IQVIA HOLDINGS INC. DEF 14A 2008
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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April 4, 2008
I am very pleased to invite you to the 2008 Annual Meeting of Stockholders of Qwest Communications International Inc. The meeting will be held in the Seawell Grand Ballroom of the Denver Center for the Performing Arts, 1050 13th Street, Denver, Colorado 80204, on Thursday, May 22, 2008, starting at 10 a.m. (local time). If you plan to attend the meeting in person, please call 888-858-7914 or register online at www.qwest.com/stockholder2008 by May 21, 2008.
The accompanying notice and proxy statement include important information about the matters to be acted on at the meeting.
Your vote is important. On behalf of your Board of Directors, I urge you to vote promptly even if you plan to attend the meeting. Voting now will not prevent you from voting in person at the meeting if you are a stockholder of record and wish to do so.
We look forward to greeting you personally at the meeting.
Edward A. Mueller
Chairman and Chief Executive Officer
DRIVING DIRECTIONS AND PARKING INFORMATION FOR THE 2008 ANNUAL MEETING OF STOCKHOLDERS
Seawell Grand Ballroom
Denver Center for the Performing Arts
1050 13th Street
Denver, Colorado 80204
Map of the Denver Center for the Performing Arts Complex
QWEST COMMUNICATIONS INTERNATIONAL INC.
1801 CALIFORNIA STREET
DENVER, COLORADO 80202
Important Notice Regarding the Availability of Proxy Materials for the
Stockholder Meeting to Be Held on May 22, 2008
The proxy statement and annual report to security holders are available at
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Qwest Communications International Inc.:
The 2008 Annual Meeting of Stockholders of Qwest Communications International Inc., a Delaware corporation, will be held in the Seawell Grand Ballroom of the Denver Center for the Performing Arts, 1050 13th Street, Denver, Colorado 80204, on Thursday, May 22, 2008, starting at 10 a.m. (local time).
Only stockholders of record on March 24, 2008, are entitled to notice of and to vote at the meeting and at any adjournment or postponement that may take place. At the meeting we plan to:
Our Board of Directors recommends that you vote FOR the election of the director nominees named in this proxy statement and the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 2008 (FOR ITEMS 1-2) and AGAINST each of the other proposals (AGAINST ITEMS 3-4).
We cordially invite you to attend the meeting. To ensure your representation at the meeting, please vote promptly even if you plan to attend the meeting. Voting now will not prevent you from voting in person at the meeting if you are a stockholder of record and wish to do so.
By Order of the Board of Directors
Richard N. Baer
Executive Vice President, General Counsel and Corporate Secretary
April 4, 2008
TABLE OF CONTENTS
QWEST COMMUNICATIONS INTERNATIONAL INC.
1801 CALIFORNIA STREET
DENVER, COLORADO 80202
We are providing this proxy statement to you as part of a solicitation by the Board of Directors of Qwest Communications International Inc. for use at our 2008 Annual Meeting of Stockholders and at any adjournment or postponement that may take place. We will hold the meeting in the Seawell Grand Ballroom of the Denver Center for the Performing Arts, 1050 13th Street, Denver, Colorado 80204, on Thursday, May 22, 2008, starting at 10 a.m. (local time).
Beginning this year, we are taking advantage of new Securities and Exchange Commission, or SEC, rules that allow us to deliver proxy materials to our stockholders on the Internet. Under these rules, we are sending most of our stockholders a one-page notice regarding the Internet availability of proxy materials instead of a full set of proxy materials. If you receive this one-page notice, you will not receive printed copies of the proxy materials unless you specifically request them. Instead, this notice tells you how to access and review on the Internet all of the important information contained in the proxy materials. This notice also tells you how to submit your proxy card on the Internet and how to request to receive a printed copy of our proxy materials.
We expect to mail, or provide notice and electronic delivery of, this proxy statement and accompanying proxy card to stockholders beginning on or about April 8, 2008. Unless the context otherwise requires, the terms Qwest, us, we, and our include Qwest Communications International Inc. and its consolidated subsidiaries.
AND THE MEETING
The stockholder proposals will be voted on only if they are properly presented at the meeting.
Stockholder of Record
If your shares are registered in your name with our transfer agent, The Bank of New York Mellon, you are the stockholder of record for those shares and are receiving proxy-related materials directly from us. As the stockholder of record, you have the right to grant your voting proxy directly to us or to vote in person at the meeting.
If your shares are held in a stock brokerage account, by a bank or other nominee (commonly referred to as being held in street name) or through our 401(k) plan or ESPP, you are the beneficial owner of those shares. Your broker, bank or nominee is the stockholder of record and therefore has forwarded proxy-related materials to you as beneficial owner. As the beneficial owner, you have the right to direct your broker, bank or other nominee how to vote your shares and are also invited to attend the meeting. However, since you are not the stockholder of record, you may not vote your shares in person at the meeting unless you obtain a signed proxy from your broker, bank or nominee giving you the right to vote the shares. (Signed proxies are not available for shares held through our 401(k) plan. If you hold shares through our 401(k) plan, you must vote those shares as provided below.)
As a plan participant, you may attend the annual meeting. However, your shares held through our 401(k) plan can only be voted as described in the paragraph above.
All stockholder meeting proxies, ballots and other voting materials (including information submitted through the Internet and telephone voting systems) that identify how an individual stockholder has voted will be kept confidential.
If a broker indicates on a proxy that it lacks discretionary authority as to certain shares to vote on a particular matter, commonly referred to as broker non-votes, those shares will still be counted for purposes of determining the presence of a quorum at the meeting.
For each of the other matters, approval requires the affirmative vote of stockholders holding a majority of those shares present (in person or by proxy) and entitled to vote on the matter. If you are a beneficial owner and do not provide the stockholder of record with voting instructions, your shares may constitute broker non-votes for certain matters (as described in the question and answer immediately above). In tabulating the voting result for a proposal, shares that constitute broker non-votes are not considered as being entitled to vote on that proposal.
If you hold shares through our 401(k) plan and do not instruct State Street Bank and Trust Company how to vote your shares, our 401(k) plan provides for State Street Bank and Trust Company to vote your shares in the same proportion as the shares for which it receives instructions from all other participants, to the extent permitted under applicable law. If you hold shares through our ESPP, but do not return a proxy, the plan administrator may vote your shares in its discretion.
Similarly, for you to raise a proposal (including a director nomination) from the floor at next years meeting, we must receive a written notice of the proposal no later than December 5, 2008, and it must contain the additional information required by our Amended and Restated Bylaws. If we change the date of next years meeting by more than 30 days from the date of this years meeting, then we must receive your written proposal at least 150 days before the date of next years meeting for the proposal to be timely. You may obtain a complete copy of our Amended and Restated Bylaws on our website at www.qwest.com/about/investor/governance or by submitting a written request to our Corporate Secretary at our principal executive office.
HOUSEHOLDING OF PROXY MATERIALS
In an effort to reduce printing costs and postage fees, we have adopted a practice called householding. Under this practice, stockholders who have the same address and last name and do not participate in email delivery of proxy-related materials will receive only one set of proxy-related materials unless one or more of these people notifies us that he or she wishes to continue to receive individual copies.
If you share an address with another stockholder and receive only one set of proxy-related materials and would like to request a separate copy for this years annual meeting or for any future meetings, please: (1) call our Investor Relations department at 1-800-567-7296; (2) send an email message to email@example.com; or (3) mail your request to Qwest Communications International Inc., 1801 California Street, 51st Floor, Denver, Colorado 80202, Attn: Investor Relations. Additional copies of the materials will be sent within 15 days after receipt of your request. Similarly, you may also contact us through any of these methods if you receive multiple copies of the materials and would prefer to receive a single copy in the future.
BENEFICIAL OWNERSHIP OF SHARES OF COMMON STOCK
The table below provides information about the beneficial ownership of shares of our common stock as of March 24, 2008 (except where another date is indicated), by:
The information in this table is based on our records, information filed with the SEC and information provided to us. Unless otherwise noted, the business address of each person is 1801 California Street, Denver, Colorado 80202.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive officers, and certain persons who own more than 10% of our common stock, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Directors, executive officers and these greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of these reports furnished to us and in some cases written representations that no other reports were required, all Section 16(a) filing requirements applicable to our directors, executive officers and greater than 10% beneficial owners were complied with during and for the year ended December 31, 2007.
Our Board has adopted Guidelines on Significant Governance Issues, which set forth fundamental corporate governance principles applicable to Qwest and our Board. We sometimes refer to these guidelines as our Governance Guidelines.
Among other things, our Governance Guidelines include the following items about our Board.
Our common stock is listed on the New York Stock Exchange, or NYSE. As such, we are subject to the NYSEs director independence standards. In accordance with these standards and our Governance Guidelines, in determining independence the Board affirmatively determines whether a director has a material relationship with Qwest that would compromise his or her independence from management or would cause him or her to fail to meet the NYSEs specific independence criteria. When assessing the materiality of a directors relationship with Qwest, the Board considers all relevant facts and circumstances, not merely from the directors standpoint, but from that of the persons or organizations with which the director has an affiliation, and, where applicable, the frequency and regularity of the services, and whether the services are being carried out at arms length in the ordinary course of business. Material relationships can include commercial, consulting, charitable, familial and other relationships. A relationship is not material if, in the Boards judgment, it is not inconsistent with the NYSEs director independence standards and it does not compromise a directors independence from management.
