qualified pension plan, subject to the statutory benefit and
compensation limits. The Internal Revenue Code limits benefits in the qualified
pension plan to that based on compensation not in excess of $200,000 in 2003 and
$205,000 in 2004. There are no longer any executive officers currently eligible
to receive a benefit under the Company's supplemental plan.
The following table shows the estimated annual pension benefits under the
qualified pension plan for Messrs. Harnett, Skoch and Grampa. The amounts shown
are those which would be payable, as a single life annuity, for retirement at
age 65 based on various periods of service:
AGE 65 RETIREMENT BENEFIT
YEARS OF SERVICE AT AGE 65
FINAL AVERAGE --------------------------------------------------------------------
ANNUAL PAY
AT AGE 65 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
------------- -------- -------- -------- -------- -------- --------
$ 150,000 ..................... $18,444 $27,666 $36,888 $46,110 $55,332 $64,554
200,000 ..................... 25,587 38,380 51,174 63,967 76,761 89,554
205,000 ..................... 26,301 39,452 52,602 65,753 78,903 92,054
The compensation covered by the qualified pension plan is regular base
salary, sales commissions and certain performance compensation. The compensation
covered by this plan is limited to the Internal Revenue Code limitation
discussed above. The special award portion of the bonus is not eligible for
calculating pension benefits. "Final Average Annual Pay at Age 65" is based on
the employee's highest compensation for any five consecutive calendar years of
employment. Credited service for pension benefit purposes for Messrs. Harnett,
Skoch and Grampa is 12, 20 and 5 years, respectively.
EMPLOYMENT AGREEMENTS
We have entered into severance agreements with various senior executives,
including Messrs. Harnett, Skoch and Grampa, to help ensure the continuity and
stability of our senior management. If, a "change in control" of the Company as
defined in these agreements, the executive's employment is terminated by the
Company or one of its affiliates except for cause, or he resigns within one
month after the first anniversary of the change, or the nature and scope of his
duties worsens or certain other adverse changes occur and the Board of Directors
so decides, then severance benefits will apply. Severance benefits include
rights to a lump sum payment of three times salary; incentive compensation; cash
in lieu of benefits under the Company's Supplemental Retirement Benefit Plan;
any special awards; the continuation of retiree medical and life insurance
benefits for three years; and a lump sum payment equal to the sum of the present
value of any bonus he would have received under any long-term incentive plan
(assuming attainment of the plan target rate), any retirement benefits he would
have earned during the next three years and the cash value of certain other
benefits. All equity incentive awards also vest, and all stock options become
fully exercisable, if the severance benefits are applicable. A termination or
demotion following the commencement of discussions with a third party which
ultimately result in a change in control will also activate severance benefits.
Payments and benefits under the severance agreements are subject to reduction in
order to avoid the application of the excise tax on "excess parachute payments"
under the Internal Revenue Code, but only if the reduction would increase the
net after-tax amount received by the executive.
Under these agreements, each executive agrees not to compete with the
Company during employment or for one year thereafter; not to solicit any of our
employees, agents or consultants to terminate their relationship with us; and to
protect our confidential business information. Each executive also assigns to us
17
any intellectual property rights he may otherwise have to any discoveries,
inventions or improvements made while in our employ or within one year
thereafter. Brush Engineered Materials must secure its performance under the
severance agreements through a trust which is to be funded upon the change in
control, and amounts due but not timely paid earn interest at the prime rate
plus 4%. The Company must pay attorneys' fees and expenses incurred by an
executive in enforcing his rights under his severance agreement. The severance
agreements may have the effect of inhibiting a change in control of the Company.
AUDIT COMMITTEE REPORT
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process including the Company's
systems of internal controls. In fulfilling its oversight responsibilities, the
Committee reviewed the audited financial statements in the Annual Report with
management, and discussed the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments and the
clarity of disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgments as to
the quality, not just the acceptability, of the Company's accounting principles
and such other matters as are required to be discussed with the Committee under
generally accepted auditing standards. In addition, the Committee has discussed
with the independent auditors the auditors' independence from management and the
Company, including the matters in the written disclosures required by the
Independence Standards Board, and considered the compatibility of nonaudit
services with the auditors' independence.
The Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Committee
meets with the internal and independent auditors, 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. The Committee held eight meetings during 2003.
In reliance on these reviews and discussions, the Committee recommended to
the Board of Directors (and the Board has approved) that the audited financial
statements be included in the Annual Report on Form 10-K for the year ended
December 31, 2003 for filing with the Securities and Exchange Commission.
William R. Robertson (Chairman)
William B. Lawrence
N. Mohan Reddy, Ph.D.
John Sherwin, Jr.
18
RELATIONSHIP WITH INDEPENDENT AUDITORS
Ernst & Young LLP serves as the independent auditors for the Company.
Representatives of Ernst & Young LLP are expected to be present at the 2004
Annual Meeting. These representatives will have the opportunity to make a
statement if they desire to do so and will respond to appropriate questions.
Preapproval Policy for External Auditing Services
The Audit Committee has established a policy regarding pre-approval of all
audit and non-audit services expected to be performed by the Company's
independent auditor, including the scope of and fees for such services. The
Company's independent auditors, after consultation with management, will submit
a budget, based on guidelines set forth in the policy, for the Audit Committee's
approval for its annual audit and associated quarterly reviews and procedures.
Management, after consultation with the Company's independent auditors, will
submit a budget, based on guidelines set forth in the policy, for the Audit
Committee's approval for audit related, tax and other services to be provided by
the Company's independent auditors for the upcoming fiscal year. The policy
prohibits the Company's independent accountant from providing certain services
described in the policy as prohibited services.
External Audit Fees
2003 2002
---------- --------
Audit Fees.................................................. $ 573,300 $495,455
Audit Related Fees.......................................... 74,300 20,000
Tax Fees.................................................... 90,235 129,610
All Other Fees.............................................. 284,300 0
---------- --------
Total....................................................... $1,022,135 $645,065
========== ========
AUDIT FEES
Audit fees consist of fees billed for professional services rendered for
the audit of the Company's Consolidated Financial Statements and review of the
interim consolidated financial statements included in quarterly reports and
audits in connection with statutory requirements.
AUDIT-RELATED FEES
Audit-related services principally include the audit of financial
statements of the Company's employee benefit plans and accounting assistance and
advisory services related to the Sarbanes-Oxley Act of 2002.
TAX FEES
Tax fees include corporate tax compliance, tax advice and tax planning.
ALL OTHER FEES
All other fees consist of due diligence with regard to the Company's
refinancing and services in support of the Company's litigation matters. The
fees and services in support of the Company's litigation matters have been
concluded.
SHAREHOLDER PROPOSALS
We must receive by November 28, 2004, any proposal of a shareholder
intended to be presented at the 2005 annual meeting of Brush Engineered
Materials' shareholders and to be included in our proxy, notice of meeting and
proxy statement related to the 2005 annual meeting pursuant to Rule 14a-8 under
the Securities and Exchange Act of 1934. These proposals should be submitted by
certified mail, return receipt requested. Proposals of shareholders submitted
outside the processes of Rule 14a-8 under the Exchange Act in connection with
the 2005 annual meeting must be received by us on or before the date determined
in accordance with our code of regulations or they will be considered untimely
under Rule 14a-4(c) of the Exchange Act. Under our code of regulations,
proposals generally must be received by us no fewer than 60 and no more than 90
days before an annual meeting. However, if the date of a meeting is more than
ten days
19
from the anniversary of the previous year's meeting and we do not give notice of
the meeting at least 75 days in advance, proposals must be received within ten
days from the date of our notice. Our proxy related to the 2005 annual meeting
of Brush Engineered Materials' shareholders will give discretionary authority to
the proxy holders to vote with respect to all proposals submitted outside the
processes of Rule 14a-8 received by us after the date determined in accordance
with our code of regulations.
