ExpressJet DEF 14A 2008
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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EXPRESSJET HOLDINGS, INC.
(Name of Registrant as Specified In Its Charter)
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April 10, 2008
To Our Stockholders:
On behalf of our Board of Directors, we are pleased to invite you to attend the ExpressJet Holdings, Inc. 2008 Annual Meeting of Stockholders. As indicated in the attached notice, the meeting will be held at The Downtown Club at Houston Center, 1100 Caroline Street, Houston, Texas on Thursday, May 22, 2008, at 10:00 a.m., local time. At the meeting, we will act on the matters described in the attached proxy statement, and there will be an opportunity to discuss other matters of interest to you as a stockholder.
Please vote by internet or telephone as described in the attached proxy statement, even if you plan to attend the meeting in person. Alternatively, you may date, sign and mail the enclosed proxy in the envelope provided. We look forward to seeing you in Houston.
James B. Ream
President and Chief Executive Officer
EXPRESSJET HOLDINGS, INC.
700 North Sam Houston Parkway West
Houston, Texas 77067
Notice of 2008 Annual Meeting of Stockholders
The 2008 Annual Meeting of Stockholders of ExpressJet Holdings, Inc. will be held at The Downtown Club at Houston Center, 1100 Caroline Street, Houston, Texas on Thursday, May 22, 2008, at 10:00 a.m., local time, for the following purposes:
1. To elect three members of our Board of Directors, to serve in Class I, with terms expiring at the 2011 annual stockholders meeting;
2. To consider and act upon a proposal to ratify the appointment of Ernst & Young LLP as independent auditors of the company and its subsidiaries for 2008; and
3. To consider and act upon any other matters that may properly come before the annual meeting or any adjournment or postponement thereof.
The holders of record of the companys common stock at the close of business on April 3, 2008 are entitled to notice of and to vote at the meeting.
Scott R. Peterson
April 10, 2008
Please authorize your proxy and direct your vote even if you plan to attend the meeting in person. You may do so by internet or telephone as described in the attached proxy statement. Alternatively, you may date, sign and mail the enclosed proxy and return it promptly by mail in the envelope provided. If you mail the proxy, no postage is required if mailed in the United States. If you do attend the meeting in person and want to withdraw your proxy, you may do so as described in the attached proxy statement and vote in person on all matters properly brought before the meeting.
EXPRESSJET HOLDINGS, INC.
700 North Sam Houston Parkway West
Houston, Texas 77067
2008 Annual Meeting of Stockholders
to be held May 22, 2008
We are providing this proxy statement to you in connection with the solicitation on behalf of our board of directors of proxies to be voted at the companys 2008 annual stockholders meeting or any adjournment or postponement of that meeting (the Meeting). The Meeting will be held at The Downtown Club at Houston Center, 1100 Caroline Street, Houston, Texas on Thursday, May 22, 2008, at 10:00 a.m., local time, for the purposes set forth in the accompanying Notice of 2008 Annual Meeting of Stockholders. This proxy statement, and the accompanying proxy and 2007 Annual Report, are being first mailed or otherwise delivered to stockholders on or about April 10, 2008.
Holders of record of our common stock at the close of business on April 3, 2008, the record date for the Meeting, are entitled to notice of and to vote at the Meeting. At the close of business on the record date, ExpressJet had 51,887,560 shares of common stock outstanding. Subject to certain limitations on voting by non-U.S. citizens (defined below), each share of our common stock is entitled to one vote per share on the matters proposed.
A quorum of stockholders is necessary for a valid meeting. A quorum is comprised of the holders of a majority of the outstanding shares of common stock, attending the Meeting personally or represented by proxy.
Elections of directors are determined by a plurality of the votes cast. Accordingly, directors who receive the highest number of votes cast will be elected. Ratification of the appointment of independent auditors requires approval by a majority of the votes cast on the proposal.
Although you may use the enclosed postage-paid envelope to return the proxy or voting form that accompanies this proxy statement, we would prefer that you vote instead by internet or telephone if possible,
which saves the company money. Please note that the telephonic voting procedures described below are not available for shares held by non-U.S. citizens.
Shares Held of Record. Stockholders with shares registered in their names at Mellon Investor Services LLC, our transfer agent and registrar, may authorize a proxy by internet at the following internet address: http://www.proxyvoting.com/xjt, or by telephone by calling Mellon at 1-866-540-5760. Proxies submitted through Mellon by internet or telephone must be received by 11:59 p.m. Eastern time on May 21, 2008. Giving a proxy will not affect your right to vote in person if you decide to attend the Meeting.
Shares Held in a Bank or Brokerage Account. A number of banks and brokerage firms participate in a program (separate from that offered by Mellon Investor Services) that also permits stockholders to direct their vote by internet or telephone. If your shares are held in an account at such a bank or brokerage, you may direct the voting of those shares by internet or telephone by following the instructions on their enclosed voting form. Votes directed by internet or telephone through one of these programs must also be received by 11:59 p.m. Eastern time on May 21, 2008. Directing your vote in this manner will not affect your right to vote in person if you decide to attend the Meeting; however, you must first request a legal proxy either on the internet or the voting form that accompanies this proxy statement. Requesting a legal proxy prior to the deadlines described above will automatically cancel any voting directions you have previously given by internet or by telephone with respect to your shares.
The internet and telephone proxy procedures are designed to authenticate stockholders identities, allow stockholders to give their proxy instructions, and confirm that those instructions have been properly recorded. Stockholders authorizing proxies or directing the voting of their shares by internet should understand that there may be costs associated with electronic access, such as usage charges from internet access providers and telephone companies, that must be borne by the stockholder.
You can revoke your proxy before it is exercised at the Meeting in any of three ways:
ExpressJet will bear the costs of the solicitation of proxies. In addition to the solicitation of proxies by mail, proxies may also be solicited by internet, telephone, telegram, fax and in person by regular employees and directors of the company, none of whom will receive additional compensation therefor, and by Morrow & Co, which the company has retained to assist in soliciting proxies for a fee estimated not to exceed $5,000 plus reasonable out-of-pocket expenses. Arrangements will be made with brokerage houses and other custodians, nominees and fiduciaries to forward proxy soliciting materials to beneficial owners, and we will reimburse them for their reasonable out-of-pocket expenses incurred in doing so.
At the Meeting, we will act only on the matters indicated on the accompanying Notice and on procedural matters related to the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE PROPOSALS CONTAINED IN THIS PROXY STATEMENT.
We have only one class of voting securities outstanding, common stock, which is entitled to one vote per share subject to the following limitations. Under U.S. law, no more than 25% of the voting stock of a U.S. air carrier such as the companys wholly owned subsidiary, ExpressJet Airlines, Inc., may be owned or controlled, directly or indirectly, by persons who are not U.S. citizens. Consequently, the company must be a U.S. citizen. For these purposes, a U.S. citizen means:
The U.S. Department of Transportation has broad authority to determine on a case-by-case basis whether an air carrier is effectively owned and controlled by citizens of the United States. Our certificate of incorporation provides that no shares of capital stock may be voted by or at the direction of persons who are not U.S. citizens unless those shares are registered on a separate stock record. Accordingly, you will be asked to certify to the company when you vote by proxy or in person either that you are a U.S. citizen as defined above, or that your shares have been registered on our foreign stock record. Our bylaws further provide that no shares will be registered on this record if the amount so registered would exceed U.S. foreign ownership restrictions.
