Pitney Bowes DEF 14A 2007
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Admendment No. )
Pitney Bowes Inc.
(Name of Registrant as Specified In Its Charter)
Notice of the 2007
Pitney Bowes Inc.
To the Stockholders:
Notice of Meeting:
The Annual Meeting and Voting
Our board of directors is soliciting proxies to be used at the annual meeting of stockholders to be held on May 14, 2007, at 9:00 a.m. at the companys World Headquarters, One Elmcroft Road, Stamford, Connecticut, and at any adjournment or postponement of the meeting. This proxy statement contains information about the items being voted on at the annual meeting. This proxy statement and accompanying proxy card are first being distributed on or about April 3, 2007.
Annual Meeting Admission
An admission ticket, which is required for entry into the annual meeting, is attached to your proxy card if you hold shares directly in your name as a stockholder of record. If you plan to attend the annual meeting, please vote your proxy but keep the admission ticket and bring it to the annual meeting.
If your shares are held in the name of a bank, broker or nominee and you plan to attend the meeting, you must present proof of your ownership of Pitney Bowes stock (such as a bank or brokerage account statement) to be admitted to the meeting.
Who is entitled to vote?
Record stockholders of Pitney Bowes common stock and $2.12 convertible preference stock at the close of business on March 9, 2007 (the record date) can vote at the meeting. As of the record date, 220,283,827 shares of Pitney Bowes common stock and 39,280 shares of $2.12 convertible preference stock were issued and outstanding. Each stockholder has one vote for each share of common stock owned as of the record date, and 16.53 votes for each share of $2.12 convertible preference stock owned as of the record date.
How do I vote?
You may choose one of three methods to grant your proxy: (1) You may grant your proxy on-line via the Internet. If you have access to the Internet, we encourage you to grant your proxy at the following Web address: www.investorvote.com. (2) You may instead grant your proxy by telephone (1-800-652-VOTE). (3) You may also grant your proxy by completing and mailing the enclosed proxy card. Alternatively, you may attend the meeting and vote in person.
May I change my vote?
You may revoke your proxy at any time before it is voted at the meeting in several ways. You may send in a revised proxy dated later than the first proxy; you may vote in person at the meeting; or you may notify the corporate secretary in writing prior to the meeting that you have revoked your proxy.
What constitutes a quorum?
A majority of the outstanding shares entitled to vote, present in person or represented by proxy, constitutes a quorum. If you grant your proxy by Internet, telephone or proxy card, you will be considered part of the quorum. Abstentions, broker non-votes and votes withheld from director nominees are included in the count to determine a quorum. If a quorum is present, director candidates receiving the highest number of votes will be elected. Proposals 2 and 3 will be approved if a majority of the votes cast by the stockholders on each proposal are voted in favor of the proposal, provided that New York Stock Exchange rules also require that at least a majority of outstanding shares vote with respect to the Pitney Bowes Inc. 2007 Stock Plan. Proposal 4 will be approved if 80% of the outstanding voting power of the shares entitled to vote at the meeting are voted in favor of the proposal.
What is the effect of broker non-votes?
Under New York Stock Exchange rules, if your broker holds your shares in its street name, the broker may vote your shares on proposals 1, 2 and 4 if it does not
receive instructions from you. Your broker may not vote for proposal 3 unless it receives instructions from you.
If your broker does not vote on one or more agenda items, the effect would be as follows:
Election of Directors. In the election of directors, the four persons receiving the highest number of FOR votes will be elected. Broker non-votes have no effect because only a plurality of the votes cast is required to elect a director. However, pursuant to the Governance Principles of the Board of Directors, any nominee for director in an uncontested election who receives a greater number of votes withheld from his or her election than votes for such election shall tender his or her resignation for consideration by the Governance Committee. The Governance Committee will recommend to the board the action to be taken with respect to such offer of resignation.
Proposals 2 and 3. Broker non-votes would not be votes cast and therefore would not be counted either for or against, and would therefore have no effect.
Proposal 4. Broker non-votes would have the effect of a vote against the amendment.
How do Dividend Reinvestment Plan participants or employees with shares in the 401(k) plan vote by proxy?
If you are a stockholder of record and participate in the companys Dividend Reinvestment Plan, or employee 401(k) plan, you will receive a proxy card with instructions on the three different ways available to you to grant your proxy (through the mail, by telephone, or over the Internet).
Shares held in the companys 401(k) plan are voted by the plan trustee in accordance with voting instructions received from plan participants using the enclosed proxy card. The plan directs the trustee to vote shares for which no instructions are received in the same proportion (for, against, abstain or withheld) indicated by the voting instructions given by participants in the plan.
Who will count the votes?
Computershare Trust Company N.A. (Computershare) will tabulate the votes and act as Inspector of Election.
Multiple Copies of Annual Report to Stockholders
Our 2006 annual report has been mailed to stockholders together with this proxy statement. It will save the company money, and therefore benefit all stockholders, to eliminate distribution of unnecessary duplicate copies of the annual report. To print and distribute one annual report costs the company approximately $6.75.
If you and other stockholders of record with whom you share an address currently receive more than one copy of the annual report, we will discontinue mailing reports for the accounts you select if you mark the designated box on the appropriate proxy card(s), or follow the prompts when you grant your proxy if you are a stockholder of record granting your proxy by telephone or Internet.
At least one account per household must continue to receive the annual report, unless you elect to view future annual reports over the Internet. Mailing of dividends, stockholder investment statements and proxy materials will not be affected by your election to discontinue future duplicate mailings of the annual report. To discontinue or resume the mailing of an annual report to an account, or to consolidate your multiple accounts, call our transfer agent, Computershare, at the special Pitney Bowes toll-free number, 1-800-648-8170, visit their website at www.computershare.com, or contact them by mail at 250 Royall Street, Canton, MA 02021. If you own shares of common stock through a bank, broker or other nominee and receive more than one Pitney Bowes annual report, please contact that entity to eliminate duplicate mailings.
Electronic Delivery of Annual Report and Proxy Statement
This proxy statement and our 2006 annual report may be viewed online at www.pb.com under the caption Investor Relations. If you are a stockholder of record, you can elect to receive future annual reports and proxy statements electronically by marking the appropriate box on your proxy card or by following the instructions provided if you grant your proxy by Internet or by telephone. If you choose this option, you will receive an e-mail in March listing the website locations and your choice will remain in effect until you notify us that you wish to resume mail delivery of these documents. If you hold your Pitney Bowes stock through a bank, broker or another holder of record, refer to the information provided by that entity for instructions on how to elect this option.
Stockholder Proposals and Other Business for the 2008 Annual Meeting
If a stockholder wants to submit a proposal for inclusion in the companys proxy material for the 2008 annual meeting, which is scheduled to be held on Monday, May 12, 2008, it must be received by the cor-
porate secretary by December 1, 2007. Also, under our By-laws, a stockholder can present other business at an annual meeting, including the nomination of candidates for director, only if written notice of the business or candidates is received by the corporate secretary by February 12, 2008. There are other procedural requirements in the By-laws pertaining to stockholder proposals and director nominations. The By-laws are posted on the companys website at www.pb.com under the caption Our Company-Corporate Governance. Any stockholder may obtain a copy of the By-laws without charge by writing to the Corporate Secretary at Pitney Bowes Inc., One Elmcroft Road, MSC 65-19, Stamford, CT 06926-0700.
Stockholders are encouraged to visit the companys Corporate Governance website at www.pb.com under the caption "Our Company-Corporate Governance" for information concerning the companys governance practices, including the Governance Principles of the Board of Directors, charters of the committees of the board, and the directors Code of Business Conduct and Ethics. The companys Business Practices Guidelines, which is the companys Code of Ethics for employees, including the companys chief executive officer and senior financial officers, is also available on the companys Corporate Governance website. Amendments or waivers to the directors Code of Business Conduct and Ethics or the Business Practices Guidelines related to certain matters will be published on our website as required under Securities and Exchange Commission rules. Copies of all committee charters, the Governance Principles of the Board of Directors, the directors Code of Business Conduct and Ethics and the companys Business Practices Guidelines are available in print to stockholders who request them.
In 2005, the board of directors amended the Governance Principles, implementing a new policy regarding director elections. Under the policy, in an uncontested election, any nominee for director who receives a greater number of votes "withheld" from his or her election than votes "for" such election shall tender his or her resignation for consideration by the Governance Committee. The Governance Committee will recommend to the board of directors the action to be taken with respect to such offer of resignation. The board of directors has recommended that the By-laws of the company be amended to change the voting standard for the election of directors in an uncontested election from a plurality to a majority vote. For further information, please see below on page 30 Proposal 4: Approval of Amendment to By-laws of Pitney Bowes Inc. to Require Majority Vote to Elect Directors in an Uncontested Election.
Board of Directors
The board of directors has conducted its annual review of the independence of each director under the New York Stock Exchange listing standards and the standards of independence set forth in the Governance Principles of the Board of Directors (which are reprinted on pages 9 to 14 of this proxy statement).
Based upon its review, the board has concluded in its business judgment that the following directors are independent: Linda G. Alvarado, Anne Sutherland Fuchs, Ernie Green, James H. Keyes, John S. McFarlane, Eduardo R. Menascé, Michael I. Roth, David L. Shedlarz, David B. Snow, Jr. and Robert E. Weissman.
In making this determination, the board considered that in the ordinary course of business, transactions may occur between Pitney Bowes and its subsidiaries and companies or other entities at which some of our directors are executive officers. Under the companys independence standards, business transactions meeting the following criteria are not considered to be material transactions that would impair a directors independence:
Messrs. Roth, Shedlarz and Snow are employed at corporations with which Pitney Bowes engages in ordinary course of business transactions. We reviewed all transactions with each of these entities and these transactions were made in the ordinary course of business and were below the threshold set forth in our director independence standards.
In 2006, the board approved an expansion of the presiding director role into that of a Lead Director. Among the amendments to the Governance Principles of the Board of Directors adopted in February 2007 is a description of the Lead Directors role and responsibilities.
In February 2007, the board of directors appointed Robert E. Weissman, one of the independent directors, to serve as the boards Lead Director for an initial term of two years.
The Lead Director serves as the chair of the periodic executive sessions of the board of directors during which neither the employee directors nor other members of management are present.
Communications with the Board
The board of directors has established procedures by which stockholders and other interested parties may communicate with the Lead Director, the Audit Committee chair, the independent directors, or the board of directors. Such parties may communicate with the Lead Director via e-mail at email@example.com, with the Audit Committee chair via e-mail at firstname.lastname@example.org or they may write to one or more directors, care of the Corporate Secretary, Pitney Bowes Inc., One Elmcroft Road, MSC 65-19, Stamford, CT 06926-0700.
The board of directors has instructed the corporate secretary to assist the Lead Director, the Audit Committee chair and the board in reviewing all electronic and written communications, as described above, as follows:
Except as provided above, the corporate secretary will forward written communications to the full board of directors or to any individual director or directors to whom the communication is directed unless the communication is threatening, illegal or similarly inappropriate. Advertisements, solicitations for periodical or other subscriptions, and other similar communications generally will not be forwarded to the directors.
It is the longstanding practice and the policy of the board of directors that the directors attend the annual meeting of stockholders. All directors attended the May 2006 annual meeting.
During 2006, each director attended at least 75% of the total number of board meetings and meetings held by the board committees on which he or she served. The board of directors met seven times in 2006, and the independent directors met in executive session, without any member of management in attendance, seven times.
Members of the board serve on one or more of the seven committees described below. Mr. Critelli serves as the chair of the Executive Committee. The members of all other board committees are independent directors pursuant to New York Stock Exchange independence standards. Each committee of the board operates in accordance with a charter. All board committee charters are posted on the companys Corporate Governance website at www.pb.com under the caption Our Company-Corporate Governance and are available in print to stockholders who request them. As part of the companys commitment to identifying and managing enterprise risk, the charters for each committee, other than the Executive Committee, were amended recently to require that each such committee oversee the management of all matters within the scope of its charter that have been identified as and reported to be an enterprise risk.
The Audit Committee, which met six times in 2006, monitors the financial reporting standards and practices of the company and the companys internal financial controls to confirm compliance with the policies and objectives established by the board of directors and oversees the companys law and ethics compliance programs. The committee appoints an independent registered public accounting firm to conduct the annual audits, and discusses with the companys independent registered public accountants the scope of their examinations, with particular attention to areas where either the committee or the independent registered public accountants believe special emphasis should be directed. The committee reviews the annual financial statements and independent registered public accounting firms report, invites the independent registered public accounting firms recommendations on internal controls and on other matters, and reviews the evaluation given and corrective action taken by management. It reviews the independence of the independent registered public accountants and approves their fees. It also reviews the companys internal accounting controls and the scope and results of the companys internal auditing activities, and submits reports and proposals on these matters to the board.