OTHER MATTERS
We do not know of any matters to be brought before the meeting except as
indicated in the notice. However, if any other matters properly come before the
meeting for action of which we did not have notice prior to March 1, 2004, or
that applicable laws otherwise permit proxies to vote on a discretionary basis,
it is intended that the person authorized under solicited proxies may vote or
act thereon in accordance with his own judgment.
By order of the Board of Directors,
Brush Engineered Materials Inc.
Michael C. Hasychak
Secretary
Cleveland, Ohio
March 15, 2004
20
APPENDIX A
BRUSH ENGINEERED MATERIALS INC.
AUDIT COMMITTEE CHARTER
(AS ADOPTED BY THE BOARD OF DIRECTORS ON FEBRUARY 3, 2004)
PURPOSES
This Charter governs the operations of the Audit Committee of the Board of
Brush Engineered Materials Inc. The Audit Committee has been created by the
Board to (a) assist the Board in fulfilling the Board's oversight
responsibilities to the shareholders, potential shareholders and other
constituencies with respect to (i) the integrity of the Company's financial
statements, (ii) the Company's financial reporting process and compliance with
ethics policies and legal and other regulatory requirements, (iii) the
independent auditors' qualifications and independence, (iv) the Company's
systems of internal accounting and financial controls and (v) the performance of
the independent auditors and of the Company's internal audit function; and (b)
prepare the Audit Committee's report, made pursuant to the Securities Exchange
Act of 1934 (the "Exchange Act"), to be included in the Company's annual proxy
statement (the "Audit Committee Report").
COMPOSITION OF THE AUDIT COMMITTEE
Number. The Audit Committee is appointed by the Board and is comprised of
at least three members.
Qualifications. Each Audit Committee member is to have all of the
following qualifications:
1) Each Audit Committee member must meet the independence criteria of (a)
the rules of the New York Stock Exchange, Inc., as such requirements are
interpreted by the Board in its business judgment and (b) Section 301 of
the Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by
the Securities and Exchange Commission ("SEC").
2) Each Audit Committee member must be financially literate or become
financially literate within a reasonable period of time after his or her
appointment to the Audit Committee. Additionally, at least one member of
the Audit Committee is to have accounting or related financial
management expertise sufficient to meet the criteria of a financial
expert within the meaning of Section 407 of the Sarbanes-Oxley Act of
2002 and any rules promulgated thereunder by the SEC. The Board shall
determine, in its business judgment, whether a member is financially
literate and whether at least one member has the requisite accounting or
financial expertise and meets the financial expert criteria. The
designation or identification of a person as an "audit committee
financial expert" shall not (a) impose on such person any duties,
obligations or liability that are greater than the duties, obligations
and liability imposed on such person as a member of the Audit Committee
and Board in the absence of such designation or identification, or (b)
affect the duties, obligations or liability of any other member of the
Audit Committee or Board.
3) Each Audit Committee member is to receive as compensation from the
Company only those forms of compensation as are not prohibited by
Section 301 of the Sarbanes-Oxley Act of 2002 and the rules and listing
requirements promulgated thereunder by the SEC and the NYSE. Permitted
compensation includes (a) director's fees (which includes all forms of
compensation paid to directors of the Company for service as a director
or member of a Board Committee) and/or (b) fixed amounts of compensation
under a retirement plan (including pension payments or other deferred
compensation) for prior service with the Company provided that such
compensation is not contingent in any way on continued service.
4) If an Audit Committee member simultaneously serves on the audit
committee of more than three companies that are required to file reports
pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934,
as amended, (including the Company), the Board must determine that such
simultaneous service would not impair the ability of such member to
effectively serve on the Audit
A-1
Committee. The Company will be required to disclose any such
determination in its annual proxy statement.
Appointment. The Board will appoint the members and the Chairman of the
Audit Committee based on nominations made by the Company's Governance Committee.