The following table sets forth, as of April 3, 2008 (except as noted below), information available to us with respect to persons that beneficially own more than five percent of any class of our voting securities.
The following table shows, as of April 3, 2008, the number of shares of our common stock beneficially owned by each of our current directors and nominees, our executive officers named below in the Summary Compensation Table, and all executive officers and directors as a group. Except as indicated to the contrary, each individual listed below has sole voting and dispositive power over the shares shown.
Our board of directors currently consists of nine persons, all of whom other than Jim Ream, our President and Chief Executive Officer, have been affirmatively determined by the board to be independent and to have no material relationship with the company or its management under the standards set forth in the Corporate Governance Guidelines adopted by our board and the applicable rules of the New York Stock Exchange (NYSE) and the Securities and Exchange Commission (SEC). The Guidelines are available on our website at www.expressjet.com and are available in print to any stockholder who sends a written request to our Secretary at our principal executive offices. As to independence, the Guidelines provide as follows:
The Board defines independent director in accordance with Section 303A.02 of the New York Stock Exchange Listed Company Manual. Because it is not possible to anticipate, or explicitly provide for, all circumstances that might signal potential conflicts of interest, or that might bear on the materiality of a directors relationship to a listed company, the Board is responsible for affirmatively determining that each independent director has no material relationship with the Company or its affiliates (either directly as a partner, stockholder or officer of an organization that has a relationship with the Company). A relationship will be considered material if in the judgment of the Board it would interfere with the directors independent judgment, and the Board will consider the issue not merely from the standpoint of the director, but also from that of persons or organizations with which the director has an affiliation.
The independent directors have no relationship with the company other than their positions as directors.
Regular meetings of our board of directors are typically held five times per year, and special meetings are scheduled when required. The board held six meetings in 2007. During 2007, each director attended at least 75% of the aggregate number of meetings of the board and each committee of which he or she was a member that were held while that person was a director or committee member. Although we have no formal policy relating to directors attendance at the annual stockholders meeting, the annual meeting of our board typically follows the stockholders meeting and it is anticipated that directors will attend both meetings. All of our directors then serving attended our 2007 stockholders meeting.
The non-management members of our board of directors met in executive session (i.e., a session not including our CEO) three times during the last year and, in accordance with the boards Corporate Governance Guidelines, do so at least twice each year. The Guidelines also require that one of those sessions be comprised solely of the independent directors each year, although all non-management members of our board are independent. As set forth in the Guidelines, the director that presides at these sessions rotates among the non-management members of the board in order of seniority (or age, in the case of directors of equal seniority).
Stockholders or others desiring to communicate directly with the non-management directors or with any individual director may direct their correspondence to the director(s) at the companys address set forth above or may do so electronically at the following email address: email@example.com. (Please indicate in the subject line which directors are the intended recipients.) The companys Secretary reviews all
correspondence so received and forwards it to the pertinent directors if it relates to the functions of the board or its committees. Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of our internal audit department and handled in accordance with procedures established by the boards Audit Committee.
Audit Committee. The committee met seven times in 2007 and is currently comprised of five directors determined by the board to be independent and financially literate (as defined in applicable SEC and NYSE rules): Mr. Badalamenti, who chairs the committee, Ms. Clarke and Messrs. Bravante, Jent and Kelly. The board of directors has determined that Messrs. Badalamenti and Kelly qualify as audit committee financial experts (as defined in applicable SEC rules).
The board of directors has adopted a written charter for the Audit Committee, a copy of which is available on our website at www.expressjet.com and is available in print to any stockholder who sends a written request to our Secretary at our principal executive offices. As described in greater detail in the charter, the Audit Committee has responsibility to oversee the companys accounting and financial reporting processes as well as reviews of our interim financial statements and audits of our annual financial statements. The committee has the authority to appoint and otherwise oversee the retention, independence, compensation and work of our independent auditors and to authorize any audit, audit-related or non-audit services that, in the committees discretion, are deemed appropriate. The committee reviews with management and the companys independent auditors the effectiveness of the accounting and financial controls of the company and its subsidiaries, and reviews and discusses the companys audited financial statements with management and the independent auditors. See Report of the Audit Committee below.
Human Resources Committee. The committee met eight times in 2007 and is currently comprised of five directors determined by the board to be independent (as defined in applicable NYSE rules): Ms. Clarke, who chairs the committee, Messrs. Badalamenti and Fadel, Ms. Haberkorn and Ms. Reitz. Pursuant to its charter, which is available on our website at www.expressjet.com and is available in print to any stockholder who sends a written request to our Secretary at our principal executive offices, the committee has the authority to act on behalf of the board of directors with respect to all matters relating to the employment of senior officers by ExpressJet and its subsidiaries, including approval of compensation, benefits, incentives and employment agreements. See Executive Compensation Report of the Human Resources Committee below. The committee is also charged with overseeing the companys general compensation structure and administering its bonus, incentive and other compensation plans when so directed by the board.
Nominating and Corporate Governance Committee. The committee met seven times in 2007 and is currently comprised of five directors determined by the board to be independent (as defined in applicable NYSE rules): Ms. Haberkorn, who chairs the committee, Ms. Reitz and Messrs. Bravante, Fadel and Kelly. The committees charter is available on our website at www.expressjet.com and is available in print to any stockholder who sends a written request to our Secretary at our principal executive offices. The committee is responsible for identifying individuals qualified to become members of the board of directors, as well as recommending the slate of directors to be nominated by the board at the annual meeting of stockholders or any director to fill a vacancy on the board. The committee will consider nominations from stockholders; any stockholder desiring to submit a nomination to the committee, should send the nomination, together with appropriate background and contact information, to the Secretary of the company at the companys address set forth above. Please refer to 2009 Annual Meeting below for information regarding submitting a nomination for the 2009 Annual Meeting of Stockholders.
The director-qualification criteria established in the Corporate Governance Guidelines include the following and are applied by the committee to candidates nominated by stockholders and those originating with the board:
Candidates may be identified by the committee through current board members or other stockholders or persons. During the past year, the Nominating and Corporate Governance Committee reviewed the qualifications of candidates to fill the two vacancies that arose on the board. The committee recommended to the board Patrick Kelly to fill a vacancy created by a resignation during 2007. Mr. Kellys name was provided to the committee by Mr. Ream, who had worked with him 13 years ago at American Airlines. They do not have social or any other ties beyond that work experience. The committee also recommended to the board Andrew Jent, who had been identified to the committee by a stockholder, Hayman Advisors, L.P. and its affiliates. Following the recommendation from the committee, and in connection with entering into an agreement with the Hayman group described more fully below under Proposal 1: Election of Directors General, the board expanded the size of the board from eight to nine members and appointed Mr. Jent to fill the resulting directorship. All candidates, including those recommended by stockholders or other directors, are evaluated according to the criteria described above at regular or special meetings of the committee, and may be considered at any time during the year. If any materials are provided by a candidate or other party in connection with the nomination of a director candidate, those materials are reviewed by the committee in evaluating that candidate.