The board of directors has determined that all members of the Audit Committee, including James H. Keyes, Michael I. Roth, David L. Shedlarz and Robert E. Weissman, are audit committee financial experts, as that term is defined by regulation of the Securities and Exchange Commission.
The Corporate Responsibility Committee, which met four times in 2006, monitors the companys policies and programs concerning stockholders, customers, employees, and the communities in which the company operates. The policies and programs that the committee monitors include employee relations, customer relations, procurement, product stewardship, investor relations, postal matters, community affairs, government relations, philanthropy, environmental health and safety, and emergency preparedness and business continuity planning.
The E-Commerce and Technology Committee, which met four times in 2006, monitors the companys programs for electronic commerce initiatives, information technology infrastructure, product development activities, and research and development.
The Executive Committee, which met twice in 2006, can act, to the extent permitted by applicable law and the companys Restated Certificate of Incorporation and its By-laws, on all matters concerning management of the business which may arise between scheduled board of directors meetings, unless otherwise limited by the committees charter.
The Executive Compensation Committee, which met seven times in 2006, oversees the companys executive compensation program, including establishing the companys executive compensation policies and undertaking an annual review of all components of compensation to confirm that the companys objectives are appropriately achieved. The committee is also responsible for certain administrative aspects of the companys compensation plans and the Pitney Bowes Employee Stock Purchase Plan, as amended and restated, and makes recommendations to the board regarding material changes to such plans. The committee also determines guidelines and specific provisions for stock options, stock and other equity-based incentive awards to be granted to eligible employees under the companys compensation plans, including the Pitney Bowes Inc. Key Employees Incentive Plan (KEIP) and The Pitney Bowes Stock Plan. Grants under any company compensation plan, including the KEIP and The Pitney Bowes Stock Plan, to the chief executive officer or to the chief operating officer are recommended by the committee and approved by the independent directors of the board. For further information on the responsibilities of the Executive Compensation Committee, see Report of the Executive Compensation Committee on page 31 below.
The Finance Committee, which met seven times in 2006, reviews the companys financial condition and evaluates significant financial policies and activities, oversees the companys major retirement programs, advises management and recommends financial action to the board. The committees duties include monitoring the companys current and projected financial condition, reviewing and approving major investment decisions, and overseeing the financial operations of the companys retirement, savings, and post-retirement benefit plans and retirement funds to confirm that plan liabilities are adequately funded and plan assets are prudently managed. The committee recommends for approval by the board the establishment of new plans and any amendments that materially affect cost, benefit coverages, or liabilities of the plans.
The Governance Committee, which met nine times in 2006, recommends nominees for election to the board of directors, determines the duties of and recommends membership in the board committees, reviews executives potential for growth, reviews and recommends to the board of directors the amount and form of compensation to non-employee members of the board, and, with the chief executive officer, is responsible for succession planning and ensuring management continuity. The committee reviews and evaluates the effectiveness of board administration and its governing documents, and reviews and monitors company programs and policies relating to directors. The committee reviews related-person transactions in accordance with company policy.
The Governance Committee generally identifies qualified candidates for nomination for election to the board of directors from a variety of sources, including other board members, management, and stockholders. The Governance Committee also retains a third party search firm to assist the committee members in identifying and evaluating potential nominees for the board.
Stockholders wishing to recommend a candidate for consideration by the Governance Committee may do so by writing to the Corporate Secretary, Pitney Bowes Inc., One Elmcroft Road, MSC 65-19, Stamford, CT 06926-0700. Recommendations submitted for consideration by the committee in preparation for the 2008 annual meeting of stockholders must be received by January 2, 2008, and must contain the following information: (i) the name and address of the stockholder; (ii) the name and address of the person to be nominated; (iii) a representation that the stockholder is a holder of the companys stock entitled to vote at the meeting; (iv) a statement in support of the stockholders recommendation, including a description of the candidates qualifications; (v) information regarding the candidate as would be required to be included in a proxy statement filed in accordance with the rules of the Securities and Exchange Commission; and (vi) the candidates written, signed consent to serve if elected.
The committee evaluates candidates recommended by stockholders based on the same criteria it uses to evaluate candidates from other sources. The Governance Principles of the Board of Directors, which are posted on the companys Corporate Governance website at www.pb.com under the caption Our Company-Corporate Governance, include a description of director qualifications. Among the qualifications considered by the committee are the candidates integrity and ethics, business acumen, experience and skills, independence, sound judgment, and his or her ability to commit sufficient time and attention to the activities of the board.
If the Governance Committee believes that a potential candidate may be appropriate for recommendation to the board, there is generally a mutual exploration process, during which the committee seeks to learn more about the candidates qualifications, background and interest in serving on the board, and the candidate has the opportunity to learn more about the company, the board, and its governance practices. The final selection of the boards nominees is within the sole discretion of the board of directors.
Alternatively, as referenced beginning on page 6 of this proxy statement, stockholders intending to appear at a stockholders meeting in order to nominate a candidate for election by the stockholders at the meeting (in cases where the board of directors does not intend to nominate the candidate or where the Governance Committee was not requested to consider his or her candidacy) must comply with the procedures in Article II, Section 6 of the companys By-laws. The By-laws are posted on the companys Corporate Governance website.
Directors Fees. During 2006, each director who was not an employee of the company received an annual fee of $45,000 and a meeting fee of $1,500 for each board and committee meeting attended. Committee chairs (except for the Audit Committee chair) receive an additional $1,500 for each committee meeting that they chair, and the Audit Committee chair receives an additional $2,000 for each Audit Committee meeting chaired. During 2006, the Governance Committee reviewed the value and components of the directors compensation program, comparing it with the market for board of directors compensation. In November 2006, the Governance Committee recommended and the board of directors approved an increase in both the cash and stock components of directors compensation. Effective January 1, 2007, the annual fee for non-employee directors was increased to $65,000 and non-employee directors will continue to receive the same board and committee meeting fees. For a discussion of the increase in the stock component of directors compensation, please see below under the section entitled Directors Stock Plan. Effective as of January 1, 2007, the board of directors also approved an additional annual retainer of $10,000 for the Lead Director.
All directors are reimbursed for their out-of-pocket expenses incurred in attending board and committee meetings.
The board of directors maintains directors stock ownership guidelines, requiring, among other things, that each director accumulate and retain a minimum of 7,500 shares of company common stock within five years of becoming a director of Pitney Bowes. The directors stock ownership guidelines are available on the companys website at www.pb.com under the caption Our Company-Corporate Governance.
Directors Stock Plan. Under the Directors Stock Plan, in 2006 each director who was not an employee of the company received an award of 1,400 shares of restricted stock. Effective May 2007, non-employee directors of the company will receive an annual award of 2,200 shares of restricted stock. The shares carry full voting and dividend rights but, unless certain conditions are met, may not be transferred or alienated until the later of (i) termination of service as a director, or, if earlier, the date of a change of control, and (ii) the expiration of the six-month period following the grant of such shares. The Directors Stock Plan permits certain dispositions of stock granted under the restricted stock program provided that the director effecting the disposition had accumulated and will retain 7,500 shares of common stock. Permitted dispositions are limited to (i) transfer to a family member or family trust or partnership, and (ii) donations to charity after the expiration of six months from date of grant. The original restrictions would continue to apply to the donee except that a charitable donee would not be bound by the restriction relating to termination of service from the board.
Since the approval of the Directors Stock Plan by stockholders in 1991, the common stock of the company has twice undergone a two-for-one split, in 1992 and 1997, respectively. In addition, the annual grant was increased in 1997 in connection with the discontinuation of the Directors Retirement Plan, as described below. Ownership of shares granted under the Directors Stock Plan is reflected in the table on page 20 showing security ownership of directors and executive officers.
Directors Deferred Incentive Savings Plan. The company maintains a Directors Deferred Incentive Savings Plan under which directors may defer all or part of the cash portion of their compensation. Deferred amounts will be notionally invested in any combination of several institutional investment funds. Deferral elections made with respect to plan years prior to 2004 also included as an investment choice the ability to invest in options to purchase common stock of the company.
Stock options selected by directors as an investment vehicle for deferred compensation were granted through the Directors Stock Plan. The Directors Stock Plan permits the exercise of stock options granted after October 11, 1999 during the full remaining term of the option by directors who have terminated service on the board, provided that service on the board is terminated (i) after ten years of service on the board, or (ii) due to directors death or disability, or (iii) due to the director having attained mandatory directors retirement age. The Directors Stock Plan also permits the donation of
vested stock options, regardless of the date of grant, to family members and family trusts or partnerships.
Directors Retirement Plan. The companys Directors Retirement Plan was discontinued, and the benefits previously earned by directors were frozen as of May 12, 1997. Under this plan, there is no benefit paid to a director who served for less than five years as of May 12, 1997. A director who had met the five-year minimum vesting requirement as of May 12, 1997 will receive an annual retirement benefit calculated as 50 percent of the directors retainer in effect as of May 12, 1997, and a director with more than five years of service at retirement will receive an additional 10 percent of such retainer for each year of service over five, to a maximum of 100 percent of such retainer for ten or more years of service. The annual retainer fee in effect as of May 12, 1997, was $30,000. The annual retirement benefit is paid for life.
Certain Relationships and Related-Person Transactions
In November 2006, the board of directors adopted the written Policy on Approval and Ratification of Related-Person Transactions which states that the Governance Committee of the board of directors of Pitney Bowes Inc. is responsible for reviewing and approving any related-person transactions between Pitney Bowes and its directors, nominees for director, executive officers, beneficial owners of more than five percent of any class of Pitney Bowes voting stock and their immediate family members as defined by the rules and regulations of the Securities and Exchange Commission (related persons). It is the expectation and policy of the board of directors that all related-person transactions will be at arms length and on terms that are fair to the company.
Under the related-person transaction approval policy, any newly proposed transaction between Pitney Bowes and a related person must be submitted to the Governance Committee for approval if the amount involved in the transaction is greater than $120,000. Any related-person transactions that have not been pre-approved by the Governance Committee must be submitted for ratification as soon as they are identified. Ongoing related-person transactions are reviewed on an annual basis. The material facts of the transaction and the related persons interest in the transaction must be disclosed to the Governance Committee.
If the proposed transaction involves a related person who is a Pitney Bowes director or an immediate family member of a director, that director may not participate in the deliberations or vote regarding approval or ratification of the transaction but may be counted for the purposes of determining a quorum.
The following related-person transactions do not require approval by the Governance Committee:
The Governance Committee may delegate authority to approve related-person transactions to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any approval or ratification decisions to the Governance Committee at its next scheduled meeting.
Except for the relationship described below, there were no other relationships or related-person transactions during 2006 involving any director, executive officer or beneficial owner of more than five percent of any class of Pitney Bowes voting stock (or any members of their immediate families) to which Pitney Bowes was a party that are required to be disclosed under the rules and regulations of the Securities and Exchange Commission.
Leslie Abi-Karam, Executive Vice President and President, Document Messaging Technologies, is an executive officer of the company who shares a household with a former employee of the company, Scott F. Fuller, who held the position of Vice President, Global Outsourcing. Mr. Fullers total compensation for 2006 was approximately $275,000.
Compensation Committee Interlocks and Insider Participation
During 2006, there were no compensation committee interlocks and no insider participation in Executive Compensation Committee decisions that were required to be reported under the rules and regulations of the Securities Exchange Act of 1934.
The only persons or groups known to the company to be the beneficial owners of more than five percent of any class of the companys voting securities are reflected in the chart below. The following information is based solely upon Schedules 13G and amendments thereto filed by the entities shown with the Securities and Exchange Commission as of the date appearing below.
Section 16(a) Beneficial Ownership Reporting Compliance
Directors and persons who are considered officers of the company for purposes of Section 16(a) of the Securities Exchange Act of 1934 and greater than ten percent stockholders (Reporting Persons) are required to file reports with the Securities and Exchange Commission showing their holdings of and transactions in the companys securities. It is generally the practice of the company to file the forms on behalf of its Reporting Persons who are directors or officers. The company believes that all such forms have been timely filed for 2006 except that two Forms 4 were filed late on behalf of Patrick J. Keddy, Executive Vice President and President, Mailstream International, relating to the exercise of 159 stock options previously granted and the grant of 153 stock options granted under the Pitney Bowes Inc. 1998 U.K. S.A.Y.E. Stock Option Plan and a Form 4 was filed late on behalf of Bruce P. Nolop, Executive Vice President and Chief Financial Officer, relating to the sale of approximately 216 shares of common stock from his 401(k) Restoration Plan. Also, it has come to the attention of the company that a Form 3 filed when Murray D. Martin became an executive officer in 1996 failed to report his holding of a restricted stock award in the amount of 850 shares.