Applying these standards, the Board has determined that each of our current directors and director nominees, other than Edward A. Mueller, qualifies as independent. The Board had also determined that Richard C. Notebaert, who retired as our Chairman and CEO in August 2007, did not qualify as independent while he was a director. As a result of these determinations, at all times since the beginning of 2007, our Board has been composed of a majority of independent directors, and the Boards Audit Committee, Compensation and Human Resources Committee and Nominating and Governance Committee have consisted entirely of independent directors. The Board has also determined that each member of our Audit Committee qualifies as independent under the SECs heightened independence standards for audit committee members. In making these determinations, the Board considered the relationships described below under the heading Related Person Transactions. We may also provide to the Board information about other relationships between us and our directors even though those relationships are not required to be disclosed as related person transactions and do not otherwise impact independence. We provide this material for informational purposes only, and the Board does not consider this information in making its independence determinations. For example, Linda G. Alvarado serves on the board of directors of one of our wholly-owned subsidiaries, Qwest Foundation. Ms. Alvarados service is at our request and in connection with her service as a Qwest director.
Communications with Directors
Stockholders and other interested parties who wish to communicate with our Board, including our non-employee directors as a group, our lead independent director or any other individual directors, may do so by writing to our Corporate Secretary at our principal executive office at 1801 California Street, Denver, Colorado 80202. Our Corporate Secretary will review all correspondence intended for the Board and will regularly forward to the Board a summary of this correspondence and copies of correspondence that, in the opinion of the Corporate Secretary, is of significant importance to the functions of the Board or otherwise requires the Boards attention. Directors may at any time review a log of all correspondence received by the Corporate Secretary that is intended for the Board and request copies of any of this correspondence.
Codes of Conduct
We have adopted written codes of conduct that serve as the code of ethics applicable to our directors, officers and employees, including our principal executive officer and senior financial officers, in accordance with
Section 406 of the Sarbanes-Oxley Act of 2002, the related SEC rules and the NYSE rules. If we make changes to, or provide waivers from, our code of conduct applicable to our principal executive officer and senior financial officers, we intend to disclose these events on our website or in a report on Form 8-K within 4 business days of the event.
Meetings and Committees
Our Board met 16 times and acted once by unanimous written consent during 2007. Each of our directors attended 75% or more of the aggregate of the total number of meetings of the Board held while he or she was a director and of each committee on which he or she served during the period in which the director served as a member of that committee. Though we do not have a formal policy regarding attendance by directors at annual meetings of stockholders, attendance is encouraged. All of our then-current directors attended the 2007 annual meeting of stockholders.
The table below identifies the Boards standing committees and committee membership:
The Board has also established a single-member committee made up of the Chairman of the Board with authority to grant certain awards under our Equity Incentive Plan. You can find more information about this committee below under the heading Compensation and Human Resources Committee Processes Relating to Executive Compensation.
Charter and Meetings
The Board has established an Audit Committee for the purpose of overseeing our accounting and financial reporting processes and audits of our financial statements, among other things. As noted above, the members of the Audit Committee are Messrs. Biggs, Brooksher and Murdy and Ms. Matthews. The Audit Committee has a written charter, which is available in the Corporate Governance section of our website at www.qwest.com/about/investor/governance. The Audit Committee met 12 times during 2007.
Audit Committee Financial Experts
The Board has determined that each member of the Audit Committee is qualified as an audit committee financial expert, has accounting and related financial management expertise and is financially literate. You
should understand that these designations are disclosure requirements of the SEC and NYSE relating to the members experience and understanding of accounting and auditing matters. These designations do not affect the obligations and liability of Board or Audit Committee members generally. As noted above, the Board has also determined that each member of the Audit Committee is independent under the NYSEs director independence standards applicable to audit committee members, including the heightened independence requirements under the SECs rules.
Compensation and Human Resources Committee
Charter and Meetings
The Compensation and Human Resources Committee of our Board has a written charter, which is available in the Corporate Governance section of our website at www.qwest.com/about/investor/governance. We sometimes refer to this committee as the Compensation Committee. The Compensation Committee met 14 times and acted once by unanimous written consent during 2007.
Processes Relating to Executive Compensation
Under its charter, the Compensation Committee carries out the responsibilities of the Board relating to the compensation of our executives. Among other things, the Compensation Committee:
The Compensation Committee may appoint and delegate any of its charter responsibilities to subcommittees. The Compensation Committee does not currently have any subcommittees.
In addition to its charter responsibilities, the Compensation Committee is responsible for administering our Equity Incentive Plan. This includes the authority under the plan to grant awards, such as stock options and restricted stock. The Compensation Committee may delegate this authority to specified officers of Qwest, except that it may not delegate the authority to grant awards to persons covered by Section 16(b) of the Exchange Act. Our Board has established a single-member committee made up of the Chairman of the Board (who is also our CEO). Our Board and the Compensation Committee have delegated to this committee the authority to grant plan awards, except that the committee may not grant awards (a) for more than 200,000 shares of common stock, as may be adjusted for stock splits, dividends or the like and (b) to persons covered by Section 16(b) of the Exchange Act, which includes all of our executives. Awards for more than 200,000 shares and awards to our executives must be approved by the Compensation Committee or by the Board. This single-member committee is required to provide to the Compensation Committee periodic reports listing the names of persons who have received awards under this authority and the number of shares granted.
Our Board generally retains authority over our other compensation plans and our employee benefit plans. To assist the Board in discharging these responsibilities, the Executive Committee of our Board established two committees made up of our chief human resources officer (or her delegate) and those other employees as she may designate:
Our human resources department supports the Compensation Committee in its work. Among other things, our human resources department compiles and analyzes historical compensation information for executives and market and proxy data. This information is then used by the Compensation Committee to evaluate and make decisions about executive compensation. Our human resources department also uses this information as a basis for its recommendations to the Compensation Committee about the structure, form and amount of executive compensation. In reviewing the compensation for executives other than our CEO, the Compensation Committee considers recommendations and individual performance reviews from our CEO. And in reviewing the compensation for our CEO, the Compensation Committee may solicit input from one or more executives who report to our CEO.
The Compensation Committee has the authority to retain a compensation consultant to assist in the evaluation of executive compensation and has the sole authority to approve the consultants fees and retention terms. The Compensation Committee engages Mercer Human Resource Consulting, Inc., or Mercer, as its compensation consultant. For 2007, Mercer assisted our human resources department with the compilation and analysis of historical compensation information and market and proxy data. Mercer also provided advice and recommendations relating to the market-based awards granted to our former CEO and our current CFO in March 2007 and our current CEO in August 2007. In addition, throughout 2007 Mercer provided analyses in the areas of emerging trends in executive compensation and benefits programs, long-term incentive plans, and director compensation. Mercer reports directly to the chairman of the Compensation Committee. In connection with the performance of its services, Mercer also works with, and receives instructions from, members of our human resources department who are performing tasks at the direction of the Compensation Committee or its chairman.
Nominating and Governance Committee
Charter and Meetings
The Nominating and Governance Committee of our Board has a written charter, which is available in the Corporate Governance section of our website at www.qwest.com/about/investor/governance. The Nominating and Governance Committee met 5 times and acted once by unanimous written consent during 2007.
Director Qualifications and Criteria for Board Membership
Under its charter, the Nominating and Governance Committee has the responsibility to recommend candidates for election as directors and believes that candidates for director should have certain minimum qualifications, including experience in one or more of the following:
Directors also should possess:
The Nominating and Governance Committee evaluates candidates for the Board on the basis of the process and standards set forth in its charter and our Governance Guidelines. Candidates may come to the attention of the Nominating and Governance Committee through current Board members, professional search firms (to whom we pay a fee), stockholders or other persons. In 2007, we paid a fee to a third-party search firm, Boardroom Consultants, to assist us with the selection of Jan L. Murley as a director and to another third-party search firm, Spencer Stuart, to assist us with the selection of Edward A. Mueller as our Chairman and Chief Executive Officer.
The Nominating and Governance Committee will consider nominees recommended by our stockholders. Any stockholder wishing to propose a nominee for consideration by the Nominating and Governance Committee should submit a recommendation in writing to our Corporate Secretary at our principal executive office, indicating the nominees qualifications and other relevant biographical information and providing confirmation of the nominees consent to serve as a director. The Nominating and Governance Committee does not intend to alter its criteria for evaluating potential director candidates, including the criteria set forth above, in the case of director candidates recommended by stockholders. The Nominating and Governance Committee periodically considers recommendations for director candidates. If you wish to raise a director nomination for next years annual meeting, you must comply with the notice and other requirements described above under the heading Questions and Answers about the Proxy Materials and the MeetingQ: May I propose actions for consideration at next years meeting of stockholders?
Processes Relating to Director Compensation
Under its charter, the Nominating and Governance Committee is responsible for reviewing director compensation annually for appropriateness and sufficiency. Based on this review, the Nominating and Governance Committee recommends to the Board any proposed changes to director compensation. The Board is ultimately responsible for approving the form and amount of director compensation. The Nominating and Governance Committee may appoint and delegate any of its responsibilities to subcommittees but no subcommittee may have any final decision-making authority on behalf of our Board. The Nominating and Governance Committee does not currently have any subcommittees.
Our human resources department supports the Nominating and Governance Committee and our Board in their work relating to director compensation. Among other things, our human resources department compiles and analyzes historical director compensation information and market and proxy data. The Nominating and Governance Committee and our Board then use this information to evaluate and make decisions about director compensation. Our human resources department and executive officers also use this information as a basis for their recommendations to the Nominating and Governance Committee and our Board about the structure, form and amount of director compensation. These recommendations may include a recommendation from our CEO, who is a director but who does not receive any separate compensation for his role as a director. As discussed above under the heading Compensation and Human Resources Committee Processes Relating to Executive Compensation and below under the heading Executive Compensation, our CEOs compensation is evaluated and approved by the Compensation Committee.
