Superior Essex DEF 14A 2007
Pursuant to Section 14(a) of
March 23, 2007
Dear Superior Essex Shareowner:
It is my pleasure to invite you to the 2007 Annual Meeting of Shareowners of Superior Essex Inc. This years meeting will be held at Cobb Galleria Centre, Two Galleria Parkway, Suite 120, Atlanta, Georgia, on May 3, 2007 at 1:00 p.m., Eastern Time.
At this meeting, we will ask you to re-elect three directors and authorize amendments to our incentive plan. We will also review our progress during the past year and answer your questions. Enclosed is the notice of annual meeting and proxy statement, describing the business we will conduct at the annual meeting. The proxy statement and the Companys 2006 Annual Report on Form 10-K provide information you should consider when you vote your shares.
Your vote is important. Whether or not you plan to attend the meeting, I hope you will vote as soon as possible.
Thank you for your ongoing support of and continued interest in Superior Essex.
Why am I receiving these materials?
The board of directors of Superior Essex Inc. (referred to throughout this proxy statement as Superior Essex, the Company, we, us or our) is providing these materials to you and the Companys other shareowners on or about March 23, 2007 in connection with our annual meeting of shareowners (the annual meeting or the meeting), which will take place on May 3, 2007. You are cordially invited to attend the meeting and are requested to vote on the proposals described in this proxy statement. Securities and Exchange Commission (SEC) regulations require us to provide this proxy statement when we ask you to sign a proxy card appointing proxies to vote on your behalf.
What proposals will be voted on at the meeting?
There are two proposals that will be voted on at the meeting:
· A proposal to re-elect three directors to serve until the annual meeting of shareowners in 2010; and
· A proposal to authorize amendments to the Superior Essex Inc. 2005 Incentive Plan (the 2005 Incentive Plan or the Plan, but as amended, the Amended 2005 Incentive Plan).
What are the Boards recommendations?
The board of directors recommends a vote FOR both of these proposals.
Who is entitled to attend the meeting and vote?
All shareowners as of the close of business on March 12, 2007, which we refer to as the record date, are entitled to notice of and to vote in person or by proxy at the meeting. On the record date, we had approximately 20,392,777 shares of common stock issued and outstanding, each of which is entitled to one vote on each proposal to be voted on at the meeting.
What constitutes a quorum for purposes of the meeting?
The presence at the meeting in person or by proxy of the holders of a majority of the voting power of all outstanding shares of common stock of the Company entitled to vote constitutes a quorum for the transaction of business. Proxies marked ABSTAIN (including proxies containing broker non-votes) on any matter to be acted upon by shareowners or marked as WITHHELD for the election of directors will be treated as present at the meeting for purposes of determining a quorum.
How many votes are needed to approve each proposal?
Election of Directors. Under the law of the state of Delaware, the state in which the Company is incorporated, the election of directors requires the affirmative vote of a plurality of the votes of shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. In an uncontested election of directors such as we anticipate for the annual meeting, this could result in the election of a nominee who receives more WITHHELD votes than FOR votes. Accordingly, we have adopted a majority voting policy as part of our governance principles. Under this policy, if any nominee receives more WITHHELD votes than FOR votes, the nominee is required to promptly submit his or her resignation. The board will act to accept or reject that resignation within 90 days following certification of the shareowner vote and announce its decision.
Approval of Amendments to the 2005 Incentive Plan. The proposal to amend and restate the 2005 Incentive Plan requires the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on this proposal.
What shares may I vote?
You may vote all shares you owned as of the record date. These include (a) shares owned directly in your name as shareowner of record, and (b) shares held for you as the beneficial owner through a stockbroker, bank or other nominee.
How do I vote my shares at the meeting?
If you are a record shareowner of common stock (that is, if you hold common stock in your own name in the Companys stock records maintained by our transfer agent, American Stock Transfer & Trust Company), you may complete and sign the accompanying proxy card and return it in the enclosed envelope. You may also attend the meeting and vote in person.
Street name or beneficial shareowners of common stock (that is, shareowners who hold common stock through a broker, bank or other nominee) who wish to vote at the meeting will need to obtain a voting instruction form from the institution that holds their shares and to follow the voting instructions on that form. You will not be able to vote in person at the meeting unless you have obtained a signed proxy from the shareowner of record (your broker, bank or other nominee) giving you the right to vote these shares.
What effect does an abstention, withheld vote or broker non-vote have?
A properly executed proxy marked ABSTAIN with respect to any matter or marked WITHHELD with respect to the election of directors will not be voted, although it will be counted for purposes of determining whether there is a quorum. If there are more WITHHELD votes than votes FOR a nominee for election as a director, that director is required by our corporate governance principles to submit his or her resignation for action as explained above. An abstention on the Amended 2005 Incentive Plan proposal will have the effect of a negative vote.
If you are a beneficial owner and you do not instruct your broker, bank or other nominee how to vote, the broker, bank or other nominee has discretion to vote on routine matters, such as the uncontested election of directors. Your broker, bank or nominee does not have discretion to vote on non-routine matters, such as the Amended 2005 Incentive Plan proposal. If your broker votes your shares on some, but not all, of the proposals, there will be broker non-votes with respect to any proposal on which the shares held by the broker are not voted. Broker non-votes will have no effect on the election of directors or the Amended 2005 Incentive Plan proposal.
What if I do not indicate my vote for one or more of the matters on my proxy card?
If you return a signed proxy card without indicating your vote, your shares will be voted:
· for the election of the three director nominees; and
· for the amendments to the 2005 Incentive Plan.
Can I change my vote?
You may change your proxy instructions at any time prior to the vote at the annual meeting. For shares held directly in your name, you may accomplish this by granting a new proxy bearing a later date (which automatically revokes the earlier proxy) or by attending the meeting and voting in person. Attending the meeting will not cause your previously granted proxy to be revoked unless you specifically so request. For shares you beneficially own or hold in street name, you may accomplish this by submitting new voting instructions to your broker, bank or other nominee.
What does it mean if I receive more than one proxy card?
It means your shares are registered differently or are in more than one account. Please provide voting instructions for all proxy and voting instruction cards you receive.
Who will count the votes?
Mary Love Sullenberger, our Assistant General Counsel, will tabulate the votes and act as inspector of elections.
Is my vote confidential?
Proxy instructions, ballots and voting tabulations that identify individual shareowners are handled in a manner that protects your voting privacy. Your vote will not be disclosed either within Superior Essex or to third parties except (1) as necessary to meet applicable legal requirements, (2) to allow for the tabulation of votes and certification of the vote or (3) to facilitate a successful proxy solicitation by our board of directors. Occasionally, shareowners provide comments on their proxy card, which are then forwarded to Superior Essex management.
Where can I find the voting results of the meeting?
We will announce the preliminary voting results at the meeting and publish final results in our quarterly report on Form 10-Q for our second fiscal quarter of 2007.
What happens if additional proposals are presented at the meeting?
Other than the two proposals described in this proxy statement, we do not expect any matters to be presented for a vote at the meeting. If you grant a proxy, the people named as proxy holder, Stephen M. Carter, our Chief Executive Officer, David S. Aldridge, our Chief Financial Officer, Executive Vice President and Treasurer, and Barbara L. Blackford, our Executive Vice President, General Counsel and Secretary, will have the discretion to vote your shares on any additional matters properly presented for a vote at the meeting. If for any unforeseen reason any of our nominees is not available as a candidate for director, the people named as proxy holders will vote your proxy for such other candidate or candidates as may be nominated by our board of directors.
Do I have cumulative voting rights or dissenters rights of appraisal?
No, you do not have the right to vote cumulatively in the election of directors and, under Delaware law, you do not have dissenters rights of appraisal in connection with the matters to be voted upon at the meeting.
Who will bear the costs of soliciting votes for the meeting?
We are making the solicitation and will pay the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials. In addition to mailing and distributing these proxy materials, the solicitation of proxies or votes may be made in person, by telephone or by electronic communications by our directors, officers and employees, who will not receive any additional compensation for such solicitation activities. We have engaged Georgeson Inc. to assist us in the solicitation of proxies. We expect to pay Georgeson approximately $12,000 for these services plus expenses. In addition, we will reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to shareowners.
May I propose actions for consideration at next years annual meeting of shareowners or nominate individuals to serve as directors?
You may submit proposals for consideration at future shareowners meetings, including director nominations. For business to be considered at next years annual meeting, you must submit timely notice in
writing to Barbara L. Blackford, Corporate Secretary, 150 Interstate North Parkway, Atlanta, GA 30339. For shareowner proposals you wish to have included in the Companys proxy statement for next years meeting, written notice must be received by our Secretary by the close of business on November 24, 2007. Such proposals will need to comply with SEC regulations regarding the inclusion of shareowner proposals in company-sponsored proxy materials.
In order for a shareowner proposal which is not included in the proxy statement to be raised from the floor during next years annual meeting, our by-laws require that written notice must be received by us on or between January 4, 2008 and February 3, 2008. Our by-laws do not require us to include such proposals in our proxy statement for next years meeting. Our by-laws, which include the specific requirements that must be included in any notice of business to be brought before the next annual meeting, may be accessed on our website, www.superioressex.com, or may be obtained from our Secretary upon request.
Similar deadlines and information requirements apply to shareholder nominations of directors and are explained in detail on page 8.
We believe sound governance principles are essential to maintaining the confidence of investors. We also believe sound governance principles are vital in securing the trust of other key stakeholders and interested partiesincluding customers, employees, recruits, suppliers, vendors, government officials and the communities in which we do business. Our corporate governance policies establish a framework for the proper operation of our Company, consistent with our shareowners best interests and the requirements of law.
We are committed to rigorously and diligently exercising our oversight responsibilities throughout the Company, managing our affairs consistently with the highest principles of business ethics and meeting or exceeding the corporate governance requirements of both federal law and the Nasdaq Stock Market (Nasdaq). The steps we have taken to fulfill this commitment include:
· Our board has adopted clear corporate governance principles;
· The charters of our standing board committeesthe audit committee, the governance and nominating committee and the compensation committeeclearly establish their respective roles and responsibilities;
· A significant majority (2¤3rds) of our board members are required to be independent of the Company and its managementwith standards for independence that are more stringent than Nasdaq requirements;
· We have an independent board chair;
· All members of our board committees are independent;
· The non-employee directors meet regularly without the presence of management, and, at least twice a year, the independent directors meet without the presence of management or the directors who are not independent;
· Our board has established an annual self-evaluation process;
· We have adopted a Code of Ethics and our compliance officer oversees our compliance program and reports on the program to our governance and nominating committee;
· We have a hotline available to employees and others to report potential issues and, to the extent permitted by local law, our audit committee has procedures in place for anonymous reporting of accounting, internal controls or auditing matters;
· We have adopted a policy to provide shareowners a vehicle to communicate directly with our board;
· We have adopted a process for evaluating director nominees;
· We have adopted a majority voting policy for uncontested elections of directors; and
· Our internal control function maintains a key role in overseeing our business and financial processes and controls and has direct access to and oversight from our audit committee.
Our commitment to sound corporate governance policies and practices is embodied in our governance principles, our committee charters and our Code of Ethics, which may be accessed on our website, www.superioressex.com.
Pursuant to our governance principles, the board of directors annually considers whether a director or nominee has any relationship which, in the opinion of the board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The board of directors has determined that each of our directors other than Messrs. Carter and Gounot meets the standards of independence under our governance principles and applicable Nasdaq listing standards.
We are committed to the principle that directors should serve only if they receive the vote of a majority of the shares voted in an uncontested election. To implement this principle, we have adopted a majority voting policy.
In an uncontested election, any nominee for director who receives a greater number of votes WITHHELD than votes FOR (a Majority Withheld Vote) is required to promptly tender his or her resignation following certification of the shareowner vote. The governance and nominating committee of the board of directors will consider the resignation offer and recommend to the board the action to be taken with respect to such offered resignation, which may include (i) accepting the resignation, (ii) rejecting the resignation but addressing, or committing to address, what the governance and nominating committee believes to be the underlying cause of the Majority Withheld Vote, (iii) resolving that the director will not be re-nominated in the future or (iv) rejecting the resignation. In reaching its decision, the governance and nominating committee will consider all factors its members deem relevant, including (i) any publicly stated reasons why shareowners withheld votes from this director, (ii) any alternatives for curing the underlying cause of the Majority Withheld Vote, (iii) the directors tenure, (iv) the directors qualifications, (v) the directors past and expected future contributions to the Company and (vi) the overall composition of the board, including whether accepting the resignation would cause the Company to fail to meet any applicable SEC requirements or listing standards.
