OM Group, Inc. DEF 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment
No. )
Filed by the Registrant þ
Filed by a Party other than the
Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to Section
240.14a-12 |
OM GROUP, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1)
and 0-11. |
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(1) |
Title of each class of securities to which transaction applies: |
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Aggregate number of securities to which transaction applies: |
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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 0-11 (set
forth the amount on which the filing fee is calculated and state
how it was determined): |
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Proposed maximum aggregate value of transaction: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
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Amount Previously Paid: |
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Form, Schedule or Registration Statement No.: |
OM GROUP, INC.
127 Public Square
1500 Key Tower
Cleveland, Ohio
44114-1221
Notice of Annual Meeting of Stockholders
to be Held May 8, 2007
The Annual Meeting of Stockholders of OM Group, Inc. will be
held in the
27th Floor
Conference Center Auditorium at Key Tower, 127 Public Square,
Cleveland, Ohio 44114, on Tuesday, May 8, 2007, at
10:00 a.m., for the following purposes:
1. To elect two directors for terms expiring in 2010 and
one director for a term expiring in 2009;
2. To act upon a proposal to adopt the 2007 Incentive
Compensation Plan;
3. To confirm the appointment of Ernst & Young LLP
as our independent registered public accountant; and
4. To consider any other business that is properly brought
before the meeting or any adjournment.
Stockholders of record at the close of business on
March 16, 2007 are entitled to notice of and to vote at the
meeting. This proxy statement and the accompanying proxy will be
sent to stockholders by mail on or about March 28, 2007.
We cordially invite you to attend the meeting. To ensure your
representation at the meeting, please vote promptly by mail,
telephone or the Internet by following the instructions on the
enclosed proxy or voting instruction card, even if you plan to
attend the meeting. Mailing your completed proxy or voting
instruction card, or using our telephone or Internet voting
systems, will not prevent you from voting in person at the
meeting if you wish to do so.
By Order of the Board of Directors
Valerie Gentile
Sachs, Secretary
Cleveland, Ohio
March 28, 2007
PROXY STATEMENT
for
ANNUAL MEETING OF STOCKHOLDERS
of
OM GROUP, INC.
TABLE OF
CONTENTS
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A-1
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VOTING
AND MEETING INFORMATION
What is
the purpose of the annual meeting?
At our annual meeting, you will be asked to:
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elect two directors to serve for terms expiring at our annual
meeting in 2010 and one director to serve for a term expiring at
our annual meeting in 2009;
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adopt the 2007 Incentive Compensation Plan; and
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confirm the appointment of Ernst & Young LLP as our
independent registered public accountant.
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In addition, we will transact any other business that properly
comes before the meeting.
Who is
entitled to vote?
Holders of record of our common stock as of the close of
business on March 16, 2007 are entitled to vote at the
annual meeting. At that time, we had 29,800,253 outstanding
shares of common stock. We have no other outstanding classes of
stock that are entitled to vote at the annual meeting. Voting
stockholders are entitled to one vote per share.
How do I
vote?
You may vote in person at the meeting or through a proxy or
voting instruction card. To vote by proxy or voting instruction
card, you should sign and date each proxy card or voting
instruction card you receive and return it in the prepaid
envelope. If you are a registered stockholder or a participant
in our Profit-Sharing and Retirement Savings Plan, you may vote
by telephone or electronically through the Internet, by
following the instructions included on your proxy card or voting
instruction card.
What if I
hold shares indirectly?
If you hold shares in a stock brokerage account or through a
bank or other nominee, you are considered to be the beneficial
owner of shares held in street name and these proxy
materials are being forwarded to you by your broker or nominee.
As the beneficial owner you have the right to direct your broker
how to vote. Under the New York Stock Exchange rules, your
broker is permitted to vote your shares on the election of
directors and the appointment of the independent registered
public accountant, even if you do not furnish voting
instructions. However, your broker may not vote on the proposal
relating to the 2007 Incentive Compensation Plan without
instructions from you. If you do not provide instructions on
this issue, a broker non-vote will occur.
If your shares are held in street name, your broker
or other nominee may have procedures that will permit you to
vote by telephone or electronically through the Internet.
Can I
change my vote?