Proposal 1: Election of Directors
The board of directors has eleven members. The board is divided into three classes whose terms of office end in successive years.
Ms. Fuchs, Mr. Keyes, Mr. Shedlarz and Mr. Snow were elected last year to three-year terms expiring in 2009.
Mr. Critelli, Mr. Roth and Mr. Weissman were elected in 2005 to terms expiring in 2008.
On March 16, 2007, the board of directors increased the size of the board from 11 to 12 members, and elected Murray D. Martin to fill the resulting vacancy. Consistent with the requirement in the companys Restated Certificate of Incorporation that each class of directors be as equal in number as possible, Mr. Martin was elected to the class of directors whose terms expire at the 2008 annual meeting.
Also on March 16, 2007, the board elected Murray D. Martin, the companys president and chief operating officer, to become the companys president and chief executive officer effective May 14, 2007. Upon assuming the role of chief executive officer, Mr. Martin will have full strategic and operational responsibility for the company, overseeing its overall performance with a focus on sustaining increased stockholder, customer and employee value.
The board elected Michael J. Critelli, the companys chairman and chief executive officer, to the newly created position of executive chairman effective May 14, 2007. As executive chairman, Mr. Critelli will lead the companys focus on the emerging opportunities in the external environment, including postal reform and transformation in the U.S. and globally, and market opportunities arising from the companys innovation and leadership in areas such as health care, government services, corporate social responsibility and corporate governance.
The Governance Committee recommended to the board of directors, and the board approved, the nomination of Ms. Alvarado, Mr. Green, Mr. McFarlane and Mr. Menascé at this meeting to three-year terms expiring at the 2010 annual meeting.
Information about each nominee for director and each incumbent director, including the nominees or incumbents age as of March 1, 2007, is set forth beginning on page 22. Unless otherwise indicated, each nominee or incumbent has held his or her present position for at least five years.
Should you choose not to vote for a nominee, you may list on the proxy the name of the nominee for whom you choose not to vote and mark your proxy under Proposal 1 for all other nominees, or grant your proxy by telephone or the Internet as described on the proxy voting instruction card. Should any nominee become unable to accept nomination or election as a director (which is not now anticipated), the persons named in the enclosed proxy will vote for such substitute nominee as may be selected by the board of directors, unless the size of the board is reduced. At the annual meeting, proxies cannot be voted for more than the four director nominees.
A plurality of the votes cast is required for the election of directors. This means that the four nominees for director, as shown in this proxy statement, receiving the highest number of votes will be elected. However, pursuant to the policy adopted by the board of directors in 2005, any nominee for director in an uncontested election who receives a greater number of votes withheld from his or her election than votes for such election shall tender his or her resignation for consideration by the Governance Committee. The Governance Committee will recommend to the board of directors the action to be taken with respect to such offer of resignation.
The board of directors recommends that stockholders vote FOR the election of the following nominees:
NOMINEES FOR ELECTION TO TERMS EXPIRING AT THE 2010 ANNUAL MEETING
INCUMBENT DIRECTORS WHOSE TERMS EXPIRE AT THE 2008 ANNUAL MEETING
Report of the Audit Committee
The Audit Committee functions pursuant to a charter that was last amended in February 2007. The Audit Committee represents and assists the board of directors in overseeing the financial reporting process and the integrity of the companys financial statements. The committee is responsible for retaining the independent registered public accounting firm and pre-approving the services they will perform, and for reviewing the performance of the independent registered public accounting firm and the companys internal audit function. The board of directors, in its business judgment, has determined that all four members of the committee are independent, as required by applicable listing standards of the New York Stock Exchange.
In the performance of its responsibilities, the committee has reviewed and discussed the audited financial statements with management and the independent registered public accounting firm. The committee has also discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Commitees, as currently in effect. Finally, the committee has received the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, as currently in effect, and has discussed with the independent registered public accounting firm their independence.
Based upon the review of information received and discussions as described in this report, the committee recommended to the board that the audited financial statements be included in the companys Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission on March 1, 2007.
By the Audit Committee of the board of directors,
David L. Shedlarz, Chair
Proposal 2: Ratification of Independent Registered Public Accounting Firm for 2007
The Audit Committee of the board has appointed PricewaterhouseCoopers LLP (PricewaterhouseCoopers) as the independent registered public accounting firm for Pitney Bowes for 2007. Although not required by law, as a matter of corporate governance this matter is being submitted to the stockholders for ratification. If this proposal is not ratified at the annual meeting by the affirmative vote of a majority of the votes cast, the Audit Committee intends to reconsider its appointment of PricewaterhouseCoopers as its independent registered public accounting firm. PricewaterhouseCoopers has no direct or indirect financial interest in Pitney Bowes or any of its subsidiaries. A representative from PricewaterhouseCoopers will attend the annual meeting and will be available to respond to appropriate questions and will have the opportunity to make a statement if he desires to do so.
Principal Accountant Fees and Services
Aggregate fees billed for professional services rendered for the company by PricewaterhouseCoopers as of or for the years ended December 31, 2006 and 2005, were (in millions):
The Audit fees for the years ended December 31, 2006 and 2005 were for professional services rendered for the audits of the consolidated financial statements of the company, financial statements of selected subsidiaries and internal control over financial reporting, statutory audits, issuance of comfort letters, consents, income tax provision procedures, and assistance with review of documents filed with the Securities and Exchange Commission.
The Audit-Related fees for the years ended December 31, 2006 and 2005 were for assurance and related services related to employee benefit plan audits, due diligence related to mergers and acquisitions, and consultations concerning financial accounting and reporting standards.
The Tax fees for the years ended December 31, 2006 and 2005 were for services related to tax compliance, including the preparation and/or review of tax returns and claims for refund, and tax compliance services for expatriate employees.
The Audit Committee has adopted policies and procedures to pre-approve all services to be performed by PricewaterhouseCoopers. Specifically the committees policy is to pre-approve the use of PricewaterhouseCoopers for audit services as well as detailed, specific types of services within the following categories of audit-related and non-audit services: merger and acquisition due diligence and audit services; employee benefit plan audits; tax services; and procedures required to meet certain regulatory requirements. The committee will not approve any service prohibited by regulation and does not anticipate approving any service in addition to the categories described above. In each case, the committees policy is to pre-approve a specific annual budget by category for such audit, audit-related and tax services which the company anticipates obtaining from PricewaterhouseCoopers, and has required management to report the actual fees (versus budgeted fees) to the committee on a periodic basis throughout the year. In addition, any new, unbudgeted engagement for audit services or within one of the other pre-approved categories described above must be pre-approved by the committee or its chair.
Ratification of the appointment of Pitney Bowes independent registered public accounting firm requires the affirmative vote of a majority of votes cast by the holders of common stock and $2.12 convertible preference stock of the company present or represented by proxy and entitled to vote at the annual meeting.
The board of directors recommends that stockholders vote FOR the ratification of PricewaterhouseCoopers LLP as the companys independent registered public accounting firm for 2007.
Proposal 3: Approval of the Pitney Bowes Inc. 2007 Stock Plan
The board of directors recommends that stockholders approve the Pitney Bowes Inc. 2007 Stock Plan (which we refer to as the 2007 Plan). The 2007 Plan would govern grants of stock-based awards to employees. It is intended that upon approval by stockholders at the annual meeting the 2007 Plan would replace the Pitney Bowes 2002 Stock Plan (which we refer to as the 2002 Plan) and no additional grants will be made under the 2002 Plan. A maximum of 15,000,000 shares (subject to adjustment as described below) of Pitney Bowes common stock will be reserved for issuance under the 2007 Plan.
Based upon the recommendation of the Executive Compensation Committee, the board of directors has unanimously approved the 2007 Plan effective May 1, 2007, subject to stockholder approval at the annual meeting. The 2007 Plan is designed to support the companys long-term business objectives in a manner consistent with our executive compensation philosophy. The board believes that by allowing the company to continue to offer its employees long-term, equity-based incentive compensation through the 2007 Plan, Pitney Bowes will promote the following key objectives:
All employees of Pitney Bowes and its affiliates are eligible to receive awards under the 2007 Plan, but awards are generally limited to approximately 3,000 management and executive-level employees. The relative mix of equity compensation to total compensation increases in relation to a participants role in influencing stockholder value.
As with the companys prior equity plans, the 2007 Plan is an omnibus stock plan that provides for a variety of equity award vehicles to maintain flexibility. The 2007 Plan will permit the grant of stock options, stock appreciation rights or SARs, restricted stock awards, restricted stock units, stock awards and other stock-based awards. Participants at the vice president level and above are generally granted stock options and participants at the manager and director levels are generally granted restricted stock units. In unique circumstances where needed for attracting, retaining and motivating executive talent, restricted stock may be awarded. The 2007 Plan is flexible and will allow us to change equity grant practices from time to time.
A maximum of 15,000,000 shares (subject to adjustment as described below) will be available for grants of all equity awards under the 2007 Plan. The board believes that this number represents a reasonable amount of potential equity dilution and provides a powerful incentive for employees to increase the value of the company for all stockholders. As of February 28, 2007, there were 9,133,536 shares available for issuance under the 2002 Plan. The additional 5,866,464 shares available under the 2007 Plan would represent approximately 2.42% of fully diluted common shares outstanding as of December 31, 2006.1 Equity dilution from all shares available would represent approximately 6.18% . Including the new shares, the potential equity overhang from all stock incentives granted and available to employees would be approximately 14.08% .2 Included in the equity overhang calculation are options with exercise prices greater than the current share price.
As of February 28, 2007, there were 20,664,148 shares outstanding under the 2002 plan (of which 568,450 are restricted stock units and shares of restricted stock). As of February 28, 2007, the weighted average exercise price of outstanding stock options was $42.77 and the weighted average remaining term was 5 years.
In the past two years, the company has sought to strike a balance between various forms of stock-based compensation and to move away from stock options as the primary long-term incentive vehicle. In 2006, the company granted restricted stock unit awards instead of stock options for participants in the United States at the manager and director levels. In 2007, the company has substituted stock options with restricted stock unit awards for participants at those levels outside the United States.
The board of directors believes that it is in the best interests of the company and its stockholders to continue to provide for an equity incentive plan under which stock-based compensation awards made to the companys executive officers can qualify for deductibility by the company for federal income tax purposes. Accordingly, the 2007 Plan has been structured so that awards under it can satisfy the requirements for performance-based compensation under Section 162(m) of the Internal Revenue Code. In general, under Section 162(m), in order for the company to be able to deduct compensation in excess of $1 million paid in any one year to the companys named executive officers, such compensation must qualify as performance-based. One of the requirements of performance-based compensation for purposes of Section 162(m) is that the material terms of the performance goals under which compensation may be paid be disclosed to and approved by the companys stockholders. For purposes of Section 162(m) the material terms include (i) the employees eligible to receive compensation, (ii) a description of the business criteria on which the performance goal is based and (iii) the maximum amount of compensation that can be paid to an employee under the performance goal. With respect to awards of restricted stock, stock units, and other stock awards under the 2007 Plan, each of these aspects is discussed below, and stockholder approval of the 2007 Plan will be deemed to constitute approval of each of these aspects of the 2007 Plan for purposes of the
(1) On December 31, 2006, there were 242,530,014 diluted common shares of Pitney Bowes stock outstanding.
(2) Equity overhang is calculated as all shares issued and outstanding under plans and shares available for grant under plans divided by (a) common shares outstanding at fiscal year end + (b) potential shares from the conversion of preferred stock + (c) shares in the numerator. Equity overhang using common shares outstanding as of the record date was 16.46% .
approval requirements of Section 162(m). The 2007 Plan does not permit the repricing of options or stock appreciation rights without the approval of stockholders or the granting of discounted options, stock appreciation rights or stock options with reload features, and does not contain an evergreen provision to automatically increase the number of shares issuable under the 2007 Plan.
The following is a summary of the 2007 Plan. The full text of the 2007 Plan is attached as Annex I to this proxy statement, and the following summary is qualified in its entirety by reference to this Annex.
The selection of employee participants in the 2007 Plan, the level of participation of each participant and the terms and conditions of all awards will be determined by the board of directors or a committee designated by the board to administer the Plan (the Committee). The board has delegated to the Executive Compensation Committee the discretionary authority to interpret the 2007 Plan, to prescribe, amend and rescind rules and regulations relating to the 2007 Plan, and to make all other determinations necessary or advisable for the administration of the 2007 Plan under applicable law. The Committee may delegate authority to administer the 2007 Plan as it deems appropriate, subject to the express limitations set forth in the 2007 Plan.