The board will act on the governance and nominating committees recommendation within 90 days following certification of the shareowner vote. Thereafter, the board will promptly disclose its decision whether to accept the directors resignation offer and the reasons for rejecting the resignation offer, if applicable, in a press release and in an appropriate filing with the SEC.
Any director who tenders his or her resignation shall not participate in the governance and nominating committees deliberations or recommendation or in the board deliberations or action regarding the directors resignation offer. If a majority of the members of the governance and nominating committee received a Majority Withheld Vote at the same election, then the independent directors who
did not receive a Majority Withheld Vote (the Disinterested Directors) will appoint a special committee amongst themselves to consider the resignation offers and to recommend to the remaining Disinterested Directors whether to accept those offers.
Superior Essex is managed under the direction of our board of directors. The board is elected by shareowners to objectively oversee management, to assure the long-term interests of the shareowners are being served and to set a tone at the top that is designed to promote corporate accountability.
Monte R. Haymon currently serves as independent chair of the board, a position elected by the members of the board of directors. Key responsibilities of the chair include:
· chairing meetings of the shareowners;
· chairing meetings of the board of directors;
· chairing sessions of the independent directors;
· establishing an agenda for each board of directors meeting after considering the recommendations of management and input from other members of the board of directors;
· overseeing processes for providing members of the board of directors with information about the condition of the Company, its businesses and the environment in which it operates; and
· facilitating and encouraging constructive and useful communication between management and the board of directors.
Mr. Haymon also serves as chair of our governance and nominating committee. In such capacity, he oversees the review, administration and monitoring of our corporate governance principles.
During 2006, there were nine meetings of the board of directors (including regularly scheduled and special meetings). All incumbent directors attended at least 75% of the aggregate of the total number of meetings of the board and the board committees on which they served.
Executive sessions of non-management directors are held incident to regular board meetings, and, consistent with Nasdaqs listing standards, at least twice a year the independent directors meet without the presence of management or the directors who are not considered independent.
As a general matter, members of the board of directors are expected to attend the Companys annual meetings. All directors attended the Companys 2006 annual meeting.
Our board has three standing committees: the audit, compensation and governance and nominating committees. Each committee operates under a written charter adopted by our board. These charters are available on our website at www.superioressex.com. The membership of these committees and their function are described below. The committee charters require all members to be independent under our governance principles and applicable laws and listing standards. Our board has determined that all of the members of the committees are independent and meet these standards.
The table below provides membership for each of our committees as of December 31, 2006:
(1) Effective October 6, 2006
Audit Committee. The audit committee, which held six meetings during fiscal year 2006, is appointed by the board to oversee our accounting and financial reporting processes and the audits of the Companys financial statements. The audit committee assists the board in monitoring:
· the integrity of our financial statements;
· our independent auditors qualifications and independence;
· the performance of our internal audit function and independent auditors; and
· those aspects of risk management and legal and regulatory compliance monitoring processes which may impact the Companys financial condition and reporting.
Each member of the audit committee is independent and meets certain experience and financial literacy requirements under the Securities Exchange Act and the rules and regulations of Nasdaq and the SEC. Our board has determined that at least one director, Mr. Hines, has the background to be considered an audit committee financial expert as that term is defined by the SEC.
Compensation Committee. The compensation committee, which held eight meetings during fiscal year 2006:
· has the authority and responsibility of establishing an executive compensation strategy that appropriately rewards executive officers, aligns the interests of executive officers and shareowners and motivates executive officers to achieve the Companys business objectives;
· recommends and administers executive compensation plans, programs and arrangements including review and approval of corporate and individual goals and objectives relevant to executive officers, including the Chief Executive Officer;
· reviews and approves the individual elements of compensation for executive officers, including base pay, annual incentives, long-term incentives, benefits and other elements of total compensation (subject to review by the board in the case of the Chief Executive Officer);
· reviews, recommends and administers equity-based compensation plans, subject to board and shareowner approval, and has authority to make equity awards to employees;
· has the authority and responsibility of reviewing and recommending to the board of directors employment, severance and other similar agreements and arrangements for the Chief Executive Officer and approving such agreements and arrangements for other executive officers;
· develops a succession plan for the Chief Executive Officer and reviews the Companys plans for succession of the other senior executives; and
· reviews and evaluates compensation of non-employee directors and recommends changes or plans to the board.
Governance and Nominating Committee. The governance and nominating committee, which held five meetings during fiscal year 2006, is responsible for:
· identifying and recommending nominees for election and re-election to the board and recommending candidates for appointment to committees of the board;
· reviewing and making recommendations to the board regarding principles of corporate governance, administering and monitoring such principles and performing a leadership role in shaping our corporate governance;
· establishing and administering processes to evaluate board, committee and director effectiveness;
· reviewing the Companys governance practices and evaluating the charters of the standing committees of the board of directors on an annual basis and recommending necessary or appropriate changes; and
· reviewing any potential conflict of interest involving directors or executive officers.
None of the members of our compensation committee is or has been an officer or employee of the Company or any of its subsidiaries. In addition, none of the members of our compensation committee had any relationships with the Company or another entity that require disclosure under the proxy rules and regulations promulgated by the SEC as compensation committee interlocks or insider (employee) participation during the period covered by this proxy statement.
Any shareowner who desires to contact the independent members of our board of directors may do so by sending an email to email@example.com or in writing to the independent directors c/o Corporate Secretary, 150 Interstate North Parkway, Atlanta, Georgia 30339. The Secretary will distribute any such communications (as she deems appropriate) to our board, or to an individual director, depending on the facts and circumstances outlined in the communication.
Our governance and nominating committee will consider written proposals from shareowners for director candidates so long as each such proposal is submitted in accordance with the provisions of our by-laws for submission of shareowner proposals. These procedures provide that nominations for director candidates must be submitted in writing to the Secretary of the Company at our principal executive offices. We must receive the notice of a shareowners nomination no later than the 90th day and no earlier than the 120th day in advance of the first anniversary of the prior years annual meeting. For the 2008 annual meeting, nominations must be received no later than February 3, 2008 and no earlier than January 4, 2008. The nomination must also include specified information about the nominee and the consent of the nominee to serve as a director if elected. Our by-laws may be accessed on our website, www.superioressex.com, or may be obtained from our Secretary upon request. The governance and nominating committee will follow the same procedures and use the same criteria in evaluating candidates recommended by shareowners as it does those identified by the committee or the board of directors.
In evaluating director candidates, the governance and nominating committee will consider each individual in the context of the board of directors as a whole and will apply the criteria it deems appropriate, including those described in Appendix A. In evaluating whether to recommend a director for re-election, the governance and nominating committee also considers the directors past attendance at meetings and participation in and contributions to the activities of the board.
Following a discussion of a candidates qualifications, and taking into consideration the information gathered during the evaluation process and the needs of the board of directors and the Company at the time, the governance and nominating committee will decide whether to recommend a potential nominee to the board of directors for election or re-election. Final selection of a nominee recommended by our governance and nominating committee is determined by the full board.
In 2006, our governance and nominating committee retained an executive recruitment firm to assist it in the process of identifying and evaluating potential director nominees. Stephanie W. Bergeron and Joseph M. ODonnell were identified as potential candidates by the executive recruitment firm. The governance and nominating committee reviewed each of their qualifications as a director, including the criteria described above. Our governance and nominating committee unanimously recommended to the full board that both Ms. Bergeron and Mr. ODonnell be elected as a director with terms expiring at the annual meeting of shareowners in 2008 and 2009, respectively. The board agreed with the governance and nominating committees recommendation and elected Ms. Bergeron and Mr. ODonnell to the board on October 6, 2006, and appointed Ms. Bergeron to the audit committee and Mr. ODonnell to the audit and compensation committees.
The following table provides information about the compensation earned by our non-employee directors during 2006.
(1) Consists of the amounts described below:
* Mr. Hines elected to take 25% of his annual retainer for the third and fourth quarters of 2006 in the form of restricted stock units, as reflected in the tables in footnote (2) below.
(2) Except as provided in footnote (3) below with respect to Mr. Africk, the amounts in these columns represent the accounting expense we recognized in 2006 for stock and option awards held by our non-employee directors, calculated in accordance with disclosure rules of the SEC. The amounts included in the table for each award include the amount recorded as expense in our income statement for 2006. The fair values of these awards and the amounts expensed in 2006 were determined in accordance with FAS 123R, or with respect to awards granted prior to 2006, in accordance with FAS 123. The assumptions used in determining the grant date fair values of these option awards, which were granted in 2003 and 2004, are set forth in the footnotes to the Companys financial statements for 2004, which are included in our Annual Report on Form 10-K for 2004, filed with the SEC. The awards for which expense is shown in this table include the awards described below, which were granted in 2006, as well as awards granted prior to 2006 for which we continued to recognize expense in 2006.
The following table shows the shares of restricted stock and restricted stock units (RSUs) awarded to each director during 2006, and the aggregate grant date fair value for each award. No options were granted in 2006 to our directors.
* These restricted stock awards were granted to Mr. Gounot for his service as chair of Essex Nexans Europe SAS, as discussed below in this section. They vested on December 31, 2006.
** These are RSUs that Mr. Hines elected to receive in lieu of cash retainer, as discussed in footnote (1) above. The RSUs will convert to shares of common stock three months after Mr. Hines terminates his service as a director.
The following table shows the aggregate numbers of shares of restricted stock, RSUs and options held by each director as of December 31, 2006:
(3) As shown in column (g) of this table and footnote (4) below, we accelerated the vesting of Mr. Africks previously granted and unvested stock options and restricted stock awards in connection with his retirement from the board on March 31, 2006. If the vesting of these awards had not been accelerated, we would have reversed any accounting expense for 2006 associated with these otherwise unvested awards. However, as a result of the acceleration of vesting, we recognized $216,837 in 2006 for financial accounting purposes with respect to these accelerated awards. In order to avoid double counting of these awards in the total column of this table, we have shown only the intrinsic value realized by Mr. Africk ($239,939, as reported in column (g)), which is a larger amount than the accounting expense we recognized in 2006 for these accelerated awards.
(4) Reflects the value of the accelerated vesting of Mr. Africks previously granted stock options and restricted stock awards in connection with his retirement from the board. To calculate the value realized from the accelerated stock options, we multiplied (i) the number of options vesting by (ii) the excess of the market price of our common stock as of the vesting date over the per-share exercise price of the options. To calculate the value realized from the accelerated restricted stock awards, we multiplied (i) the number of shares vesting by (ii) the market price of our common stock as of the vesting date.
(5) Includes compensation related to Mr. Gounots consulting arrangement with us, as described on pages 12-13.
Our Amended and Restated Director Compensation Plan, which we refer to as the director compensation plan, provides for both cash and equity compensation for our non-employee directors. The principal features of the director compensation plan as in effect for 2006 are described below. We have reviewed the director compensation plan on an annual basis since 2004. We are including information about the changes to the director compensation plan resulting from the most recent review that was completed in December 2006.
Annual Retainers. All non-employee directors receive an annual board retainer fee of $40,000. In addition, the director compensation plan provides for the following supplemental annual retainers:
Meeting Fees. The director compensation plan provides for meeting fees for non-employee directors as follows:
· $2,000 for each board meeting;
· $2,000 for each committee meeting held in person and not in connection with a board meeting; and
· $1,000 for each committee meeting held in connection with a board meeting or held by teleconference.
Equity Awards. The director compensation plan provides for annual equity awards to non-employee directors in the form of restricted stock units (RSUs). The amount of RSUs granted in 2006 is approximately equal in value to the basic annual retainer (currently $40,000). In 2006, Hewitt Associates conducted a review of director pay at the companies in our peer group and determined that our director compensation was significantly below market, particularly in the amount of equity provided as a percentage of total compensation. As a result, for 2007, we increased the dollar amount of our annual director RSU grant to $75,000, which approximates total average annual cash director compensation (including supplemental chair retainers). Each RSU represents the right to receive one share of Company common stock. The RSUs generally vest in full one year after the date of grant, or earlier upon the directors death, disability or retirement or the directors termination from the board for any reason within one year after a change of control of the Company. If a director otherwise leaves the board prior to vesting, a pro rata portion of his or her RSUs will vest. Upon joining our board, new directors receive an initial award of RSUs. In 2006, new directors received RSUs in an amount approximately equal in value to the basic annual retainer. As a result, Ms. Bergeron and Mr. ODonnell received 1,130 RSUs when they joined the board on October 6, 2006. For 2007, new directors will receive RSUs having a value of approximately $75,000.
The director compensation plan provides directors the ability to elect to receive all or a portion (in 25% increments) of their total annual retainers (the basic annual retainer plus supplemental annual retainers for board and committee chairs) in the form of stock options or RSUs.