You have the right to change your vote at any time before votes
are counted at the meeting by:
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notifying us in writing at our corporate offices and to the
attention of our Vice President, Strategic Planning, Development
and Investor Relations;
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returning a later-dated proxy card;
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voting at a later time by telephone or over the Internet; or
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voting in person at the meeting.
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1
What are
the requirements and procedures for a quorum, abstentions and
broker non-votes?
Your shares are counted as present at the meeting if you attend
the meeting or if you properly return a proxy by mail or vote by
telephone or through the Internet. In order for us to vote on
matters at the meeting, a majority of our outstanding shares of
common stock as of March 16, 2007 must be present in person
or by proxy at the meeting, which includes shares that have been
voted by telephone or the Internet. This is referred to as a
quorum. Abstentions will be counted for purposes of establishing
a quorum at the meeting and will be counted as voting (but not
for or against) on the affected proposal. Broker non-votes will
be counted for purposes of establishing a quorum but will not be
counted as voting. If a quorum is not present, the meeting will
be adjourned until a quorum is present.
How many
votes are needed to elect directors and approve the other
proposals?
The nominees for director who receive the greatest number of
for votes will be elected to the director positions
being filled. Shares not voted will have no impact on the
election of directors. If you sign and return a proxy card or
use the telephone or Internet procedures but do not give voting
instructions, your shares will be voted for the
candidates nominated by the Nominating and Governance Committee
and approved by the Board. Approval of the other proposals
requires the affirmative vote of a majority of shares
represented at the meeting.
How will
voting on any other business be conducted?
We currently do not know of any business to be considered at the
annual meeting other than the three proposals described in this
proxy statement. If any other business is properly presented at
the meeting, your signed proxy card or use of the telephone or
Internet procedures gives authority to the named proxies to vote
your shares on such matters in their discretion.
Who will
count the vote?
Representatives of National City Bank will tabulate the votes
and act as inspectors of election.
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PROPOSAL 1.
ELECTION OF DIRECTORS
Our authorized number of directors is presently fixed at eight,
divided into three classes, with two classes having three
members and one class having two members. Our directors are
elected to serve three-year terms, so that the term of office of
one class of directors expires at each annual meeting.
The Nominating and Governance Committee has recommended, and the
Board of Directors has approved, the nomination of the following
individuals, each of whom is currently a director, for election
as directors for terms expiring at our annual meeting in 2010:
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Katharine L. Plourde
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David L. Pugh
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and the following individual, who also is currently a director,
for election as a director for a term expiring at our annual
meeting in 2009:
If any of these nominees becomes unavailable for election, the
accompanying proxy may be voted for a substitute, or in favor of
holding a vacancy to be filled by the directors. We have no
reason to believe that any nominee will be unavailable. The
accompanying proxy may be voted for up to the number of nominees
named and the nominees receiving the largest number of
FOR votes will be elected to the director positions
to be filled.
The following information is provided regarding each nominee for
election as a director and the continuing directors.
Nominees
for Election as Directors for Terms Expiring in 2010
Katharine L. Plourde, age 55, has been a director
since 2002. Ms. Plourde was a Principal and analyst at the
investment banking firm of Donaldson, Lufkin &
Jenrette, Inc., New York, New York, until November 1997. Since
that time she has engaged in private investing. Ms. Plourde
is a director of Pall Corporation (NYSE:PLL), a global producer
of filtration and separation products and systems and serves as
a director of a private corporation.
David L. Pugh, age 58, was appointed as a director
on January 9, 2007. Mr. Pugh has served as Chairman of
Applied Industrial Technologies Inc. (Applied), an
industrial product distributor, since October 2000, and as
Applieds Chief Executive Officer since January 2000. He
was President of Applied from 1999 to October 2000. Prior to
joining Applied, Mr. Pugh was Senior Vice President of
Rockwell Automation and general manager of Rockwells
Industrial Control Group. Mr. Pugh is a director of Hexcel
Corporation (NYSE:HXL), a plastics materials manufacturer, and
of R.W. Becket Corp., a private company. Mr. Pugh was
recommended to the Nominating and Corporate Governance Committee
by a third-party search firm retained by that Committee.