The Nominating and Governance Committee has the authority to retain independent consultants as it deems appropriate to carry out its duties. As described above, the Compensation Committee engages Mercer as its compensation consultant. In connection with the Nominating and Governance Committees review of director compensation in 2007, Mercer assisted our human resources department with the compilation and analysis of historical director compensation information and market and proxy data. Mercer reports directly to the chairman
of the Compensation Committee. In connection with the performance of its services, Mercer also works with, and receives instructions from, members of our human resources department who are performing tasks at the direction of the Compensation Committee or its chairman.
The purpose of the Finance Committee is, among other things, to review and evaluate our financial needs, to approve the issuance of debt and equity securities, to oversee the administration of our trust funds and to review our business strategy as it deems necessary. The Finance Committee also makes recommendations to our Board and management about financial policies and objectives. The Finance Committee met 5 times and acted once by unanimous written consent during 2007.
The Executive Committee may exercise all the powers and authority of our Board in the management of Qwest, except as prohibited by the Delaware General Corporation Law. The Executive Committee did not meet or act by unanimous written consent during 2007.
How to Obtain Copies of our Governance-Related Materials
Copies of our Governance Guidelines, codes of conduct and the charters for the Audit Committee, the Compensation Committee and the Nominating and Governance Committee are available in the Corporate Governance section of our website at www.qwest.com/about/investor/governance. Copies of these documents are also available in print to any stockholder who requests them by sending a written request to our Corporate Secretary at Qwest Communications International Inc., 1801 California Street, Denver, Colorado 80202.
Director Compensation Table
The table below summarizes the compensation paid to and earned by each of our non-employee directors in 2007. This compensation was paid in accordance with our director compensation plan, which is described below under the heading Director Compensation Plan. Directors who are also our employees do not receive any separate compensation for their services as directors. During 2007, we had two directors who were also our employees: Edward A. Mueller and Richard C. Notebaert. You can find information about their compensation below under the heading Executive Compensation.
Each of our non-employee directors other than Ms. Murley received a restricted stock award of 6,000 shares and an option for 10,000 shares, each with a grant date of January 2, 2007. Our Compensation Committee approved these awards on December 14, 2006. The estimated grant date fair value of each restricted stock award was $50,220, which we calculated using the closing price of our common stock on the date of grant ($8.37). The estimated grant date fair value of each stock option award was $39,000, which we calculated based on the Black-Scholes model using the following assumptions:
Two of the more significant assumptions used to determine these estimates are the expected option life and the expected volatility, both of which we estimated based on historical information. As noted above, these are the same assumptions used for financial statement reporting purposes.
Ms. Murley received a restricted stock award of 1,000 shares with a grant date of December 12, 2007. This was also the date on which our Compensation Committee approved the grant. The estimated grant date fair value of this restricted stock award was $7,080, which we calculated using the closing price of our common stock on the date of grant ($7.08).
Outstanding Restricted Stock and Stock Options
The following table shows the total number of shares of unvested restricted stock and total stock options held by each of our non-employee directors on December 31, 2007:
Director Compensation Plan
In October 2007, upon recommendations of the Nominating and Governance Committee and the Compensation Committee, our Board approved changes to our director compensation plan. The table below shows the compensation to which our non-employee directors were entitled for 2007. The annual retainers and premiums were prorated for the periods shown.
The options terminate if they are not exercised by the 10th anniversary of the date of grant. The options terminate, and restricted stock forfeits, to the extent they are not vested on the directors removal or resignation from the Board. The options and restricted stock fully vest upon a change in control, as defined in our Equity Incentive Plan and described below under Grants of Plan-Based Awards in 2007Other Stock Awards and Other Option Awards.
For 2008, non-employee directors are entitled to the same compensation shown in the table above under the column entitled October 17-December 31, 2007.
Equity Award Practices
The grant date of each annual equity award to non-employee directors is the first business or trading day of the year, and the grant date of each prorated equity award to a new director is the date on which the director is appointed to the Board. The 2007 annual equity awards have a grant date of January 2, 2007, and were approved by the Compensation Committee on December 14, 2006. The only prorated equity award to a new director in 2007 has a grant date of December 12, 2007, which is also the date on which the Compensation Committee approved the grant. All options granted to our directors since the beginning of 2007 have an exercise price equal to the closing market price of our common stock on the grant date. The Compensation Committee may or may not possess material nonpublic information when it approves awards. However, the Compensation Committee consistently acts only at a particular time of the year and does not try to achieve more advantageous grant dates or exercise prices in connection with the timing of the release of material nonpublic information.
Equity Compensation Plan for Non-Employee Directors
Under our Equity Compensation Plan for Non-Employee Directors, non-employee directors may elect, on a quarterly basis, to receive any or all of the amount of their annual directors fees and meeting fees in the form of shares of our common stock. Since the beginning of 2007, none of our directors has made this election.
Deferred Compensation Plan for Non-Employee Directors
Non-employee directors may elect to defer all or any portion of their directors fees for an upcoming year under our Deferred Compensation Plan for Non-Employee Directors. A directors election to defer fees must be made within 30 days of the directors appointment to the Board (with respect to fees not yet earned) and thereafter on an annual basis in the year before the year in which the fees would otherwise be payable. Quarterly, we credit each participants account with a number of phantom units having a value equal to his or her deferred director fees. Each phantom unit has a value equal to one share of our common stock and is subject to adjustment for cash dividends payable to our stockholders as well as stock dividends and splits, consolidations and other transactions that affect the number of shares of our common stock outstanding. Subject to the terms of the plan, each participants account will be distributed as a lump sum as soon as practicable following the end of his or her services as a director. Amounts deferred before 2005 and earnings on those amounts are subject to the distribution options elected in advance by the participant and may be in the form of: (i) a lump-sum payment; (ii) annual cash installments over periods up to 10 years; or (iii) some other form selected by our chief human resources officer (or his or her designee).
The table below shows the number of phantom equity units credited to accounts for our non-employee directors and the value of those units as of December 31, 2007:
ELECTION OF DIRECTORS
All of our directors stand for election annually and for terms that expire at the next annual meeting. Any director appointed to our Board as a result of a newly created directorship or to fill a vacancy holds office until the next annual meeting. The Nominating and Governance Committee has nominated the 13 persons named below to serve as directors until our next annual meeting and until the directors successor has been duly elected and qualified, or until the earlier of the directors death, resignation or retirement. All nominees are currently serving on our Board. Our Board appointed Mr. Mueller to the Board in August 2007 and Ms. Murley to the Board in December 2007. As such, these directors have not previously stood for election at an annual meeting. Our stockholders elected all other nominees.
Unless you indicate on your proxy that you are voting AGAINST one or more of the nominees or that you ABSTAIN from voting with respect to one or more of the nominees, the persons named as proxies will vote all proxies received FOR the election of each nominee. Each of the nominees has consented to be named as a nominee in this proxy statement, and we expect that each of the nominees will be able to serve if elected. If any nominee is unavailable for election, the persons named as proxies will vote your shares FOR the election of a substitute nominee proposed by our Board.
Each nominee will be elected a director if he or she receives the affirmative vote of a majority of the votes cast with respect to that directors election. A majority of the votes cast means that the number of votes FOR a director must exceed 50% of the votes cast with respect to that directors election. Votes AGAINST the director count as votes cast with respect to that director, but ABSTENTIONS do not count as votes cast with respect to the director. In accordance with our Amended and Restated Bylaws, each nominee has submitted an irrevocable letter of resignation conditioned upon (a) him or her not receiving 50% of the votes cast and (b) the Boards acceptance of the resignation. If a director does not receive 50% of the votes cast, the Board, acting on the recommendation of the Nominating and Governance Committee, will determine whether to accept the directors resignation. The Board will make this determination within 90 days of receiving certified voting results and may consider any appropriate and relevant information. The Board will accept the directors resignation unless it determines that a compelling reason exists for concluding that it is in our best interests for the director to remain a director. Except in certain circumstances where a quorum would not exist, the Nominating and Governance Committee and the Board will make their determinations without the participation of any directors who did not receive 50% of the votes cast.
Recommendation of our Board of Directors
The Board of Directors recommends that you vote FOR each of the director nominees named below. Proxies will be voted FOR each of the nominees named below unless you otherwise specify in your proxy.
Below you can find information, including biographical information, about our director nominees.
Edward A. Mueller has been our Chairman and Chief Executive Officer since August 2007. Mr. Mueller served as Chief Executive Officer of Williams-Sonoma, Inc., a specialty retailer of home furnishings, from January 2003 until July 2006, and served as a director of Williams-Sonoma from 1999 until May 2007. Prior to joining Williams-Sonoma as Chief Executive Officer, Mr. Mueller held a variety of executive level positions with several telecommunications companies, including Ameritech, SBC International Operations, Pacific Bell and Southwestern Bell Telephone. Mr. Mueller currently serves as a director of The Clorox Company. Mr. Mueller holds a bachelors degree in civil engineering from the University of Missouri and an executive masters degree in business administration from Washington University.
Linda G. Alvarado has been President and Chief Executive Officer of Alvarado Construction, Inc. since 1978. Alvarado Construction is a commercial and industrial general contractor, construction management and development company. Ms. Alvarado currently serves as a director of Pepsi Bottling Group, 3M Company, Pitney Bowes, Inc. and Lennox International Inc. Ms. Alvarado earned a bachelors degree from Pomona College.
Charles L. Biggs was a management consultant with Deloitte & Touche, a professional services firm that provides assurance and advisory, tax and management consulting services, from 1968 until his retirement in 2002. At Deloitte, Mr. Biggs held various management positions, including National Director of Strategy Services for Deloittes strategy arm and Chairman of Deloitte/Holt Value Associates. Mr. Biggs currently serves as a director of Standard Parking Corporation. Mr. Biggs earned a bachelors degree in industrial management from Kent State University.