Benefits. We reimburse each non-employee director for expenses associated with attending board and committee meetings and other board-related activities. We also have a charitable gift matching program in which the Company matches a directors or employees qualifying contributions up to $1,500 per year. Non-employee directors do not receive other benefits from the Company.
Consulting Arrangement with Denys Gounot. Denys Gounot is the owner of DG Network, which provided consulting services to us in connection with our European magnet wire joint venture with Nexans. The joint venture was consummated on October 21, 2005, and Mr. Gounot was named chair of the board of Essex Nexans Europe SAS (Essex Nexans), the holding company for the joint venture. As of January 18, 2006, we entered into a new consulting agreement with DG Network. The consulting agreement was approved by our disinterested directors. Our board determined that under its governance principles, applicable law and Nasdaq listing standards payments made to DG Network under the consulting agreement resulted in Mr. Gounots not being considered an independent director, but that
Mr. Gounots unique experiences and skills made the consulting agreement in the best interests of the company and its stockholders. Pursuant to the consulting agreement, DG Network received an annual fee of $150,000 in 2006, payable in equal monthly installments in advance, for providing consulting services to Essex Nexans and as payment to Mr. Gounot for serving as chair of Essex Nexans. Effective January 1, 2007, the annual fee was increased to $200,000. We reimburse DG Network and Mr. Gounot for reasonable travel and out-of-pocket expenses incurred in connection with the provision of consulting services or serving as board chair of Essex Nexans. In addition, for his service as board chair of Essex Nexans, we granted Mr. Gounot 3,000 shares of restricted stock, which vested on December 31, 2006.
We have a staggered board of directors with nine members. Our board is divided into three classes, as nearly equal in size as possible, with the term of office of each class ending in successive years. The terms of office of directors in Class II and Class III expire at the 2008 and 2009 annual meetings of shareowners, respectively. The terms of the directors in Class I, of which there are currently three, Messrs. Carter, Gounot and Guthrie, expire at this annual meeting.
The following sections set forth information as to persons who serve as our directors and executive officers:
The following information is provided with respect to the nominees for election as Class I directors at the annual meeting.
Nominees to serve until Annual Meeting in 2010
Stephen M. Carter, age 53, has been our Chief Executive Officer since November 10, 2003 and our President since May 2004. Mr. Carter became a member of our board of directors upon assuming his role as Chief Executive Officer in November 2003. From July 2000 until November 2002, Mr. Carter was President and Chief Executive Officer of Cingular Wireless, a provider of wireless services. Mr. Carter has served in various positions with SBC Communications (now AT&T Inc.) and its predecessor company, Southwestern Bell, including President and Chief Executive Officer of SBC Wireless, President of SBC Strategic and Special Markets and President/Chief Executive Officer of Southwestern Bell Telecom.
Denys Gounot, age 53, has been a member of our board of directors since November 10, 2003. Since October 21, 2005, Mr. Gounot has served as Chairman of Essex Nexans Europe SAS, the holding company for the Companys European magnet wire joint venture with Nexans. He has been a principal of DG Network, a strategic advisory firm, since 2003. DG Network provides services to the Company as described under Certain Relationships and Related Transactions on pages 53-54. From 1999 through 2001, Mr. Gounot held various positions as an officer with Lucent Technologies Inc., a provider of communications networks for communications service providers, including President of Lucents optical fiber division. Mr. Gounot has been President of the French American Chamber of Commerce (Atlanta) since 2003.
James F. Guthrie, age 62, has been a member of our board of directors since November 10, 2003. Mr. Guthrie has been an executive consultant, principally to media and early-stage telecom enterprises, since 1999. Prior to that time, Mr. Guthrie was, from 1995 to 1999, Executive Vice President and Chief Financial Officer of IXC Communications, Inc. (now Broadwing Communications), a network based communications services provider, from 1993 to 1995, Vice President and Chief Financial Officer of Times
Mirror Company, and, from 1982 to 1993, Senior Vice President and Chief Financial Officer of Times Mirror Cable Television, Inc.
The following information is provided with respect to our continuing directors who are not standing for election as directors at the annual meeting.
Directors serving until Annual Meeting in 2008
Perry J. Lewis, age 69, has been a member of our board of directors since November 10, 2003. Mr. Lewis has been a senior managing director of Heartland Industrial Partners LLC, a leveraged buyout firm, since February 2006 and from 2000 to 2001. From 2001 to February 2006, Mr. Lewis was an advisory director of CRT Capital Group LLC, an institutional securities research and brokerage firm, and was a founder and, from 1980 to 2001, partner of Morgan, Lewis, Githens & Ahn, an investment banking and leveraged buyout firm. Mr. Lewis is also a director of Clear Channel Communications, Inc., a diversified media company.
Thomas H. Johnson, age 57, has been a member of our board of directors since December 7, 2005. Mr. Johnson retired in November 2005 as Chairman and Chief Executive Officer of Chesapeake Corporation, a leading international supplier of value-added specialty paperboard and plastic packaging. He joined Chesapeake in 1997 as President and Chief Executive Officer, and was named Chairman in 2000. He is also a director of Mirant Corporation, a competitive energy company that produces and sells electricity in North America, the Caribbean and the Philippines, Universal Corporation, a diversified company with operations in tobacco processing, lumber and other agri-products, and CMGI, Inc., a company which provides industry-leading global supply chain management services.
Stephanie W. Bergeron, age 53, has been a member of our board of directors since October 6, 2006. Ms. Bergeron has been the President and Chief Executive Officer of Walsh College since January 2007 and served as interim President from September 2006 through January 2007. Ms. Bergeron has also served as the President and Chief Executive Officer of Bluepoint Partners LLC, a consulting firm, since December 2004. Prior to that time, Ms. Bergeron was Senior Vice President, Corporate Financial Operations, of The Goodyear Tire & Rubber Company, a manufacturer of tires, rubber products and chemicals, from December 2001 to December 2003, and Vice President and Treasurer of Goodyear from December 1998 through December 2001.
Directors serving until Annual Meeting in 2009
Monte R. Haymon, age 69, has been a member of our board of directors since November 10, 2003 and has been our non-executive Chairman of the Board since January 2004. Mr. Haymon was Chairman of the Board of Sappi Fine Paper North America (Sappi), a manufacturer of coated and specialty paper products, from January 2002 until his retirement in December 2002. He previously served as Sappis President and Chief Executive Officer from 1995 to January 2002.
Andrew P. Hines, age 67, has been a member of our board of directors since November 10, 2003. Mr. Hines has been a principal of Hines and Associates, a financial management consulting firm since September 2006 and from 2000 until October 2005. Mr. Hines served as Vice President and Chief Financial Officer of GenTek Inc., a manufacturer of industrial components and performance chemicals
from October 2005 to September 2006. From October 2000 to October 2001, Mr. Hines was Executive Vice President and Chief Financial Officer of Ardent Communications, Inc. (f/k/a CAIS Internet), a provider of broadband access and bundled data services, which filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code in October 2001. Mr. Hines was Executive Vice President and Chief Financial Officer from October 1997 to February 2000, and Executive Vice President, Strategic Planning and Business Development from February 2000 to June 2000, of Outboard Marine Corporation, a manufacturer of recreational boats and marine engines, which filed a voluntary Chapter 11 petition in December 2000.
Joseph M. ODonnell, age 60, has been a member of our board of directors since October 6, 2006. Mr. ODonnell was the Chief Executive Officer and President of Artesyn Technologies, Inc., a provider of power conversion equipment and subsystems to the communications industry from July 1994 through April 2006. Mr. ODonnell also served as Co-Chairman of the Artesyn board of directors from December 1997 to May 2003 and Chairman from May 2003 to April 2006, when the company was acquired by Emerson Electric Company. Mr. ODonnell is a director of Parametric Technology Corporation, a leading maker of mechanical computer-aided design, manufacturing and engineering software and Comverse Technology, Inc., a company engaged in the design, development, manufacturing, marketing, and support of software, systems, and related services for multimedia communications and information processing applications.
The following information is provided with respect to our executive officers, other than Mr. Carter who is referenced above.
David S. Aldridge, age 52, has been our Executive Vice President since March 2004 and our Chief Financial Officer and Treasurer since November 10, 2003. Mr. Aldridge was Chief Financial Officer and Treasurer of Superior TeleCom from 1996 to November 9, 2003 and Chief Restructuring Officer of Superior TeleCom from January 2003 to November 9, 2003. Mr. Aldridge was Chief Financial Officer of The Alpine Group, Inc. from November 1993 to May 2003 and Treasurer of The Alpine Group, Inc. from January 1994 through April 2001.
Barbara L. Blackford, age 50, has been our Executive Vice President, General Counsel and Secretary since April 14, 2004. From September 2000 to March 2004, Ms. Blackford was Vice President, General Counsel and Secretary of AirGate PCS, Inc., a PCS Affiliate of Sprint, and iPCS, Inc., a wholly owned subsidiary of AirGate PCS, Inc. iPCS, Inc. filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code in February 2003. From October 1997 to September 2000, Ms. Blackford was Associate General Counsel and Assistant Secretary at Monsanto Company, serving in a variety of roles, including as head of the corporate securities and mergers and acquisitions law groups and General Counsel of Cereon Genomics. Prior to joining Monsanto Company, Ms. Blackford was a partner with the private law firm Long Aldridge & Norman LLP (now known as McKenna Long & Aldridge LLP) in Atlanta, Georgia and was a partner with the law firm Kutak Rock. Ms. Blackford is a member of the board of directors of the Society of Corporate Secretaries and Governance Professionals.
Justin F. Deedy, Jr., age 51, has been our Executive Vice President and President of our Communications Group since November 10, 2003. Mr. Deedy was Executive Vice President of Superior TeleCom and President of Superior TeleComs subsidiary that comprised its communications cable segment from June 1999 to November 9, 2003. Prior thereto, Mr. Deedy was Senior Vice President of Superior TeleCom from July 1996 to June 1999 and President of Superior TeleComs wholly owned subsidiary, Superior Telecommunications Inc., from July 1993 to December 1999, when Superior Telecommunications Inc. was merged with and into another wholly owned subsidiary of Superior TeleCom as part of an internal reorganization.
H. Patrick Jack, age 55, has been our Executive Vice President since March 2004 and President of our subsidiary, Essex Group, Inc., that comprises the magnet wire and distribution segment since November 10, 2003. Mr. Jack was President of Superior TeleComs subsidiary that comprised its magnet wire and distribution segment from August 2002 to November 9, 2003. Prior thereto, Mr. Jack was a consultant to a successor company of Aristech Chemical Corporation, a chemicals and plastics business, from January 2002 to March 2002, and President and Chief Operating Officer of Aristech from 1998 to 2001.
Three of our executive officers, Messrs. Aldridge, Deedy and Jack, were previously employed by our predecessor Superior TeleCom Inc., which filed for reorganization under Chapter 11 of the United States Bankruptcy Code on March 3, 2003. The plan of reorganization, pursuant to which we acquired the business of Superior TeleCom, became effective on November 10, 2003.
The Company currently maintains the 2005 Incentive Plan, which was approved by the shareowners on May 3, 2005. We also will continue to maintain the 2003 Stock Incentive Plan (the 2003 Incentive Plan) until all outstanding awards thereunder are exercised or expire, but we will not make any further awards under the 2003 Incentive Plan. On March 13, 2007, our board of directors adopted certain amendments to the 2005 Incentive Plan to be effective if approved by shareowners at the annual meeting. These amendments, described more fully below, will:
· increase the number of shares that may be issued under the Plan by 500,000 shares;
· adjust the share reserve provisions to (i) add back shares delivered to pay taxes, (ii) address the counting of shares unearned from performance-conditioned awards, and (iii) include shares delivered or withheld on or after May 3, 2007 to cover the exercise price and/or pay taxes with respect to awards outstanding under the 2003 Incentive Plan;
· impose minimum vesting requirements for most full-value awards;
· change the Plan default provision for vesting upon a change in control to a single trigger event, to reflect the Companys current practice in this regard;
· modify the Plan default provision for vesting of performance-based cash awards upon a participants death, disability or retirement;
· prohibit transfers of awards for value;
· provide for mandatory anti-dilution adjustments in the case of certain equity restructurings, in order to avoid additional accounting expense;
· add a special provision to address the various effects of Section 409A of U.S. Internal Revenue Code of 1986 (the Code); and
· rename the Plan the Superior Essex Inc. Amended and Restated 2005 Incentive Plan.
As of March 5, 2007, there were approximately 4,100 of the Companys employees, officers, directors and consultants eligible to participate in the Plan. As of that date, there were approximately 1,006,200 shares of our common stock subject to outstanding awards and approximately 248,635 shares of our common stock were reserved and available for future awards under the Plan. If the Amended 2005 Incentive Plan is not approved by the shareowners at the annual meeting, the Plan will remain in effect in accordance with its terms as in effect immediately prior to the March 13, 2007 board action.