Audit Committee members serve at the pleasure of the Board and for such term or
terms as the Board may determine.
RESPONSIBILITIES AND DUTIES OF THE AUDIT COMMITTEE
The Audit Committee is responsible to oversee the Company's financial
reporting process on behalf of the Board. Management is responsible for the
preparation, presentation, and integrity of the Company's financial statements
and for the appropriateness of the accounting and reporting policies that are
used by the Company. The independent auditors are responsible for auditing the
Company's financial statements and for reviewing the Company's interim financial
statements.
In performing its responsibilities, the Audit Committee shall:
1) Retain the Independent Auditors: The Audit Committee has the sole
authority to (a) retain and terminate the Company's independent
auditors, (b) approve all audit engagement fees, terms and services,
and (c) approve any non-audit engagements with the Company's
independent auditors. The Audit Committee is to exercise this authority
in a manner consistent with Sections 201, 202 and 301 of the
Sarbanes-Oxley Act of 2002 and the rules and listing standards
promulgated thereunder by the SEC and NYSE. The Audit Committee may
delegate the authority to grant any pre-approvals required by such
sections to one or more members of the Audit Committee as it
designates, subject to the delegated member or members reporting any
such pre-approvals to the Audit Committee at its next scheduled
meeting.
2) Review and discuss the Auditors' Quality Control: The Audit Committee
is to, at least annually, obtain and review and discuss a report by the
independent auditors describing (a) the audit firm's internal quality
control procedures, (b) any material issues raised by the most recent
internal quality control review, or peer review, of the firm, or by any
inquiry or investigation by governmental or professional authorities,
within the preceding five years, respecting one or more independent
audits carried out by the firm, and (c) any steps taken to deal with
any such issues.
3) Review and discuss the Independence of the Auditors: In connection with
the retention of the Company's independent auditors, the Audit
Committee is to at least annually review and discuss the information
provided by management and the auditors relating to the independence of
the audit firm, including, among other things, information related to
the non-audit services provided and expected to be provided by the
auditors. The Audit Committee is responsible for (a) ensuring that the
independent auditors submit at least annually to the Audit Committee a
formal written statement delineating all relationships between the
auditors and the Company, (b) actively engaging in a dialogue with the
auditors with respect to any disclosed relationship or services that
may impact the objectivity and independence of the auditors and (c)
taking appropriate action in response to the auditors' report to
satisfy itself of the auditors' independence. In connection with the
Audit Committee's evaluation of the auditors' independence, the Audit
Committee is to also review and evaluate the lead partner of the
independent auditors and take such steps as may be required by law with
respect to the regular rotation of the lead audit partner and the
reviewing audit partner of the independent auditors, and consider
whether or not there should be rotation of the independent audit firm
itself.
4) Set Hiring Policies: The Audit Committee is to set clear hiring
policies for employees or former employees of the independent auditors,
which include the restrictions set forth in Section 206 of the
Sarbanes-Oxley Act of 2002.
5) Review and Discuss the Audit Plan: The Audit Committee is to review and
discuss with the independent auditors the plans for, and the scope of,
the annual audit and other examinations, including the adequacy of
staffing and compensation.
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6) Review and Discuss Conduct of the Audit: The Audit Committee is to
review and discuss with the independent auditors the matters required
to be discussed by Statement on Auditing Standards No. 61 relating to
the conduct of the audit, as well as any audit problems or difficulties
and management's response, including (a) any restriction on audit scope
or on access to requested information, (b) any disagreements with
management and (c) significant issues discussed with the independent
auditors' national office. The Audit Committee is to decide all
unresolved disagreements between management and the independent
auditors regarding financial reporting.
7) Review and Discuss Financial Statements and Disclosures: The Audit
Committee is to review and discuss with appropriate officers of the
Company and the independent auditors the annual audited and quarterly
financial statements of the Company, including (a) the Company's
disclosures under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and (b) the disclosures regarding
internal controls and other matters required to be reported to the
Audit Committee by Section 302 and 404 of the Sarbanes-Oxley Act of
2002 and any rules promulgated thereunder by the SEC.