In addition, the committee recommends the directors to be appointed to committees of the board (other than the committee itself), including in the event of vacancies, and the compensation and benefits of non-management members of the board. The committee developed, and the board adopted, the Corporate Governance Guidelines discussed above. The committee also oversees the annual evaluation of the performance of the board and its committees.
The following table sets forth the aggregate compensation awarded to, earned by, or paid to our non-management directors for 2007. Andrew Jent is not included in the table since his service on the board did not begin until 2008.
Director Compensation for Fiscal Year 2007
During 2007, members of the board of directors who were not employees of the company (outside directors) received an annual retainer of $30,000 per year, which increased to $40,000 if the director chaired a committee of the board or $60,000 if the director was elected chairman of the board. For 2007, Mr. Kelly received a pro-rated annual retainer of $12,200 for membership on the board following his election during the year. Additionally, any director who was determined by the board to qualify as an audit committee financial expert (and was elected to the Audit Committee) received an additional $10,000 (or a pro-rated portion thereof) annual retainer. They also received the meeting fees set forth below:
Effective January 1, 2008, outside directors receive an annual retainer of $40,000 per year, which increases to $50,000 for the director who chairs the Human Resources or the Nominating and Corporate Governance Committee, $55,000 for the director who chairs the Audit Committee and $60,000 for the director elected as chairman of the board. Meeting fees are as follows:
On the date of their initial election to the board and each annual meeting of stockholders, outside directors in 2007 received 8,000 restricted shares of our common stock and options to purchase an additional 8,000 shares. Effective January 1, 2008, $35,000 fair market value of restricted stock and an option to purchase common stock and bearing a Black-Scholes value of $35,000, are awarded on such dates. The options bear 10-year terms and exercise prices equal to the closing market price of the stock on the grant date. Each of the restricted shares and options vest six months following their grant date.
In addition, outside directors receive flight benefits on our flights during their term as a director, as well as access to Continental Airlines Presidents Clubs, elite status in Continentals frequent flyer program and travel on our flights by the director, the directors family and a limited number of other individuals. Some of these benefits are taxable to the director, subject to our reimbursement of a portion of the taxes. Additionally, our outside directors receive passes permitting a fixed amount of travel on Continental at no cost to ExpressJet.
All directors receive reimbursement of expenses incurred in attending meetings. No members of our board, other than Mr. Ream whose compensation is described under Executive Compensation below, were paid any compensation in 2007 for their services as a director of the company other than the standard compensation arrangement for directors described in this narrative and reimbursement of expenses.
The following table sets forth information with respect to our current executive officers:
The following tables set forth the aggregate compensation awarded to, earned by, or paid during 2006 and 2007 to the chief executive officer, the chief financial officer and our other executive officers.
The tax reimbursement amounts represent the payment made to the officer to satisfy some of the federal tax obligations corresponding to the value imputed for the flight benefits. Pursuant to SEC rules, the value of flight benefits provided to our officers is not included under All Other Compensation because the total incremental cost to the company of providing such benefits was less than $10,000 for each officer. Mr. Petersons amount in row (b) includes a $12,375 401(k) matching contribution and a one-time $37,199 401(k) catch-up payment required under his employment agreement and made outside of the plan.
We have employment agreements with each of the executive officers listed in the table above that provide for an annual salary and participation in any cash bonus program we maintain. Mr. Reams employment agreement permits him to participate in any cash bonus program we maintain at or above the maximum level made available to any other executive. His agreement has a three-year term and automatically renews for additional three-year periods, unless notice of non-renewal is given by either party at least six months prior to the end of a term. The other executives employment agreements are at-will and may be terminated by the executive or by us at any time. Mr. Reams agreement requires that we make a gross-up payment to him if any payment or benefit he receives from us, under his employment agreement or otherwise, becomes subject to an excise or other special additional tax, including any interest, taxes or penalties imposed with respect to such taxes; the purpose of the payment is to put him in the same after-tax position he would have been had the taxes not been imposed. Payments to our other executives would be reduced to the degree necessary to avoid the imposition of such an excise tax.
Each executive has agreed that he will not, in any geographic area or market where we conduct business or have conducted business during the previous 12 months:
However, the executives may serve as a director, officer, employee, consultant or advisor of a major, mainline airline so long as their duties are principally related to the business of that airline other than the provision of regional airline services. These non-competition obligations extend until the second anniversary of the respective executives termination of employment or, in the case of Mr. Ream, the third anniversary of termination if he is entitled to a termination payment based on a severance period of three years. Please read Potential Payments Upon Termination or Change in Control below for information on the executive officers severance period and related payments.
Additional information regarding the termination and change-in-control provisions of the executive officers employment agreements are set forth below under Potential Payments Upon Termination or Change in Control.
We maintain a Management Bonus Plan providing for an annual cash bonus to executive officers and other key employees if we achieve the target operating income established each year by the boards Human
Resources Committee. Under the plan, executives and other key employees may receive an annual cash bonus targeted at 20 to 60% of base salary, depending on the participants level of responsibility, if actual operating income is at least 75% of the target approved by the committee. Payment, if any is made based on our financial performance in relation to the target operating income, with a payout ranging from 75% of target bonus to a maximum of 100% of base salary. Amounts payable under the plan are reflected under the column Non-Equity Incentive Plan Compensation of the Summary Compensation Table above.
Under our Long Term Incentive Plan, our executive officers may receive bonus awards in the form of cash, restricted shares of our common stock or a combination of both. The plan provides that the amount to be awarded to a participant pursuant to a bonus award will be determined by the Human Resources Committee in its sole discretion. Employees are not entitled to receive bonus awards with respect to any vesting date if they are not employed by the company, or on authorized leave, on that vesting date. However, if an employee dies, becomes disabled or is terminated without cause before a vesting date, the employee will be paid the amount of the bonus award that would be payable if he or she remained employed by the company or one of its subsidiaries at that vesting date. This plan terminates at the end of 2008.
Our 2007 Long Term Incentive Program provides executive officers and other employees with the opportunity to earn a cash bonus tied to our performance over a three-year period, 2008-2010. The performance period would end immediately in the event of a change in control. Under the program, each participant is assigned a percentage participation in a bonus pool based on the percentage of the employees annual salary that he or she is currently eligible to earn under our Long Term Incentive Plan described above. After the performance period concludes on December 31, 2010 or immediately following a change in control, participants will receive an amount in cash equal to their individual percentage participation in the bonus pool. The size of the pool is determined by multiplying (x) our combined EBITDA for the performance period (excluding payouts to be made under the Program) and (y) a percentage which is based on our stock price at the end of the performance period and our ranking for stockholder return during the performance period vis-a-vis a group of peer airlines. The maximum EBITDA percentage that may be used in the calculation of a participants payout is 22.50%, which would be achieved only if our share price reached $14 or higher. No payouts will be made under the program if the stock price is less than $2.66 per share or our peer ranking is lower than 4th. The actual payout that may be received, if any, will not be known until the completion of the performance period. For purposes of determining the amount that will ultimately be paid to each of the executive officers named in our proxy statement, the Committee has determined that 4.09% of the bonus pool will be paid to Mr. Ream, 2.90% to Mr. Cromer, and 2.32% to each of Messrs. Coble, Nides and Peterson.