Limits on Plan Awards
The board has reserved a maximum of 15,000,000 shares (subject to adjustment as described below) for issuance pursuant to stock options, stock appreciation rights, restricted stock awards, restricted stock units and stock awards under the 2007 Plan. In addition to the number of shares described in the preceding sentence, any shares associated with awards under the 2002 Plan as of April 30, 2007 that on or after such date cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested and nonforfeitable shares) shall become available for issuance under the 2007 Plan. Of the maximum number of shares available for issuance under the 2007 Plan, no more than 7,500,000 shares may be issued pursuant to grants other than options or SARs in the aggregate during the term of the 2007 Plan. A participant may receive multiple awards under the 2007 Plan. A maximum of 600,000 shares that are the subject of awards may be granted under the 2007 Plan to an individual during any calendar year.
Shares delivered under the 2007 Plan will be authorized but unissued shares of Pitney Bowes common stock, treasury shares or shares purchased in the open market or otherwise. To the extent that any award payable in shares is forfeited, cancelled, returned to the company for failure to satisfy vesting requirements or upon the occurrence of other forfeiture events, or otherwise terminates without payment being made, the shares covered thereby will no longer be charged against the maximum share limitation and may again be made subject to awards under the 2007 Plan. Any awards settled in cash will not be counted against the maximum share reserve under the 2007 Plan. However, any shares exchanged by a participant or withheld from a participant as full or partial payment to the company of the exercise price or the tax withholding upon exercise or settlement of an award and unissued shares resulting from the settlement of stock appreciation rights in stock or net settlement of a stock option will not be returned to the number of shares available for issuance under the 2007 Plan.
Eligibility and Participation
All of the approximately 35,000 full-time employees of the company and its affiliates will be eligible to participate in the 2007 Plan. Approximately 3,000 employees (including the executive officers of the company) currently receive long-term incentive awards in a given year, although this may vary from year to year. From time to time, the Committee will determine who will be granted awards, the number of shares subject to such grants and all other terms of awards.
Types of Plan Awards
As described below in the Compensation Discussion and Analysis section of this proxy statement, the companys current equity compensation awards to employees are generally comprised of stock options and restricted stock units. The 2007 Plan, like prior equity plans, provides for a variety of other equity instruments to preserve flexibility. The types of securities that may be issued under the 2007 Plan are described below.
Stock Options Stock options granted under the 2007 Plan may be either non-qualified stock options or incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the Code). The exercise price of any stock option granted, other than substitute awards or tandem SARs, may not be less than 100% of the fair market value of a share of Pitney Bowes common stock on the date of grant. The 2007 Plan defines the fair market value as the closing price reported by the New York Stock Exchange of Pitney Bowes common stock. The option exercise price is payable in cash, shares of Pitney Bowes common stock, through a broker-assisted cash-
less exercise or share withholding or as otherwise permitted by the Committee.
The Committee determines the terms of each stock option grant at the time of the grant. Generally, all options have a ten-year term from the date of the grant. The Committee specifies at the time each option is granted the time or times at which, and in what proportions, an option becomes vested and exercisable. Vesting may be based on the continued service of the participant for specified time periods or on the attainment of specified business performance goals established by the Committee or both. Under certain circumstances, the Committee may accelerate the vesting of options.
In general, a vested stock option expires three months after termination of employment.
Stock Appreciation Rights A stock appreciation right (which we refer to as a SAR) entitles the participant, upon settlement, to receive a payment based on the excess of the fair market value of a share of Pitney Bowes common stock on the date of settlement over the base price of the right, multiplied by the applicable number of shares of Pitney Bowes common stock. SARs may be granted on a stand-alone basis or in tandem with a related stock option. The base price may not be less than the fair market value of a share of Pitney Bowes common stock on the date of grant. The Committee will determine the vesting requirements and the payment and other terms of an SAR, including the effect of termination of service of a participant. Vesting may be based on the continued service of the participant for specified time periods or on the attainment of specified business performance goals established by the Committee or both. Under certain circumstances, the Committee may accelerate the vesting of SARs. Generally, all SARs have a ten-year term from the date of the grant. SARs may be payable in cash or in shares of Pitney Bowes common stock or in a combination of both.
The company does not currently have any SARs outstanding.
Restricted Stock A restricted stock award represents shares of Pitney Bowes common stock that are issued subject to restrictions on transfer and vesting requirements as determined by the Committee. Generally, time vested restricted stock awards will vest over a period of not less than three years and performance shares will vest over a period of not less than one year. Awards may allow pro-rated vesting during the restriction period. Vesting requirements may be based on the continued service of the participant for specified time periods or on the attainment of specified business performance goals established by the Committee or both. Subject to the transfer restrictions and vesting requirements of the award, the participant will have the same rights as one of Pitney Bowess stockholders, including all voting and dividend rights, during the restriction period, unless the Committee determines otherwise at the time of the grant.
Restricted Stock Units An award of restricted stock units provides the participant the right to receive a payment based on the value of a share of Pitney Bowes common stock. Restricted stock units may be subject to such vesting requirements, restrictions and conditions to payment as the Committee determines are appropriate. Generally, time vested restricted stock unit awards will vest over a period of not less than three years and performance units will vest over a period of not less than one year. Awards may allow pro-rated vesting during the restriction period. Vesting requirements may be based on the continued service of the participant for a specified time period or on the attainment of specified business performance goals established by the Committee or both. Restricted stock unit awards are payable in cash or in shares of Pitney Bowes common stock or in a combination of both. Restricted stock units may also be granted together with related dividend equivalent rights which are payments equivalent to dividends declared on the companys common stock.
Stock Awards A stock award represents shares of Pitney Bowes common stock that are issued free of restrictions on transfer and free of forfeiture conditions and as to which the participant is entitled all the rights of a stockholder. A stock award may be granted for past services, in place of bonus or other cash compensation, or for any other valid purpose as determined by the Committee.
Forfeiture of Awards
The 2007 Plan provides that awards will be forfeited in the event that a participant 1) engages in Gross Misconduct, 2) violates the terms of the Proprietary Interest Protection Agreement (a non-compete, non-solicitation and confidentiality agreement) or 3) knowingly or grossly negligently engages in misconduct resulting in a restatement of the companys financial statements due to the companys material non-compliance with any financial reporting requirement under the securities laws.
Section 162(m) Awards
Awards of options and stock appreciation rights granted under the 2007 Plan are intended to qualify for the performance-based compensation exception under Section 162(m) of the Code pursuant to their expected terms. In addition, awards of restricted stock, stock units or other stock awards may qualify under Section 162(m) if they are granted with appropriate performance conditions.
Performance Goals under the 2007 Stock Plan are one or more objective performance goals established by the Committee at the time the grant is made, relating to the attainment of targets for one or any combination of the following criteria: operating income, revenues, organic revenue growth, net income, return on operating assets, gross profit, operating profit, earnings before interest and taxes (EBIT), earnings before interest, taxes, depreciation and amortization (EBITDA), return on investment, economic value added, earnings per share, return on stockholder equity, total stockholder return, total earnings, income from continuing operations, growth of book or market value of capital stock, stock price, free cash flow, adjusted free cash flow, or achievement of cost control. Performance Goals shall be set by the Committee within the time period prescribed by Section 162(m).
Effect of Change of Control
Awards under the 2007 Plan are generally subject to special provisions upon the occurrence of a change of control transaction with respect to the company. A change of control is defined as:
Previously, under the Pitney Bowes 2002 Stock Plan approved by stockholders in 2002, upon a change of control, awards were vested whether or not the participant was terminated (a single trigger vesting provision). Under the 2007 Plan, any outstanding stock options, SARs or other equity awards under the 2007 Plan will generally become fully vested and exercisable, and, in certain cases, paid to the participant only if upon or within two years following a change of control there occurs a triggering event (as defined in the Senior Executive Severance Policy) with respect to the employment of the participant. A triggering event is defined generally to include a termination of employment by the company other than for cause, a termination of employment by the participant following a reduction in position, pay or other constructive termination event, or a failure by the successor company to assume or continue the outstanding awards under the 2007 Plan.
All options, SARs, restricted stock and restricted stock units granted under the 2007 Plan are nontransferable except upon death, either by the participants will or the laws of descent and distribution or through a beneficiary designation, or as otherwise provided by the Committee.
Adjustments for Corporate Changes
In the event of recapitalizations, reclassifications or other specified events affecting the company or the outstanding shares of Pitney Bowes common stock, equitable adjustments shall be made to the number and kind of shares of Pitney Bowes common stock available for grant, as well as to other maximum limitations under the 2007 Plan, and the number and kind of shares of Pitney Bowes common stock or other rights and prices under outstanding awards.
Term, Amendment and Termination
The 2007 Plan will have a term of seven years expiring on December 31, 2014, unless terminated earlier by the board of directors. The board may at any time and from time to time and in any respect amend or modify the 2007 Plan. The board may seek the approval of any amendment or modification by the companys stockholders to the extent it deems necessary or advisable in its sole discretion for purposes of compliance with Section 162(m) of the Code, the listing requirements of the New York Stock Exchange or another exchange or securities market or for any other purpose. No amendment or modification of the 2007 Plan will adversely affect any outstanding award without the consent of the participant or the permitted transferee of the award. Any amendment to the 2007 Plan that would (a) increase the total number of shares available for awards under the plan; (b) reduce the price at which options or SARs may be granted below the exercise price; (c) reduce the exercise price of outstanding options or SARs; (d) extend the term of the plan; (e) change the class of persons eligible to be participants; (f) otherwise amend the plan in any manner requiring stockholder approval by law or under the New York Stock Exchange listing requirements; or (g) increase the individual maximum limits would require stockholder approval.
Future benefits under the 2007 Plan are not currently determinable. During 2006, stock options were granted under the 2002 Stock Plan to the companys named executive officers, as set forth in the table captioned Grants of Plan-Based Awards in 2006 below. In 2006,
stock options to purchase 1,928,155 shares of common stock at a weighted average exercise price of $42.6200 per share and 256,519 shares subject to restricted stock units were granted.
U.S. Tax Treatment of Awards
The following discussion of the federal income tax consequences of the 2007 Plan is intended to be a summary of applicable federal law as currently in effect. Foreign, state and local tax consequences may differ and may be amended or interpreted differently during the term of the 2007 Plan or of awards granted under the plan. Because the federal income tax rules governing awards and related payments are complex and subject to frequent change, award holders are advised to consult their individual tax advisors.
Incentive Stock Options An incentive stock option results in no ordinary income to the optionee or a deduction to the company at the time it is granted or exercised. However, the excess of the fair market value of the shares acquired over the option exercise price is an item of adjustment in computing the alternative minimum taxable income of the optionee in the year of exercise. If the optionee holds the stock received as a result of an exercise of an incentive stock option for at least two years from the date of the grant and one year from the date of exercise, then the gain realized on disposition of the stock is treated as a long-term capital gain. If the shares are disposed of during this period, however, (i.e., a disqualifying disposition), then the optionee will include in income, as compensation for the year of the disposition, an amount equal to the excess, if any, of the fair market value of the shares, upon exercise of the option over the option exercise price (or, if less, the excess of the amount realized upon disposition over the option exercise price). The excess, if any, of the sale price over the fair market value on the date of exercise will generally be a short-term capital gain. In such case, the company will be entitled to a deduction, in the year of such a disposition, for the amount includible in the optionees income as compensation. The optionees basis in the shares acquired upon exercise of an incentive stock option is equal to the option exercise price paid, plus any amount includible in his or her income as a result of a disqualifying disposition.
Non-Qualified Stock Options A non-qualified stock option results in no taxable income to the optionee or deduction to the company at the time it is granted. An optionee exercising such an option will, at that time, realize taxable compensation in the amount of the difference between the option exercise price and the then market value of the shares. Subject to the applicable provisions of the Code, a deduction for federal income tax purposes will generally be allowable to the company in the year of exercise in an amount equal to the taxable compensation recognized by the optionee.
The optionees basis in such shares is equal to the sum of the option exercise price plus the amount includible in his or her income as compensation upon exercise. Any gain (or loss) upon subsequent disposition of the shares will be a long-term or short-term gain (or loss), depending upon the holding period of the shares.
If a non-qualified option is exercised by tendering previously owned shares of the companys common stock in payment of the option exercise price, then, instead of the treatment described above, the following generally will apply: a number of new shares equal to the number of previously owned shares tendered will be considered to have been received in a tax-free exchange; the optionees basis and holding period for such number of new shares will be equal to the basis and holding period of the previously owned shares exchanged. The optionee will have compensation income equal to the fair market value on the date of exercise of the number of new shares received in excess of such number of exchanged shares; the optionees basis in such excess shares will be equal to the amount of such compensation income; and the holding period in such shares will begin on the date of exercise.