In order to address potential shareowner concerns regarding the number of equity awards that may be granted under the Plan, the compensation committee has adopted a policy providing that, if shareowners approve the Amended 2005 Incentive Plan proposal, equity-based awards granted by the Company during calendar years 2007, 2008 and 2009 (other than grants assumed or substituted in a merger or acquisition) will be structured such that the Companys average annual burn rate for such years will not exceed 2.57%. For this purpose, the burn rate for any year means the total number of shares of Company common stock issuable upon exercise or payment, as the case may be, of the equity-based awards granted by the Company in that year, divided by the Companys total number of shares of common stock issued and outstanding as of the end of that particular year. In calculating the burn rate, shares issuable upon exercise or payment, as the case may be, of awards other than options or stock appreciation rights shall be counted as two shares for each share actually issuable in respect of the award (or such lower multiplier for full value awards, including performance shares, as is consistent with Institutional Shareholder Services governance policies in effect at the time of grant or calculation). Shares underlying performance share awards will not be included in the burn rate until the year in which such shares are earned and then only to the extent so earned. Awards settled in cash will not be included in the calculation of burn rate.
The following is a summary of the provisions of the Amended 2005 Incentive Plan. This summary is qualified in its entirety by the full text of the Amended 2005 Incentive Plan, which is attached to this proxy statement as Appendix B.
Purpose. The purpose of the Amended 2005 Incentive Plan is to focus management on business performance that creates shareowner value, encourage innovative approaches to the business of the Company, reward for results, encourage ownership of Company common stock by management and encourage taking appropriate risks with an opportunity for higher reward.
Administration. The Amended 2005 Incentive Plan will be administered by the compensation committee of the board of directors. The compensation committee has the authority to designate participants; determine the type or types of awards to be granted to each participant and the number, terms and conditions thereof; establish, adopt or revise any rules and regulations as it may deem advisable to administer the Amended 2005 Incentive Plan; and make all other decisions and determinations that may be required under the Amended 2005 Incentive Plan. The board of directors may at any time administer the Amended 2005 Incentive Plan. If it does so, it will have all the powers of the compensation committee under the Amended 2005 Incentive Plan.
Eligibility. The Amended 2005 Incentive Plan permits the grant of incentive awards to employees, officers, and non-employee directors of the Company and its affiliates as selected by the compensation committee. As of March 5, 2007, the number of eligible participants was approximately 4,100. The number of eligible participants may increase over time based upon future growth of the Company and its affiliates.
Awards to Non-Employee Directors. Awards granted to the Companys non-employee directors will be made only in accordance with the terms, conditions and parameters of the Companys director compensation plan, or any successor plan, program or policy for the compensation of non-employee directors as in effect from time to time, and the compensation committee may not make discretionary grants under the director compensation plan to non-employee directors.
Permissible Awards. The Amended 2005 Incentive Plan authorizes the granting of awards in any of the following forms:
· market-priced options to purchase shares of our common stock, which may be designated under the Code as nonstatutory stock options (which may be granted to all participants) or incentive stock options (which may be granted to officers and employees but not to non-employee directors);
· stock appreciation rights, which give the holder the right to receive the difference (payable in cash or stock, as specified in the award certificate) between the fair market value per share of our common stock on the date of exercise over the base price of the award (which cannot be less than the fair market value of the underlying stock as of the grant date);
· restricted stock, which is subject to restrictions on transferability and subject to forfeiture on terms set by the compensation committee;
· restricted or deferred stock units, which represent the right to receive shares of common stock (or an equivalent value in cash or other property, as specified in the award certificate) at a designated time in the future;
· performance awards, which are awards payable in cash or stock upon the attainment of specified performance goals (any award that may be granted under the Amended 2005 Incentive Plan may be granted in the form of a performance award);
· dividend and interest equivalents, which entitle the participant to payments (or an equivalent value payable in stock or other property) equal to, in the case of dividend equivalents, any dividends paid on the shares of stock underlying an award, or, in the case of interest equivalents, a stated rate of return on the value of an outstanding award;
· other stock-based awards in the discretion of the compensation committee, including unrestricted stock grants; and
· cash-based awards, including performance-based annual bonus awards.
Shares Available for Awards. Following approval of the Amended 2005 Incentive Plan, and subject to adjustment as provided in the Amended 2005 Incentive Plan, the aggregate number of shares of common stock reserved and available for issuance pursuant to awards granted under the Amended 2005 Incentive Plan will be (i) 500,000, plus (ii) shares underlying awards outstanding under the 2005 Incentive Plan as of May 3, 2007, plus (iii) shares remaining available for issuance, if any, under the 2005 Incentive Plan as of May 2, 2007 (including shares added back pursuant to the share-counting provisions described below), plus (iv) a number of additional shares underlying awards outstanding under the 2003 Incentive Plan that terminate or expire unexercised, or are cancelled, forfeited or lapse for any reason, plus (v) a number of additional shares delivered or withheld on or after May 3, 2007 to cover the exercise price and/or satisfy tax withholding obligations with respect to awards outstanding under the 2003 Incentive Plan. As of March 5, 2007 there were approximately 1,006,200 shares subject to outstanding awards under the 2005 Incentive Plan and approximately 248,600 shares remaining available for issuance under the Plan. The proposed Amended 2005 Incentive Plan represents a net addition of 500,000 shares to the Plan share reserve, plus the potential additional shares represented in clause (v) above.
Share Counting. The Plan currently provides for shares issued under the Plan to be added back to the Plan share reserve under certain circumstances, including (i) shares subject to awards that terminate or expire unexercised, or are cancelled, forfeited or lapse for any reason, (ii) shares underlying awards that are ultimately settled in cash, (iii) shares withheld from an award to satisfy minimum tax withholding requirements, and (iv) shares delivered to pay the exercise price of an option. The Amended 2005 Incentive Plan is proposed to provide that shares delivered to satisfy minimum tax withholding
requirements and shares underlying performance awards that are unearned will go back into the Plan share reserve.
Limitations on Awards. The maximum number of shares of common stock that may be covered by options and stock appreciation rights granted under the Amended 2005 Incentive Plan to any one person during any one calendar year is 300,000. The maximum aggregate shares underlying awards of restricted stock, restricted stock units, deferred stock units, performance shares or other stock-based awards under the Amended 2005 Incentive Plan (other than options or stock appreciation rights) that may be granted to any one person during any one calendar year is 300,000. The aggregate maximum dollar value of any performance-based cash award or other cash-based award that may be paid to any one participant during any one calendar year under the Amended 2005 Incentive Plan is $3,000,000.
Minimum Vesting Requirements. The Amended 2005 Incentive Plan is proposed to impose minimum vesting requirements for most full-value awards. Except in the case of substitute awards or awards granted as an inducement to join the Company as a new employee to replace forfeited awards from a former employer, any full-value award granted under the Amended 2005 Incentive Plan to an employee, officer or consultant will either (i) be subject to a minimum vesting period of three years (which may include graduated vesting within such three-year period), or one year if the vesting is based on performance criteria other than continued service, or (ii) be granted solely in exchange for foregone cash compensation. Notwithstanding the foregoing, the compensation committee may permit acceleration of vesting of such awards in the event of the participants death, disability, retirement, termination without cause or resignation for good reason, or upon the occurrence of a change in control.
Performance Goals. All options and stock appreciation rights granted under the Amended 2005 Incentive Plan are designed to be exempt from the $1,000,000 deduction limit imposed by Code Section 162(m). The compensation committee may designate any other award granted under the Amended 2005 Incentive Plan as a qualified performance-based award in order to make the award fully deductible without regard to the $1,000,000 deduction limit imposed by Code Section 162(m). If an award is so designated, the compensation committee must establish objectively determinable performance goals for the award based on one or more of the following business criteria, which may be expressed in terms of company-wide objectives or in terms of objectives that relate to the performance of a division, business unit, affiliate, department or function within the Company or an affiliate or any combination thereof:
· Profit (net profit, gross profit, operating profit, economic profit, profit margins or other corporate profit measures)
· Earnings (EBIT, EBITDA, earnings per share, or other corporate earnings measures)
· Net income (before or after taxes, operating income or other income measures)
· Cash (cash flow, cash generation or other cash measures)
· Stock price or performance
· Total stockholder return (stock price appreciation plus reinvested dividends divided by beginning share price)
· Return measures (including, but not limited to, return on assets, capital, equity, or sales, and cash flow return on assets, capital, equity, or sales);
· Market share
· Improvements in capital structure
· Expenses (expense management, expense ratio, expense efficiency ratios or other expense measures)
· Business expansion or consolidation (acquisitions and divestitures)
· Internal rate of return or increase in net present value
· Working capital targets relating to inventory and/or accounts receivable
· Planning accuracy (as measured by comparing planned results to actual results).
The compensation committee must establish such goals within the first 90 days of the period for which such performance goal relates (or such later date as may be permitted under applicable tax regulations) and the compensation committee may for any reason reduce (but not increase) any award, notwithstanding the achievement of a specified goal. The compensation committee may provide, at the time the performance goals are established, that any evaluation of performance will include or exclude or otherwise objectively adjust for specified events that occur during a performance period, which may include, but are not limited to any of the following: (a) asset write-downs or impairment charges; (b) litigation or claim judgments or settlements; (c) the effect of changes in tax laws, accounting principles or other laws or provisions affecting reported results; (d) accruals for reorganization and restructuring programs; (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 and/or in managements discussion and analysis of financial condition and results of operations appearing in the Companys annual report to stockholders for the applicable year; (f) acquisitions or divestitures; and (g) foreign exchange gains and losses. To the extent such inclusions or exclusions affect awards to covered employees (as defined in Code Section 162(m)), they shall be prescribed in a form that meets the requirements of Code Section 162(m) for deductibility.
Limitations on Transfer; Beneficiaries. A participant may not assign or transfer an award other than by will or the laws of descent and distribution or (except in the case of an incentive stock option) pursuant to a qualified domestic relations order. The compensation committee may permit other transfers where it concludes that such transferability does not result in accelerated taxation, does not cause any option intended to be an incentive stock option to fail to qualify as such, and is otherwise appropriate and desirable, taking into account any factors deemed relevant, including without limitation, any state or federal tax or securities laws or regulations applicable to transferable awards. Notwithstanding the foregoing, the Amended 2005 Incentive Plan would preclude transfers of awards for value. A participant may, in the manner determined by the compensation committee, designate a beneficiary to exercise the rights of the participant and to receive any distribution with respect to any award upon the participants death.
Acceleration Upon Certain Events. Unless otherwise provided in an award certificate or any special plan document governing an award, if a participants service terminates by reason of death, disability or retirement, all of such participants outstanding options, stock appreciation rights and other awards in the nature of rights that may be exercised will become fully exercisable; all time-based vesting restrictions on his or her outstanding awards will lapse; and the target payout opportunities attainable under such participants outstanding performance-based equity awards will be deemed to have been fully earned as of the date of termination based upon an assumed achievement of all relevant performance goals at the target level and there will be a pro rata payout in cash or equity, as appropriate, to the participant or his or her estate within 30 days following the date of termination (or if later, the first date that such payment may be made without causing a violation of Section 409A of the Code) based upon the length of time within the performance period that has elapsed prior to the date of termination. The Amended 2005 Incentive Plan would provide a default provision for performance-based cash awards that is the same as for performance-based equity awards, as described above. The compensation committee may, in its sole
discretion at any time, vest awards upon a participants termination of employment for other reasons. The compensation committee may discriminate among participants or among awards in exercising such discretion.
Treatment of Awards upon a Change in Control. Prior to the proposed Amended 2005 Incentive Plan, the Plan provides as a default position that outstanding awards will vest in full upon a qualifying termination of employment within six months after the occurrence of a change in control of the Company. In recognition of the fact that the compensation committee has approved awards and employment and change of control agreements that provide for vesting automatically upon a change in control, the Amended 2005 Incentive Plan would use this single-trigger approach as the default provision in the Amended 2005 Incentive Plan. The Amended 2005 Incentive Plan would provide that, unless otherwise provided in an award certificate or any special plan document governing an award, upon the occurrence of a change in control of the Company, all outstanding options, stock appreciation rights and other awards in the nature of rights that may be exercised will become fully exercisable; all time-based vesting restrictions on outstanding awards will lapse; and the target payout opportunities attainable under all outstanding performance based awards will be deemed to have been fully earned based upon an assumed achievement of all relevant performance goals at the target level and there will be a pro rata payout in cash or equity, as appropriate, to participants within 30 days following the date of the change in control (or, if later, the first date that such payment may be made without causing a violation of Section 409A of the Code) based upon the length of time within the performance period that has elapsed prior to the date of the change in control.