Grants of Plan-Based Awards for Fiscal Year 2007
Our 2002 Stock Incentive Plan allows us to award stock options and restricted stock to our executive officers, other key employees and members of our board of directors. The purpose of the plan is to enable us to attract and retain capable persons to serve as employees and directors and to provide a means whereby those who bear the greatest responsibility for the success and management of our business are provided with an ownership opportunity that rewards their performance and strengthens their concern for our company and
our stockholders. All option awards made under the plan must bear an exercise price equal to or greater than the closing price of our common stock on the grant date.
Similar to our 2002 Stock Incentive Plan, the purpose of our 2007 Stock Incentive Plan is to enable us to attract and retain persons to serve as employees and directors and to provide an ownership opportunity to those who bear the greatest responsibility for the success and management of our business. To accomplish this purpose, the plan permits us to award stock options, stock appreciation rights, restricted stock, restricted stock unit awards, other share-based awards and performance awards. All option awards made under the plan must bear an exercise price equal to or greater than the closing price of our common stock on the grant date.
In fiscal 2007, we awarded a combination of stock options and restricted stock under the 2002 Stock Incentive Plan and the 2007 Stock Incentive Plan. Each grant awarded to the executive officers is included in the Grants of Plan-Based Awards table above. The stock options granted during 2007 have seven-year terms and are scheduled to vest ratably over four years beginning one year from the grant date. Although we have not historically paid dividends on our common stock, any dividends payable in the future on our common stock would be payable upon both vested and non-vested shares of restricted stock granted pursuant to the 2002 Stock Incentive Plan.
Outstanding Equity Awards at Fiscal Year-End 2007
Our Supplemental Retirement Plan is a non-qualified, unfunded deferred compensation plan. Pursuant to the Supplemental Retirement Plan, we provide retirement and termination benefits to certain members of our management or other highly compensated employees, including the executive officers named in the Summary Compensation Table. The plan was designed to compensate participants for the benefits lost by no longer participating in Continental Airlines pension plan. The actual compensation under the plan is based on applicable actuarial assumptions and the participants age. Under the plan, we maintain an account for each participant to which hypothetical contributions and interest amounts are credited.
On the last day of each calendar year, we credit a hypothetical contribution to each participants account equal to a specified percentage of the participants base salary, including any portion of base salary deferred, and a hypothetical interest amount equal to 8% of the account balance as of the first day of such calendar year. The interest rate of 8% was determined to approximate the average investment return that an average active employee could expect over time. The hypothetical annual contributions credited for 2007 are included under the Change in Pension Value column of the Summary Compensation Table above and in the Pension Benefits table below. Our Human Resources Committee may, at any time on a prospective basis, change a participants specified base salary percentage with respect to a calendar year and the rate of interest to be credited to a participants account. The following table shows the percentage of the executive officers base salaries deemed contributed to the plan annually as of December 31, 2007.
Any amounts credited to a participants account under the Supplemental Retirement Plan would be forfeited if the participant terminated employment for any reason other than death, disability or retirement prior to the fifth anniversary of the participants first credited day of employment with us. A participants account would be fully vested upon the termination of employment by reason of death, disability or retirement or the occurrence of a change of control. The amounts credited to a participants account will be distributed in the form of a lump-sum payment as soon as reasonably practicable following the participants termination or a change in control, as applicable.
The following table relates to our Supplemental Retirement Plan.
As discussed above under Executive Compensation Employment Agreements, we have employment agreements with each of Messrs. Ream, Cromer, Coble, Nides and Peterson. We may terminate the agreements of the executives at any time, as may the executives. However, if the Company terminated one of their agreements for any reason other than
or if the executives terminated the agreement because of a constructive termination, defined to mean
then, in the case of Mr. Ream, he would be entitled to a number of benefits under the agreement. These benefits consist of:
(i) immediate vesting of his restricted stock and stock options (which would then be exercisable for up to 30 days), the value of which would vary depending on the value of our common stock at the time
(as of December 31, 2007, the restricted stock had a value of $13,783 and the stock options had a value of $0);
(ii) a lump-sum cash payment of two times the sum of: (x) his base salary of $352,000 plus (y) 125% of his base salary if the termination precedes or is more than two years after a change in control of the company or three times the above sum if the termination occurs within the two years following a change in control (as of December 31, 2007, the value of this benefit totaled $1,584,000 or $2,376,000 if within two years following a change in control);
(iii) outplacement services for 12 months (value of $54,400);
(iv) payment of any amounts owed but unpaid to him under any plan, policy or program of the company as of the date of termination provided by, and in accordance with the terms of, such plan, policy or program (the value of this benefit as of December 31, 2007 totaled $302,167); and
(v) a gross-up payment if his payments or benefits become subject to an excise or other additional tax; our current calculations indicate that no gross-up payment would have been required as of December 31, 2007.
In the event of Mr. Reams death or disability, his restricted stock and stock options would vest immediately (with stock options exercisable within 30 days). Unless terminated for cause, a material breach of his employment agreement or death, Mr. Ream would receive lifetime flight benefits on any airline operated by us or Continental Airlines, including (w) space available travel to Mr. Ream and eligible family members, (x) positive space travel up to an annual value of $50,000 plus a tax gross-up of up to $10,000 (each subject to annual adjustment) relating to the value of any such positive space travel, (y) participation in Continental Airlines frequent flyer program and (z) participation in Continental Airlines airport lounge program. If Mr. Ream terminated the agreement for any reason or if the company chose not to renew it, he would also receive certain insurance benefits throughout his lifetime for himself and his eligible family members. These benefits include medical, health, dental, life insurance, disability, vision care, accidental death and dismemberment, and prescription drugs, and would be provided to him at no greater cost than that applicable to a similarly situated executive of the company who has not terminated employment. The cost of the flight benefits to us is nominal. As of December 31, 2007, the value of the contractual right to flight benefits for tax reporting purposes totaled $419,378 and the value of health benefits totaled $118,444. The total value of benefits Mr. Ream would be entitled to for the period of time under which benefits are payable following his termination upon a change in control are estimated at $3,218,079 as of December 31, 2007.
In the case of the other executives, they would be entitled to a number of benefits under their agreements. If we terminated their agreements other than for their death, incapacity, material breach or cause as defined on the previous page, and either before or more than 18 months following a change in control of the company, these benefits would consist of:
(i) flight benefits similar to those provided to Mr. Ream for the respective officers lives; however, Mr. Petersons benefits would be limited to airlines and programs that we operate (for tax reporting purposes, the values of these contractual rights to flight benefits are $401,183, $330,888, $568,074, and $51,588 for Messrs. Cromer, Coble, Nides and Peterson, respectively, as of December 31, 2007);
(ii) insurance coverage similar to Mr. Reams, but limited to 24 months, which benefits are valued at $22,850, $22,742, $17,704, and $22,740, respectively, for Messrs. Cromer, Coble, Nides and Peterson;
(iii) outplacement services for twelve months, valued at $42,500 for Mr. Cromer and $34,000 each for Messrs. Coble, Nides and Peterson as of December 31, 2007;
(iv) continued monthly salary payments for 24 months plus specified bonus amounts, aggregating $837,500 for Mr. Cromer and $640,000 each for Messrs. Coble, Nides and Peterson, as of December 31, 2007; and
(v) at the discretion of our board of directors or its Human Resources Committee, a bonus, the value of which cannot currently be calculated.
