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This excerpt taken from the XIDE DEF 14A filed Jul 16, 2007. Long-Term
Equity Incentive Compensation
Upon emergence from Chapter 11 bankruptcy protection in
2004, the Company sought and received approval from its
shareholders for the creation of the 2004 Stock Incentive Plan
(the “2004 Plan” or the “Plan”). As
originally designed, the 2004 Plan permits the award of options,
restricted stock and performance unit awards, the latter being
payable in cash or stock. In December 2006, the Board amended
the 2004 Plan to provide for the award of restricted stock
units. The 2004 Plan is administered by the Committee.
Individuals eligible for the 2004 Plan include directors,
certain consultants and employees.
The Committee believes that long-term incentive compensation
issued under the 2004 Plan should be a significant element of
total compensation for the Company’s executive officers and
other members of senior management. Long-term incentive
compensation is designed to align management’s performance
with long-term shareholder value, principally through the
issuance of equity securities. Long-term incentive awards have
generally been established at 125% of base salary for the
Company’s executive officers and 250% of base salary for
the Chief Executive Officer, subject to annual review by the
Committee. For fiscal 2008, Mr. Ulsh’s long-term
incentive compensation award was set at 300% of base salary. The
equity compensation levels are based, in part, on
recommendations from the Company’s independent outside
consultant and comparative market data and conditions.
The relative weighting of equity and cash within the long-term
incentive plan is based on several factors, including the number
of remaining shares (options, restricted stock and restricted
stock units) available for grant under the 2004 Plan and the
anticipated vesting rate for previous grants. The Committee has
included a cash component in the annual long-term incentive
compensation grants when, in light of the prevailing price of
the Company’s common stock on The NASDAQ Global Market,
issuance solely of equity would disproportionately reduce the
number of remaining options, restricted stock and restricted
stock units available for grant under the 2004 Plan.
Initial awards under the 2004 Plan were issued in October 2004,
contingent upon shareholder approval of the 2004 Plan, which
occurred at the Company’s 2005 Annual Meeting. The awards
provided an allocation of 75% options and 25% restricted stock.
The allocation was recommended by the Committee’s
independent outside consultant in consultation with the EVP-HR,
after reviewing anticipated award vesting rates and the
Committee’s desire to weight various forms of equity
compensation to best accomplish the goals of employee retention
and alignment of senior management’s objectives with
long-term shareholder return.
For fiscal 2006, the Committee, after review with its
independent outside consultant, determined that an allocation of
25% options, 15% restricted shares and 60% performance unit cash
awards would appropriately balance the goals of maximizing
long-term shareholder value, compensating executive officers and
preserving sufficient shares in the 2004 Plan for future grants
without the need for shareholder approval. As with the prior
awards, the fiscal 2006 awards were approved by the Committee
and Board during the Company’s third fiscal quarter.
In fiscal 2007, in connection with the Company’s request
that shareholders approve an equity rights offering and private
placement of approximately 35 million shares of the
Company’s common stock, shareholders approved an amendment
to the 2004 Plan that provided an additional four million shares
of restricted stock and stock options. Despite the impact of the
common stock’s price on the size of stock option and
restricted stock awards necessary to provide award recipients
with appropriate long-term compensation value, the larger pool
of shares available for awards permitted the Committee to
increase options awarded to all plan participants to 50% of
total awards, with restricted stock and performance unit cash
awards at 25% each.
While the Committee’s first three awards under the 2004
Plan were issued between September and November, the Committee
believes that issuing awards near the April 1st start of
the Company’s fiscal year will allow the Committee to
concurrently assess annual base compensation adjustments, cash
incentive targets and annual equity awards. Consequently, the
Committee approved grants under the 2004 Plan for fiscal 2008 to
executive officers and other plan participants on March 21,
2007.
Table of Contents
For the fiscal 2008 grants, the Committee reviewed the amount of
shares remaining in the 2004 Plan and determined that
performance unit cash awards were not required. Accordingly,
awards were equally weighted between stock options and
restricted stock units. The Committee determined that restricted
stock units would be issued in lieu of restricted stock in order
to provide participants with the deferral of any ordinary income
tax until full vesting of all such units. The restricted stock
units will vest ratably over a five-year period, but stock
certificates will not be issued until the end of the full
vesting period.
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