Nominee
for Election as Director for Term Expiring in 2009
Gordon A. Ulsh, age 61, was appointed as a director
on February 16, 2007. Mr. Ulsh has served as
President, Chief Executive Officer and a director of Exide
Technologies (Exide), a company specializing in
stored electrical energy products and services for industrial
and transportation applications around the world since April
2005. From 2001 until March 2005, Mr. Ulsh was Chairman,
President and Chief Executive Officer of FleetPride Inc., the
nations largest independent aftermarket distributor of
heavy-duty truck parts. Prior to joining FleetPride in 2001,
Mr. Ulsh worked with Ripplewood Equity Partners, providing
analysis of automotive industry segments for investment
opportunities. Earlier, he served as President and Chief
Operating Officer of Federal-Mogul Corporation in 1999 and as
head of its Worldwide Aftermarket Division in 1998. Prior to
Federal-Mogul, he held a number of leadership positions with
Cooper Industries, Inc., including Executive Vice President of
its automotive products segment. Mr. Ulsh joined Wagner
Brake and Lighting in 1983 as Vice President of Operations
(which company was acquired by Cooper Industries, Inc. in 1985),
following 16 years in manufacturing and engineering
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management at Ford Motor Company. Mr. Ulsh was recommended
to the Nominating and Corporate Governance Committee by a
third-party search firm retained by that Committee.
THE BOARD
OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR
ALL NOMINEES.
Continuing
Directors Whose Term of Office Expires in 2009
Richard W. Blackburn, age 64, has been a
director since August 2005. Mr. Blackburn retired from Duke
Energy Corporation in 2004 after seven years as Executive Vice
President and General Counsel, the last year of which he was
also Chief Administrative Officer. Mr. Blackburn is a
director of Enesco Group, Inc., a producer of giftware and home
and garden decor products, and is a Trustee of the Massachusetts
Eye and Ear Infirmary and George Washington University.
Steven J. Demetriou, age 48, has been a
director since November 2005. Mr. Demetriou has been the
Chairman of the Board and Chief Executive Officer of Aleris
International, Inc., an international aluminum company, since
December 2004 following the merger of Commonwealth Industries,
Inc. and IMCO Recycling, Inc. Mr. Demetriou served as
President and Chief Executive Officer of Commonwealth from June
2004 and served as a director of Commonwealth from 2002 until
the merger. Mr. Demetriou was President and Chief Executive
Officer of privately held Noveon, Inc., a global producer of
advanced specialty chemicals for consumer and industrial
applications, from 2001 until June 2004, at which time he led
the sale of Noveon to Lubrizol Corporation. From 1999 to 2001,
he was Executive Vice President of IMC Global Inc., a producer
and distributor of crop nutrients and animal feed ingredients.
Mr. Demetriou also serves on the board of privately held
Kraton Polymers. He serves on the boards of several community
organizations including United Way of Greater Cleveland,
Cuyahoga Community College Foundation and the Cleveland
Zoological Society.
Continuing
Directors Whose Term of Office Expires in 2008
William J. Reidy, age 66, has been a director since
2002. Mr. Reidy, a CPA, was the managing partner of the
Northeast Ohio practice of PricewaterhouseCoopers LLP. He
retired from PricewaterhouseCoopers in 1999 after a
35-year
career with the firm. Mr. Reidy is a member of the Board of
Trustees of The Cleveland Clinic Foundation, a provider of
health care services, and he currently serves on the boards of
several community organizations including Cleveland Clinic
Western Region and the Gateway Economic Development Corporation.
Joseph M. Scaminace, age 53, has been a director and
our Chief Executive Officer since June 2005 and Chairman of our
Board since August 2005. From 1999 to June 2005,
Mr. Scaminace was the President, Chief Operating Officer
and a board member of The Sherwin-Williams Company, a
manufacturer and distributor of coatings. Mr. Scaminace
currently is a member of several boards of directors, including
Parker-Hannifin Corporation (NYSE:PH), a global producer of
fluid power systems, electromechanical controls, and related
components, Boler Company, a privately held company that makes
truck and trailer suspension systems and auxiliary axles systems
for the commercial heavy-duty vehicle market, and The Cleveland
Clinic Foundation, a provider of health care services.
PROPOSAL 2.