K. Dane Brooksher was Chairman of the Board of ProLogis, a provider of distribution facilities and services, from 1999 to May 2007 and Chief Executive Officer of ProLogis from 1999 to December 2004. Before
joining ProLogis in 1993, Mr. Brooksher spent more than 32 years with KPMG Peat Marwick (now KPMG LLP). Mr. Brooksher currently serves as a trustee of ProLogis and as a director of Pactiv Corporation and Cass Information Systems, Inc. Mr. Brooksher earned a bachelors degree from the College of William and Mary.
Peter S. Hellman held various management positions with Nordson Corporation from 2000 until his retirement in January 2008, including President from 2004 to January 2008 and Chief Financial and Administrative Officer from 2000 to January 2008. Nordson is a designer, manufacturer and marketer of industrial equipment. Prior to joining Nordson, Mr. Hellman held various positions at TRW Inc., BP America and The Irving Trust Company. Mr. Hellman currently serves as a director of Baxter International Inc. and Owens-Illinois, Inc. Mr. Hellman earned a bachelors degree from Hobart College and an M.B.A. from Case Western Reserve University.
R. David Hoover has held various management positions with Ball Corporation since 1970, including Chairman since 2002, Chief Executive Officer since 2001 and President since 2000. Ball is a provider of metal and plastic packaging, primarily for beverages and foods, and of aerospace and other technologies and services. Mr. Hoover currently serves as a director of Ball, Energizer Holdings, Inc. and Irwin Financial Corporation. Mr. Hoover received a bachelors degree from DePauw University and an M.B.A. from Indiana University and completed the Advanced Management Program of the Harvard University Graduate School of Business.
Patrick J. Martin was Chairman, President and Chief Executive Officer of Storage Technology Corporation from 2000 until his retirement in August 2005. Storage Technology was a designer, manufacturer and marketer of tape drives and automated cartridge libraries, disk arrays and network management and backup software that was acquired by Sun Microsystems, Inc. in August 2005. Prior to joining Storage Technology, Mr. Martin held various management positions with Xerox Corporation. Mr. Martin earned a bachelors degree from Iona College, a masters degree and Ph.D. from George Washington University and a P.M.D. from Harvard University.
Caroline Matthews has served as President of the WellPoint Foundation since September 2006. The WellPoint Foundation is a private, non-profit organization wholly funded by health insurance company, WellPoint, Inc., to administer its social responsibility programs and charitable contributions. Since 1988, Ms. Matthews has held various management positions with WellPoint and its affiliates, including President of Blue Cross and Blue Shield of Georgia from December 2004 to September 2006, President of Anthem Blue Cross and Blue Shields West Region from August 2004 to December 2004 and Chief Operating Officer of Anthem Blue Cross and Blue Shields West Region from 2000 to August 2004. Ms. Matthews received a bachelors degree from Sheffield University in Yorkshire, England and an M.B.A. from Indiana University.
Wayne W. Murdy held various management positions with Newmont Mining Corporation, a worldwide gold producer, from 1992 until his retirement in 2007, including Chairman from 2002 to December 2007 and Chief Executive Officer from 2001 to June 2007. Before joining Newmont Mining, Mr. Murdy spent 15 years serving in senior financial positions in the oil and gas industry, including positions with Apache Corporation and Getty Oil Company. Mr. Murdy earned a bachelors degree from California State University at Long Beach.
Jan L. Murley has served as a consultant to Kohlberg Kravis Roberts & Co., a private equity firm, since November 2006. From October 2003 to July 2006, Ms. Murley was Chief Executive Officer and a director of The Boyds Collection, Ltd., a designer and manufacturer of gifts and collectibles. From 1999 to September 2002, she was Group Vice President Marketing of Hallmark Cards, Inc., a publisher of greeting cards and related gifts. Prior to joining Hallmark, Ms. Murley spent more than 20 years serving in various positions at The Procter & Gamble Company. Ms. Murley currently serves as a director of The Clorox Company and 1-800 Flowers.com. Ms. Murley received her bachelors degree and an M.B.A., both from Northwestern University.
Frank P. Popoff was Chairman of The Dow Chemical Company, which manufactures chemical, plastic and agricultural products, from 1992 until his retirement in 2000. During his career at Dow, Mr. Popoff also served as
Chief Executive Officer. Mr. Popoff currently serves as a director of American Express Company, Shin-Etsu Chemical Co. Ltd. and United Technologies Corporation. Mr. Popoff earned a bachelors degree in chemistry and an M.B.A. from Indiana University.
James A. Unruh has served as Principal of Alerion Capital Group, a merchant banking organization focused on private equity, since 1998. Prior to joining Alerion Capital, Mr. Unruh held various positions with Unisys Corporation and its predecessors, including most recently Chairman, President and Chief Executive Officer. Mr. Unruh currently serves as a director of CSG Systems International, Inc., Prudential Financial, Inc. and Tenet Healthcare Corporation. He earned a bachelors degree from Jamestown College and an M.B.A. from the University of Denver.
Anthony Welters has served as Executive Vice President of UnitedHealth Group since January 2007 and as President of its Public and Senior Markets Group since September 2007. UnitedHealth Group provides health care services and resources. Mr. Welters previously served as President and Chief Executive Officer of AmeriChoice Corporation (a UnitedHealth Group company) from 1989 when he founded the company until December 2006. Mr. Welters currently serves as a director of West Pharmaceutical Services, Inc. and C.R. Bard, Inc. Mr. Welters received a bachelors degree from Manhattanville College and a J.D. from New York University School of Law.
EXECUTIVE OFFICERS AND MANAGEMENT
Below you can find information, including biographical information, about our executive officers (other than Mr. Mueller, whose biographical information appears above).
John W. Richardson has been our Executive Vice President and Chief Financial Officer since April 2007. He previously served as our Controller and Senior Vice President from April 2003 to April 2007. From October 2002 to April 2003, Mr. Richardson was an independent consultant. From 1967 to October 2002, Mr. Richardson held various financial positions at the Goodyear Tire & Rubber Company, a tire manufacturer, including most recently Vice President of Finance for the North American tire business unit. Mr. Richardson currently serves as a director of Ashworth, Inc. Mr. Richardson received his bachelors degree from Ohio University.
Richard N. Baer has been our Executive Vice President, General Counsel and Corporate Secretary since December 2002. Mr. Baer, who joined Qwest in 2001, previously served as our Deputy General Counsel and as Special Legal Counsel to our Chairman and CEO. Prior to joining Qwest, Mr. Baer was chairman of the litigation department at the Denver law firm of Sherman & Howard. Mr. Baer received his bachelors degree from Columbia University and his juris doctor degree from Duke University.
Paula Kruger has served as our Executive Vice President, Mass Markets Group, since September 2003. From 2001 to September 2003, Ms. Kruger served as President of the Customer Relationship Management
service line at Electronic Data Systems Corporation, a technology company. Ms. Kruger currently serves as a director of Technology Solutions Company. Ms. Kruger earned a bachelors degree in economics from C.W. PostLong Island University and an M.B.A. from C.W. PostRoth Graduate School of Business.
Thomas E. Richards has been our Executive Vice President, Business Markets Group, since April 2005. From January 2004 to March 2005, Mr. Richards worked periodically as an independent consultant. From 2000 to December 2003, Mr. Richards was Chairman, President and Chief Executive Officer of Clear Communications, Inc., a supplier of optical and digital network management software. Prior to joining Clear Communications, Mr. Richards held executive positions at Ameritech Corporation and Bell Atlantic Corporation. Mr. Richards received a bachelors degree from the University of Pittsburgh and an M.S. degree in management from the Massachusetts Institute of Technology.
R. William Johnston has served as a Senior Vice President since December 2007 and as our Controller since April 2007 and was designated our Chief Accounting Officer in August 2007. Mr. Johnston served as a Vice President from June 2003 until December 2007 and as our Assistant Controller from June 2003 to April 2007. Mr. Johnston has held various successively more senior finance, accounting and public policy positions with us since 1988. Mr. Johnston holds a bachelors degree in business administration from the University of Nebraska at Omaha.
We use executive compensation practices that we believe allow us to attract, retain, motivate and appropriately reward the talented individuals we need to continue to be a leading provider of voice, data, Internet and video services and to maintain our commitment to the Spirit of Service. The following key principles influenced and guided our executive compensation practices for 2007:
Use of Market and Proxy Data and Benchmarking
We strive to set executive compensation at competitive levels. This involves, among other things, establishing compensation levels that are generally consistent with levels at other companies with which we compete for talent. We refer to these other companies as our peers. To do this, the Compensation Committee relies on market and proxy data collected and analyzed by Mercer and our human resources department. In general, market data comes from published compensation surveys prepared by Mercer and others. These surveys often contain information about a broad range of companies; however, when available, Mercer uses information from these surveys that relates to similarly-sized companies in the telecommunications industry. Proxy data comes from the publicly-available proxy statements of our peers.
The Compensation Committee also benchmarks our executive compensation against our peers. In particular, we benchmark total annual cash compensation (consisting of salary and bonus) and equity awards. Executives are generally benchmarked against individuals who work in similarly-situated positions at our peers. You can find more information about our benchmarking practices for each of these elements of compensation below under the heading Elements of Compensation.
Our human resources department determines the makeup of our peer group and reevaluates the group annually. For setting 2007 compensation, our peer group consisted of 10 companies that are or were in our industry and related industries. Seven of these companies, like us, are or were Fortune 300 companies. Below is a list of our peers for 2007.
Elements of Compensation
Our executive compensation structure for 2007 had four key elements:
Total Annual Cash Compensation
Total annual cash compensation consists of market-competitive salaries and performance-based bonuses. Consistent with the compensation principles discussed above, the Compensation Committee believes that total annual cash compensation for executives should be targeted generally between the 50th and 75th percentiles of our peers depending on experience, complexity and difficulty of position and performance.