8) Review and Discuss the Content of Financial Press Releases: The Audit
Committee is to review and discuss the content of all financial press
releases (including any use of "pro forma" or "adjusted" non-GAAP
information), as well as financial information and earnings guidance
provided to analysts and rating agencies (which review may occur after
issuance and may be done generally as a review of the types of
information to be disclosed and the form of presentation to be made).
9) Review and Discuss Internal Audit Plans: The Audit Committee is to
review and discuss with the Director of Internal Auditing and
appropriate members of the staff of the internal auditing department
the plans for and the scope of their ongoing audit activities,
including adequacy of staffing and compensation. The Audit Committee is
to review and approve management's appointment, termination or
replacement of the Chief Internal Auditor.
10) Review and Discuss Internal Audit Reports: The Audit Committee is to
review and discuss with the Chief Internal Auditor and appropriate
members of the staff of the internal auditing department the annual
report of the audit activities, examinations and results thereof of the
internal auditing department.
11) Review and Discuss the Systems of Internal Accounting Controls:The
Audit Committee is to review and discuss with the independent auditors,
the Chief Internal Auditor, the General Counsel, as appropriate, and,
if and to the extent deemed appropriate by the Audit Committee, members
of their respective staffs the adequacy of the Company's internal
accounting controls, the Company's financial, auditing and accounting
organizations and personnel, and the Company's policies and compliance
procedures with respect to business practices which shall include the
disclosures regarding internal controls and matters required to be
reported to the Audit Committee by Section 302 and 404 of the
Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by the
SEC.
12) Review and Discuss the Audit Results: The Audit Committee is to review
and discuss with the independent auditors (a) the report of their
annual audit, or proposed report of their annual audit, (b) the
accompanying management letter, if any, (c) the reports of their
reviews of the Company's interim financial statements conducted in
accordance with Statement on Auditing Standards No. 71, and (d) the
reports of the results of such other examinations outside of the course
of the independent auditors' normal audit procedures that the
independent auditors may from time to time undertake. The foregoing is
to include the reports required by Section 204 of the Sarbanes-Oxley
Act of 2002 and the rules and listing standards promulgated thereunder
by the SEC and NYSE, and, as appropriate, (a) a review of major issues
regarding (i) accounting principles and financial statement
presentations, including any significant changes in the Company's
selection or application of accounting principles and (ii) the adequacy
of the Company's internal controls and any special audit steps adopted
in light of material control deficiencies, (b) a review of analyses
prepared by management and/or the independent auditors setting forth
significant financial reporting issues and
A-3
judgments made in connection with the preparation of the financial
statements, including analyses of the effects of alternative GAAP
methods on the financial statements and (c) a review of the effect of
regulatory and accounting initiatives, as well as off-balance sheet
structures, on the financial statements of the Company.
13) Obtain Assurances under Section 10A(b) of the Exchange Act: The Audit
Committee is to obtain assurance from the independent auditors that in
the course of conducting the audit there have been no acts detected or
that have otherwise come to the attention of the audit firm that
require disclosure to the Audit Committee under Section 10A(b) of the
Exchange Act.
14) Discuss Risk Management Policies: The Audit Committee is to discuss
policies with respect to risk assessment and risk management to assess
and manage the Company's exposure to risk. The Audit Committee should
discuss the Company's major financial risk exposures and the steps
management has taken to monitor and control these exposures. The Audit
Committee should periodically review the Company's contingency plans
for protection of vital information and business conduct in the event
of an operations interruption.
15) Obtain Reports Regarding Conformity With the Company's Code of Business
Conduct and Ethics: The Audit Committee is to periodically obtain
reports from management and the Company's Chief Internal Auditor that
the Company and its subsidiary/foreign affiliated entities are in
conformity with the Company's Code of Business Conduct and Ethics. The
Audit Committee should advise the Board with respect to the Company's
policies and procedures regarding compliance with the Company's Code of
Business Conduct and Ethics.