ADOPTION OF THE 2007 INCENTIVE COMPENSATION PLAN
On February 7, 2007, the Board approved the 2007 Incentive
Compensation Plan, subject to approval by our stockholders at
this annual meeting. If approved by the stockholders, the 2007
Plan will supersede and replace our 1998 Long-Term Incentive
Compensation Plan and our 2002 Stock Incentive Plan. The 1998
Plan and 2002 Plan will terminate upon stockholder approval of
the 2007 Plan, such that no further grants will be made under
either the 1998 Plan or the 2002 Plan. The terminations will not
affect awards then outstanding under the 1998 Plan or the 2002
Plan. A copy of the 2007 Plan is attached to this proxy
statement as Exhibit A and a summary of the 2007 Plan is
provided below.
Purpose and Awards. The purpose of the 2007
Plan is to advance our long-term interest by attracting,
motivating and retaining our key employees and non-employee
directors by means of long-term incentive
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compensation that will align the interests of participants and
stockholders through the ownership and performance of our common
stock. Under the 2007 Plan, the Compensation Committee of the
Board may grant stock options, stock appreciation rights,
restricted stock awards and phantom stock and restricted stock
unit awards.
Administration. The 2007 Plan is administered
by the Compensation Committee, which has conclusive authority to
construe and interpret the 2007 Plan and any related award
agreement, and to establish, amend and rescind administrative
policies for the administration of the 2007 Plan, including the
creation of any subplans or policies necessary to enable
employees who are foreign nationals or employed outside of the
U.S. to participate in the Plan.
Eligibility. Those persons eligible to
participate in the 2007 Plan are (a) our employees and
employees of our subsidiaries who hold positions of managerial,
administrative or professional responsibility and whose
performance, as determined by the Compensation Committee, merits
awards under the 2007 Plan and (b) non-employee directors.
The terms, conditions and restrictions of each award are set
forth in an award agreement.
Shares Subject to the 2007 Plan. The
total number of shares of common stock available for awards
under the 2007 Plan (including any annual stock issuances made
to non-employee directors) is 3,000,000. The 2007 Plan provides
that no more than 1,500,000 shares of common stock may be
the subject of awards that are not stock options or stock
appreciation rights. In addition, no more than
250,000 shares of common stock may be awarded to any one
person in any calendar year, whether in the form of stock
options, restricted stock or another form of award.
Stock Options. Stock option awards may be
granted in the form of non-statutory stock options or incentive
stock options. Options are exercisable in whole or in such
installments as may be determined by the Compensation Committee,
except that no stock option may be exercisable more than ten
years after the date of grant. The Compensation Committee
establishes the exercise price of stock options, which may not
be less than the per share fair market value of our common stock
on the date of grant. The Board may establish other terms,
conditions, restrictions or limitations on any stock option
award, including vesting periods and continued employment
requirements. The exercise price is payable in cash or shares of
common stock, or a combination of cash and common stock, or
other consideration as determined by the Compensation Committee.
Stock options granted in the form of incentive stock options are
also subject to certain additional limitations, as provided in
Section 422 of the Internal Revenue Code of 1986, as
amended. The aggregate fair market value of common stock with
respect to which incentive stock options may become exercisable
by an employee in any calendar year may not exceed $100,000. In
addition, any incentive stock option granted to an employee who
owns shares of our common stock possessing more than 10% of the
combined voting power of all classes of our shares must have an
option price that is at least 110% of the fair market value of
the shares and may not be exercisable more than five years after
the date of grant.
Stock Appreciation Rights. Stock appreciation
rights (SARs) may be granted pursuant to the 2007 Plan either
separately or in conjunction with stock options. Upon exercise
of a SAR, the holder will receive payment from us equal to the
appreciation in market value of the shares of common stock
covered by the SAR over the option or grant price of the SAR.
The Committee may determine all other terms, conditions,
restrictions and limitations on any SAR award, including the
manner in which payment of the appreciation in value shall be
made.
Restricted Stock Awards. The Compensation
Committee may grant restricted stock awards with such terms,
conditions, restrictions or limitations as the Compensation
Committee may determine are appropriate, including restrictions
on vesting and transferability, requirements for continued
employment or service, individual performance or our performance
at the corporate, segment or identified business level. However,
all time-based restricted stock awards must have a minimum
vesting schedule of three years and all performance-based
restricted stock awards must have a minimum vesting schedule of
one year. During the period in which any shares of our common
stock are subject to any conditions, restrictions or
limitations, the Compensation Committee may grant to the
participant to whom the award was made rights of a stockholder
with respect to such shares, including the right to vote such
shares and to receive dividends paid on the shares of common
stock.