Adjustments. The Plan currently provides for mandatory anti-dilution adjustments in the case of certain basic equity restructurings (stock-splits, stock dividends and stock consolidations) and allows permissive adjustments in the case of other less-common types of equity restructurings (such as spin-offs, or large non-recurring cash dividends or rights offerings). In light of recent accounting interpretations that could result in additional accounting charges if anti-dilution adjustments are permissive rather than mandatory, the Amended 2005 Incentive Plan is proposed to change this provision to require mandatory adjustments to prevent the dilution or enlargement of rights in the case of any non-reciprocal equity restructuring, as defined in FAS 123R. The Amended 2005 Incentive Plan would continue to permit discretionary adjustments for mergers, business combinations and the like (which are not equity restructurings), and also to permit discretionary adjustments in the context of equity restructurings where the adjustment is for a purpose other than equalizing the awards value immediately before and after the equity restructuring.
The Amended 2005 Incentive Plan would provide that in the event of a transaction between the Company and its shareowners that causes the per-share value of its common stock to change (including, without limitation, any stock dividend, stock split, spin-off, rights offering, or large nonrecurring cash dividend), the share authorization limits under the Amended 2005 Incentive Plan will be adjusted proportionately, and the compensation committee must make such adjustments to the Amended 2005 Incentive Plan and awards as it deems necessary, in its sole discretion, to prevent dilution or enlargement of rights immediately resulting from such transaction. In the event of a stock split, a stock dividend, or a combination or consolidation of the outstanding common stock into a lesser number of shares, the authorization limits under the Amended 2005 Incentive Plan will automatically be adjusted proportionately, and the shares then subject to each award will automatically be adjusted proportionately without any change in the aggregate purchase price.
Termination and Amendment. The board of directors or the compensation committee may, at any time and from time to time, terminate or amend the Amended 2005 Incentive Plan, but if an amendment to the Amended 2005 Incentive Plan would materially increase the benefits accruing to participants, materially increase the number of shares of stock issuable, expand the types of awards that may be granted, materially expand the class of eligible participants, materially extend the term of the Amended 2005
Incentive Plan or otherwise constitute a material change requiring shareowner approval under applicable listing requirements or laws, then such amendment will be subject to shareowner approval. In addition, the board of directors or the compensation committee may condition any amendment on the approval of the shareowners for any other reason. No termination or amendment of the Amended 2005 Incentive Plan may adversely affect any award previously granted without the written consent of the participant.
The compensation committee may amend or terminate outstanding awards. However, such amendments may require the consent of the participant and, unless approved by the shareowners, the exercise price of an outstanding option or base price of a stock appreciation right may not be reduced, directly or indirectly, and the original term of an option or stock appreciation right may not be extended.
Prohibition on Repricing. As indicated above under Termination and Amendment, outstanding stock options and stock appreciation rights cannot be repriced, directly or indirectly, without the prior consent of the Companys shareowners. The exchange of an underwater award (i.e., an option or stock appreciation right having an exercise or base price in excess of the current market value of the underlying stock) for another award would be considered an indirect repricing and would, therefore, require the prior consent of the Companys shareowners.
Code Section 409A. The Amended 2005 Incentive Plan is proposed to add a new Section 18.4 to the Plan that addresses the effects of Code Section 409A on awards that constitute deferred compensation for purposes of that law. The new provision regulates the extension of stock options and the payment or distribution of benefits under the Amended 2005 Incentive Plan in a manner so as to avoid additional taxes under Code Section 409A.
The U.S. federal income tax discussion set forth below is intended for general information only and does not purport to be a complete analysis of all of the potential tax effects of the Amended 2005 Incentive Plan. It is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change. State, local and ex-U.S. income tax consequences are not discussed, and may vary from locality to locality.
Nonstatutory Stock Options. There will be no federal income tax consequences to the optionee or to the Company upon the grant of a nonstatutory stock option under the Amended 2005 Incentive Plan. When the optionee exercises a nonstatutory option, however, he or she will recognize ordinary income in an amount equal to the excess of the fair market value of the stock received upon exercise of the option at the time of exercise over the exercise price, and the Company will be allowed a corresponding federal income tax deduction. Any gain that the optionee realizes when he or she later sells or disposes of the option shares will be short-term or long-term capital gain, depending on how long the shares were held.
Incentive Stock Options. There will be no federal income tax consequences to the optionee or to the Company upon the grant of an incentive stock option. If the optionee holds the option shares for the required holding period of at least two years after the date the option was granted and one year after exercise, the difference between the exercise price and the amount realized upon sale or disposition of the option shares will be long-term capital gain or loss, and the Company will not be entitled to a federal income tax deduction. If the optionee disposes of the option shares in a sale, exchange, or other disqualifying disposition before the required holding period ends, he or she will recognize taxable ordinary income in an amount equal to the excess of the fair market value of the option shares at the time of exercise over the exercise price, and the Company will be allowed a federal income tax deduction equal to such amount. While the exercise of an incentive stock option does not result in current taxable income, the excess of the fair market value of the option shares at the time of exercise over the exercise price will be an item of adjustment for purposes of determining the optionees alternative minimum taxable income.
Stock Appreciation Rights. A participant receiving a stock appreciation right under the Amended 2005 Incentive Plan will not recognize income, and the Company will not be allowed a tax deduction, at the time the award is granted. When the participant exercises the stock appreciation right, the amount of cash and the fair market value of any shares of stock received will be ordinary income to the participant and the Company will be allowed as a corresponding federal income tax deduction at that time.
Restricted Stock. Unless a participant makes an election to accelerate recognition of the income to the date of grant as described below, a participant will not recognize income, and the Company will not be allowed a tax deduction, at the time a restricted stock award is granted, provided that the award is nontransferable and is subject to a substantial risk of forfeiture. When the restrictions lapse, the participant will recognize ordinary income equal to the fair market value of the stock as of that date (less any amount he or she paid for the stock), and the Company will be allowed a corresponding federal income tax deduction at that time, subject to any applicable limitations under Code Section 162(m). If the participant files an election under Code Section 83(b) within 30 days after the date of grant of the restricted stock, he or she will recognize ordinary income as of the date of grant equal to the fair market value of the stock as of that date (less any amount paid for the stock), and the Company will be allowed a corresponding federal income tax deduction at that time, subject to any applicable limitations under Code Section 162(m). Any future appreciation in the stock will be taxable to the participant at capital gains rates. However, if the stock is later forfeited, the participant will not be able to recover the tax previously paid pursuant to the Code Section 83(b) election.
Restricted or Deferred Stock Units. A participant will not recognize income, and the Company will not be allowed a tax deduction, at the time a stock unit award is granted. Upon receipt of shares of stock (or the equivalent value in cash or other property) in settlement of a stock unit award, a participant will recognize ordinary income equal to the fair market value of the stock or other property as of that date (less any amount he or she paid for the stock or property), and the Company will be allowed a corresponding federal income tax deduction at that time, subject to any applicable limitations under Code Section 162(m).
Performance Awards. A participant will not recognize income, and the Company will not be allowed a tax deduction, at the time a performance award is granted (for example, when the performance goals are established). Upon receipt of cash, stock or other property in settlement of a performance award, the participant will recognize ordinary income equal to the cash, stock or other property received, and the Company will be allowed a corresponding federal income tax deduction at that time, subject to any applicable limitations under Code Section 162(m).
Code Section 409A. The Amended 2005 Incentive Plan permits the grant of various types of incentive awards, which may or may not be exempt from Code Section 409A. If an award is subject to Section 409A, and if the requirements of Section 409A are not met, the taxable events as described above could apply earlier than described, and could result in the imposition of additional taxes and penalties. Restricted stock awards, and stock options and stock appreciation rights as that comply with the terms of the Amended 2005 Incentive Plan, are designed to be exempt from the application of Code Section 409A. Restricted and deferred stock units granted under the Amended 2005 Incentive Plan would be subject to Section 409A unless they are designed to satisfy the short-term deferral exemption from such law. If not exempt, such awards must be specially designed to meet the requirements of Section 409A in order to avoid early taxation and penalties.
Tax Withholding. The Company has the right to deduct or withhold, or require a participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes (including employment taxes) required by law to be withheld with respect to any exercise, lapse of restriction or other taxable event arising as a result of the Amended 2005 Incentive Plan.
The table below reflects awards granted under the 2005 Incentive Plan during the fiscal year ended December 31, 2006 to the persons and groups shown in the table below. On March 1, 2007, the compensation committee approved the grant of additional performance contingent stock unit awards (or performance shares) to be granted to our executive officers on April 2, 2007. The number of such awards will be determined by reference to the closing price of our stock on that day. Those awards are not reflected in the following table. Because future awards under the 2005 Incentive Plan will be made at the discretion of the compensation committee or its delegates, we cannot determine the benefits or amounts that will be received in the future by the following persons or groups pursuant to the Amended 2005 Incentive Plan.
(1) The values shown in this column are calculated using the closing market price of our common stock as of the last trading day in 2006, December 29, 2006, which was $33.25.
(2) These time-based restricted stock awards were granted on March 31, 2006 and will vest in full on March 31, 2009, subject to continued employment.
(3) Reflects performance share awards granted on March 31, 2006, which vest upon our achievement against objectives for return on net assets and core business revenue for 2007. The number of shares shown in the table reflects the maximum number of shares (200% of target) that may be earned.
(4) These restricted stock awards were granted on April 3, 2006 to 40 non-executive employees by our Chief Executive Officer, pursuant to delegated authority from the compensation committee. The awards vest 25% on the second and third anniversaries of the grant date and 50% on the fourth anniversary of the grant date.
(5) These stock options were granted April 3, 2006 to eight non-executive employees of the Company. The options vest ratably over four years from the grant date. The amount to be realized by the optionee will be the amount by which the fair market value of our common stock on the date of exercise exceeds the option exercise price. The option exercise price is equal to the closing market price of our common stock as of the grant date, which was $25.75.
(6) Includes restricted stock units granted to our non-employee directors in 2006 pursuant to our director compensation plan, which is a subplan of the 2005 Incentive Plan. These shares vest in full one year after the grant date. Also includes 3,000 shares of restricted stock granted on January 18, 2006 to Denys Gounot for his service as chair of Essex Nexans Europe SAS, as discussed elsewhere in this proxy statement. These shares vested on December 31, 2006.
On March 12, 2007, the closing price per share of our common stock as listed on Nasdaq was $ 33.72.
The following table sets forth certain information regarding our common stock that may be issued under our equity compensation plans as of December 31, 2006:
(1) The 2005 Incentive Plan provides for the grant by our compensation committee of equity-based and other awards to employees, officers, directors or consultants of the Company and its affiliates. The Plan replaced the 2003 Incentive Plan, as described below. A total of 238,031 shares of our common stock were reserved and available for issuance as of December 31, 2006 pursuant to awards granted under the 2005 Incentive Plan. This total may increase due to the adjustment provisions in the Plan, such as the add back of shares underlying awards currently outstanding that terminate or expire unexercised or are cancelled, forfeited or lapse for any reason. During 2005 our shareholders approved the 2005 Employee Stock Purchase Plan (the ESPP), which allows eligible employees to participate in the purchase of the Companys common stock. A total of 150,000 shares are available for purchase by participants under the ESPP.
(2) Includes 11,050 restricted stock units awarded to our non-employee directors and 193,620 performance shares granted to our senior executives. The weighted average exercise prices in column (b) do not take these awards into account. The performance shares represent the right to earn shares of our common stock if and only to the extent that we meet specific performance objectives with respect to return on net assets and core business revenues for 2007. The amount included in the table represents the maximum number of shares that may be earned. Excludes shares of restricted stock awarded under the Plan as follows: (a) 36,000 shares of restricted stock awarded to our non-employee directors; (b) 118,365 shares of restricted stock awarded in connection with the modification of certain options to comply with Code Section 409A, and (c) 90,707 shares of restricted stock awarded to various members of management pursuant to the Plan.
(3) Includes 150,000 shares available for purchase under the ESPP. Shares of the Companys common stock may be purchased by participants beginning April 1, 2007 at quarterly intervals at a price equal to 95% of the closing price of the Companys stock on the last day of the quarterly purchase period.
(4) In connection with the plan of reorganization of our predecessor Superior Telecom, Inc., we adopted the 2003 Incentive Plan, pursuant to which our compensation committee could grant stock options or restricted stock awards to employees, non-employee directors and certain service providers. The 2003 Incentive Plan authorized grants of awards or options to purchase up to 1,833,333 shares of authorized but unissued common stock, stock held in treasury or both. The term of stock options granted may not exceed ten years. The 2003 Incentive Plan was described in the disclosure statement provided in connection with the plan of reorganization and was part of the plan of reorganization approved by all voting classes of creditors and by the bankruptcy court, but was not separately approved by shareowners following formation of the Company. No additional awards may be granted under the 2003 Incentive Plan.