However, if the executives were terminated by the Company other than for their death, incapacity, material breach or cause, or if they terminated their employment due to a constructive termination or for any other reason, in either case within 18 months following a change in control (or, in the case of termination by the Company, prior to a change in control to avoid the change in control provisions of the employment agreement), then they would each be entitled to:
(i) the flight benefits specified above;
(ii) the insurance coverage specified above;
(iii) the outplacement services specified above; and
(iv) a lump-sum cash payment equal to the sum of: (x) a pro rata bonus payment under the companys Management Bonus Plan, plus (y) two times the executives base salary then in effect, plus (z) two times the amount of the his target bonus under the Management Bonus Plan (as of December 31, 2007, the aggregate bonuses would have totaled $222,976 for Mr. Cromer and $158,866 each for Messrs. Coble, Nides and Peterson);
however, the executives other than Mr. Ream would not receive a tax gross-up payment if their compensation and benefits would trigger an excise or other additional tax. Instead, their compensation would be reduced to a level sufficient not to trigger the taxes. Consequently, the estimated total value of benefits the executive officers would be entitled to for the period of time under which benefits would be payable following termination or a change in control for Messrs. Cromer, Coble, Nides and Peterson are estimated at $1,512,091, $1,192,212, $1,135,035 and $919,626, respectively, at December 31, 2007. If a change in control occurred, the outstanding stock options and restricted shares of each of the named executives including Mr. Ream would vest in full. As of December 31, 2007, the value of this vesting was $0 for all stock options held by our named executive officers and $10,923, $9,108, $9,108, and $9,708, for the restricted stock held by Messrs. Cromer, Coble, Nides and Peterson, respectively. Such amounts are included in the estimated value of benefits for our named executive officers as of December 31, 2007.
Under our Supplemental Retirement Plan, the accounts allocated to our executive officers would fully vest upon their termination of employment by reason of death, disability, retirement or the occurrence of a change in control. The amounts credited to a participants account would be distributed in the form of a lump-sum payment as soon as reasonably practicable following their termination or a change in control, as applicable. The current balances in the executives accounts are set forth above in the Pension Benefits table. The approximate value of the deemed contributions made to the officers accounts for 2007 is as follows: Ream $17,210; Cromer $6,422; Coble $25,436; Nides $27,147; and Peterson $11,973.
The Human Resources Committee (for purposes of this analysis, the Committee) of our board has responsibility for establishing, implementing and monitoring adherence to our compensation philosophy. The Committee works to ensure that the total compensation paid to the executive officers is fair, reasonable and competitive. Generally speaking, the types of compensation and benefits provided to executive officers are similar to those provided to our other officers and key employees.
Throughout this proxy statement, the individuals who served as our chief executive officer and chief financial officer during fiscal 2007, as well as the other individuals included in the Summary Compensation Table, are referred to as the executive officers or simply the executives.
Our executive compensation program is designed to attract and retain qualified executives. We believe each element of total compensation that we offer improves the competitiveness of our program relative to the compensation paid to similarly situated executives in comparably sized airlines and other companies outside the airline industry and plays an integral role in facilitating the advancement of the companys interests. To that end, the Company believes that executive compensation packages should include both fixed and variable
pay elements designed to deliver a competitive total compensation opportunity to executives. For variable pay elements, the Company uses both cash and stock-based compensation to align executives interests with those of stockholders and to reward performance measured by operating and/or strategic performance and stock price performance.
In establishing the elements of its executive compensation program, the Committee reviews:
The Committee has retained Frederic W. Cook & Co., Inc. (Cook) as its independent compensation consultant since 2006 to review and advise the Committee on its total compensation program for the executive officers as well as for other key employees. Cook provides the Committee with relevant market data and alternatives to consider when making compensation decisions. Using data prepared by Cook, the Committee reviews the total compensation levels for our executives relative to total compensation provided at an industry and size-relevant group of companies (Airline Peer Group) as well as general industry indices reflecting comparably sized companies outside the airline industry with which the Committee believes we compete for talent and for stockholder investment. The companies comprising the Airline Peer Group are:
Base salaries, short and long-term incentive pay and other benefits are all targeted at median levels of external market practices among the Airline Peer Group and similarly sized companies other than airlines.
We try to provide competitive base salaries, but seek to focus the majority of executives compensation on variable pay to incent improved performance. We do not have a policy or target for the allocation between either cash and non-cash or short-term and long-term incentive compensation. The Committee reviews information provided by Cook to determine the appropriate level and mix of incentive compensation. Income from incentive compensation is realized as a result of the performance of the Company or, depending on the type of award, the achievement of established goals.
In connection with our initial public offering in 2002, the elements of our compensation program were determined by Continental Airlines and were similar to programs it developed with its compensation consultants. Since then, the Committee has worked with its consultants and advisors to customize a total compensation program for our executives. A summary of the elements of compensation that we provide to executive officers is presented below:
While salaries are designed to provide basic compensation and financial stability to the executives, the purpose of annual cash bonuses is primarily to encourage the executives to focus on the execution of the operating plan approved by our board of directors for the current year. Equity awards of stock options and restricted stock are designed to identify executives interests with those of stockholders and thereby strengthen their concern for the welfare of our company over the longer term. Unlike the annual cash bonuses, which are paid based on achievement of a targeted operating income, the value of stock options and restricted stock is inherently linked to the performance of our common stock. Our Long Term Incentive Plan was used to encourage the executives to remain with the company in the near term during difficult transition years; the new 2007 Long Term Incentive Program has a three-year cycle designed to incent the executives to return the company to profitability and to excel against other airlines, each as discussed more fully below. Modest supplemental retirement plan benefits were designed to compensate the executives for joining the company from Continental Airlines thereby terminating participation in Continentals pension plan.
The Committee oversees our general compensation structure and administers our bonus, incentive and other compensation plans. In determining annual compensation packages, the Committee seeks to establish compensation packages and programs that appropriately encourage the executives. As part of this process, our chief executive officer provides input to the Committee on an ongoing basis regarding the airline industry job market, the overall performance of our employees, and the appropriate salary and incentive plan compensation necessary to retain the other executive officers. At the request of the Committee, management provides information to Cook from time to time with respect to its views on compensation. Although the Committee weighs the input of Cook and management, it acts independently in its decisions and is guided by its own judgment. In recent years, including the year ended December 31, 2007, the Committee has favored the input of its advisors over the recommendations of management in setting compensation levels.
The Committee works closely with its independent compensation consultants and legal advisors to provide total compensation packages capable of securing and incenting high-caliber employees and to ensure that the components of executives pay packages are reasonable. In establishing executive compensation packages, the Committee reviews tally sheets (which detail the value of an executives salary, bonuses, equity awards, and other benefits, including retirement, termination of employment and a change in control of the company under various circumstances) and competitive pay data as described above to confirm that the overall
amount payable to executives is reasonable and that their compensation packages are appropriately structured relative to relevant industry peers.