5
If restricted stock awards are granted subject to our financial
performance, those awards will be earned upon satisfaction of
the performance targets related to the performance period
established by the Compensation Committee. Performance targets
may vary among awards and among participants. The Compensation
Committee may establish performance targets in terms of all or
any combination of the following: sales, sales growth, gross
margins, operating profit, operating profit growth, net income,
net income growth, earnings per share, growth in earnings per
share, EBITDA, cash flow per share, total stockholder returns,
return on equity, return on invested capital, return on net
assets employed, common stock price or common stock price
appreciation. In determining whether performance targets have
been met, the Compensation Committee has discretion to take
nonrecurring or extraordinary events or items into account.
Section 162(m) of the Internal Revenue Code of 1986
prohibits a publicly-held corporation from claiming a deduction
on its federal income tax return for compensation in excess of
$1 million paid for a given fiscal year to the chief
executive officer and the four next most highly compensated
officers of the corporation at the end of a fiscal year. The
$1 million compensation deduction limitation does not apply
to performance-based compensation under
Section 162(m) of the Code. To the extent appropriate,
restricted stock awards that are made to participants who are
subject to Section 162(m) of the Code are intended to
qualify under Section 162(m).
Phantom Stock and Restricted Stock Units. The
Compensation Committee may grant awards of phantom stock and
restricted stock units, each of which will entitle the
participant to receive the market value or the appreciation in
value of an equivalent number of shares of common stock on the
settlement date determined by the Compensation Committee. The
Compensation Committee may determine other terms, conditions,
restrictions or limitations on any award of phantom stock or
restricted stock units, including restrictions on vesting and
transferability, requirements for continued employment or
service, individual performance or our performance at the
corporate, segment or identified business level, but subject to
the minimum vesting schedule described above under
Restricted Stock Awards. Performance-based phantom
stock or restricted stock unit awards shall be subject to
satisfaction of one or more of the corporate, segment or
identified business performance goals listed above under
Restricted Stock Awards, as specified by the
Compensation Committee. Phantom stock or restricted stock unit
awards based on such performance criteria and made to employees
subject to Section 162(m) of the Code are intended to
qualify under Section 162(m) to the extent appropriate.
Annual Stock Issuance to Non-Employee
Directors. Each non-employee director may receive
all or a portion of his or her annual compensation as a
non-employee director in the form of common stock, as determined
annually by the Board of Directors in its discretion. The amount
of annual compensation paid in common stock may vary from year
to year. For purposes of determining the number of shares of
common stock to be issued, the shares will be valued at the
average of the high and low sale price of the common stock on
the NYSE on the applicable measurement date.
Annual Incentive Awards. The Compensation
Committee is responsible for administering our annual incentive
program, which provides annual bonus opportunities to certain of
our employees. The Compensation Committee annually selects the
employees who participate in the program and determines the
annual bonus opportunity available to each selected employee.
Annual bonus opportunities are based on factors and subject to
terms and conditions provided in the annual incentive program
for the particular year, which may include satisfaction of
corporate performance goals, segment or identified business
performance goals and individual objectives. A performance bonus
will be earned upon satisfaction of one or more of the
performance targets listed above under Restricted Stock
Awards, as specified by the Compensation Committee. Such
performance bonus awards are intended to qualify under
Section 162(m) of the Code, and the maximum dollar amount
of any performance bonus payable to an employee in a calendar
year is $10,000,000.
Dividends and Dividend Equivalents. If an
award is granted in the form of a restricted stock award or a
phantom stock or restricted stock unit award, the Compensation
Committee may choose to grant to the participant who received
the award the right to receive dividends or dividend equivalents.
Transferability. The rights and interest of a
participant under the 2007 Plan may not be transferred, except
by will or the applicable laws of descent and distribution in
the event of the participants death.
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Adjustments upon Changes in
Capitalization. The number of shares of our
common stock as to which awards may be granted under the 2007
Plan (as well as the limitations upon the number of shares
subject to awards other than stock options and SARs and subject
to awards to an individual in a calendar year) and shares of
common stock subject to outstanding awards (together with the
exercise price of outstanding stock options or SARs) will be
appropriately adjusted to reflect changes in our capitalization,
including stock splits, stock dividends, mergers,
reorganizations, consolidations and recapitalizations.