Stock Appreciation Rights Generally, the recipient of a stand-alone SAR will not recognize taxable income at the time the stand-alone SAR is granted. If an employee receives the appreciation inherent in the SARs in cash, the cash will be taxed as ordinary income to the employee at the time it is received. If an employee receives the appreciation inherent in the SARs in stock, the value of the shares received (equal to the spread between the then current market value and the base price) will be taxed as ordinary income to the employee at the time it is received. In general, there will be no federal income tax deduction allowed to the company upon the grant of SARs. However, upon the settlement of an SAR, the company will generally be entitled to a deduction equal to the amount of ordinary income the recipient is required to recognize as a result of the settlement.
Other Awards The current United States federal income tax consequences of other awards authorized under the 2007 Plan are generally in accordance with the following: (i) restricted stock is generally subject to ordinary income tax at the time the restrictions lapse, unless the recipient elects to accelerate recognition as of the date of grant; (ii) stock unit awards are generally subject to ordinary income tax at the time of payment, and (iii) unrestricted stock awards are generally subject to ordinary income tax at the time of grant. In each of the foregoing cases, the company will generally be entitled to a corresponding federal income tax deduction at the same time the participant recognizes ordinary income.
Section 162(m) Compensation of persons who are covered employees of the company is subject to the tax deduction limits of Section 162(m) of the Code. Awards that qualify as performance-based compensation are exempt from Section 162(m), thus allowing the company the full federal tax deduction otherwise permitted for such compensation. If approved by the companys stockholders, the 2007 Plan will enable the Committee to grant awards that will be exempt from the deduction limits of Section 162(m). The company does, however, weigh the benefits of compliance with Section 162(m) against the potential limitations of such compliance, and reserves the right to pay compensation that may not be fully deductible if it determines that it is in the companys best interest to do so.
Tax Withholding To the extent required by applicable Federal, state, local or foreign law, a participant shall be required to satisfy, in a manner satisfactory to the company, any withholding tax obligations that arise by reason of an award.
Section 409A Section 409A of the Code applies to any awards under the 2007 Plan that are deemed to be deferred compensation. Stock options, SARs and restricted stock generally will not be subject to Section 409A. Other awards, including restricted stock units, performance units, dividend equivalents and other stock-based awards, may be subject to Section 409A, depending on the design of the award. If the requirements of Section 409A of the Code are not met, the recipient may be required to include deferred compensation in taxable income, and additional taxes and interest may be assessed on such amounts. If any awards are subject to Section 409A, we intend to have the awards comply with Section 409A of the Code.
Tax Treatment of Awards to Employees Outside the United States The grant and exercise of options and awards under the 2007 Plan to employees outside the United States may be taxed on a different basis.
On March 9, 2007, the closing price of our common stock traded on the New York Stock Exchange was $46.49 per share.
Approval of the Pitney Bowes Inc. 2007 Stock Plan requires the affirmative vote of a majority of votes cast by the holders of common stock and $2.12 convertible preference stock of the company present or represented by proxy and entitled to vote at the annual meeting. In addition, under New York Stock Exchange rules, the total number of votes cast must represent a majority of the outstanding shares.
The board of directors recommends that stockholders vote FOR the proposal to approve the Pitney Bowes Inc. 2007 Stock Plan.
Proposal 4: Approval of Amendment to By-laws of Pitney Bowes Inc. to Require Majority Vote to Elect Directors in an Uncontested Election
The board of directors recommends that the companys By-laws be amended to change the voting standard for the election of directors in an uncontested election from a plurality to a majority vote. The board believes that the change to a majority vote standard will appropriately give stockholders a greater voice in the election of directors of the company.
Under the plurality standard, director candidates with the most votes cast for them are elected, even if each receives less than a majority. Under the proposed majority standard, in order to be elected in an uncontested election, a director must receive the affirmative vote of a majority of the votes cast in person or by proxy at the annual meeting. Under Delaware law, an incumbent director who fails to receive the required vote holds over, or continues to serve as a director until his or her successor is elected and qualified. Consequently, the proposed By-law amendment also contemplates that if an incumbent director is not re-elected, the director must tender his or her resignation to the board. The Governance Committee of the board would then make a recommendation to the board on whether to accept or reject the resignation. Under the proposed By-law amendment, the board must act on the Governance Committees recommendation and publicly disclose its decision within 90 days from the date of the certification of election results. In a contested election (where the number of nominees exceeds the number of directors to be elected), the plurality standard would continue to apply and the nominees receiving the most votes would be elected.
Section 7 of the companys By-laws reflecting the proposed changes is included in this proxy statement as Annex II. The affirmative vote of at least 80% of the votes represented by all outstanding shares entitled to be cast at the meeting will be required for approval of the proposed By-law amendment. Abstentions will have the same effect as votes against the proposal. If the proposed By-law amendment is approved by the stockholders, the board will restate the companys By-laws to reflect the amendment.
The proposed amendment to the By-laws of Pitney Bowes Inc. to change the voting standard for the election of directors in an uncontested election from a plurality to a majority vote will be approved if 80% of the outstanding shares entitled to vote at the meeting are voted in favor of the proposal.
The board of directors recommends that stockholders vote FOR this amendment to the companys By-laws.
Report of the Executive Compensation Committee
The Executive Compensation Committee of the board of directors (the Committee) is responsible for the companys executive compensation policies and programs. The Committee consists entirely of independent directors who are not officers or employees of the company. During 2006, the Committee met seven times. The Committee frequently meets in executive session with Frederic W. Cook & Co., Inc., its independent consultant. The Committee recommends policies, programs and specific actions regarding the compensation of the chief executive officer and the chief operating officer to all of the independent directors for final approval, and approves the same for all of the executive officers of the company. The Committee also produces an annual report for inclusion in the companys proxy statement, in accordance with the rules and regulations of the Securities and Exchange Commission, and reviews and approves allocations of shares in the companys employee stock plans in connection with the granting of stock options and other stock awards. The Committees charter, which was last amended in December 2006, is available on the companys website at www.pb.com under the heading Our Company-Corporate Governance.
Under its charter, the Committee is responsible for determining the compensation and benefits of the executive officers (other than the chief executive officer and the chief operating officer whose compensation is the responsibility of the independent directors of the board). The chief executive officer and the chief operating officer evaluate the performance of their direct reports and recommend compensation actions, based on results achieved, to the Committee and the independent directors of the board. The senior vice president and chief human resources officer is also consulted in developing recommendations regarding executive compensation.
The Committee is also responsible for certain administrative aspects of the companys compensation plans and the Pitney Bowes Employee Stock Purchase Plan, as amended and restated, and approves administrative changes in such plans. Any material plan amendments are recommended by the Committee for approval by the independent directors of the board. The Committee also establishes performance targets, and grants incentives in the forms permitted under the Pitney Bowes Inc. Key Employees Incentive Plan (KEIP), and grants incentives to the key executives (other than the chief executive officer and the chief operating officer) under The Pitney Bowes Stock Plan. Grants under any company compensation plan, including the KEIP and The Pitney Bowes Stock Plan, to the chief executive officer or to the chief operating officer are recommended by the Committee and approved by the independent directors of the board. The Committee may, in accordance with applicable law, delegate authority to administer certain aspects of the companys compensation plans as it deems appropriate, subject to the express limitations set forth in the relevant plan. In accordance with Delaware law, the board of directors has delegated to the chief executive officer and the chief human resources officer authority to grant stock options within pre-established guidelines to employees at the level of vice president and below. The Committee reviews any grants made pursuant to this delegation at its next regularly scheduled meeting.
The Committee is not responsible for recommending the amount or form of non-employee director compensation; the Governance Committee of the board of directors reviews and recommends to the board of directors the amount and form of compensation for non-employee members of the board.
The Committee 1) has reviewed and discussed with management the section included below in this proxy statement entitled Compensation Discussion and Analysis (the CD&A) and 2) based on the review and discussions referred to in item 1) above, the Committee has recommended to the board of directors that the CD&A be included in the companys annual report on Form 10-K and this proxy statement.
By the Executive Compensation Committee of the board of directors,
James H. Keyes, Chair
Compensation Discussion and Analysis
The following discussion and analysis contains statements regarding individual and company performance targets and goals. These targets and goals are disclosed in the limited context of our compensation programs and should not be understood to be statements of managements expectations or estimates of results or other guidance. Pitney Bowes specifically cautions investors not to apply these statements to other contexts.
Our key compensation goals are to attract, retain and motivate high performing executives with a commitment to the long-term success of our business.
We seek to establish a compensation program based on the following five main principles:
Compensation should be tied to performance and long-term stockholder return
We link compensation, including executive compensation, to the performance of the company as a whole as well as individual performance. In particular, the short-term, or annual, incentive compensation element for each of the named executive officers is tied predominantly to enterprise performance during the current fiscal year, and the long-term incentive compensation element is tied to long-term enterprise performance. We evaluate enterprise performance using a number of criteria, including, for example,
Under the companys plans, performance above targeted standards results in increased total compensation, and performance below targeted or benchmarked standards results in decreased total compensation.
Compensation should reflect leadership position and responsibility, and performance-based compensation should be a greater part of total compensation for more senior positions
It is our belief that employees with higher levels of responsibility and a greater ability to influence enterprise results should have a greater percentage of variable total compensation. Our consideration of individual pay levels typically includes factors such as:
Incentive compensation should reward both short-term and long-term performance
Pitney Bowes short-term executive compensation program includes salary and annual performance-based incentives. Pitney Bowes long-term executive compensation program includes stock options and cash incentive units, which we refer to as CIUs. These components collectively represent the current compensation opportunity for senior executives (excluding benefits). Restricted stock is not granted annually to senior executives but may be granted from time to time for attracting, retaining and motivating executive talent.
In addition, Pitney Bowes provides post-retirement benefits to executives, through:
For 2006, following a continuing practice, the Executive Compensation Committee of the board of directors (the Committee), reviewed tally sheets setting forth all components of compensation for the eight most highly compensated executive officers, including the chairman and chief executive officer and the president and chief operating officer whose compensation is approved by the independent directors of the board. The tally sheets included a specific review of dollar amounts for:
The Committee uses the tally sheets in making decisions regarding the total mix of compensation for executive officers.
Compensation levels should be sufficiently competitive to attract and retain talent
To ensure that Pitney Bowes current and post-employment executive compensation is competitive in the marketplace, the Committee establishes our target compensation structure based on companies with revenues in the $6 to $10 billion range. We developed our data on compensation levels within this group of companies using Towers Perrins published executive compensation reports. Annually, the Committee reviews our actual compensation payouts against a peer group of sixteen publicly traded companies with comparable revenue, market capitalization and total stockholder return. After considering this information, and after consulting with Frederic W. Cook & Co., Inc., the Committees independent consultant, the Committee determined that this peer group is appropriate.
The Committee strives to set executive compensation generally at the market median, although individual levels can vary for a variety of reasons as discussed below. Actual compensation may be above or below the median based on actual performance.
Employees should be encouraged to own Pitney Bowes stock to align their interests with Pitney Bowes stockholders
Stock ownership and equity-related compensation arrangements are considered key elements to focus executives on increasing stockholder value. Therefore, we aim to develop and maintain stock programs that encourage each employee to act like a business owner. A substantial portion of an executives long-term incentive compensation is awarded in the form of equity-based compensation, which along with the CIUs serve as the primary vehicles for aligning the interests of executives with long-term stockholders. Specifically, executives have access to various vehicles to assist in building their ownership over time, including:
In addition to the equity executive compensation program, we believe it is important that the company maintain a stock ownership policy that encourages executives to own substantial amounts of company stock. As a result, the company maintains the Executive Stock Ownership Policy that is described on pages 40-41.
Setting Performance Objectives
At the beginning of each year, the Committee identifies the performance metrics, establishes thresholds, budgets and maximums, and determines metric weightings for the annual incentive pool. For both short and long-term incentive compensation, the Committee aligns target objectives consistent with the financial guidance that we provide investors. The Committee reviews the annual objectives for alignment with:
Evaluation of Performance
The Committees decisions regarding an executives compensation reflects consideration of, among other things:
In addition, the Committee evaluates performance relative to the peer group it considers in reviewing executive compensation as described below under the section entitled Compensation Discussion and Analysis Benchmarking. The objectives of the Committee are to reward the creation of stockholder value; to balance properly rewarding executives with the interest of stockholders; and to motivate management to make decisions that will enhance the long-term success of the enterprise.