16) Obtain Reports Regarding Conformity With Legal Requirements: The Audit
Committee is to periodically obtain reports from management and the
Company's Chief Internal Auditor that the Company and its
subsidiary/foreign affiliated entities are in conformity with
applicable legal requirements. Similar information should be obtained
from the Company's independent auditors, as appropriate, based on known
events and/or issues. The audit committee should advise the Board with
respect to the company's policies and procedures regarding compliance
with applicable laws and regulations.
17) Establish Procedures for Complaints Regarding Financial Statements or
Accounting Policies: The Audit Committee is to establish procedures,
for (a) the receipt, retention, and treatment of complaints received by
the Company regarding accounting, internal accounting controls, or
auditing matters; and (b) the confidential, anonymous submission by
employees of the Company of concerns regarding questionable accounting
or auditing matters as required by Section 301 of the Sarbanes-Oxley
Act of 2002 and the rules and listing standards promulgated thereunder
by the SEC and NYSE. The Audit Committee is to discuss with management
and the independent auditor any correspondence with regulators or
governmental agencies regarding complaints or concerns of the Company's
financial statements, accounting policies or business practices.
18) Discuss With General Counsel Matters Regarding Financial Statements or
Compliance Policies: Annually, and to the extent deemed required, the
Audit Committee should discuss with the Company's General Counsel legal
matters that may have a material impact on the financial statements or
the Company's compliance policies. The Audit Committee is to receive
reports from the Company's counsel of evidence of any material
violation of securities laws or breaches of fiduciary duties.
19) Review and Discuss Other Matters: The Audit Committee should review and
discuss such other matters that relate to the accounting, auditing and
financial reporting practices and procedures of the Company as the
Audit Committee may, in its own discretion, deem desirable in
connection with the review functions described above.
20) Make Board Reports: The Audit Committee should report its activities
regularly to the Board in such manner and at such times as the Audit
Committee and the Board deem appropriate, but in no
A-4
event less than once a year. This report is to include the Audit
Committee's conclusions with respect to its evaluation of the
independent auditors.
21) Maintain Flexibility. The Audit Committee, in carrying out its
responsibilities, policies and procedures should remain flexible, in
order to best react to changing conditions and circumstances. The Audit
Committee should take appropriate actions to set the overall corporate
"tone" for quality financial reporting, sound business risk practices,
and ethical behavior.
MEETINGS OF THE AUDIT COMMITTEE
The Audit Committee should meet in person or telephonically at least
quarterly, or more frequently as it may determine necessary, to comply with its
responsibilities as set forth herein. The Chair of the Audit Committee is, in
consultation with the other members of the Audit Committee, the Company's
independent auditors and the appropriate officers of the Company, responsible
for calling meetings of the Audit Committee, approve and/or establish agendas
therefor and supervising the conduct thereof. The Audit Committee may also take
any action permitted hereunder by unanimous written consent.
The Audit Committee may request any officer or employee of the Company or
the Company's outside legal counsel or independent auditors to attend a meeting
of the Audit Committee or to meet with any members of, or consultants to, the
Audit Committee. The Audit Committee should meet with the Company's management,
the internal auditors and the independent auditors periodically in separate
private sessions to discuss any matter that the Audit Committee, management, the
independent auditors or such other persons believe should be discussed
privately.
RESOURCES AND AUTHORITY OF THE AUDIT COMMITTEE
The Audit Committee is to have the resources and authority appropriate to
discharge its responsibilities and carry out its duties as required by law,
including the authority to engage outside auditors for special audits, reviews
and other procedures and to engage independent counsel and other advisors,
experts or consultants. The Audit Committee may also, to the extent it deems
necessary or appropriate, meet with the Company's investment bankers or
financial analysts who follow the Company.
AUDIT COMMITTEE REPORT
The Audit Committee will prepare, with the assistance of management, the
independent auditors and outside legal counsel, the Audit Committee Report.