The Compensation Committee reviews executive salaries annually and at the time of a promotion or other change in responsibilities. For Mr. Mueller (who was hired as our CEO in August 2007) and Mr. Richardson (who was promoted to CFO in April 2007), the Compensation Committee approved salaries that were below the median as compared to our peers. In setting these salaries, the Compensation Committee took into account the fact that Mr. Mueller was new to Qwest and Mr. Richardson was new to the role of CFO. More importantly though, the Compensation Committee chose these salary levels so that a larger portion of the executives total compensation would be performance based, equity based or long-term in nature.
In February 2007, the Compensation Committee increased Mr. Baers salary by 5%, Ms. Krugers salary by 5% and Mr. Richards salary by 12%. These increases were based on recommendations from our then-current CEO and on a review of market and proxy data. Consistent with our benchmarking objectives discussed above, Mr. Richards and Ms. Krugers total annual cash compensation moved from below the 50th percentile to between the 50th and 65th percentiles as compared to our peers, and Mr. Baers total annual cash compensation moved from approximately the 50th percentile to between the 50th and 65th percentiles as compared to our peers.
From January 2007 until his retirement in August 2007, Mr. Notebaert received an annual salary of $1.1 million, which was the same salary he received every year since he joined Qwest in 2002. The Compensation Committee did not make any changes to Mr. Notebaerts salary in 2007 in part because it believed that any increases to his total compensation should come through other elements of compensation, such as bonus and equity awards. In February 2007, the Compensation Committee increased Mr. Shaffers salary by 4% based on a recommendation from our then-current CEO and on a review of market and proxy data showing that the increase kept Mr. Shaffers total annual cash compensation between the 50th and 65th percentiles compared to our peers.
General. Consistent with our compensation objectives discussed above, our executives participate in our annual cash bonus plans. The 2007 plan was approved in December 2006 and relates to service and performance in 2007, and the 2008 plan was approved in December 2007 and relates to service and performance in 2008. The SEC refers to bonuses under plans like ours as non-equity incentive plan compensation, and we use that term in some of the compensation tables below.
2007 Cash Bonus Plan. Executive bonuses under the 2007 plan were calculated as follows:
Under his employment agreement, Mr. Mueller received a guaranteed bonus for 2007 of $946,849, which was his annual target bonus of $2,400,000 prorated for service in 2007. Mr. Mueller did not receive any additional bonus under our 2007 cash bonus plan. Mr. Mueller negotiated his guaranteed bonus when he was hired. Because we hired Mr. Mueller mid-year, he was not employed when we established the performance targets under the plan and he had less opportunity to influence our 2007 performance. As such, the Compensation Committee thought that, for 2007, some of his compensation that would otherwise be at risk and performance based should be guaranteed instead.
Bonus Target Percentages. The Compensation Committee reviews bonus targets annually and at the time of a promotion or other change in responsibilities. When we hired Mr. Mueller in August 2007, the Compensation Committee approved a bonus target of 200%, which placed him at the median as compared to our peers. When we promoted Mr. Richardson in April 2007, the Compensation Committee increased his bonus target from 90% to 150%, which placed him below the median as compared to our peers. For each of these executives, because his salary was below the median as compared to our peers, his targeted total annual cash compensation was also
below the median. In setting these bonus targets, the Compensation Committee took into account the fact that Mr. Mueller was new to Qwest and that Mr. Richardson was new to the role of CFO. More importantly though, the Compensation Committee chose these targets because they resulted in a larger portion of total compensation being at risk, performance based and longer term in nature.
For 2007, the Compensation Committee did not make any changes to the bonus targets for our other executives. The Compensation Committee believes those targets continue to result in targeted total annual cash compensation consistent with our benchmarking objectives. The Compensation Committee also believes those targets sufficiently increase with position and responsibility. This means that, for higher-level executives, a larger portion of total annual cash compensation and total compensation is at risk and tied to performance.
Corporate Performance Percentages. Corporate performance percentages were determined by comparing managements assessment of actual corporate performance in 2007 to pre-established performance measures and targets. In December 2006, the Compensation Committee approved the measures and weightings to be used under the plan. The Compensation Committee did not make any significant changes to the measures and weightings as compared to those used under the 2006 plan. At that time, the Compensation Committee and management believed the measures and weightings provided an accurate appraisal of our overall annual performance that was consistent with how our performance was viewed both internally and externally. As a result of consultation with certain of our stockholders, our Board and the Compensation Committee have adopted a policy that requires us to exclude as a factor in determining bonus payouts any impact on net income from net pension cost resulting from projected returns or debits on employee pension assets. Net pension cost is defined in our Governance Guidelines and means generally the gain or loss associated with changes in estimated pension costs.
In February 2007, the Compensation Committee approved the specific performance targets to be used under the plan. Our management, including our then-current CEO, recommended the goals for the imperatives measure. Depending on the executive, imperatives may have included, among other things, customer satisfaction, customer retention, productivity and efficiency. The targets for all other measures were derived from our 2007 financial budgets as approved by our Board and were based on recommendations from management, including our then-current CEO. We include below the targets relating to Qwests overall performance in 2007. We do not disclose the confidential targets relating to the 2007 performance of our individual business units. Overall, in determining targets for each of the measures under our annual cash bonus plans, we believe payout at the 80% level should be achievable, payout at the 100% level is challenging and payout at the 150% level is difficult. We paid bonuses under these plans in 6 out of the past 7 years, and the corporate performance percentage in those 6 years ranged from 77% to 125%.
In February 2008, the Compensation Committee reviewed managements assessment of our performance in 2007 as compared to the pre-established targets. For the imperatives measure, assessing performance was subjective, and significant consideration was given to managements recommendations. For the other measures, the Compensation Committee also considered managements recommendations. In certain cases we adjusted the pre-established targets for changes in our business that were not contemplated by the targets, and we adjusted financial performance results for unusual and non-recurring items that were not contemplated by the targets. Based on this review, the Compensation Committee determined that the targets had been achieved at sufficient levels to merit payout and consequently approved the payment of bonuses under the plan.
Below is additional information about how the corporate performance percentages were calculated:
Administrative Support Groups (Messrs. Richardson and Baer): Corporate performance percentage of 100.6% was based on measures relating to Qwests overall performance, calculated as the weighted average of the following measures:
Mass Markets Group (Ms. Kruger): Corporate performance percentage of 99.7% was based partially on Qwests overall performance using the same measures and weightings described above for the Administrative Support Groups and partially on measures relating to the performance of our Mass Markets Group, calculated as the weighted average of the following measures:
Business Markets Group (Mr. Richards): Corporate performance percentage of 85.8% was based partially on Qwests overall performance using the same measures and weightings described above for the Administrative Support Groups and partially on measures relating to the performance of our Business Markets Group, calculated as the weighted average of the following measures:
Individual Performance Percentages. In February 2008, the Compensation Committee reviewed and approved the individual performance percentages for our executives (other than Mr. Mueller). Mr. Mueller recommended these percentages based on his subjective evaluation of the executives overall performance. In recommending an individual performance percentage of 150% for Mr. Baer, Mr. Mueller noted that Mr. Baer was instrumental in resolving several significant legal matters that were pending against us and that, in Mr. Muellers opinion, Mr. Baers efforts amounted to extraordinary performance. With respect to Messrs. Richardson and Richards and Ms. Kruger, Mr. Muellers recommendations were based on his view that these executives had generally performed at a high level. In making his recommendations, Mr. Mueller observed that he had been CEO for only a portion of 2007 and that he had generally evaluated the individual performance of these executives at or near the 100% level.
Former Executives. Neither Mr. Notebaert nor Mr. Shaffer was eligible for a bonus under the 2007 plan. However, Messrs. Notebaert and Shaffer were entitled to severance payments tied in part to their target bonuses for 2007. You can find more information about these payments below under the heading Post-Employment Benefits for Richard C. Notebaert and Oren G. Shaffer.
2008 Cash Bonus Plan. When the Compensation Committee approved the basic structure of the 2008 plan in December 2007, it decided to make several changes to the measures and weightings used under the plan as compared to the 2007 plan. These changes were based on recommendations from management, including our CEO, and include the following changes that affect our executives:
You can find more information about how the 2008 plan works below under the heading Grants of Plan-Based Awards in 2007Non-Equity Incentive Plan Awards.
Consistent with our compensation objectives discussed above, we and our stockholders have adopted an Equity Incentive Plan under which we granted stock options and restricted stock to our executives in 2007. Executives received about half of the value of their equity awards in the form of options and half in the form of restricted stock. For 2007, we believed this split provided the appropriate balance between awards that are entirely at risk and awards that have some inherent value, as discussed more fully above under the heading Compensation Objectives.
Size of Awards
The size of Mr. Muellers awards was negotiated between Mr. Mueller and the Compensation Committee when he was hired. The Compensation Committee believes the awards were an important factor in attracting Mr. Mueller to Qwest.
In determining the total amount of equity to be granted to our other executives, we used a multiple of salary benchmarked against our peers. First, our human resources department used market and proxy data provided by Mercer to determine the ranges of multiples used by our peers. Our human resources department then recommended to the Compensation Committee a multiple within this range based on the executives experience and performance and the complexity and difficulty of his or her position. The following table provides more information about these multiples:
Vesting of Awards
The Compensation Committee believes it is important to tie a larger portion of the total compensation of our CEO and CFO to our longer-term success. The Compensation Committee also believed that all or a significant portion of the initial equity awards for our new CEO and CFO should be entirely at risk for a meaningful amount of time. As such, awards granted in 2007 to our current CEO and CFO contain vesting provisions tied to the market value of our common stock. In addition, unless the awards vest early due to a change in control, death, disability, or a termination for good reason or without cause, these awards cliff vest after 3 or 4 years. This means that, even if the market-based conditions are met earlier, the executives must remain employed by us until the vesting date to receive any benefit. All awards granted to Mr. Mueller, and a significant majority of the awards granted to Mr. Richardson, contain this type of vesting. You can find more specific information about the vesting and other terms of these awards below under the heading Grants of Plan-Based Awards in 2007Equity Incentive Plan Awards. The awards granted to Mr. Notebaert in 2007 contained similar vesting terms; however, Mr. Notebaert forfeited those awards when he retired. Mr. Shaffer did not receive any equity awards in 2007.