With the exception of the executive vice president and president, Mailstream International, each named executive officers annual incentive payout is primarily based on the enterprise performance. The annual incentive payout for the executive vice president and president, Mailstream International is based 75% on enterprise performance and 25% on the performance of the International Mailing business. Each year, the Committee establishes a target annual incentive pay-out for each of the executive officers. Actual payout can range from 0 to 240% of the target incentive amount. For 2006, named executive officer target annual incentive as a percentage of base salary ranged from 55% for the executive vice president and president, Mailstream International and the senior vice president and general counsel to 120% for the chairman and chief executive officer. Named executive officer compensation for 2006 is further described below in this Compensation Discussion and Analysis section and under the section entitled Executive Compensation Tables and Related Narrative beginning on page 43.
In addition, the Committee reviews all components of each of the named executive officers compensation, including:
Following a continuing practice, tally sheets setting forth the above information were prepared for the Committees review and consideration at the meetings convened during the first quarter of 2007. The aggregate amounts and mix of all components, including accumulated unrealized option and restricted stock gains, were taken into consideration by the Committee at those meetings. In addition, as part of the companys overall compensation philosophy, executive officers are required to comply with the Executive Stock Ownership Policy as described below beginning on page 40.
Mix of Compensation Components
For 2006, the mix of compensation components for the chief executive officer and other key executives varies by level. We believe executives with higher levels of responsibility and a greater ability to influence enterprise results should have a greater percentage of variable total compensation. The mix of compensation components is determined using competitive market data as a guideline. At target, the compensation mix ranges from 15% base pay, 19% annual incentive and 66% long-term incentives, to 39% base pay, 22% annual incentive and 39% long-term incentives. Actual compensation is determined based on factors such as experience in the position, performance, demonstrated leadership, potential to enhance long-term stockholder value, internal equity, external marketplace, current salary, salary history and prior incentive awards.
To ensure that Pitney Bowes executive compensation is competitive in the marketplace, the Committee establishes the target compensation structure based on companies with revenues in the $6 to $10 billion range. We determined the competitiveness of our compensation structure using Towers Perrins published executive compensation reports, and the Committee engages Frederic W. Cook & Co., Inc. as its independent compensation consultant to assist it in the evaluation of senior executive compensation.
This information provides reference points for the evaluation of compensation decisions, but is not the sole basis for determining appropriate compensation design, compensation targets, or individual pay levels. At any point in time compensation targets and individual pay levels may be above or below the median for a variety of reasons. For example, target levels may be affected by:
Pitney Bowes operates in a number of different business segments, and different portions of our business reside in different competitive arena. Many of our businesses compete with privately-held companies as well as publicly-held companies that are based in countries outside the United States where prevailing compensation practices may be significantly different.
While Pitney Bowes does not have a competitor that is in a majority of our businesses, annually, the Committee reviews our actual compensation payouts against a peer group of sixteen publicly traded companies with comparable revenue, market capitalization, total assets, net income and number of employees. In the absence of competitive benchmarks, this peer group was created to enable the Committee to analyze the competitive market for the talent and skill required to lead a business of complexity and size similar to that of Pitney Bowes. The Committee selected this group based on recommendations by Frederic W. Cook & Co., Inc., the Committees independent consultant. This group consists of industrial, technology and service companies and excludes companies in the financial services, transportation, hotel, energy, natural resources and aviation industries. The peer group of companies that we consider in reviewing executive compensation includes:
Affiliated Computer Services, Inc.;
Tax and Accounting
The company generally intends to design its programs to satisfy the requirements for full deductibility under Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code). Section 162(m) denies the company a tax deduction for certain compensation in excess of $1 million paid to covered employees (generally, the top five named executive officers in the Summary Compensation Table) unless the compensation is qualified performance-based compensation. At the beginning of 2006, the Committee established threshold performance-based Income from Continuing Operations goals for the 2006 annual incentive and long-term 2006-2008 Cash Incentive Unit cycle.
For the named executive officers, payments under the Key Employee Incentive Plan are subject to the company first achieving a threshold Income From Continuing Operations objective, consistent with the requirements for deductibility under Section 162(m) of the Code. The maximum annual and long-term incentives a named executive officer could receive under the Key Employee Incentive Plan are $4,000,000 and $8,000,000, respectively, and the Committee applies negative discretion to reduce annual cash and long-term cash incentive unit awards such that individual payouts are tied to the achievement of pre-determined financial and strategic enterprise, business unit and individual performance objectives. The Committee does, however, weigh the benefits of compliance with Section 162(m) against the potential limitations of such compliance, and reserves the right to pay compensation that may not be fully deductible if it determines that it is in the companys best interest to do so.
In determining the number of options in the mix of long-term incentives discussed above, the company currently values options based upon the Black-Scholes valuation methodology, consistent with the provisions of SFAS 123(R), Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 107 and the companys prior period pro forma disclosures of net earnings, including stock-based compensation (determined under a fair value method as prescribed by SFAS 123). Key assumptions used to estimate the fair value of stock options include:
For additional information on the accounting treatment for stock-based awards, please refer to note 12 to the financial statements included in the companys Annual Report on Form 10-K for the year ended December 31, 2006. The company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in estimating the fair value of its stock option grants. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the company under SFAS 123(R).
Treatment of Special Items
In determining performance goals and evaluating enterprise performance results, the Committee may use its discretion and judgment to ensure that managements rewards for business performance are commensurate with their contributions to that performance while still holding management accountable for the overall results of the business. The Committee believes that the metrics for incentive compensation plans should be specific and objective. However, in exercising its negative discretion the Committee recog-
nizes that interpretation of the application of pre-established metrics to results may be necessary from time to time for certain special items, such as changes in company strategy or new accounting pronouncements. The Committee has adopted a philosophy for evaluating previously established metrics in light of special items. Specifically, the Committee may consider whether or not to include the impact of the special item on incentive plan targets based on typical competitive practices and the specific circumstances for each special item. For example, in 2006 the Committee chose to adjust the target to reflect the required impact of SFAS 123(R), Share-Based Payment, which addresses accounting for share-based payment transactions.
Overview of Elements of Executive Compensation
Base Salary. We pay base salary to compensate executives for performing the daily duties of their defined jobs in amounts that are competitive in the markets in which we operate. In general, the company aligns base pay for executives with reference to the competitive market median data for base pay.
There is typically a range of pay approximately plus or minus 20% around the median data that is considered to be competitive, and actual salaries are generally within this range.
Among the factors considered in determining the actual base salary for executives are:
Salaries are reviewed annually on a common review date and managed to an overall merit budget. The size of merit increases is related to the individuals performance rating, the position relative to the market, general economic conditions and organizational issues.
Annual Performance-Based Incentive Compensation
We pay annual performance-based incentive compensation, or short-term incentives, to reward executives for achieving certain goals over the course of the year. Our target annual incentive compensation is competitive in the markets in which we operate.
In general, the company targets annual incentives at the median of competitive market data.
All executives are eligible for annual incentives for achieving challenging financial and strategic objectives that are established at the beginning of each year.
For 2006, the Committee established four financial objectives weighted equally for the determination of the annual incentive pool:
In addition, the Committee has the discretion to increase or decrease the annual incentive pool by up to 25% based on its assessment of factors such as:
Strategic objectives in 2006 included:
Both the financial and strategic objectives were chosen as performance criteria because the company believes that achievement of these results is the best way to ensure the creation of long-term stockholder value.
For 2006, adjusted earnings per share and adjusted free cash flow results exclude the impact of special items (both positive and negative) such as restructuring charges, legal settlements and write downs of assets which materially impact the comparability of the companys results of operations. Adjusted free cash flow includes the addition of the incremental investment in finance receivables net of the change in reserve account balances.
The following are non-GAAP measures: adjusted earnings per share, adjusted free cash flow, and adjusted earnings before interest and taxes (EBIT).
This adjusted financial information should not be construed as an alternative to our reported results determined in accordance with GAAP. Further, our definition of this adjusted financial information may differ from similarly titled measures used by other companies.
Reconciliation of GAAP measures to non-GAAP measures may be found at the companys website www.pb.com/investorrelations.
For the named executive officers, payments are subject to the company first achieving a threshold Income From Continuing Operations objective, consistent with the requirements for deductibility under Section 162(m) of the Code. The maximum annual incentive a named executive officer could receive under the Key Employee Incentive Plan is $4,000,000 and the Committee applies negative discretion to reduce annual awards such that individual payouts are tied to the achievement of pre-determined financial and strategic enterprise, business unit and individual performance objectives.
Also, under the Key Employees Incentive Plan, annual cash incentives and long-term CIUs granted to employees at the level of vice president and above are subject to an aggregate limit that may not exceed 4.5% of the income from continuing operations before income taxes of the company and its consolidated subsidiaries, plus any excess not previously used in the five preceding years. The board of directors amended this plan effective February 2007 to clarify that, consistent with the boards interpretation of the plan, the aggregate limit on the annual and long-term cash incentives payable in any given year is 4.5% of the companys consolidated income from continuing operations before income taxes.
In February 2007, the Committee awarded 2006 performance payments by measuring performance against objectives that were set by the Committee in the first quarter of 2006. After determining the average performance against these goals, which were weighted equally, the Committee increased the incentive pool by eight percent based on the Committees assessment of factors such as quality of earnings, total return to stockholders, progress on strategic objectives and other significant items such as the passage of postal reform legislation, the completion of the sale of the Capital Services external financing business and the completion of strategic acquisitions in adjacent mailstream spaces.
2006 Annual Incentive Payout
The following table outlines the annual incentive targets for each of the named executive officers in 2006 and the actual annual incentive amounts earned and paid.
Long-term incentives are paid to executives to improve the companys overall performance by linking the senior executives long-term rewards to our long-term results. We pay long-term incentives in order to be competitive in the markets in which we operate. The company currently utilizes two principal types of long-term incentives:
The Committee targets delivery of long-term incentives using a mix of options and CIUs for the companys executive officers, based upon the grant date fair value of the options and the target CIU payout level. The Committee may award shares of restricted stock in unique circumstances where needed for attracting, retaining or motivating executive talent. In general, the Committee grants long-term incentives at the median of competitive market data. The Committee uses these performance-driven components to link executive compensation to long-term company performance and to external market performance of the companys stock price. Actual long-term compensation granted during 2006 was lower than the market median for each of the named executive officers.
Among the factors considered in determining option and CIU award levels for each member of this group are:
Cash Incentive Units. CIUs are long-term incentive awards that are paid in cash with a unit value that is based on the achievement of pre-established financial objectives over a three-year performance period. For the named executive officers, payments are subject to the company first achieving a threshold Income From Continuing Operations objective, consistent with the requirements for deductibility under Section 162(m) of the Code. The maximum long-term incentive payout a named executive officer could receive under the Key Employee Incentive Plan is $8,000,000 and the Committee applies negative discretion to reduce awards such that individual payouts are tied to the achievement of pre-determined financial and strategic enterprise, business unit and individual performance objectives.
CIUs are granted annually to executive officers and other members of senior management. As noted in the narrative for the Summary Compensation Table and the Grants of Plan-Based Awards in 2006 Table on page 45, the pre-established goals used to determine the value of each unit are:
Adjusted earnings per share and adjusted free cash flow are each weighted at 50% in calculating CIU values. The Committee also uses a Total Stockholder Return (TSR) modifier in the calculation of the CIU value beginning with the 2005-2007 cycle. The unit value based on financial performance will be modified by up to 25%, upwards or downwards, based on Pitney Bowes three-year TSR performance compared to the three-year TSR performance of the S&P 500. The objective of the TSR modifier is to balance the measurement of performance using the internal financial objectives with the measurement of the stockholder value created by meeting these objectives.
For the 2006-2008 CIU cycle, the unit value at target is $1.00. The unit value based on internal financial performance ranges from $0.20 at threshold performance to $1.80 for maximum performance. The unit value based on financial performance will then be modified by up to 25%, upwards or downwards, based on the TSR modifier discussed in the preceding paragraph. The unit value as modified thus ranges from $0.15 at threshold performance to $2.25 at maximum performance. The Committee set the following objectives for the 2006-2008 CIU cycle: adjusted earnings per share and adjusted free cash flow, weighted at 50% each.
At its February 2007 meeting, the Committee also determined the CIU payout for the 2004-2006 cycle. The payout was $1.71 per unit, which represents a performance level that is above target. The target for the 2004-2006 CIU cycles were adjusted three-year earnings per share of $7.22 and adjusted free cash flow of $1.730 billion and actual performance was adjusted three-year earnings per share of $7.37 and adjusted free cash flow of $1.971 billion.
2006 Long-Term Incentive Payout (Cash Incentive Units 2004-2006 Performance Period)
The following table outlines the long-term CIU targets for each of the named executive officers for the 2004-2006 performance period and the actual CIUs earned and paid in February 2007.