ANNUAL REVIEW OF CHARTER
The Audit Committee will conduct and review with the Board annually an
evaluation of this Charter and recommend any changes to the Board. The Audit
Committee may conduct this charter evaluation in such manner as the Audit
Committee, in its business judgment, deems appropriate.
ANNUAL PERFORMANCE EVALUATION
The Audit Committee will conduct and review with the Board annually an
evaluation of the Audit Committee's performance with respect to the requirements
of this Charter. This evaluation should also set forth the goals and objectives
of the Audit Committee for the upcoming year. The Audit Committee may conduct
this performance evaluation in such manner as the Audit Committee, in its
business judgment, deems appropriate.
Consistent with the New York Stock Exchange listing requirements, this
Charter will be included on the Company's website and will be made available
upon request sent to the Company's Secretary. This Charter will also be
periodically published in the proxy statement relating to the Company's annual
meeting of shareholders.
A-5
DETACH CARD
--------------------------------------------------------------------------------
EXHIBIT 99(a)
BRUSH ENGINEERED MATERIALS INC. -- PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Gordon D. Harnett, or if he is unable or unwilling to
act, then Michael C. Hasychak, with full power of substitution, to vote and act
for and in the name of the undersigned as fully as the undersigned could vote
and act if personally present at the annual meeting of shareholders of Brush
Engineered Materials Inc. to be held on May 4, 2004 and at any adjournment or
postponement thereof:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES IN PROPOSAL 1.
1. ELECTION OF DIRECTORS.
FOR all nominees listed below [ ] WITHHOLD AUTHORITY [ ]
(except as indicated to the contrary below) to vote for the nominees listed below
Nominees: Joseph P. Keithley, William R. Robertson and John Sherwin, Jr.
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEES, WRITE THOSE
NOMINEES' NAMES IN THE SPACE PROVIDED BELOW.
-----------------------------------------------------------------------------
2. In accordance with his judgment upon any other matter properly presented.
(CONTINUED, AND TO BE SIGNED ON OTHER SIDE)
DETACH CARD
--------------------------------------------------------------------------------
SHARES
(Continued from the other side)
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF DIRECTIONS
ARE NOT INDICATED, WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS.
Dated................, 2004
...........................
Signature
...........................
Signature
...........................
Title
NOTE: Please sign exactly
as the name appears hereon.
When signing as attorney,
executor, administrator,
trustee or guardian, please
add your title as such.
PLEASE SIGN, DATE AND RETURN YOUR PROXY
PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE.
DETACH CARD
--------------------------------------------------------------------------------
CONFIDENTIAL VOTING INSTRUCTIONS
TO FIDELITY MANAGEMENT TRUST COMPANY, TRUSTEE UNDER THE BRUSH ENGINEERED
MATERIALS INC. PAYSOP
Pursuant to section 6.8 of the Brush Engineered Materials Inc. Savings and
Investment Plan, the undersigned, as a participant in the Plan, hereby directs
the Trustee to vote (in person or by proxy) all shares of Common Stock of Brush
Engineered Materials Inc. credited to the undersigned's PAYSOP Contribution
Account under the Plan on the record date for the annual meeting of shareholders
of Brush Engineered Materials Inc. to be held on May 4, 2004 and at any
adjournment or postponement thereof, on the following matters as checked below.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES IN PROPOSAL 1.
1. ELECTION OF DIRECTORS.
FOR all nominees listed below [ ] WITHHOLD AUTHORITY [ ]
(except as indicated to the contrary below) to vote for the nominees listed below
Nominees: Joseph P. Keithley, William R. Robertson and John Sherwin, Jr.
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEES, WRITE THOSE
NOMINEES' NAMES IN THE SPACE PROVIDED BELOW.