(5) Excludes shares of restricted stock awarded as follows: (a) 330,000 shares of restricted stock awarded to our Chief Executive Officer pursuant to his employment contract and the 2003 Incentive Plan; (b) 150,000 shares of restricted stock awarded to our executive vice presidents pursuant to their respective employment agreements and the 2003 Incentive Plan; (c) 15,000 shares of restricted stock awarded to our directors pursuant to the 2003 Incentive Plan; and (d) 65,683 shares of restricted stock awarded to various members of management of the Company pursuant to the 2003 Incentive Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMPANYS SHAREOWNERS VOTE FOR THE AMENDMENT AND RESTATEMENT OF THE SUPERIOR ESSEX INC. 2005 INCENTIVE PLAN.
The table below sets forth an estimate of the fees the Company expects to be billed by Deloitte & Touche LLP (D&T) for audit fees in connection with its 2006 fiscal year and the actual audit-related, tax and other fees billed by D&T in 2006. In addition, the table sets forth the aggregate fees billed by D&T for audit, audit-related, tax and other services during or in connection with the 2005 fiscal year.
* For 2006 and 2005, includes approximately $1.7 million and $1.4 million, respectively, of fees related to the audit of the Companys internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002. The Company also incurred approximately $1.0 million and $0.8 million in other third party consulting fees for compliance with Section 404 for 2006 and 2005, respectively.
Audit Fees. Fees for audit services consisted of fees for professional services rendered in connection with:
· audits of the Companys 2006 and 2005 financial statements;
· the audit of the Companys internal control over financial reporting and attestation of managements report on the effectiveness of internal control over financial reporting;
· reviews of the Companys quarterly financial statements; and
· subsidiary statutory audits and other services related to SEC matters.
Audit-related Fees. Fees for audit-related services consisted of financial and reporting consultations and employee benefit plan audits.
Tax Fees. Fees for tax services consisted of tax compliance and tax planning and advice, including assistance with tax matters related to the acquisition of Nexans European magnet wire business.
Other Fees. There were no fees for any other services not described above.
Our audit committee adopted policies and procedures for pre-approving all audit services and permissible non-audit services. Any requests for audit, audit-related, tax and other services must be submitted to the audit committee for specific pre-approval and cannot commence until such approval has been granted. The authority to grant specific pre-approval has been delegated to the chair of the audit committee (for engagements up to $250,000).
In considering the nature of the non-audit services provided by the independent auditor, our audit committee determined that such services are compatible with maintaining the independence of D&T. The audit committee discussed these services with the independent auditor and management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the SEC and the Public Company Accounting Oversight Board.
Pursuant to its charter, the audit committee has the sole, discretionary authority to appoint, retain and terminate the Companys independent auditors. D&T has been the Companys independent auditors since 2002. Each year, the audit committee reviews the auditors qualifications, performance and independence in accordance with regulatory requirements and guidelines. Earlier this year, the audit committee determined, in accordance with sound governance practices, that it would issue a request for proposal with regard to the Companys audit engagement (the Audit RFP).
The audit committee decided to issue the Audit RFP because it wanted the opportunity to conduct a detailed review of other auditing firms as prospective independent auditors and to consider the benefits and detriments of changing independent auditors. This decision was not related to the quality of services provided by D&T and there were no disagreements with D&T on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of D&T, would have caused D&T to make reference to the subject matter of such disagreements in connection with its reports.
The Audit RFP was issued to two major public accounting firms, including D&T, in February 2007, and the audit committee currently plans to complete the Audit RFP process by mid-2007. In the interim, the audit committee has appointed D&T to serve as the Companys independent auditors for the first quarter of 2007 and anticipates appointing D&T for subsequent quarters until the Audit RFP is completed and the decision becomes effective. The Company will make a public announcement in the event that it decides to engage a firm other than D&T.
As a result of the audit committees decision to issue the Audit RFP, and the temporary uncertainty as to which firm will be selected as the Companys independent auditors for the fiscal year ended December 31, 2007, the Company determined that it was not appropriate to request shareowner ratification of an independent auditor at the upcoming annual meeting. At each annual meeting of shareowners since the Company became a reporting company, we have requested that our shareowners ratify the appointment of D&T as the independent auditors for the year. At next years annual meeting, we fully expect to return to the practice of seeking shareholder ratification of the Companys independent auditors.
As the Companys independent auditors for the fiscal year ended December 31, 2006, representatives of D&T will be available to answer questions at the annual meeting and are free to make statements during the meeting.
The audit committee is comprised of four directors, each of whom meets the independence and experience requirements of applicable SEC rules and Nasdaq listing standards.
The audit committee oversees the financial reporting process and internal control system on behalf of the board of directors. Management is primarily responsible for the Companys financial statements and the reporting process, including the system of internal controls. D&T, the Companys independent auditor, is responsible for performing an independent audit of the Companys consolidated financial statements in accordance with generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS) and for issuing a report on those statements.
In this context, the audit committee reviewed and discussed with management and D&T the audited financial statements for the year ended December 31, 2006, managements assessment of the effectiveness of the Companys internal control over financial reporting and D&Ts evaluation of the Companys internal control over financial reporting. This review included a discussion of:
· the reasonableness of significant financial reporting estimates and judgments made in connection with the preparation of the Companys financial statements;
· the quality (and not just the acceptability) of the Companys accounting principles;
· the clarity and completeness of financial disclosures;
· items that could be accounted for using alternate GAAP methods; and
· the potential effects of regulatory and accounting initiatives, as well as off-balance sheet structures, on the Companys financial statements.
The audit committee discussed with D&T other matters required to be discussed with the auditors under Statement on Auditing Standards No. 61, as amended by Statement on Auditing Standards No. 90 (communication with audit committees). The audit committee also received, reviewed and discussed with D&T their written disclosures required by Independence Standards Board Standard No. 1 (independence discussions with audit committees). In this regard, among other things, the committee reviewed and discussed with D&T its independence from the Company and its management.
The audit committee selected, and recommended to the board of directors the selection of, D&T as the Companys independent auditors for the year ended December 31, 2006.
Based on the reviews and discussions referred to above, the audit committee recommended to the board of directors that the audited financial statements be included in the Companys Annual Report on Form 10-K for the year ended December 31, 2006 for filing with the SEC.
The Audit Committee Report does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other Company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates the Audit Committee Report by reference therein.
This section provides information regarding the compensation programs for Stephen M. Carter, our principal executive officer (CEO), David S. Aldridge, our principal financial officer, and Justin F. Deedy, Jr., H. Patrick Jack, and Barbara L. Blackford, the three other most highly-compensated executive officers of the Company for 2006. We refer to these five executive offices as a group as the named executives. Messrs. Aldridge, Deedy and Jack and Ms. Blackford are referred to as the executive vice presidents or EVPs or the other named executives. This section includes, among other things, an explanation of:
· the overall objectives of our compensation program,
· what it is designed to reward,
· each element of compensation that we provide,
· the reasons for the compensation decisions we have made regarding these individuals, and
· our process for making compensation decisions.
The compensation committee of our board of directors has responsibility for approving the compensation programs for these executives and making decisions regarding specific compensation to be paid or awarded to them. The compensation committee acts pursuant to a charter approved by our board, which is reviewed annually and is available on the Companys website, www.superioressex.com.
The compensation committee, whose membership is limited to independent directors, recognizes the importance of maintaining sound processes for the development and administration of compensation and benefit programs to enhance the compensation committees ability to effectively carry out its responsibilities. To that end, the compensation committee:
· hired an independent compensation consultant to advise on executive compensation issues.
· compared the Companys compensation programs and amounts paid under those programs with the programs and amounts of a peer group of industrial companies.
· established annual reviews of detailed tally sheets which cover all aspects of executive compensation by type and amount.
· established an annual calendar of key responsibilities, including annual review of compensation philosophy and program design, setting and monitoring performance objectives and other important actions.
The Companys compensation programs in the last three years have been heavily influenced by an overriding objective: the Companys need to successfully progress out of the financial restructuring under its predecessor companys Chapter 11 proceeding. That predecessor, Superior TeleCom, Inc., and certain of its subsidiaries, filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code on March 3, 2003. Superior TeleCom decided to file a reorganization proceeding because it had been experiencing continued liquidity shortfalls which hampered its ability to meet debt service requirements on its long-term debt. These shortfalls were primarily a result of Superior TeleComs high debt level, combined with the overall global economic downturn and other specific industry conditions. These conditions included reduced demand levels in the communications and magnet wire sectors caused by, among other factors, substantial spending reductions by the regional Bell operating companies and independent telephone operating companies and migration of manufacturing customers to locations
outside the United States. In accordance with a plan of reorganization approved by the bankruptcy court, on November 10, 2003, we acquired the business formerly conducted by Superior TeleCom and its subsidiaries.
During the reorganization process and immediately following emergence from reorganization, the Companys compensation philosophy focused on attracting a new CEO and retaining and recruiting key executives. To that end, the Company:
· paid retention bonuses to certain key executives for continuing with the Company during and following emergence from Chapter 11 reorganization,
· entered into employment agreements with our CEO and the other named executives,
· established a supplemental executive retirement plan to provide enhanced benefits to our CEO and the other named executives, and
· consistent with practices for companies emerging from Chapter 11 reorganization, granted upfront equity awards to our CEO and Messrs. Aldridge, Deedy and Jack designed to offer a significant equity opportunity, which would align their interest with those of its new shareowners.
The upfront equity awards were made in late 2003 and early 2004 pursuant to the terms of employment agreements entered into with the CEO and the retained executives.
With the successful transition from reorganization, our compensation philosophy now emphasizes performance-based awards rather than service-based awards.
The compensation program for our executives is designed to attract, retain, and reward talented executives who can contribute to our long-term success and thereby build value for our shareowners. The program is organized around four fundamental principles:
· Provide Total Direct Compensation Opportunities That Are Competitive.
To enable the Company to attract, motivate and retain qualified executives, total direct compensation opportunities for each executive (base pay, annual bonus, and long term incentives) are targeted at levels to be competitive with median pay for similar positions at comparable, or peer, companies. Based on market data provided by Hewitt Associates, we believe the Companys total direct compensation for our named executives, collectively, is currently at or near median for comparable groups of executive positions at our peer companies. Total direct compensation and individual elements of compensation for our executives compared to executives at peer companies, however, vary based on many factors, which include: the size of the company, scope of job, complexity of the respective businesses, responsibilities, experience and differences in compensation philosophy.
We believe that having strong talent in critical functions may entail recruiting new executives from time to time. The compensation committee may determine in a particular situation that it is in the best interests of the Company to negotiate compensation arrangements that deviate from the general principle of targeting compensation at the median of our peers.
· A Significant Portion of Total Direct Compensation Should Be At Risk and Linked to Company Performance-Based Objectives.
We believe executives should be rewarded based on Company, business unit and individual performance. To this end, a significant portion of an executives total compensation should be at risk, with amounts actually paid dependent on performance against compensation committee-established objectives.
The compensation committee selects objectives which, if met, are designed to enhance shareowner value. The percentage of an individuals total direct compensation which is at risk depending upon achievement of these performance objectives should increase as the individuals business responsibilities increase.
· A Significant Portion of Total Direct Compensation Should Be Delivered in the Form of Equity-Based Awards.
We believe our focus on providing an equity stake in the Company effectively aligns executive and shareowner interests and provides motivation for enhancing shareowner value. Under the 2005 Incentive Plan which was approved by shareowners, the compensation committee has the ability to provide equity awards to executives in a variety of forms, including options, restricted stock, performance shares and other types of equity based awards. To supplement the motivational effect of equity-based awards, we also have stock ownership requirements (described under Stock Ownership Guidelines on page 41) that require executives to attain over time a level of stock ownership based on a multiple of their base pay and to limit the amount of equity awards they can sell prior to attaining such ownership levels.
· A Significant Portion of Total Direct Compensation Should Focus on Creating Longer-Term Shareowner Value.
We believe compensation should foster the long-term focus required for success in our businesses and appropriately balance between achieving both short- and long-term performance goals. Long-term success is measured in terms of multi-year financial operating metrics designed to create overall shareowner value. As an executives responsibility increases, the portion of compensation that is tied to the Companys long-term success also increases. The compensation committee uses equity-based compensation awards and stock ownership requirements to reinforce the connection between long-term performance and compensation.