For Messrs. Baer and Richards and Ms. Kruger, the Compensation Committee believes it is important to provide equity awards that are tied to our longer-term success but that also provide a more immediate, and less at risk, reward. As such, the awards granted in 2007 to these executives vest ratably over 3 years. (A portion of Mr. Richardsons awards was approved before he was promoted to CFO and therefore also contains 3 year ratable vesting.) In January 2007, the Compensation Committee changed the standard vesting schedule for new service-based awards from 4 year ratable vesting to 3 year ratable vesting. Based on market and proxy data relating to our peers, the Compensation Committee determined that 3 year vesting provides the appropriate balance between retention and fairness.
Under our Equity Incentive Plan, holders of restricted stock have all voting, dividend, liquidation and other rights available to stockholders generally. We believe it is appropriate to provide these rights to holders of unvested restricted stock because it more closely aligns the holders interests with the interests of our stockholders generally.
Retirement and Pension Plans
Executives are entitled to various retirement and pension plan benefits that are consistent with benefits provided by other companies, including our peers. We believe these benefits allow us to remain competitive in attracting and retaining qualified executives. For 2007, these benefits included:
None of our executives participated in our deferred compensation plan in 2007.
Messrs. Notebaert and Shaffer were also entitled to additional pension benefits, including credit for additional years of service. You can find more information about these benefits below under the heading Pension Benefits for 2007. These benefits were provided under employment agreements entered into when we hired Messrs. Notebaert and Shaffer in 2002. We believe these benefits were an important factor in enabling us to attract these former executives to Qwest.
Severance and Change in Control Benefits
Severance and change in control benefits are intended to preserve executive productivity and encourage retention in an actual or potential change in control of the company. We believe the importance of these benefits increases with position and level of responsibility. As such, we provide severance and change in control benefits to all employees at the vice president level or above. We have standard severance agreements for employees at the executive vice president level, including Messrs. Baer and Richards and Ms. Kruger. Our severance agreement with Mr. Richardson is similar to the standard agreement for employees at the executive vice president level, except that it also includes some provisions that relate to his 2007 equity awards with market-based vesting conditions. We believe these benefits are important to achieve our productivity and retention goals described above.
Under his employment agreement, Mr. Mueller is entitled to different severance and change in control benefits. We individually negotiated these benefits with Mr. Mueller when we hired him. In addition to the productivity and retention goals described above, we believe severance and change in control benefits are especially important when we recruit a top-level executive from outside of Qwest, as was the case with Mr. Mueller. We believe these benefits were important factors in enabling us to attract Mr. Mueller to Qwest.
Messrs. Notebaert and Shaffer were also entitled to different and additional severance and change in control benefits under their employment agreements. Messrs. Notebaert and Shaffer individually negotiated some of these benefits when we hired them in 2002 and negotiated additional benefits in 2005. The additional benefits meant that, when Messrs. Notebaert and Shaffer retired in 2007, they received the same severance benefits they would have received if their employment had been terminated by us without cause or by reason of death or disability. We believe the benefits agreed to in 2002 were important factors in enabling us to attract Messrs. Notebaert and Shaffer to Qwest. The benefits agreed to in 2005 were intended to enable us to retain Messrs. Notebaert and Shaffer.
As a result of consultation with certain of our stockholders, our Board and the Compensation Committee have adopted a policy that requires us to seek stockholder approval of all future severance agreements, or changes to existing severance agreements, with executives that provide for cash and non-standard benefits having a combined value of more than 3 times the sum of the executives salary and target bonus. The policy applies to
agreements that provide for the payment of severance as a result of a termination by us without cause or a termination by the executive for good reason. Under the policy, standard benefits include items such as equity-based compensation awarded before termination, payments required by law or under a benefit plan generally available to executives, the value of pro rata bonuses already earned, the value of continued use of corporate office or administrative support and the value of any tax gross-ups. For other benefits, the policy provides that the Compensation Committee is responsible for determining whether those benefits constitute non-standard benefits. We have not been required to take any action under this policy since its adoption in December 2003.
As shown below under the heading Other Potential Post-Employment Compensation, all service-based equity awards granted to our executives receive single-trigger vesting upon a change in control. This means that, upon a change in control of Qwest, outstanding and unvested options and restricted stock automatically become fully vested. Single-trigger vesting is provided for under our Equity Incentive Plan, which has been approved by our stockholders. Among other things, we believe single-trigger vesting encourages retention and continuity of management during a change in control, especially for executives who receive a significant portion of their compensation in the form of equity awards. The market-based vesting condition awards granted to Messrs. Mueller, Richardson and Notebaert in 2007 have or had different change in control vesting provisions, which are described below under the heading Grants of Plan-Based Awards in 2007Equity Incentive Plan Awards.
You can find information about the amounts and types of severance and change in control benefits to which our current executives are entitled below under the heading Other Potential Post-Employment Compensation. You can find information about the severance and other benefits we have provided or will provide to Messrs. Notebaert and Shaffer in connection with their retirement from Qwest below under the heading Post-Employment Benefits for Richard C. Notebaert and Oren G. Shaffer.
Perquisites and Other Benefits
We provide executives with an annual flexible benefit payment, which is a cash payment made at the beginning of each year in lieu of the various perquisites commonly paid to executives at other companies. Although this payment is intended to replace the piecemeal payment of most perquisites, we do not require executives to use the money for any particular purpose and we do not ask executives to report to us the purposes for which the money is used. Consistent with our compensation objectives discussed above, the amount of this payment increases with position and responsibility. We believe that providing executives with the flexible benefits payment instead of paying individual perquisites on a piecemeal basis provides more certainty for us and the executives and is easier to administer. Executives other than Mr. Mueller also receive a reimbursement for taxes to which they may be subject as a result of this payment. We often refer to these types of tax reimbursements as tax gross-ups. We believe this tax gross-up helps us retain and reward our superior executive talent.
Some of our executives are entitled to personal use of our corporate aircraft. Our policy is to limit the use of corporate aircraft for personal purposes. Mr. Muellers employment agreement requires him to use our corporate aircraft for all business and personal travel and allows his family members to travel with him. All use must be reasonable and is subject to review by the Compensation Committee. We believe this benefit provides enhanced security for our senior most executive and his family. Guests of Mr. Mueller may also travel with him on our corporate aircraft; however, Mr. Mueller must reimburse us for related costs under an aircraft time sharing agreement. Until his retirement, Mr. Notebaert (and his wife if she accompanied him) was required to use our corporate aircraft for all business and personal travel. We also provided Mr. Notebaert with a tax gross-up for his and his wifes personal use of corporate aircraft. At the time, we believed the tax gross-up was appropriate because Mr. Notebaert was required to use our corporate aircraft for all of his personal travel. Under our corporate policies, our CEO must approve personal travel on our corporate aircraft by any other executives or employees.
Mr. Mueller receives other perquisites under his employment agreement. First, we will pay for the installation and maintenance of a home security system for Mr. Mueller because we believe it is important for our senior most executive to have enhanced personal security. Second, we have provided or will provide Mr. Mueller with relocation benefits, including (a) reimbursement for expenses relating to travel between his former home in California and Colorado, (b) an allowance of up to $5,000 per month through February 15, 2008,
for temporary housing and living expenses, (c) use of our corporate aircraft by his wife and minor child (unaccompanied by him) to fly between California and Colorado through June 30, 2008, and (d) a tax gross-up on these relocation benefits. We agreed to provide these benefits to Mr. Mueller because we believed they would facilitate and expedite his move to Colorado. Third, we purchased from Mr. Mueller his former home in California at its then-prevailing value. Again, we agreed to provide this benefit to Mr. Mueller because we believed it would facilitate and expedite his move to Colorado. Fourth, we paid Mr. Muellers legal expenses relating to the negotiation of his employment agreement. We believe this benefit helped ensure that Mr. Mueller had competent and independent legal counsel when negotiating with us.
Ms. Kruger is entitled to certain relocation benefits under an agreement entered into in October 2007. We will reimburse Ms. Kruger for moving expenses relating to her move from Texas to Colorado. In addition, if Ms. Kruger does not sell her current home in Texas after marketing it for a minimum of 30 days, we will purchase her home (or arrange for her home to be purchased) at a prevailing market price. We agreed to provide these benefits to Ms. Kruger because we believe they will facilitate and expedite her move to Colorado.
Until his retirement in August 2007, Mr. Notebaert received perquisites such as a business club membership, financial planning, a personal executive assistant and private office equipment. Mr. Notebaert also received a tax gross-up on each of these perquisites. Mr. Notebaert individually negotiated these additional perquisites when we hired him in 2002, and we believe these benefits were important factors in enabling us to attract Mr. Notebaert to Qwest. In addition, we believe benefits such as financial planning and an executive assistant gave Mr. Notebaert more time to focus on our business.
Executives are entitled to reimbursement for the cost of an annual health physical. It is important to our business that our senior most executives remain in good health. In addition, executives are entitled to various benefits that are available to employees generally, including:
The Compensation Committee believes the perquisites and other benefits provided to executives are generally competitive with the benefit packages offered by our peers. From time to time, we obtain and review market data to confirm that these benefit programs remain competitive.