Stock Options. It is the companys policy that stock options are granted only at an exercise price equal to the market price of the stock on the date of grant. In accordance with our Stock Plan, the market price is the average of the high and low prices at which Pitney Bowes stock was traded on the New York Stock Exchange on the date of grant. The Pitney Bowes Inc. 2007 Stock Plan defines market price as the closing price for Pitney Bowes stock on the New York Stock Exchange on the date of grant. The Pitney Bowes Inc. 2007 Stock Plan is subject to approval by the stockholders; see page 24 under the heading Proposal 3: Approval of the Pitney Bowes Inc. 2007 Stock Plan.
In 2006, 1,922,500 options were granted on February 13 with an exercise price of $42.62, the average of the high and low trading prices of Pitney Bowes common stock on that date. The closing market price for Pitney Bowes stock was $42.51 on that date. Options typically have a ten-year exercise period. Generally, nonquali-fied stock options become exercisable ratably (25% each year) over the first four years following the date of grant and incentive stock options become exercisable after four years. We typically grant options on the same date as the meeting of the Committee in February each year. This is typically after our fourth quarter earnings release has been widely disseminated.
The independent members of the board of directors are responsible for option grants to the companys chief executive officer and chief operating officer. The Committee is responsible for grants to all of the other executive officers of the company. An annual grant of stock options is made to executives at the Committees or, in the case of the chief executive officer and chief operating officer, the boards, meeting during the first quarter of the year. The Committee may, from time to time, grant options to new executive hires; these grants are typically made at the Committees next regularly scheduled meeting. In special circumstances, the Committee may determine that it is appropriate to make additional grants to executives (other than the chief executive officer and the chief operating officer) during the course of the year; these grants are made at a Committee meeting. Also, in accordance with Delaware law, the board has delegated to the chief executive officer and the chief human resources officer authority to grant stock options within pre-established guidelines to employees at the level of vice president and below. The Committee reviews any grants made pursuant to this delegation at its next regularly scheduled meeting.
The companys stock price must increase in order for stock option grantees to realize any benefit. When the stock price increases, both stockholders and stock option grantees will benefit.
Restricted Stock. No awards of restricted stock were made to the named executive officers during 2006. Restricted stock is granted from time to time as part of the companys management development, succession, and retention planning process. Time-based restricted shares granted to Messrs. Critelli, Martin and Nolop in 2003 vested on February 9, 2007. On April 5, 2004, Mr. Martin was awarded 20,000 shares of time-based restricted stock that would become fully vested on the fourth anniversary of the grant date, April 5, 2008, so long as Mr. Martin remained an employee of the company and certain income from continuing operations performance criteria were achieved. The vesting of the time-based restricted stock could be accelerated if certain performance criteria were met. On February 13, 2006, the Committee determined that the income from continuing operations performance criteria, the leadership development criteria and a portion of the 2004/2005 organic growth and EBIT targets were achieved. Organic growth is growth in our revenues excluding the effects of recently completed and future acquisitions and currency translation. Adjusted EBIT is earnings before interest and taxes and is calculated by taking the adjusted net income result and adding back minority interest; interest net; and taxes. As a result of this determination, at its February 13, 2006 meeting, the board of directors released the restrictions on 12,825 shares of Mr. Martins restricted stock. At its February 12, 2007 meeting, the board of directors released the restriction on 4,900 additional shares of
Mr. Martins restricted stock. The remaining 2,275 shares will vest on April 5, 2008.
The Committee may award restricted stock in the future with different restrictions, performance conditions, and terms as warranted by changing competitive conditions, retention and succession planning needs. In 2006, the company issued restricted stock units in place of stock options to certain employees below the executive level (i.e., employees at the director level and below). The Committees decision to use restricted stock units for employees at the manager and director level was in response to market trends and an increased perceived value of restricted stock units by employees at these levels.
Deferred Compensation and Pension Benefits
We have historically provided United States executives with deferred compensation and pension benefits to be competitive in our markets. Executives have the opportunity to voluntarily defer salary, annual incentives and payouts on CIUs. Pitney Bowes also maintains a non-qualified pension restoration plan and a 401(k) restoration plan generally to compensate for Internal Revenue Service limitations. For more detailed information, see the narrative accompanying the Pension Benefits table beginning on page 49 and the Nonqualified Deferred Compensation table beginning on page 51.
Discontinued Automobile Allowance Benefit
Historically, we provided certain executives with an automobile allowance benefit to be competitive in our markets. As set forth in the All Other Compensation column of the Summary Compensation Table, on page 43, effective as of March 2006, Pitney Bowes provided annual automobile allowances in amounts ranging from $8,400 to $12,000 annually for the following executives: chairman and chief executive officer, executive vice presidents and senior vice presidents. (Our chief operating officer and our chief financial officer currently have company-leased automobiles.) Beginning in March 2007, as we have determined that this benefit is no longer important to attract and retain talent, this allowance has been eliminated for U.S. employees and replaced with a one-time, cost-neutral adjustment to base pay.
Financial Counseling Benefit
We provide a financial counseling benefit to executives to enable them to ensure compliance with increasingly complex rules and regulations of pay and to provide assistance to executives in managing complex investment, tax, legal and estate matters to ensure that they have balanced portfolios. The company believes that maintaining a financial counseling program supports the companys objective of aligning executives interests with Pitney Bowes stockholders while enabling executives to make appropriate strategic decisions on behalf of the company. Pitney Bowes provides financial counseling in amounts ranging from $12,000-$21,000 for the following executives: chief executive officer, chief operating officer, executive vice presidents, senior vice presidents and other senior executives. See the All Other Compensation column of the Summary Compensation Table on page 43.
Executive Stock Ownership Policy
Pitney Bowes maintains an Executive Stock Ownership Policy to, among other things, emphasize the link between executives and the long-term interests of stockholders. Under the Executive Stock Ownership Policy, reporting officers under Section 16 of the Securities Exchange Act of 1934 are expected to accumulate shares of company stock toward target ownership levels that are based on a multiple of salary and a retention ratio for shares acquired upon exercise or vesting of stock awards. Ownership status for these executives is reported to the Committee each year. Under the companys Corporate Policy on Insider Trading, these executives cannot engage in short-term, speculative (in and out) trading in Pitney Bowes securities, and, except for exercising employee stock options, cannot engage in hedging and other derivative transactions, including short sales, put or call options, swaps and collars, with respect to Pitney Bowes securities.
The multiple of salary component is as follows:
The number of shares targeted for retention by an executive is equal to annual base salary times the multiple of salary required divided by the average closing price of Pitney Bowes common stock over the five days preceding the measurement date.
There is no set timeframe to meet the ownership guideline; instead executives are required to hold 75% of their net profit shares. Net profit shares are, with respect to options, the shares remaining after payment of the option exercise price and taxes owed upon exercise and, with respect to restricted stock, 75% of the shares that remain after the payment of applicable taxes. Under the policy, restricted stock, as well as shares underlying unexercised stock options, will not be counted as shares owned by an executive prior to
vesting of the restricted stock or exercise of the stock options. As long as the multiple of salary requirement is met, an executive may sell shares acquired previously in the market as well as shares acquired through the exercise of stock options or the vesting of restricted stock awards.
The company has not entered into fixed-term employment agreements with its named executive officers based in the United States and, therefore, such officers are at will employees of the company. Employees based in the U.K., including Patrick J. Keddy, Executive Vice President and President, Mailstream International, have written employment contracts.
Under the terms of Mr. Keddys service agreement, the company may terminate his employment with 12 months prior notice or, in lieu of such prior notice, payment of his salary for a 12-month period. If Mr. Keddy is paid salary in lieu of notice, he will also be eligible to earn an annual incentive (prorated to date of termination and subject to board discretion). If the subsidiary that employs Mr. Keddy is wound up for purposes of a reconstruction or amalgamation, or transfers all or a substantial part of its business to another company, and Mr. Keddy is offered employment by the new company on terms comparable to those of the service agreement, Mr. Keddy will have no claim with respect to the termination of his employment under the service agreement. See the discussion under the section entitled Other Post-Termination Payments below for information on severance payable to Mr. Keddy in the event of a Change of Control, as defined below, under the Pitney Bowes Senior Executive Severance Policy.
Under the service agreement, Mr. Keddy is entitled to receive certain other compensation including financial counseling services and reimbursement for all costs associated with the lease and use of an automobile, including normal servicing, insurance and fuel costs. Mr. Keddy may use the company automobile to a reasonable extent for private purposes. In lieu of receiving a company automobile, Mr. Keddy may choose to be paid an annual automobile allowance plus fuel costs. Although Mr. Keddy is eligible to receive annual and long-term incentive awards, such awards are subject to board discretion. The service agreement also sets forth Mr. Keddys agreement to certain covenants that protect the interests of the company in the event of a termination of Mr. Keddys employment, including a 12-month covenant not to compete and a 12-month covenant not to solicit customers or employees.
Change of Control Arrangements
Set forth below is a summary of certain change of control arrangements maintained by the company. Under the companys change of control arrangements, a change of control is defined as:
Pitney Bowes Senior Executive Severance Policy
The Senior Executive Severance Policy provides for the payment of separation benefits to certain senior executive employees, including the named executive officers, whose employment with the company is terminated involuntarily by the company or by the employee for good reason within two years after a change of control. The Severance Policy provides that a covered employee whose employment is terminated, whose position, authority, duties, responsibilities, earnings or benefits are diminished, or who is relocated within two years after a change of control, will be entitled to severance pay in an amount equal to a multiple of the sum of the employees annual base salary and average annual incentive received in the three years preceding termination.
Also, certain health, welfare and other benefits will continue for a period of time following termination of employment.
For certain senior executives, including each of the named executive officers, severance pay would equal three times the sum of base salary plus the average annual incentive paid in the three consecutive years prior to termination of employment. For other senior executives, severance pay would equal two times the sum of base salary plus the average annual incentive paid in the three consecutive years prior to termination of employment. In addition, such executives would be entitled to a continuation of welfare benefits for the
three-year or two-year severance periods, as applicable. For pension purposes, the executives will receive only age and service credit for the associated severance period. The Committee determined that these severance benefits were in line with market practice.
Gross-Ups for Excess Parachute Payments
If any of these benefits, either alone or together with any other payments or benefits provided to covered senior executive employees, including a named executive officer, would constitute an excess parachute payment subject to the 20 percent excise tax under certain provisions of the Code, the Severance Policy provides that an additional payment would be made to each affected covered employee so that such excise tax is reimbursed to the employee on a net after-tax basis. If, however, it is determined that the parachute value of payments does not exceed 110% of the maximum parachute value of all payments that a participant can receive without any payments being subject to the excise tax (i.e., the safe harbor amount), then no gross-up payment will be made, and the plan payments will be reduced so that the parachute value of all payments equals the safe harbor amount. For more detailed information on gross ups for excess parachute payments payable to named executive officers, see the section entitled Other Post-Termination Payments, beginning on page 53.
Pitney Bowes Stock Plan
The 2002 Pitney Bowes Stock Plan provides that, in the event of a change of control, outstanding awards will become immediately and fully exercisable without regard to any vesting schedule. On February 12, 2007, the board of directors approved the Pitney Bowes Inc. 2007 Stock Plan which requires that covered employees be terminated without cause or voluntarily terminate their employment for good reason prior to receiving any change of control benefit payments (a double trigger vesting provision). The Pitney Bowes Inc. 2007 Stock Plan is subject to approval by the stockholders, see page 24 under the heading Proposal 3: Approval of the Pitney Bowes Inc. 2007 Stock Plan. Our 2002 Stock Plan has a single trigger vesting provision upon a change of control which, at the time the plan was adopted, was a common approach. The 2002 Stock Plan provides that, in the event of a change of control, all restrictions applicable to outstanding shares of stock options, restricted stock and other stock-based awards will be removed and the awards will be fully vested (other than transfer restrictions, if any, required for exempt treatment under Section 16 of the Securities Exchange Act of 1934 or any other applicable law); provided that, for awards conditioned on financial performance goals, the Committee (as defined in the 2002 Stock Plan) will determine the amount payable under such awards based on the actual and anticipated levels of performance prior to the change of control applying a discount factor in the amount of the prime rate in effect as of the date of the change of control. The Committee and the board of directors as a whole have determined that requiring a double trigger following a change of control, with the Committees retaining the right to accelerate vesting under certain circumstances, would prevent excessive windfalls to employees in the event of a change of control transaction.