In 2006, the compensation committee engaged the services of Hewitt Associates, a nationally recognized compensation consulting firm (Hewitt), as its independent consultant. The compensation committee consults with Hewitt in its review of matters affecting executive compensation, including the compensation committees review of retirement and benefit programs, employment agreements, and stock ownership guidelines. Hewitt representatives generally participate in all regularly scheduled meetings of the compensation committee. Hewitt also advises the compensation committee and the Board regarding compensation of the non-employee directors.
There have been no other engagements of Hewitt for the performance of any other services by the Company in 2006. Any other proposed engagement of Hewitt by the Companys management requires prior review and approval by the compensation committee or the compensation committee Chair so that any possible impact on the independence of Hewitt can be considered.
To determine 2006 compensation levels, the compensation committee relied on market data provided by Hewitt. This data consisted of compensation information for named executive officers for a group of 24 peer companies (listed below) recommended by Hewitt and approved by the compensation committee. The peer group consists primarily of publicly-traded industrial manufacturers and other companies operating in a continuous process environment. These companies range in size from annual 2004 revenues of $1 billion to $3 billion, with median annual revenues of $1.9 billion. The compensation committee believes that this group represents a reasonable benchmark for a manufacturer of the Companys size.
In addition to the compensation data for the peer group listed above, Hewitt also provided the compensation committee with a summary of compensation for named executive officers as reported in the proxy statements of General Cable and Belden CDT, companies which directly compete with certain telecommunications product lines sold by the Company.
To further account for variations in peer company size, regression analysis (with revenues as the independent variable) was used to determine size-adjusted market median values for base salaries, and for target annual and long-term incentive pay opportunities. The compensation committee established compensation levels for the named executive officers based on these size-adjusted market median values, as well as the other factors discussed below.
The compensation committee plans to evaluate its peer companies on a periodic basis to ensure they are appropriate for comparison purposes with the Companys executive compensation. To review 2007 compensation levels, the compensation committee relied on the market data provided for the 2006 peer group of companies, adjusted for an inflation factor.
Our compensation program consists of the following key elements:
· Base Pay
· Annual Cash Bonus Awards
· Long-Term Compensation
We refer to base pay, annual bonus and long-term compensation collectively as total direct compensation.
The 2006 market review revealed that the Companys target total direct compensation opportunities were below market overall, with significant variation by position and by element of compensation. The results of this market review are detailed in the discussion below of each of the elements.
As a matter of policy, the compensation committee does not feel that it must pay equivalent amounts to executives in comparable positions. Decisions with respect to specific individuals are based on the compensation committees view of market data and consideration of a variety of factors, including that individuals experience, position, performance and total compensation.
Based on this market analysis for 2006, the compensation committees goal is to target the following allocation of the key elements as a percentage of total direct compensation.
Consistent with the compensation principles discussed earlier, the compensation committee decided that the CEO should have the greatest percentage of total direct compensation at risk and tied to performance rather than being fixed. As indicated, though, a significant portion of total direct compensation for all named executives is performance-based. Compensation for each of the named executives will likely vary somewhat from these target percentages as the compensation committee makes decisions with respect to specific individuals based on its market analysis and the compensation committees evaluation of that individuals experience and performance. Percentages of total direct compensation ultimately earned by each of the named executives from each element will vary based on actual performance against objectives.
Base Pay. Based on market practices, the compensation committee believes it is appropriate that some portion of compensation is provided in a form that is fixed and liquid and that recognizes the experience and qualifications the executives bring to their roles. Each of our named executives has an employment agreement which establishes a minimum level of base salary and provides for an annual review of base salary by the compensation committee. Base salary for these executives is generally reviewed by the compensation committee in the first quarter of each year and any increases are effective on April 1. In setting base salary levels, the compensation committee is generally mindful of market data, the desired allocation of total direct compensation (shown in the table above), job responsibilities, experience and individual performance.
Base Pay Decisions for 2006 and 2007. The 2006 market analysis revealed that the base salaries of the CEO and General Counsel were significantly below the market median and that the other named executives were close to market. Based on the market data for the positions, and the compensation committees assessment of individual performance and responsibilities, the base salaries for executives established by the compensation committee were as follows:
Annual Cash Bonus Awards. Our annual cash incentive program is implemented under the 2005 Incentive Plan. We believe this program rewards performance upon achievement of the Companys short-term business objectives. It provides for annual cash payments to executives to the extent that Company-wide and business unit objectives set by the compensation committee for that year are attained. The compensation committees assessment of individual performance may also affect a particular executives annual cash bonus.
Target bonuses are set by the compensation committee at the beginning of each year. In 2006, the market review revealed that target bonuses for the EVPs were below the market median and the CEOs target bonus was at market median. As a result, the target bonus percentage for the EVPs was increased from 50% to 55% of base salary and the CEOs target bonus remained at 100% of base salary. Based on performance, actual payments can range from 0% to 110% of base salary for the EVPs and from 0% to 200% of base salary for the CEO. Each of the named executives has an employment agreement which establishes a minimum level of target bonus opportunity, but provides that actual pay-outs are based on achievement of the objectives established by the compensation committee.
Performance objectives for annual incentive awards are developed through an iterative process. Based on a review of the budget and the business plan for the upcoming year, management, including the named executives, develops preliminary recommendations for compensation committee review. The compensation committee and its independent compensation consultant review managements recommendation and the compensation committee establishes the final objectives. In establishing the final objectives, the compensation committee seeks to ensure that:
· the key performance measures are consistent with the strategic objectives set by the board,
· these measures are sufficiently challenging so that achievement of the objectives can reasonably be expected to benefit our shareowners, and
· bonus payments, assuming target levels of performance are attained, would be consistent with the overall compensation program established by the compensation committee.
For 2006, the financial performance objectives and weightings for annual incentive awards were as follows:
The financial objectives at target performance required significant improvement in year-over-year performance by the Company in 2006 which was considered to be challenging in light of rapidly escalating raw material and energy costs and the integration of the European magnet wire business acquired by the Company in late 2005. As a result, achievement could reasonably be expected to benefit our shareowners.
The adjustments used to compute Adjusted EBITDA and Adjusted EPS are applied consistently to exclude certain non-recurring special items and are disclosed in the Companys quarterly earnings releases. Adjusted Business Unit Operating Income is Adjusted EBITDA for the business unit, excluding management fees, but decreased for depreciation and amortization.
For corporate executives, Adjusted EBITDA and Adjusted EPS were selected as key measures of performance. Both measures are commonly used by investors and analysts to evaluate the Companys performance, to value the Company and its business and for comparison with other potential investments. For business unit executives, corporate Adjusted EBITDA and Adjusted Business Unit Operating Income were selected as performance measures. Adjusted Business Unit Operating Income is weighted more heavily to drive accountability for results over which the executive exercises the greatest control. Corporate Adjusted EBITDA was included as a performance measure for business unit executives to align and motivate all executives to contribute to overall Company performance.
If performance was below 90% of the target for both of the performance objectives, no annual incentive award would have been paid. At 90% of the targeted levels for either of the performance objectives, pay-out would be 60% of target bonus for the applicable performance objective. If performance exceeded target by more than 25% for either of the performance objectives, the annual incentive award pay-out for the applicable performance objective would be 200% of target.
The compensation committee can adjust the cash bonus payable based on the financial results to reflect its assessment of individual performance. In accordance with the Plan formula, if either the threshold level of any of the measures is achieved, an individual may receive an additional 20% of the amount otherwise payable under the financial formulae. Alternatively, the amounts to be paid could be reduced by the compensation committee by up to 20%, based on its assessment of an executives individual performance. Both adjustments are in the sole and absolute discretion of the compensation committee. The compensation committee did not make any of these adjustmentsupward or downwardin the bonus awards for 2006.
Bonus Awards for 2006. Following the end of 2006, the compensation committee compared actual performance to the compensation committees pre-established performance objectives. Corporate performance on both Adjusted EBITDA and Adjusted EPS significantly exceeded the threshold established for the maximum bonus pay-out for 2006, which resulted in awards to the three corporate executives at the maximum 200% of target bonus level. Applying the pre-established financial formulae, awards to business unit executives varied based on the performance of their units, with Mr. Deedy receiving a bonus award at the 200% of target bonus level, and Mr. Jack receiving a bonus award of 155% of target. These awards are included in the Summary Compensation Table on page 42. In 2006, Adjusted
EBITDA was $159.9 million, compared to $93.5 million in 2005, a 71% increase, and adjusted EPS was $2.88 per share, compared to $1.38 per share in 2005, a 109% increase.
For 2007, the compensation committee decided to continue to use basically the same methodology for determining annual bonus targets and awards that it used in 2006. The 2007 plan, however, provides that for corporate executives, the two factorsAdjusted Corporate EBITDA and Adjusted Corporate EPSwill be weighted equally. In addition, in 2007, the performance levels which provide the basis for a bonus award have been modified to provide that threshold performance begins at a lower percentage of target (e.g., 79% for corporate executives), but provide a lower payout (e.g., 20% payout at threshold).
Long-Term Compensation. As noted above, the compensation committee believes that a substantial portion of each executives compensation should be based on longer-term performance and should be in the form of equity-based awards because such awards align the interests of our executives and shareowners. Equity-based awards are made under the 2005 Incentive Plan. The mix between various types of equity awards can vary from year to year, based on the compensation committees judgment as to how best to drive performance to increase shareowner value.
The 2006 market review revealed that prior awards were generally at market, although there was variation by position, with the CEO and General Counsel positions being below market. After reviewing the market analysis, the compensation committee established target long-term awards for 2006 as follows:
· Mr. Carter: 200% of base salary
· Messrs. Aldridge, Deedy, and Jack: 140% of base salary
· Ms. Blackford: 120% of base salary
Target award values are denominated in shares based on the stock price as of the date of grant. As discussed earlier, the CEOs target long-term incentive compensation opportunity comprises 50% of his total direct compensation target. For the EVPs, target long-term incentive compensation opportunities comprise approximately 45% of their total direct compensation opportunities.
2006 Long-Term Awards. For long-term awards issued in 2006, the named executives received 75% of their equity awards in performance shares and 25% in restricted stock with vesting based on the passage of time. This allocation was intended to serve as a transition to a long-term incentive program that consists exclusively of performance based awards for the named executives.
The performance shares granted in 2006 may be earned at the end of 2007 based on results achieved in 2007. The restricted stock will vest at the end of three years, assuming continued employment.
For the 2006 performance shares, the financial performance objectives are return on net assets (RONA) (weighted at 65%) and increase in core business revenues (weighted at 35%). The compensation committee adopted these goalswhich focus on revenue growth at meaningful return on net asset levelsbecause it believes that strong results in these measures will increase shareowner value over the longer-term. The compensation committee also believes these objectives complement the shorter-term objectives established for the annual cash bonus awards. Except in limited circumstances, such as death or disability, the performance shares vest if and only to the extent that the Company meets specific performance objectives with respect to return on net assets and core business revenues for 2007.
The RONA target for 2007 under the performance awards represents a meaningful increase in RONA from 2005, particularly in light of the late 2005 acquisition of the Companys European magnet wire business. In 2005, the European business was adversely affected by the stagnation in the European economy and experienced pro forma RONA levels well below those being experienced in the Companys U.S. operations. The sales revenue target for 2007 also represents a significant increase over 2005. Both
the RONA and the sales revenue performance targets were increased by the compensation committee from the levels included in managements projections for 2007.
2007 Long-Term Awards. The two year performance period for the 2006 performance shares was intended to provide a transition to longer incentive performance cycles. Beginning in 2007, long-term awards to named executives will be based on a three year performance cycle. The 2007 performance share awards will measure performance based on three factors, weighted as indicated:
· 2009 Pro Forma Revenue25% (the pro forma adjustments to reflect full year revenues for any businesses acquired in 2009); and
· Adjusted EBITDA margin15%
Annual RONA and Adjusted EBITDA Margin performance will also be weighted to give progressively greater weight to performance in the later years of the performance period.
As mentioned above, for the 2006 annual cash bonus awards, the compensation committee had the authority to award an additional bonus of up to 20% of the total bonus that would otherwise be payable, based on its assessment of individual performance. In addition, the amounts to be paid as annual performance bonus, if any, could have been reduced by the compensation committee by up to 20% based on its assessment of an executives individual performance. For the performance shares granted in 2006, the compensation committee has the authority to reduce the pay-outs if the formula would result in unusually high amounts being paid to the executives that the compensation committee deems to be disproportionate to the improvement in Companys performance. The compensation committee has adopted a policy that future annual and long-term performance-based plans will provide the compensation committee the authority to reduce amounts earned from either cash or equity-based awards if it determines that the applicable formulae would result in payouts that would be disproportionate to the Companys performance, or other extraordinary circumstances merited a reduction in amounts earned, such as a restatement of earnings that are the basis of these formulae.
