This excerpt taken from the LGF DEF 14A filed Jul 28, 2006.
Our Compensation Committee currently consists of Messrs. Evrensel (Chair), Simm and Simmons, each of whom is an independent director under NYSE and applicable U.S. Securities and Exchange Commission rules. Our Compensation Committee determines the Chief Executive Officer’s salary and the equity awards for all executive officers and directors. Our Compensation Committee may consider other forms of compensation, both short-term and long-term, in addition to those described below. Our executive compensation program is designed to attract, retain and motivate the senior executive talent required to ensure our success. The program also aims to support the creation of shareholder value and ensure that pay is consistent with performance.
Our Compensation Committee’s general philosophy is that bonus and equity compensation should fluctuate with the Company’s success in achieving financial and other goals, and that the Company should continue to use long-term compensation such as stock options, stock appreciation rights and restricted share units to align shareholders’ and executives’ interests.
During fiscal 2006, our Compensation Committee engaged the services of Mercer Human Resource Consulting to (a) assess the Company’s executive total rewards strategy, (b) develop a peer group for benchmarking senior executive compensation, (c) benchmark and competitive assessment of reward levels and contract provisions among peer companies, (d) provide an overview of executive pay trends, (e) make recommendations on provisions for new employment agreements, and (f) review our Compensation Committee’s charter relative to other companies of similar size and type.
Employment Agreements.  During fiscal 2006 we were a party to a continuing employment agreement with each of Jon Feltheimer, our Chief Executive Officer, and Michael Burns, our Vice Chairman. See “Employment Contracts, Termination of Employment and Change-In-Control Arrangements.” Mr. Feltheimer’s employment agreement is scheduled to expire March 31, 2007, and Mr. Burns’ employment agreement is scheduled to expire August 31, 2006. Our Compensation Committee is currently in active negotiations to extend the terms of the employment agreements for each of Messrs. Feltheimer and Burns.
Base Salary.  The base salary of each of Messrs. Feltheimer, our Chief Executive Officer, and Burns, our Vice Chairman, was determined in fiscal 2004 and is set forth in each of their employment agreements, which extend through March 31, 2007 and August 31, 2006, respectively. See “Employment Contracts, Termination of Employment and Change-In-Control Arrangements.” In determining the compensation of Messrs. Feltheimer and Burns, our Compensation Committee considered the relevant executive’s experience and responsibilities, as well as other subjective factors. Our Compensation Committee reviewed the base salaries, bonuses, options, option values, restricted stock and benefits granted to executives of other entertainment companies in the last year which are publicly available. In addition, our Compensation Committee considered the relevant executive’s performance in relation to brand and asset value creation, earnings, revenues and share price. To the extent not set forth in previously negotiated employment agreements, Mr. Feltheimer, in consultation with our Compensation Committee, established the base compensation paid to our other executives in fiscal 2006 based on the consideration of similar factors.
Bonus Compensation.  Our Compensation Committee approved a cash bonus for each of Messrs. Feltheimer and Burns for fiscal 2006 of $395,000 and 20,000 restricted share units that vest in two equal annual installments beginning on June 13, 2007. In determining the appropriate bonuses for Messrs. Feltheimer and Burns, our Compensation Committee discussed and considered the Company’s financial performance for fiscal 2006 and the performance of Messrs. Feltheimer and Burns in executing the Company’s business plan during that period, and reviewed the fiscal 2006 base salaries and past bonuses paid to each of Messrs. Feltheimer and Burns. Pursuant to contractual requirements of their respective employment agreements, in determining the bonuses for


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Messrs. Feltheimer and Burns, our Compensation Committee took into consideration the following criteria: (a) the Company’s earnings before taxes, depreciation and amortization (“EBITDA”), (b) adjusted EBITDA, (c) total revenues, (d) adjusted earnings, (e) free cash flow, (f) debt increase/decrease and (g) the 52-week range of the Company’s stock price. Achievements of Messrs. Feltheimer and Burns noted by the committee include: (1) the large cash reserves of the Company at fiscal year-end, (2) an increase in total revenue by over $100 million from fiscal 2005 year-end, (3) an increase in free cash flow by over $8 million from fiscal 2005 year-end, (4) the elimination of bank debt from $325 million to nil compared to fiscal 2005 year-end, (5) that there are now 18 analysts covering the Company, (6) the Company’s participation in the Academy Award® win for Crash, and (7) the Company’s cash and cash equivalents and available for sale investments balance was over $229 million as of March 31, 2006.
The employment agreement for Mr. Beeks, our President, was negotiated before fiscal 2006. The employment agreements for Messrs. Levin and Keegan were executed during fiscal 2007, as set forth above under the heading “Employment Contracts, Termination of Employment and Change-In-Control Arrangements.” The bonus compensation paid to these executives for fiscal 2006 was established either by contractual provisions or by Mr. Feltheimer. The bonus pool was approved by our Compensation Committee.
Equity-Based Compensation.  Our Compensation Committee believes in linking long-term incentives to an increase in stock value, as it awards stock options at the fair market value or higher on the date of grant that vest over time and restricted share units that vest over time. Our Compensation Committee believes that stock ownership in the Company is a valuable incentive to executives that (1) aligns their interests with the interests of shareholders as a whole, (2) encourages them to manage the Company in a way that seeks to maximize its long-term profitability, and (3) encourages them to remain an employee of the Company. Generally, awards granted under the 2004 Plan are subject to a three-year vesting period.
The Deductibility of Executive Compensation.  Section 162(m) of the U.S. Internal Revenue Code does not permit us to deduct cash compensation in excess of $1 million paid to each of the Chief Executive Officer and the four other most highly compensated executive officers during any taxable year, unless such compensation meets certain requirements.
Options and share appreciation rights approved by our Compensation Committee and granted under our shareholder-approved equity plans are intended to comply with the rules under Section 162(m) for treatment as performance-based compensation, allowing us to deduct fully compensation paid to executives under such awards. It is our policy to qualify, to the extent reasonable and consistent with our compensation goals set forth above, compensation paid to our executive officers for deductibility under applicable tax law. However, we intend to retain the flexibility necessary to provide total cash compensation in line with competitive practice, our compensation philosophy and the best interests of the Company. We therefore may from time to time pay compensation to our executive officers that may not be deductible under Section 162(m).
The Compensation Committee
Arthur Evrensel, Chair
Daryl Simm
Hardwick Simmons


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