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 Companys executive officers and other members of senior management. Long-term incentive compensation is designed to align managements 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 Companys executive officers and 250% of base salary for the Chief Executive Officer, subject to annual review by the Committee. For fiscal 2008, Mr. Ulshs long-term incentive compensation award was set at 300% of base salary. The equity compensation levels are based, in part, on recommendations from the Companys 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 Companys 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 Companys 2005 Annual Meeting. The awards provided an allocation of 75% options and 25% restricted stock. The allocation was recommended by the Committees independent outside consultant in consultation with the EVP-HR, after reviewing anticipated award vesting rates and the Committees desire to weight various forms of equity compensation to best accomplish the goals of employee retention and alignment of senior managements 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 Companys third fiscal quarter.
In fiscal 2007, in connection with the Companys request that shareholders approve an equity rights offering and private placement of approximately 35 million shares of the Companys 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 stocks 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 Committees 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 Companys 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.
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.