Our Board has adopted a policy whereby, in the event of a substantial restatement of previously issued financial statements, our Board will review all performance-based compensation awarded to executives that is attributable to performance during the time periods restated. Our Board will determine whether the restated results would have resulted in the same performance-based compensation for the executives. If not, the Board will consider:
If our Board then deems that an executive was improperly compensated as the result of the restatement and that it is in our best interests to recover the performance-based compensation paid to that executive, our Board will pursue all reasonable legal remedies to recover that performance-based compensation. We have not been required to take any action under this policy since its adoption in January 2005.
Equity Award Practices
The Compensation Committee observes a practice of granting equity awards only on a grant date that occurs in the first quarter of each year following the release of the prior years earnings results or in connection with certain management events, such as the hiring or promotion of an executive, a need to retain an executive, or the achievement by an executive of extraordinary personal performance objectives. In addition, in January 2007 the Compensation Committee adopted a policy that, except as the Compensation Committee otherwise determines at the time of grant, the grant date for each annual equity award to employees (including executives) will be March 5th or the first trading day thereafter if March 5 th is not a trading day on the NYSE.
All options granted to our executives since the beginning of 2007 have an exercise price equal to the closing market price of our common stock on the grant date. Each equity award granted since the beginning of 2007 to our executives has or had a grant date that was on or after the date on which the Compensation Committee approved the awards. The Compensation Committee may or may not possess material nonpublic information when it approves awards. However, the Compensation Committee consistently acts only at a particular time of the year or in connection with certain management events and does not try to achieve more advantageous grant dates or exercise prices in connection with the timing of the release of material nonpublic information.
You can find more information about the grant and approval dates for all equity awards granted in 2007 to our executives below under the heading Grants of Plan-Based Awards in 2007.
Policies Relating to Equity Ownership
While we do not have a formal policy relating to executives stock retention, executives are encouraged to own Qwest stock, whether obtained through equity awards or otherwise.
Our executives are subject to various trading restrictions and requirements under our insider trading policy. Among other things, executives may not engage in short sales of Qwest stock, may not sell or buy options on Qwest stock and may not sell or buy Qwest stock through puts, calls or similar instruments. Executives are not prohibited from pledging Qwest stock (as collateral for a loan or otherwise), but must comply with any trading restrictions that apply generally to transactions in Qwest stock.
Tax Deductibility of Compensation
The Compensation Committee has carefully considered Section 162(m) of the Internal Revenue Code and believes our compensation practices strongly tie executive compensation to performance. The Compensation Committee believes it is in the best interests of us and our stockholders to comply with the tax law while still preserving the flexibility to reward executives consistent with our compensation philosophy as discussed above. The Compensation Committee is obligated to our stockholders to recognize and reward performance that increases the value of Qwest. On occasion, it may not be possible to satisfy all of the conditions of Section 162(m) for deductibility and still meet our compensation needs. Accordingly, the Compensation Committee will exercise discretion in those instances where tax law considerations would compromise the interests of stockholders.
Other Tax- and Accounting-Related Matters
During 2007, management and the Compensation Committee continued to monitor regulatory developments relating to Section 409A of the Internal Revenue Code, which imposes limitations and conditions on non-qualified deferred compensation plans and arrangements. We have amended several of our compensation arrangements to address these new rules and will make additional changes during 2008 as necessary to fully comply with Section 409A and regulatory guidance issued thereunder.
We provide executives other than Mr. Mueller a tax gross-up on the amount of their annual flexible benefit payment. We provide Mr. Mueller, and provided Mr. Notebaert, a tax gross-up on certain other perquisites. You can find more information about these payments above under the heading Elements of Compensation Perquisites and Other Benefits.
Summary Compensation Table
The following table summarizes the compensation of our current CEO, CFO and next 3 most highly compensated executive officers, as well as our former CEO and CFO, for the years shown. We refer to these 7 people as our named executive officers. Below the notes to the table, you will find more information about the 2007 amounts reported in each column.
Messrs. Notebaert and Shaffer forfeited the following unvested stock and option awards during 2007:
We granted these awards to Mr. Notebaert in 2007 and 2006 and to Mr. Shaffer in 2006.
Stock Awards and Option Awards
The restricted stock and option awards granted to Mr. Mueller in 2007 and a portion of the restricted stock and option awards granted to Mr. Richardson in 2007 include vesting provisions tied to the market value of our common stock. As such, we do not believe our standard valuation models accurately estimate the fair value of these awards. We valued these awards using Monte-Carlo simulations using the following assumptions:
We believe the most significant assumption used in our estimate of fair value is the expected volatility, which we estimate based on historical information.
The restricted stock and option awards granted to Messrs. Baer and Richards and Ms. Kruger in 2007 and a portion of the restricted stock and option awards granted to Mr. Richardson in 2007 vest ratably over 3 years. For these restricted stock awards, we used the closing price of our common stock on the date of grant ($8.52) as the fair value of the award. For these option awards, we used the Black-Scholes model using the following assumptions:
Two of the more significant assumptions used to determine these amounts are the expected option life and the expected volatility, both of which we estimated based on historical information.
Mr. Notebaert forfeited all of the restricted stock and option awards he received in 2007 upon his retirement. When granted, we valued these awards using the same simulations and assumptions described above for Mr. Richardsons awards. Mr. Shaffer did not receive any restricted stock or option awards in 2007.
Bonus to Mr. Mueller
This amount represents Mr. Muellers guaranteed cash bonus for 2007 under his employment agreement.
Non-Equity Incentive Plan Compensation
You can find information about how these amounts were calculated above under the heading Compensation Discussion and AnalysisElements of CompensationTotal Annual Cash CompensationBonus.
Changes in Pension Value
The changes in pension value for 2007 represent the aggregate increase in actuarial value to the executive of pension benefits accrued during 2007 based on the December 31st measurement date used for financial statement reporting purposes. You can find a discussion of the assumptions we used to calculate these amounts below under the heading Pension Benefits for 2007.
All Other Compensation
The table below provides a breakdown of all other compensation for 2007 for each of our executives:
Flexible Benefit Payment
You can find more information about these payments above under the heading Compensation Discussion and AnalysisElements of CompensationPerquisites and Other Benefits.
Corporate Aircraft Usage
Amounts in the table represent the aggregate incremental cost to us for the executives personal use of corporate aircraft. To determine this amount, we first calculate the annual variable operating costs of flying our corporate aircraft. These costs include fuel, oil, regularly scheduled maintenance (including major engine and airframe overhaul), travel expenses for flight crew, catering, landing fees, en route storage and hangar fees, customs and foreign permit charges. We then divide annual variable operating costs by the total annual hours we flew the aircraft to determine an average variable operating cost per hour. This average cost per hour is then multiplied by the hours flown for personal use, including hours attributable to any applicable deadhead or other positioning flights. Finally, we subtract any amount the executive paid to us under an aircraft time sharing agreement. Incremental cost does not include fixed costs or any income tax deduction that may be foregone by us as a result of IRS limits on the deductibility of expenses associated with personal use of corporate aircraft. On occasion, an executives spouse, other family members or guests may also travel on a flight. If the family member or guest is flying with the executive, we do not allocate any incremental cost to the executive for the family members or guests use.
For Mr. Mueller, this amount includes payments for: legal fees relating to the negotiation of his employment agreement of $39,312; moving and temporary housing expenses of $29,015; and other perquisites of $5,416 (including the cost of an annual health physical and expenses relating to a home security system). The amount also includes the incremental cost to us of our purchase of Mr. Muellers former house in California. We purchased the house in September 2007 for $8,900,000 (including closing costs), which was its then-prevailing value as determined by the average of two independent appraisals. We sold the house in December 2007 for proceeds of $7,112,606 (net of closing costs and commissions). We paid an additional $43,644 to maintain the house while we owned it, resulting in a total incremental cost to us of $1,831,038.
For Mr. Richardson, this amount represents legal fees relating to the negotiation of his compensation-related agreements.
For Ms. Kruger, this amount represents the cost of an annual health physical.
For Mr. Notebaert, this amount includes payments for the following expenses incurred while he was employed by us: financial and tax consulting services of $32,554; personal assistant and related office expenses of $38,136; and
other perquisites of $8,426 (including a business club membership, personal ground transportation, an annual health physical and spousal attendance at company-sponsored events). This amount also includes $57,490 for expenses incurred after his retirement, including financial consulting, a personal assistant, computer and office equipment and other office expenses.
For Mr. Shaffer, this amount represents expenses incurred after his retirement, including a private office, computer and office equipment and related office supplies.
You can find more information about the continuing perquisites to which Messrs. Notebaert and Shaffer are entitled below under the heading Post-Employment Benefits for Richard C. Notebaert and Oren G. Shaffer.
Severance and Other Post-Employment Compensation
For Mr. Notebaert, this amount includes severance of $7,968,219 and a payment of $64,874 for accrued vacation time and other time off with pay. For Mr. Shaffer, this amount includes severance of $4,606,375 and a payment of $28,841 for accrued vacation time and other time off with pay. You can find more information about the severance payments below under the heading Post-Employment Benefits for Richard C. Notebaert and Oren G. Shaffer.
Grants of Plan-Based Awards in 2007
The table below provides information about plan-based awards we granted to our executives in 2007. Below the table and related footnotes you can find additional details about each of these awards.
Non-Equity Incentive Plan Awards
The Compensation Committee approved the basic structure of our 2008 cash bonus plan in December 2007 and approved the specific performance targets to be used under the plan in February 2008. Bonuses, if any, will be paid in the first quarter of 2009. To be eligible for a bonus, an executive must be employed by us through the date that is 2 weeks prior to the bonus payment date. Bonuses are calculated as follows:
Bonus target percentages are set by the Compensation Committee and are: 200% for Mr. Mueller; 150% for Messrs. Richardson and Baer; and 100% for Ms. Kruger and Mr. Richards.