-----------------------------------------------------------------------------
2. In accordance with his judgment upon any other matter properly presented.
(CONTINUED, AND TO BE SIGNED ON OTHER SIDE)
DETACH CARD
--------------------------------------------------------------------------------
(Continued from the other side)
PLEASE SIGN EXACTLY AS THE NAME APPEARS BELOW. THE TRUSTEE SHALL NOT VOTE SHARES
OF THE COMPANY FOR WHICH IT DOES NOT RECEIVE INSTRUCTIONS.
THIS CONFIDENTIAL VOTING INSTRUCTIONS CARD WILL BE SEEN ONLY BY AUTHORIZED
PERSONNEL OF THE TRUSTEE. THE SHARES REPRESENTED BY THIS CARD WILL BE VOTED AS
DIRECTED, OR IF DIRECTIONS ARE NOT INDICATED BUT THIS CARD IS EXECUTED AND
RETURNED, WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS.
Dated................, 2004
...........................
Signature
...........................
Signature
...........................
Title
NOTE: Please sign exactly
as the name appears hereon.
When signing as attorney,
executor, administrator,
trustee or guardian, please
add your title as such.
PLEASE SIGN, DATE AND RETURN YOUR VOTING
CARD PROMPTLY IN THE ENCLOSED ENVELOPE,
WHICH REQUIRES NO POSTAGE.
DETACH CARD
--------------------------------------------------------------------------------
CONFIDENTIAL VOTING INSTRUCTIONS
TO FIDELITY MANAGEMENT TRUST COMPANY, TRUSTEE UNDER THE BRUSH ENGINEERED
MATERIALS INC.
SAVINGS AND INVESTMENT PLAN.
Pursuant to section 6.8 of the Brush Engineered Materials Inc. Savings and
Investment Plan, the undersigned, as a participant in the Plan, hereby directs
the Trustee to vote (in person or by proxy) all shares of Common Stock of Brush
Engineered Materials Inc. credited to the undersigned's account (other than
shares credited under the PAYSOP Contribution Account) under the Plan on the
record date for the annual meeting of shareholders of Brush Engineered Materials
Inc. to be held on May 4, 2004 and at any adjournment or postponement thereof,
on the following matters as checked below.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES IN PROPOSAL 1.
1. ELECTION OF DIRECTORS.
FOR all nominees listed below [ ] WITHHOLD AUTHORITY [ ]
(except as indicated to the contrary below) to vote for the nominees listed below
Nominees: Joseph P. Keithley, William R. Robertson and John Sherwin, Jr.
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEES, WRITE THOSE
NOMINEES' NAMES IN THE SPACE PROVIDED BELOW.
-----------------------------------------------------------------------------
2. In accordance with his judgment upon any other matter properly presented.
(CONTINUED, AND TO BE SIGNED ON OTHER SIDE)
DETACH CARD
--------------------------------------------------------------------------------
(Continued from the other side)
PLEASE SIGN EXACTLY AS THE NAME APPEARS BELOW. THE TRUSTEE SHALL VOTE SHARES OF
THE COMPANY FOR WHICH IT DOES NOT RECEIVE INSTRUCTIONS IN THE SAME PROPORTION AS
IT VOTES THE SHARES FOR WHICH IT RECEIVES VOTING INSTRUCTIONS.
THIS CONFIDENTIAL VOTING INSTRUCTIONS CARD WILL BE SEEN ONLY BY AUTHORIZED
PERSONNEL OF THE TRUSTEE. THE SHARES REPRESENTED BY THIS CARD WILL BE VOTED AS
DIRECTED, OR IF DIRECTIONS ARE NOT INDICATED BUT THIS CARD IS EXECUTED AND
RETURNED, WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS.
Dated................, 2004
...........................
Signature
...........................
Signature
...........................
Title
NOTE: Please sign exactly
as the name appears hereon.
When signing as attorney,
executor, administrator,
trustee or guardian, please
add your title as such.
PLEASE SIGN, DATE AND RETURN YOUR VOTING
CARD PROMPTLY IN THE ENCLOSED ENVELOPE,
WHICH REQUIRES NO POSTAGE.