Compensation of Named Executive Officers for 2007
As discussed above, the Committee works with its consultants and advisors to customize a compensation structure and appropriate compensation elements for our executives. Based on the Committees reviews, the salary of Jim Ream, our chief executive officer, remained unchanged from the initial public offering through 2004, although other executives salaries increased in 2004 since they lagged the industry average. However, as conditions in the airline industry worsened, and major carriers began to seek concessions from their regional partners, we reduced executives base salaries in April 2005, even though the companys profits were at record highs. Salaries remained at this reduced level through 2006. As part of the Committees annual compensation review, it determined to moderately increase salaries in March 2007, although not to their pre-April 2005 levels. The primary reason for this change was the Committees determination that a moderate increase in salary was necessary as part of a package to promote continuity in our executive management team during the year as we more fully established our branded flying operations and sought to encourage the executives future performance. The reductions and increases are summarized below:
In connection with the 2005 salary reductions, the Committee sought to encourage the executives to remain with the company and help manage it through the industrys downturn by awarding them a number of stock options and restricted shares, the amounts and terms of which were determined after extensive deliberation by the Committee with its independent consultants at the time:
A cash bonus is available under the Management Bonus Plan to reward achievement of the annual financial target selected by the Committee. The target bonuses for the executives named in the Summary Compensation Table have historically ranged from 40-60% of base salary; while the Committee can specify a higher percentage, it cannot exceed 100% of an executives base salary.
For 2007, Mr. Reams target was 60% of his base salary; Mr. Cromers was 45%; and Messrs. Coble, Nides and Petersons were 40%, based on the executives level of responsibility. The bonus is based on a single measurement: the companys operating income for the year. Operating income was the performance metric selected by Continental Airlines at the time of our initial public offering. The Human Resources Committee has retained the measure since it believes it to be readily understood and accepted by participants and consistent with promoting stockholder value. If operating income is at least 75% of the goal approved by
the Committee, then payment is made on a sliding scale of 75% to whatever percentage actual operating income bears to the target operating income; provided that no payment will be made for negative operating income. From 2002 to 2005, bonuses were paid at 110% of target levels. In 2006, bonuses were paid at 100% of the target. The Committee believed that the target for 2007 was challenging, but achievable. However, the companys actual 2007 operating income was less than 75% of the target set by the Committee. Accordingly, the participants in the plan did not receive any bonuses under the plan, which is reflected in the column Non-Equity Incentive Plan Compensation in the Summary Compensation Table above.
The Committee also makes equity awards to help align the executives long-term interests with those of stockholders. Equity is awarded annually in an amount deemed to be competitive with other companies in the Airline Peer Group and comparably sized companies outside the airline industry; consequently, the grant date value is not intended to equate to a specific portion of the executives base salary.
In 2006, Mr. Ream received no equity awards. Mr. Cromer received an option to purchase 75,000 shares, and Messrs. Coble, Nides and Peterson received options to purchase 37,500 shares of our common stock for $5.40 per share, the fair market value (closing price) of our stock on the date the options were awarded. In 2007, based on the advice of Cook, the Committee determined that the Companys executive compensation had historically been low and deemed it appropriate to increase equity awards to encourage the executives to remain with the company and see it through the strategic crossroads it was confronting. Mr. Ream received 15,000 shares of restricted stock, scheduled to vest in 25% increments over the ensuing four years; Mr. Cromer received 12,000 shares and Messrs. Coble, Nides and Peterson received 10,500 shares, each scheduled to vest similarly to Mr. Reams. Messrs. Ream and Cromer received options to purchase 80,000 shares of common stock, and Messrs. Coble, Nides and Peterson received options to purchase 60,000 shares, each for $6.12 per share. The options have seven-year terms and vest on the same schedule as the restricted shares.
All awards of options to purchase the companys common stock are made at or above the closing price at the time of the award. Annual awards of stock options to executives are made at the Committees meeting held on the day of the annual stockholders meeting, which we have historically held in May. The Committee awards newly hired or promoted executives their initial award of stock options and restricted stock as closely as possible to their date of hire or promotion. Awards are made from the companys 2002 Stock Incentive Plan and 2007 Stock Incentive Plan, each of which has been approved by stockholders.
The Long Term Incentive Plan was implemented to provide additional incentives for executives to remain with the company and, initially, to manage it through the diversification required by Continental Airlines notice in December 2005 that it would terminate 25% of the flying we perform under our capacity purchase agreement (the source of significantly all of our revenue at that time) beginning in December 2006. Awards under the plan were for single-year performance cycles, payable in cash, and based solely on the executive remaining employed by the company at the end of the relevant year. The final cycle of the plan is for a single year as well and concludes at the end of 2008.
In 2007, we adopted the 2007 Long Term Incentive Program to provide executive officers and other employees with the opportunity to earn a cash bonus tied to our performance over a three-year period, 2008-2010. The performance period would end immediately in the event of a Change in Control. The program was developed by the consulting firm of Alvarez & Marsal (retained by senior management) and reviewed by Cook in the context of our existing compensation structure prior to adoption. The program is designed to align the executives long-term interests with stockholders.
Flight benefits remain consistent with the level initially established by Continental Airlines in connection with our initial public offering; since they are of the type provided to executives at other companies in the
airline industry, we have not deemed it necessary either to increase or decrease them. Flight benefits are not related to the other pay elements awarded to executives.
Other than flight benefits, we provide no other perquisites or personal benefits to our executive officers.
The description of amounts payable included under Compensation of Executive Officers Potential Payments Upon Termination or Change in Control reflects that pursuant to his employment agreement Mr. Reams payments following a change in control would increase only in the event of a change in control and termination either by the company or by Mr. Ream because of constructive termination. The other executive officers payments increase in the event of a change in control because they can terminate their employment for any reason following a change in control. The Committee structured the agreements with these different triggers because Mr. Reams payments are expected to be significantly more valuable and are subject to certain additional tax gross-up payments; the other executives benefits are more limited and their payments would be reduced as a result of the federal tax code.
As noted above, our supplemental retirement plan benefits are designed to compensate participants, based on applicable actuarial assumptions and the participants age, for the benefits lost by no longer participating in Continental Airlines pension plan. The plan is unqualified and unfunded; rather we maintain an account to which hypothetical contributions and interest amounts are credited. On the last day of each calendar year, we credit a hypothetical contribution to each participants account equal to a specified percentage of his or her base salary (including any portion of base salary deferred) and a hypothetical interest amount equal to 8% of the account balance as of the first day of that calendar year.
As part of its role, the Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code, which denies publicly held companies tax deductions in certain circumstances for annual compensation exceeding $1 million paid to their chief executive officer or three other of the most highly compensated executives. No deduction is permitted for this compensation unless it is based on performance criteria established by a committee of outside directors and approved by a companys stockholders. Our stock options and the awards under the 2007 Long Term Incentive Program were designed to qualify as performance-based compensation under Section 162(m). However, neither our restricted stock nor the bonuses available under the management bonus plan or Long Term Incentive Plan were so designed. Nevertheless, we believe that all compensation paid or awarded to date will be deductible by the company. The committee has the authority to approve compensation or changes to plans, programs or awards in the future that could cause the compensation or awards not to qualify for tax deductions under Section 162(m).