Key Employees Incentive Plan
The terms of the KEIP provide in the event of a change of control that the executives will have a vested right to receive annual incentive compensation with respect to the year completed prior to the change of control (if not paid prior to the change of control) as well as the year in which such change of control occurs (in prorated amounts to be determined as specified in the plan on the basis of relevant past performance of the individual executive, his or her division, and the company). With respect to CIUs outstanding on the date of a change of control, the Committee awards prorated payments based on actual performance metrics realized for each outstanding three-year CIU cycle prior to the change of control. Grants under the KEIP are subject to vesting upon a change of control but payments will be made only upon a termination of employment without cause or a voluntary termination for good reason (a double trigger vesting provision). We amended the KEIP in 2006 to, among other things, include this double trigger vesting provision, and these amendments were approved by our stockholders at the 2006 Annual Meeting.
Executive Compensation Tables and Related Narrative
The following Summary Compensation Table shows all compensation earned or paid during or with respect to 2006 to the chief executive officer, the chief financial officer and the three other highest paid executive officers for services rendered to the company and its subsidiaries (collectively, the named executive officers). These amounts include compensation deferred under the Deferred Incentive Savings Plan. The Grants of Plan-Based Awards in 2006 table provides additional information regarding grants made during 2006.
Non-Equity Incentive Compensation
The values shown in the non-equity incentive compensation column of the Summary Compensation Table includes the annual incentive payment earned for 2006 as well as the cash incentive units (CIUs) that were earned over the three-year period ending December 31, 2006.
The non-equity incentive compensation section in the Grants of Plan-Based Awards in 2006 table shows the range of estimated possible future payouts for the 2006 annual incentive payment at varying levels of performance. It also shows the range of estimated possible future payouts of the CIUs granted for the 2006-2008 cycle at varying levels of performance.
Change in Pension Value and Nonqualified Deferred Compensation Earnings
All Other Compensation
The next table is provided to present an overview of Pitney Bowes equity held as of December 31, 2006 by each named executive officer. It discloses compensation in the form of equity that has previously been awarded, remains outstanding, and is unexercised or unvested.
The following table discloses amounts realized on equity compensation during 2006 as options were exercised or restricted stock vested.
The following table provides information regarding post-employment payments to the named executive officers. It includes data regarding the Pitney Bowes Pension Plan, Pension Restoration Plan and U.K. Pension Fund. The amounts reported in the table below equal the present value of the accumulated benefit at December 31, 2006, for the named executive officers under the various Pitney Bowes pension plans based on service and covered earnings (as described below) considered by the plans for the period through December 31, 2006. The present value has been calculated assuming the named executive officer will remain employed until age 65, the age at which retirement may occur without any reduction in benefits, and that the benefit is payable consistent with the assumptions as decribed in note 13 to the financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2006.
The Pension Benefits table presents the present value of accumulated pension benefits as of December 31, 2006. The Pitney Bowes Pension Plan is a qualified pension plan for U.S. employees, while the Pitney Bowes Pension Fund is a qualified pension plan for U.K. employees. Under the qualified Pension Plan, employees receive retirement benefits each year based on compensation up to a maximum of $220,000 for 2006. Pension amounts for compensation above $220,000 are accrued under the nonqualified Pension Restoration Plan based on the same formula used under the qualified plan. Payments under the nonquali-fied Pension Restoration Plan are paid from our general assets. These payments are substantially equal to the difference between the amount that would have been payable under our qualified Pension Plan in the absence of legislation limiting pension benefits and earnings that may be considered in calculating pension benefits, and the amount actually paid under our qualified Pension Plan. Pitney Bowes does not maintain an excess benefit plan with special provisions, such as above-market interest rates and excess service credits.
Other than Ms. Mayes, who joined the company in 2003, all of the named executive officers are fully vested in their pension benefit.
The material terms of the U.S. Pension and Pension Restoration plans are summarized below:
The material terms of the U.K. Pension Fund are summarized below:
Information included in the table below includes contributions, earnings, withdrawals, and balances with respect to the Pitney Bowes 401(k) Restoration Plan (a nonqualified deferred compensation plan) and the Pitney Bowes Deferred Incentive Savings Plan (a plan where certain employees may defer their bonus and salary). Eligibility for both of these plans is limited to U.S. employees, therefore Mr. Keddy is not a participant. The Pitney Bowes 401(k) Restoration Plan and Deferred Incentive Savings Plan are unfunded deferred compensation plans established for a select group of management or highly compensated employees under ERISA. All payments pursuant to the plans are made from the general assets of the company and no special or separate fund is established or segregation of assets made to assure payment. Participants do not own any interest in the assets of the company as a result of participating in the plans. Notwithstanding the foregoing, there is a grantor trust to assist in accumulating funds to pay the companys obligations under the plans. Any assets of the grantor trusts are subject to the claims of the companys creditors.
The material terms of the Pitney Bowes 401(k) Restoration Plan are summarized below:
The material terms of the Deferred Incentive Savings Plan (DISP) are summarized below:
Investment returns for both the Pitney Bowes 401(k) Restoration Plan and the DISP are identical to those in the Pitney Bowes 401(k) Plan. Each employee selects his or her investment options and can change these at any time by accessing his or her account on the inter-net. These investments are tracked in phantom accounts rather than in the true funds. The investment options are as follows:
The tables below reflect the amount of compensation that would become payable to each of the named executive officers under existing plans arrangements if the hypothetical termination of employment events described had occurred on December 31, 2006, given the named executives compensation and service levels as of such date and, if applicable, based on the companys closing stock price on that date. All payments are payable by the company in a lump-sum unless otherwise noted. The terms of these benefits are described in the notes and narrative following the tables.
These benefits are in addition to benefits available regardless of the occurrence of such an event, such as under currently exercisable stock options, and benefits generally available to salaried employees, such as distributions under the companys 401(k) plan, subsidized retiree medical benefits, disability benefits, life insurance and accrued vacation pay. In addition, in connection with any actual termination of employment, the company may determine to enter into an agreement or to establish an arrangement providing additional benefits or amounts, or altering the terms of benefits described below, as the Committee determines appropriate.
The actual amounts that would be paid upon a named executive officers termination of employment can be determined only at the time of such executives separation from the company. Due to the number of factors that affect the nature and amount of any benefits provided upon the events discussed below, any actual amounts paid or distributed may be higher or lower than reported below. Factors that could affect these amounts include the timing during the year of any such event, the companys stock price and the executives age.
As discussed above under the section entitled Deferred Compensation the named executive officers other than Mr. Keddy participate in the companys nonqualified deferred compensation plans. The last column of the table on page 51 reports each named executive officers aggregate balance at the companys fiscal year-end. The named executive officers are entitled to receive the amount in their deferred compensation account in the event of termination of employment. The account balances continue to be credited with increases or decreases reflecting changes in the value of the investment funds that are tracked under the plans between the termination event and the date distributions are made, and therefore amounts received by the named executive officers will differ from those shown in the table on page 51. See the narrative accompanying that table for information on available types of distributions under the plan.
Explanation of Benefits Payable Upon Various Termination Events
Change in Responsibilities
The company has not entered into employment agreements with its named executive officers other than one with Mr. Keddy, and therefore, these officers are at will employees of the company. In the event that a change in the responsibilities of Messrs. Critelli, Nolop, and Martin, or Ms. Mayes were determined to be a constructive termination, or the equivalent of materially changing the executives position, these executive officers would receive the separation benefits set forth under the column titled Involuntary/Not for Cause Termination in each Executives PostTermination Payments table. Should Mr. Keddys responsibilities be diminished from those outlined in his employment agreement, he would be entitled to a minimum of 12 months pay. The details of Mr. Keddys separation benefits are set forth under the column entitled Involuntary/Not for Cause Termination in the Post-Termination Payment table for Mr. Keddy.
A voluntary termination would not provide any compensation, benefits or special treatment of equity plans for any of the named executive officers.
The U.S. Pitney Bowes Pension Plan allows for early retirement at age 55 with at least ten years of service. Messrs. Critelli and Martin are currently eligible for early retirement. Early retirement entitles executive officers to the following upon termination:
None of the named executive officers are eligible for normal retirement at this time.
Involuntary/Not for Cause Termination
The company maintains a severance pay plan that provides for the payment of severance to full-time employees based in the United States whose employment is terminated under certain business circumstances (other than a Change of Control).
The Pitney Bowes severance pay plan provides a continuation of compensation upon involuntary termination as summarized below. In addition, in order to obtain an appropriate waiver and release from the employee, the company may offer enhanced severance payments. In addition to the severance payments to which they are entitled, Messrs. Critelli and Martin are eligible for early retirement benefits that are, in general, more favorable than those offered upon involuntary termination.
The enhanced severance payment entitles executive officers to the following upon termination:
Termination for Cause or Gross Misconduct
The executive officers beneficiary would be entitled to the following upon the executives death:
Disability entitles executive officers to the following upon termination:
Change of Control with Termination
Change of control entitles executive officers to the following upon termination:
Solicitation of Proxies
In addition to the use of the mail, proxies may be solicited by the directors, officers, and employees of the company without additional compensation by personal interview, by telephone, or by electronic transmission. Arrangements may also be made with brokerage firms and other custodians, nominees, and fiduciaries for the forwarding of solicitation material to the beneficial owners of Pitney Bowes common stock and $2.12 convertible preference stock held of record, and the company will reimburse such brokers, custodians, nominees, and fiduciaries for reasonable out-of-pocket expenses incurred. The company has retained Georgeson Inc. to aid in the solicitation of proxies.
The anticipated fee of such firm is $8,500 plus out-of-pocket costs and expenses. The cost of solicitation will be borne entirely by Pitney Bowes.
Management knows of no other matters which may be presented for consideration at the meeting. However, if any other matters properly come before the meeting, it is the intention of the individuals named in the enclosed proxy to vote in accordance with their judgment.
By order of the board of directors.
Amy C. Corn
ANNEX I - PITNEY BOWES INC. 2007 STOCK PLAN
Section 1. Purpose.
The purposes of the Pitney Bowes Inc. Stock Plan, effective as of May 1, 2007, (the Plan) are (1) to make available to key employees, certain compensatory arrangements related to the growth in value of the common stock of the Company so as to generate an increased incentive to contribute to the Companys future financial success and prosperity, (2) to enhance the ability of the Company and its Affiliates to attract and retain exceptionally qualified individuals whose efforts can affect the financial growth and profitability of the Company, and (3) to align generally the interests of key employees of the Company and its Affiliates with the interests of Pitney Bowes shareholders.
Section 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth below:
Section 4. Shares Available for Awards.
Section 5. Eligibility.
Any Employee of the Company or of any Affiliate shall be eligible to be designated a Participant.
Section 6. Awards.
Section 7. Vesting and Exercising.
Section 8. Amendment and Termination of Awards.
Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan, the following shall apply to all Awards.
Section 9. Acceleration Upon a Change of Control.
In the event of a Change of Control (as defined in Section 9(b) below), the following shall apply:
Section 10. Amendment or Termination of the Plan.
Except to the extent limited under Section 14 herein, prohibited by applicable law or otherwise expressly provided in an Award Agreement or in the Plan, the Board of Directors may amend, alter, suspend, discontinue, or terminate the Plan, including without limitation any such action to correct any defect, supply any omission or reconcile any inconsistency in the Plan, without the consent of any stockholder, Participant, other holder or beneficiary of an Award, or Person; provided that any such amendment, alteration, suspension, discontinuation, or termination that would impair the rights of any Participant, or any other holder or beneficiary of any Award heretofore granted shall not be effective without the approval of the affected Participant(s); and provided further, that, notwithstanding any other provision of the Plan or any Award Agreement, without the approval of the stockholders of the Company no such amendment, alteration, suspension, discontinuation or termination shall be made that would:
Section 11. General Provisions
Section 12. Effective Date of the Plan.
The Plan was approved by the Board of Directors on February 12, 2007 and shall have an effective date of May 1, 2007, subject to approval of the Plan by the stockholders of the Company at the May 2007 stockholders meeting. Notwithstanding the foregoing, Plan provisions that contain an effective date other than May 1, 2007 shall be governed by such other effective date.
Section 13. Term of the Plan.
No Award shall be granted under the Plan after December 31, 2014. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond such date, and the authority of the Committee hereunder to amend, alter, adjust, suspend, discontinue, or terminate any such Award, or to waive any conditions or rights under any such Award, and the authority of the Board of Directors of the Company to amend the Plan, shall extend beyond such date.
ANNEX II - PROPOSED BY-LAW AMENDMENT
Article I, Section 7:
Quorum and Voting. At any meeting of stockholders, the holders of a majority of the shares entitled to vote thereat shall constitute a quorum for the transaction of
Treasury shares as of the record date shall not be shares entitled to vote or to be counted in determining the total number of outstanding shares.
Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant a resolution approved by a majority of the entire Board of Directors.
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