Corporate performance percentages range from 0% to 150% and are calculated using a combination of measures depending on the department in which the executive works. For all executives, corporate performance is based 60% on our overall performance and 40% on the performance of one or more of our business units, as detailed in the tables below:
Depending on the executive, imperatives may include, among other things: customer satisfaction; customer retention; productivity; and efficiency. For each measure described above, the Compensation Committee has approved a range of targets that correspond to a payout range of 0% to 150%. The targets are stated in qualitative terms for the imperatives measure (for example: excellent; good; okay; and poor) and in quantitative terms for all other measures.
We made the following assumptions in determining the estimated payout amounts shown in the table above:
In addition, the estimated future payout amounts are based on expected 2008 salaries taking into account any salary increases that have already occurred in 2008 and assuming salaries remain at their current levels for the remainder of 2008. Current executive salaries are: $1,200,000 for Mr. Mueller; $525,000 for Mr. Richardson; $635,000 for Mr. Baer; $510,000 for Ms. Kruger; and $495,000 for Mr. Richards.
Equity Incentive Plan Awards
Messrs. Mueller and Richardson each received restricted stock and non-qualified stock options with market-based vesting conditions in 2007. Under SEC rules, these types of awards are referred to as equity incentive plan awards. The following table provides additional details about these awards:
Mr. Notebaert also received restricted stock and non-qualified stock options with market-based vesting conditions in 2007. The vesting and other terms of Mr. Notebaerts awards were similar to those of Mr. Richardsons awards. Mr. Notebaert forfeited these awards when he retired from Qwest.
Holders of restricted stock are entitled to dividends at the same rate as holders of unrestricted shares of our common stock.
Other Stock Awards and Other Option Awards
Messrs. Richardson, Baer and Richards and Ms. Kruger each received restricted stock and non-qualified stock options with service-based vesting in 2007. These awards vest in 3 equal annual installments beginning on March 5, 2008. Holders of shares of restricted stock are entitled to dividends at the same rate as holders of unrestricted shares of our common stock.
Upon a change in control, all unvested restricted stock and options held by our executives will vest immediately, and the exercise period for options will be extended to cover the life of the option. Under our Equity Incentive Plan, a change in control means generally:
Outstanding Equity Awards at the End of 2007
The following table provides information about equity awards outstanding to our executives on December 31, 2007:
Option Exercises and Stock Vested in 2007
The following table provides information for our executives about options that were exercised and restricted stock that vested during 2007:
Pension Benefits for 2007
Our executives participate in the Qwest Pension Plan and the Qwest Nonqualified Pension Plan. The Qwest Pension Plan is a qualified defined benefit pension plan intended to provide retirement income. We pay the entire cost of the Qwest Pension Plan and do not require employees (including executives) to contribute to the plan. Benefits for our executives under the Qwest Pension Plan are determined in accordance with the plans account balance formula. Under that formula, an amount equal to 3% of each executives eligible pay (generally defined as the executives salary and bonus) is credited to a hypothetical account balance. At the end of each year, the hypothetical account balance is also credited with interest based on the average 30-year U.S. Treasury bond rate. When the executive terminates employment for any reason, the amount in the hypothetical account balance under the Qwest Pension Plan is converted to an annuity payable for the executives life, and the executive may choose an annuity or single lump sum payment. The account balance formula does not provide any early retirement subsidies, as a participants benefit is measured solely by the value of the hypothetical account balance at any point in time. The Qwest Pension Plan is subject to applicable tax and employee benefit regulations that limit the amount of compensation that may be used in calculating benefits and that limit the amount of benefits payable from the plan.
The Qwest Nonqualified Pension Plan is an unfunded, nonqualified defined benefit pension plan that is designed to pay retirement benefits for all employees whose pay exceeds the limits imposed by applicable tax
and employee benefit regulations on the Qwest Pension Plan. Like the Qwest Pension Plan, benefits for our executives under the Qwest Nonqualified Pension Plan are determined in accordance with the plans account balance formula, which provides that an amount equal to 3% of each executives eligible pay (generally defined as the executives salary and bonus not taken into account under the Qwest Pension Plan due to the regulatory limits described above) is credited to a hypothetical account balance. At the end of each year, the hypothetical account balance is also credited with interest based on the average 30-year U.S. Treasury bond rate. The amount of the nonqualified account balance is increased by 35% upon payment as a lump sum. The benefit under the Qwest Nonqualified Pension Plan is generally payable at termination of employment for any reason as a lump sum, subject to timing restrictions that may apply under Section 409A of the Internal Revenue Code.
Under their employment agreements, Messrs. Notebaert and Shaffer received additional pension benefits when they retired from Qwest. These additional benefits were calculated using the pension formula in place when they left their previous employer, SBC Communications Inc., using service at Qwest and at the previous employer, reduced by (1) all other pension benefits provided by Qwest and (2) the value of benefits already received due to service with the previous employer. Mr. Notebaerts benefits were paid on March 1, 2008, and Mr. Shaffers benefits were paid on January 2, 2008.
The following table sets forth the present value of accrued pension plan benefits for each of our named executive officers as of the end of 2007:
Benefits for our current and former executives under the Qwest Pension Plan and Qwest Nonqualified Pension Plan are determined under the account balance formula of these plans. The present value of accumulated benefit for each current and former executive under each of these plans is the same as the account balance under the plan for the executive as of December 31, 2007.
Benefits for each of our former executives under his employment agreement were calculated according to the terms of the agreement based on age, years of service and pay through his retirement date offset by other pension payments from Qwest plans and pension payments from previous employers. The present value of the accumulated benefit as of December 31, 2007, for each former executive under his employment agreement equals the benefit that was paid to him based on his retirement date.
All assumptions used to calculate the amounts in the table are consistent with our actuarial valuations of each plan or agreement under Financial Accounting Standards Board Statement No. 87, Employers Accounting for Pensions, or FAS 87.
Other Potential Post-Employment Payments
You can find information about the severance and other payments we made or will make to Messrs. Notebaert and Shaffer in connection with their retirements below under the heading Post-Employment Benefits for Richard C. Notebaert and Oren G. Shaffer.
The tables below describe generally and quantify the potential post-employment payments we could be required to make to our current executives upon the occurrence of specified trigger events. For Mr. Mueller, these benefits are provided under employment and equity award agreements between us and him. For Messrs. Richardson, Baer and Richards and Ms. Kruger, these benefits are provided under severance and equity award agreements between us and the executives. In addition to the potential payments described below, our executives are entitled to the pension benefits described above under the heading Pension Benefits for 2007.
In preparing the tables below, we assumed that:
The tables do not include the value of any corporate tax deduction that we could lose if any post-termination payments are deemed excess parachute payments.
Unless otherwise noted, the potential payments described below would be paid by us as a lump sum. Payments for continued health care coverage under COBRA would be paid over the periods shown. Amounts relating to accelerated vesting of unvested equity awards represent the intrinsic value of the awards on December 31, 2007, and do not represent a cash payment we would be required to make. As described below, under certain circumstances these executives would be entitled to exercise their vested options for a specified period of time after their employment ends, subject to the general requirement that any time extension for exercise is not viewed as deferral of compensation under Section 409A of the Internal Revenue Code.
If any benefit under the severance agreements with these executives constitutes deferred compensation under Section 409A of the Internal Revenue Code, additional conditions will apply, including a 6-month delay on payment. To receive any payments, the executive must execute a full waiver and release that requires the executive to pay back any severance received if it is determined that the executive engaged in conduct constituting cause while employed by us.
When we use the term cause in the tables below, we mean generally:
When we use the term good reason in the tables below, we mean generally:
In accordance with SEC rules, these tables do not include benefits that are payable under compensation arrangements that are available to salaried employees generally and that do not discriminate in favor of executives.
Edward A. Mueller
Mr. Mueller has agreed that for 2 years after his employment ends, he will not directly or indirectly:
We do not believe there are any material limitations on our ability to enforce these prohibitions if necessary.
When we use the term change in control in the table below, we mean generally:
John W. Richardson, Richard N. Baer, Paula Kruger and Thomas E. Richards
After his or her employment ends, each of Messrs. Richardson, Baer and Richards and Ms. Kruger is prohibited from disclosing or using our confidential information, from competing against us for 18 months, or from inducing any of our employees to leave our employment for 12 months. We do not believe there are any material limitations on our ability to enforce these prohibitions if necessary.
When we use the term change in control in the tables below, we mean a change in control meeting the definition in our Equity Incentive Plan, which is described above under the heading Grants of Plan-Based Awards in 2007Other Stock Awards and Other Option Awards.
John W. Richardson
Richard N. Baer
Thomas E. Richards
Post-Employment Benefits for Richard C. Notebaert and Oren G. Shaffer
The table below shows the benefits that Messrs. Notebaert and Shaffer received or will receive under their employment agreements in connection with their retirement. In addition, these former executives were entitled to pension benefits as described above under the heading Pension Benefits for 2007.
Messrs. Notebaert and Shaffer are also entitled to lifetime health benefits from their previous employer. If this previous employer terminates these benefits without their consent, we will provide them with lifetime health benefits under our coverage for executives generally, as that coverage is in effect from time to time. We estimate this benefit would have had a value of $215,000 for Mr. Notebaert and $145,000 for Mr. Shaffer as of December 31, 2007. These amounts are determined using the assumptions used in the actuarial valuation of our post-retirement welfare plan as of December 31, 2007, to determine the present value of future benefits as of age 65 and then discounting that value to December 31, 2007, assuming benefits will be provided in all future years until death.
Each of Messrs. Notebaert and Shaffer has agreed that for 2 years after his retirement, he will not directly or indirectly:
We do not believe there are any material limitations on our ability to enforce these prohibitions if necessary.
In accordance with SEC rules, this table does not include benefits that are or were payable under compensation arrangements that are available to salaried employees generally and that do not discriminate in favor of executives.