The company is currently reviewing its compensation and employment arrangements for compliance with the compensation requirements of Section 409A of the Internal Revenue Code, and expects to make certain conforming amendments in the near future.
The Human Resources Committee of the board of directors, which functions as the companys compensation committee, has reviewed and discussed the Compensation Discussion and Analysis section of this proxy statement with management. Based on this review and discussion, the committee recommended to the board that the Compensation Discussion and Analysis be included in this proxy statement.
Human Resources Committee
Janet M. Clarke, Chair
Salvatore J. Badalamenti
Kim A. Fadel
Judith R. Haberkorn
Bonnie S. Reitz
As described above, each member of the Human Resources Committee of the board has been determined by the board to be independent. None of these directors is or has been in the past an officer or employee of the company or any of its subsidiaries and none has any interlocking or other relationship with the company or its management requiring disclosure.
The Audit Committee is currently comprised of five non-employee members of the board of directors. The board has reviewed any relationships that members of the Audit Committee may have with the company and its management, as well as their background and qualifications. The board has determined that the members of the committee are independent and financially literate and that Messrs. Badalamenti and Kelly qualify as audit committee financial experts, in each case, as those concepts are defined under applicable rules of the SEC and/or the NYSE.
The committee has a written charter that is available on the companys website at www.expressjet.com. The committee reviews the charter annually and reports to the board on its adequacy in light of applicable NYSE and SEC rules. The board has adopted the charter, consistent with those rules, and the company furnishes a written affirmation to the NYSE each year relating to the matters addressed in the foregoing paragraph and to the adequacy of the committees charter.
As required by its charter, the committee has:
(a) reviewed and discussed with management and the companys independent registered auditors the audited financial statements of the company as of and for the three years ended December 31, 2007, and the audit of internal controls over financial reporting as of December 31, 2007, included in the companys annual report;
(b) reviewed and discussed with the independent registered auditors the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, and applicable SEC regulations;
(c) received from the independent registered auditors the written disclosures and the letter delineating all relationships between such auditors and the company and the other matters required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees;
(d) reviewed and discussed with the independent registered auditors their independence; and
(e) recommended to the board, based on the foregoing reviews and discussions, that the audited financial statements be included in the companys annual report on Form 10-K for the year ended December 31, 2007 for filing with the SEC.
Throughout the year, the committee meets with various employees and has access to all of the companys employees. In addition to meeting with the independent registered auditors, who are appointed by and report directly to the committee, the committee is authorized to and may from time to time retain outside legal, accounting or other advisors if it deems it necessary.
During the last year, the committee discussed with the companys internal and independent registered auditors the overall scope and plans for their respective audits, the results of their examinations, their evaluations of the companys internal controls, and the overall quality of the companys financial reporting. In addition, the committee reviewed with the independent registered auditors their judgment as to the quality, and not just the acceptability, of the companys accounting policies, and determined that the non-audit services provided by the independent registered auditors to the company are compatible with maintaining the independence of the independent registered auditors.
Although the committee is charged with overseeing the companys accounting and financial reporting processes and the audit of its financial statements, the charter makes clear that it is not the duty of the committee to plan or conduct audits or to determine that the companys financial statements are complete, accurate and in accordance with generally accepted accounting principles. Management is responsible for the companys financial reporting process including its system of internal controls, and for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States. The independent registered auditors are responsible for expressing an opinion on those financial statements and opinions on managements assessment of internal control and the effectiveness of internal controls over financial reporting.
We have relied, without independent verification, on managements representation that the financial statements have been prepared with integrity and objectivity and in conformity with accounting principles generally accepted in the United States. We have also relied on the representations of the independent registered auditors in their report on the companys financial statements. Our oversight does not provide us with an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or policies, or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, our reviews and discussions with management and the independent registered auditors do not assure that the companys financial statements are presented in accordance with generally accepted accounting principles or that the audit of the companys financial statements has been carried out in accordance with standards promulgated by the Public Company Accounting Oversight Board.
Salvatore J. Badalamenti, Chairman
George R. Bravante, Jr.
Janet M. Clarke
Andrew N. Jent
ExpressJets board has approved the Principles of Conduct, which are applicable to all directors, officers and employees of the company, including the principal executive officer, the principal financial officer and the principal accounting officer. The Principles of Conduct are available on our website at www.expressjet.com and in print without charge to any stockholder who sends a written request to the companys Secretary at our principal executive offices. We would post any amendments to or waivers of this code for our directors or executive officers, including the principal executive officer, principal financial officer and principal accounting officer, at this location on our website.
It is the intention of the persons named in the enclosed form of proxy, unless otherwise instructed, to vote duly executed proxies for the election of the nominees for director listed below. Pursuant to our bylaws, directors will be elected by a plurality of the votes duly cast at the Meeting. We do not expect the nominees to be unavailable to serve for any reason, but if that should occur before the Meeting, we anticipate that proxies will be voted for other nominees to be selected by the board of directors.
Our board of directors currently consists of nine persons, three Class I directors with terms expiring at the Meeting, three Class II directors with terms expiring at the 2009 annual meeting of stockholders, and three Class III directors with terms expiring at the 2010 annual meeting of stockholders. There is no family relationship between the nominees for director and any other director or executive officer. On March 17, 2008, we entered into an agreement with Hayman Advisors, L.P. and its affiliates, pursuant to which Hayman agreed to cease efforts related to a proxy solicitation and withdraw its own nominations to the board for the 2008 annual meeting, and we increased the size of our board of directors from eight to nine and appointed Mr. Jent, the president of Hayman, as a Class II director of the Board and as a member of the Audit Committee. In addition, the agreement provides that William F. Loftus will immediately be entitled to attend board meetings as an observer and, upon Haymans written request prior to September 2008, we will increase the size of the board from nine to 10 directors and appoint Mr. Loftus as a Class III director. In the event that either Mr. Jent or Mr. Loftus is removed, resigns or is otherwise unable to serve as a director, Hayman is entitled to designate another person to fill the vacated position. We also agreed that the board will nominate and support Mr. Jent for election at the 2009 annual meeting of stockholders. Hayman also agreed to vote all of its shares of our common stock in favor of the current members of the board nominated for reelection at the 2008 and 2009 annual meetings.
At the Meeting, stockholders will vote on the nominees for Class I listed below. The Class I directors elected at the Meeting will serve until the annual meeting of stockholders in 2011 or until their respective successors have been duly elected and have qualified. The following table shows (i) the nominees names and ages, (ii) the period for which each has served as a director, (iii) all positions and offices with ExpressJet currently held by the nominees and their principal occupations and business experience during the last five
years, (iv) other directorships held by the nominees and (v) the standing committees of the board of directors on which they serve.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES NAMED ABOVE, WHICH IS DESIGNATED AS PROPOSAL NO. 1 ON THE ENCLOSED PROXY.
The following describes current directors of the company whose terms will continue after the Meeting.