Senior Executive Retirement Plan. The compensation committee believed that it was essential coming out of reorganization to attract a new CEO and retain a team of experienced senior executives who would stay with the Company during this rebuilding period. Accordingly, the Company established an unfunded, non-tax-qualified senior executive retirement plan (SERP) with several features designed to enhance retention. The compensation committee adopted this SERP in 2004 after review with Watson Wyatt, another nationally recognized consulting firm, which was serving as the compensation committees compensation consultant at that time. Watson Wyatt advised the compensation committee that the benefits element of compensation for the named executives was not competitive with a peer group of companies identified by Watson Wyatt. Watson Wyatt recommended adoption of a SERP to close this competitive gap which included accrual rates for the CEO and EVPs of 2.5% and 2.0% of final average compensation, respectively, and additional service credit for Messrs. Carter, Aldridge, Deedy and Jack, provided that they remain with the Company through late 2008. The compensation committee believes that these provisions in the SERP are attractive and considers the SERP to have been appropriate and beneficial to the Company in light of the compensation committees concerns about retention at the time of the companys emergence from bankruptcy. It does not plan to add any participants to this SERP at these benefit levels going forward. Any post-retirement benefits for new hires would be based on the market for such plans and the particular position involved.
Additional information regarding the executives SERP benefits is found under Pension Benefits on pages 46-47.
401(k), Health & Welfare Benefits. Under their employment agreements, the named executives are entitled to participate in Companys employee benefit plans (including 401(k), health and welfare benefits) on the same basis as other similar executives of the Company. Those benefits are currently the same as those provided to all employees of the Company.
Perquisites. While perquisites were viewed as beneficial in recruiting executives as the Company was coming out of reorganization, the compensation committee decided in 2005 that certain perquisites were no longer consistent with its compensation objectives. It therefore terminated reimbursement for club dues, personal automobile expenses and a special health care allowance and capped other perquisites. Remaining perquisites for the named executives are limited to automobile allowances, reimbursement for financial advisory services, and in the case of Messrs. Aldridge and Deedy, payment of certain disability insurance premiums. These remaining perquisites have a modest incremental cost to the Company. (They are detailed in footnote 4 on page 42).
In setting 2006 compensation, the compensation committee considered the total target direct compensation potentially available to each executive compared to peers in the Companys peer group. It also began the practice of reviewing tally sheets to provide the compensation committee an overview and analysis of all elements of compensation of its executives under a variety of scenarios, including termination. In 2007, the compensation committee again reviewed tally sheets as part of its process for establishing base pay increases, setting annual and long-term incentive targets, and making long-term incentive and equity awards.
At or shortly after the time the Company emerged from bankruptcy, the Company entered into employment agreements with the CEO and the EVPs. The board and the compensation committee were of the view that such contracts were necessary to attract and retain a management team that would be properly motivated and committed to move the Company from its past difficulties to a profitable future benefiting the Companys shareowners. Additional information regarding the terms of these agreements, including a definition of key terms and a quantification of benefits that would have been received by our CEO and EVPs had termination occurred on December 31, 2006, is found under Potential Payments Upon Termination or Change of Control on pages 47-51. These employment agreements provide certain benefits to the executive in case of his/her termination by the Company, or significant diminution of position and responsibilities or overall benefits. These benefits are enhanced in a change of control. The compensation committee believes this enhancement serves the best interests of the Company and its shareowners by ensuring that, if a change of control is ever under consideration, the Companys senior executives will be able to advise the board of directors dispassionately about the potential transaction and implement the decision of the board without being unduly influenced by personal concerns such as the economic consequences of possibly losing their jobs following a change of control. The triggering events for these enhanced benefits in a change of control were designed to support this objective.
In March 2006, the compensation committee approved the amendment of these employment agreements in order to provide more uniform treatment among the named executives in the case of termination of employment under various circumstances, to generally reduce the level of perquisites the Company provides, to modify target bonuses for executives, to comply with Code Section 409A and to make certain other changes.
Code Section 162(m) limits our ability to deduct annual compensation in excess of $1 million paid to any of the named executive officers. This limitation generally does not apply to compensation based on performance goals if certain requirements are met. The compensation committee has considered the effect of Code Section 162(m) on the Companys executive compensation program and will attempt to satisfy the requirements for deductibility under Code Section 162(m) with respect to performance-based compensation. The compensation committee has decided, however, that it needs to retain the flexibility to exercise its judgment in assessing an executives performance and that the total compensation program for executive officers should be managed in accordance with the compensation committees previously stated objectives. Thus, if the requirements for deductibility under Section 162(m) conflict with our executive compensation principles and objectives or with what the compensation committee believes to be in the best interests of the shareowners, the compensation committee may authorize compensation which is not deductible, in whole or in part, for any given year.
With the adoption of FAS 123R, the Company does not expect the accounting treatment of differing forms of equity awards to vary significantly. Therefore accounting treatment is not expected to have a material affect on the selection of forms of equity compensation or on other compensation decisions.
The compensation committee develops an annual agenda to assist it in fulfilling its responsibilities. Generally, in the first quarter of each year, the compensation committee:
· reviews prior year performance and authorizes the distribution of bonuses and long-term incentive pay-outs, if any, for the prior year.
· reviews tally sheets detailing compensation paid and opportunities for future compensation.
· establishes performance criteria for the current year bonus program and for any long-term incentive awards.
· reviews base pay and sets the actual level of performance objectives for the current year bonus program and any long-term incentive awards.
This timing has been selected in part to address certain tax considerations. In order to satisfy the deductibility requirements under Code Section 162(m), Company annual and long-term performance objectives must be established no later than the end of March. In addition, in order to avoid being considered deferred compensation under Code Section 409A, Company bonus awards with respect to the prior year generally must be paid out prior to March 15th of the following year.
The Company has established written guidelines for the grant, delivery, documentation and recording of equity awards and reviewed these guidelines during 2006. Equity awards may be made only by the compensation committee or those authorized by the compensation committee and may not be backdated. The compensation committee has established written delegations authorizing the CEO to make awards to employees who are not executive officers, subject to pre-established limitations on individual awards and total awards. The CEO reports to the compensation committee on the use of such authority and the compensation committee reviews the authority annually.
Grants can only be authorized in writing. Authorizations of amendments, modifications or changes to awards must also be in writing and can only be adopted with the approval of the compensation committee. Stock option awards must be granted at not less than the fair market value of the Companys stock on the grant date.
Generally, for employees, the Company makes equity grants annually as of the first business day of April of each year. This date was selected because it allows a consistent practice over time among all employee recipients, including executives, in coordination with other key annual compensation events such as annual increases in base pay. The date also allows sufficient time for the compensation committee to complete its executive compensation evaluation process for the current year. New hire equity grants, grants upon promotions and other awards that are not annual grants are generally made as of the first business day of the month following the date of employment, promotion or other triggering event. The compensation committee does not plan to vary the grant date of equity awards based on the release of material inside information, but has reserved the right to do so in unusual circumstances which might, for example, occur in connection with a major corporate transaction or other extraordinary event.
For directors, the director compensation plan provides for annual awards to directors on the day following the annual meeting of shareowners and initial awards to new directors on the date such directors join the board. The amount of such awards, or formula for establishing the amount of such awards, is set forth in the director compensation plan. Additional information regarding the directors compensation is found under Compensation of Directors on pages 10-13.
Our compensation committee, composed entirely of independent directors, administers our executive compensation program. The compensation committee reviews and approves annually all compensation decisions relating to our executive officers named in the Summary Compensation Table. The compensation committee submits its decisions with respect to the CEO to the independent directors of our board for approval. Management is responsible for compensation and benefits for employees other than executive officers, subject to review by the compensation committee of compensation with respect to certain officers and administration of the Companys pension and benefit plans.
The Companys Senior Vice PresidentAdministrative Services serves as management liaison officer for the compensation committee and the Companys General Counsel serves as secretary for the compensation committee. The administrative services and legal departments provide assistance to the compensation committee in connection with administration of the compensation committees responsibilities, such as setting meetings and assembling and distributing materials for compensation committee meetings.
The CEO and the other named executives have no role in recommending or setting their own compensation. The CEO makes recommendations regarding compensation matters related to his direct reports and provides input regarding executive compensation programs and policies. The compensation committee meets with the CEO to evaluate his performance against the goals which have been established by the board. In addition, management assists the compensation committee by:
· making recommendations to the board regarding budgets which typically assist in setting executive compensation performance objectives;
· providing information needed or requested by the compensation committee or its compensation consultant, such as Company performance against budget and objectives, tally sheets, historic compensation, compensation expense, stock plan utilization, Company policies and programs, peer companies, etc.; and
· providing input and advice regarding compensation programs and policies and their impact on the Company and its executives.
The Company has adopted guidelines for executive ownership of Company stock because it believes such ownership will compliment the equity-based compensation programs in aligning management and shareowner interests. The guidelines are expressed as a multiple of base salary set forth below:
Executives will have five years from August 1, 2006, the date of their adoption, to meet these ownership guidelines. Newly covered executives will have five years from the time they are named to a qualifying position to meet the ownership guidelines.
The following are counted towards satisfaction of the stock ownership guidelines:
· Shares owned (or beneficially owned) by the executive, including shares acquired upon exercise of stock options or acquired through the ESPP
· Time vesting restricted stock or restricted stock units, whether vested or not
Stock options, unvested performance shares or other similar awards are not counted.
Prior to attaining sufficient shares to satisfy the stock ownership guidelines, executives are required to retain shares having a value equal to at least 50% of the after-tax gain recognized with respect to their exercise of stock options, sale of vested restricted stock or other disposition with respect to any equity awards granted under the Companys equity incentive plans. The number of shares to be retained will be determined based on the value of the shares on the date of sale.
Adherence to the guidelines will be measured on January 1 of each year, using the executives base pay and the value of the executives holdings and stock price on that day. The compensation committee will receive a report annually on progress towards attainment of these guidelines. Once an executive attains the guideline ownership, he or she will not be considered to fall out of compliance solely due to subsequent stock price declines.
If an executive does not meet the stock ownership guidelines, the compensation committee will take such fact into account in determining whether or the extent to which future equity awards should be made to the executive, may require all stock attained through Company grants of equity be retained until the guidelines are satisfied, or take any other action the compensation committee deems appropriate. In the rare instance in which compliance with the stock ownership guidelines would place an undue hardship on an executive or prevent an executive from complying with a court order, such as a divorce settlement, the compensation committee may grant transitional relief.
It is the Companys policy that directors, officers or employees may not engage in short-term speculative transactions involving trading in Company securities. This includes short sales, sales against the box and puts, calls and options on Company securities (other than the exercise of employee or director stock options). Other practices which may be effectively considered hedging, such as forward purchase contracts or margin loans, are not prohibited, but are subject to legal review in advance.
The compensation committee has reviewed and discussed the Compensation, Discussion and Analysis as required by Item 402(b) of the SECs Regulation S-K with management of the Company. Based on such review and discussion, the compensation committee has recommended to the board that the Compensation, Discussion and Analysis be included in this proxy statement.
The Compensation Committee Report does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other Company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates the Compensation Committee Report by reference therein.
The following table sets forth the compensation earned by our CEO and other named executives for the year ended December 31, 2006.
(1) Represents the accounting expense we recognized in 2006 for stock and option awards held by the named executive officer, calculated in accordance with disclosure rules of the SEC. The amounts included in the table for each award include the amount recorded as expense in our income statement for 2006. The fair values of these awards and the amounts expensed in 2006 were determined in accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payment (which we refer to as FAS 123R) or, with respect to awards granted prior to 2006, in accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 Accounting for Stock-Based Compensation (which we refer to as FAS 123). The assumptions used in determining the grant date fair values of these option awards are set forth in the notes to the Companys consolidated financial statements for 2005 and 2006, which are included in our Annual Reports on Form 10-K for 2005 and 2006, filed with the SEC. The awards for which expense is shown in this table include the awards described in the Grants of Plan-Based Awards table beginning on page 43, as well as awards granted in 2003, 2004 and 2005 for which we continued to recognize expense in 2006.
(2) Reflects the value of cash bonus compensation earned under the Amended and Restated Executive Bonus Plan, our program for annual cash bonuses, which is discussed under Annual Cash Bonus Awards in the Compensation, Discussion and Analysis, beginning on page 34.
(3) Amounts show the increase during 2006 in actuarial values of each executive officers benefits under our SERP.
(4) Amounts included in this column are reflected in the following table.
This table discloses the actual number of restricted stock awards and performance share awards granted to our named executives in 2006 and the grant date fair value of these awards. It also shows the potential payouts as of the beginning of 2006 as annual cash bonus awards for 2006 performance, which is a form of non-equity incentive plan.