The Audit Committee of the board of directors desires to continue to engage the services of Ernst & Young LLP for the fiscal year ending December 31, 2008. Accordingly, the Audit Committee has reappointed Ernst & Young to audit the financial statements of ExpressJet and its subsidiaries for fiscal 2008 and report on those financial statements. Stockholders are being asked to vote upon the ratification of the appointment. If stockholders do not ratify the appointment of Ernst & Young, the Audit Committee will reconsider their appointment. Fees paid to Ernst & Young during the last two years were as follows:
Audit Fees. Ernst & Youngs fees billed for professional services rendered for (i) the audit of the companys consolidated financial statements and matters related to our new lines of business and segment reporting included in our annual report on Form 10-K and managements assessment of the effectiveness of its internal control over financial reporting in compliance with the Sarbanes-Oxley Act, (ii) reviews of the financial statements included in our quarterly reports on Form 10-Q and (iii) services associated with SEC registration statements, periodic reports and other documents filed with the SEC or issued in connection with securities offerings (such as comfort letters and consents) during 2007 and 2006 were $1,706,107 and $938,520, respectively.
Audit-Related Fees. Audit-related fees incurred during 2007 and 2006 were $0 and $54,133, respectively. The 2006 fees related to the review of strategic initiatives associated with our diversification strategy.
Tax Fees. Tax fees billed by Ernst & Young during 2007 and 2006 totaled $30,627 and $34,777, respectively, for tax planning, review of federal, state, local and international income, franchise and other tax returns and miscellaneous tax related services.
All Other Fees. All other fees billed by Ernst & Young during 2007 and 2006 were $1,902 each year to purchase the right to use its accounting and research tool.
The Audit Committee has considered whether the provision of the non-audit services described above is compatible with maintaining the independent auditors independence, and determined that these non-audit services are compatible with the independence of Ernst & Young. The Audit Committee is required by its charter to approve all services to be provided to the company by the independent auditors. This includes the pre-approval of (i) all audit services and (ii) any significant (i.e., not de minimis) non-audit services. The Audit Committee has delegated to its chairman, the authority to pre-approve certain of these services, which services are then presented to the full committee at its next regular meeting. All of the 2007 and 2006 fees discussed above were pre-approved pursuant to these procedures.
Representatives of Ernst & Young will be present at the Meeting and will be available to respond to appropriate questions and make a statement should they so desire.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT AUDITORS, WHICH IS DESIGNATED AS PROPOSAL NO. 2 ON THE ENCLOSED PROXY.
We have not received notice as required under our bylaws of any other matters to be proposed at the Meeting. Consequently, the only matters to be acted on at the Meeting are those described in this proxy statement, along with any necessary procedural matters related to the Meeting. As to procedural matters, or any other matters that are determined to be properly brought before the Meeting calling for a vote of the stockholders, it is the intention of the persons named in the accompanying proxy, unless otherwise directed in that proxy, to vote on those matters in accordance with their best judgment.
Each director, executive officer (and, for a specified period, certain former directors and executive officers) and each holder of more than ten percent of a class of our equity securities is required to report to the SEC his or her pertinent position or relationship, as well as transactions in those securities, by specified dates. Based solely upon a review of reports on Forms 3 and 4 (including any amendments) furnished to us during our most recent fiscal year and reports on Form 5 (including any amendments) furnished to us with respect to our most recent fiscal year, and written representations from officers and directors that no Form 5 was required, we believe that all filings applicable to our officers, directors and beneficial owners required by Section 16(a) of the Exchange Act were filed on a timely basis during 2007.
Any stockholder who wants to present a proposal at the 2009 annual meeting of stockholders and to have that proposal set forth in the proxy statement and form of proxy mailed in conjunction with that annual meeting must submit the proposal in writing to the Secretary of the company at our principal executive offices by December 11, 2008 to be considered for inclusion in the proxy statement and form of proxy relating to that meeting.
Our bylaws require that for nominations of persons for election to the board of directors or the proposal of business not included in our notice of the meeting to be considered by the stockholders at an annual meeting, a stockholder must give timely written notice thereof. To be timely for the 2009 annual meeting of stockholders, that notice must be delivered to the Secretary of the company at our principal executive offices not less than 45 days and not more than 75 days prior to April 10, 2009. However, if the 2009 annual meeting of stockholders is advanced by more than 30 days, or delayed by more than 30 days, from May 22, 2009, then the notice must be delivered not later than the close of business on the later of (a) the ninetieth day prior to the 2009 annual meeting or (b) the tenth day following the day on which public announcement of the date of the 2009 annual meeting is first made. The notice must contain and be accompanied by certain information as specified in the bylaws. We recommend that any stockholder desiring to make a nomination or submit a proposal for consideration obtain a copy of our bylaws, which are available on our website at www.expressjet.com or may be obtained without charge from the Secretary of the company upon written request addressed to the Secretary at our principal executive offices.
EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE VOTE BY INTERNET OR TELEPHONE AS DESCRIBED ABOVE IN THE PROXY STATEMENT, OR SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY.
You can view our Annual Report on Form 10-K for the year ended December 31, 2007, including exhibits, or fill out our online request to get a copy of the 10-K (excluding exhibits) by mail, free of charge, by visiting Investor Relations at www.expressjet.com or sending your request to Investor Relations, 700 North Sam Houston Parkway West, Ste 200, Houston, TX 77067. We will furnish to interested security holders a copy of any exhibit to the 10-K, if requested in writing and accompanied by payment of reasonable fees relating to our furnishing the exhibit. Requests for copies should be addressed to the companys Secretary at the companys headquarters at 700 North Sam Houston Parkway West, Ste 200, Houston, Texas 77067.
NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.
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WE ENCOURAGE YOU TO TAKE
ADVANTAGE OF INTERNET OR TELEPHONE VOTING.
Internet and telephone voting is available through 11:59 PM Eastern Time on May 21, 2008.
Your internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card.
To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope.
You can view the Annual Report and Proxy Statement
EXPRESSJET HOLDINGS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
May 22, 2008
This Proxy Is Solicited on Behalf of the Board of Directors
The undersigned hereby authorizes James B. Ream and Scott R. Peterson, and each of them, with full power of substitution, to represent and vote the stock of the undersigned in ExpressJet Holdings, Inc. as directed and, in their sole discretion, on all other matters that may properly come before the Annual Meeting of Stockholders to be held on May 22, 2008, and at any adjournment or postponement thereof, as if the undersigned were present and voting thereat. The undersigned acknowledges receipt of the notice of annual meeting and proxy statement with respect to such annual meeting. Pursuant to federal law and the Certificate of Incorporation of ExpressJet Holdings, Inc., voting stock is subject to certain foreign ownership restrictions. By signing below, the undersigned represents that it is a U.S. Citizen as that term is defined in the companys proxy statement or that the shares of stock represented by this Proxy have been registered on the companys Foreign Stock Record.
Whether or not you expect to attend the annual meeting, please vote your shares. As explained on the other side of this proxy, you may vote by internet or by telephone, or you may execute and return this proxy, which may be revoked at any time prior to its use.
This proxy, when properly executed, will be voted in the manner directed by the undersigned stockholder(s). IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS NAMED ON THE OTHER SIDE OF THIS PROXY (PROPOSAL 1) AND FOR THE RATIFICATION OF INDEPENDENT AUDITORS (PROPOSAL 2).
(Continued and to be signed on other side)
Address Change/Comments (Mark the corresponding box on the reverse side)
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