Noncompetition. A key employee or non-employee
director may be required to forfeit unexercised, unearned or
unvested awards under the 2007 Plan if the Compensation
Committee determines that he or she has engaged directly or
indirectly in any business or activity that is competitive with
our business or is, in the opinion of the Compensation
Committee, detrimental to our best interests.
Amendment. The Board may amend, suspend or
terminate the 2007 Plan at any time, subject to applicable
shareholder approval requirements. The Compensation Committee
may amend any outstanding award agreement, except only with the
consent of the participant if the participants rights
would be impaired and not so as to increase the amount otherwise
payable under an award intended to qualify as performance-based
compensation under Section 162(m) of the Internal Revenue
Code.
Change in Control. In the event of a change in
control (as defined in the 2007 Plan), stock options not
otherwise exercisable will become fully exercisable, and all
restrictions and conditions previously established (including
performance targets, at the target level) with respect to
restricted stock, phantom stock and restricted stock unit awards
will be deemed to have been satisfied. SAR awards will become
exercisable, and we will pay each participant the spread between
the base price of the SAR and the price paid in connection with
the change in control. With regard to annual incentive awards,
all performance targets and individual objectives will be deemed
to have been satisfied, and employees participating in the
annual incentive program will be entitled to receive payments of
bonuses on that basis.
Term. Awards may be granted under the 2007
Plan for a period of ten years from the date of adoption of the
2007 Plan by the Board, at which date the 2007 Plan will expire
without affecting any awards that are then outstanding.
Federal Income Tax Consequences. For federal
income tax purposes, a holder of stock options
(optionee) does not realize taxable income at the
time of the grant of an incentive stock option, a non-statutory
stock option or a SAR. Upon the exercise of a non-statutory
stock option, we are entitled to a federal income tax deduction
and the optionee recognizes ordinary taxable income (subject to
withholding) in the amount by which the fair market value of the
shares the optionee receives exceeds the option price. Upon the
exercise of a SAR, we are entitled to a federal income tax
deduction and the participant realizes ordinary taxable income
in the amount of the cash or fair market value of the common
stock received. On the subsequent sale of shares received upon
the exercise of a non-statutory stock option or in payment of
SARs, the difference between the fair market value of the shares
on the date of receipt and the amount realized on the sale will
be treated as a capital gain or loss, which will be short or
long term depending on the length of the period for which shares
are held prior to sale.
In the case of incentive stock options, the optionee generally
does not realize taxable income until the sale of shares
received upon exercise of the option. However, the difference
between the option price and the fair market value of the stock
on the date of exercise is treated as a preference item for
purposes of the alternative minimum tax. If the shares are not
sold within two years after grant and one year after exercise of
the option, any gain or loss realized will be treated as
long-term capital gain or loss. We will not be entitled to a
deduction for federal income tax purposes in connection with the
grant or the exercise of an incentive stock option. If a sale
occurs prior to two years after grant or one year after
exercise, then the difference between the option price and the
fair market value of the stock on the date of exercise (or, if
less, the difference between the amount realized on sale and the
market value on the date of exercise) is taxable as ordinary
income to the optionee and is deductible by us for federal
income tax purposes.
In the case of an award of restricted stock, a participant
realizes ordinary taxable income (subject to withholding) equal
to the fair market value of the shares received as of the first
day that such shares become
7
transferable or are not subject to a substantial risk of
forfeiture, whichever occurs earlier. We are entitled to a
federal income tax deduction at that time in the same amount.
Under Section 83(c)(3) of the Internal Revenue Code, if the
sale of shares could subject a participant to suit under
Section 16(b) of the Securities Exchange Act of 1934, the
shares are treated as subject to a substantial risk of
forfeiture and not transferable for a period not to exceed six
months from the date of the award of restricted stock.
In the case of phantom stock or restricted stock units, a
participant realizes ordinary taxable income (subject to
withholding) equal to the cash received on the settlement date.
We are entitled to a federal income tax deduction at that time
in the same amount.
Vote Required. Approval of the 2007 Plan
requires the affirmative vote of the holders of a majority of
the shares of our common stock present in person or by proxy and
entitled to vote at this annual meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE PROPOSED ADOPTION
OF THE 2007 INCENTIVE COMPENSATION PLAN.
PROPOSAL 3.
APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTANT
The Audit Committee has appointed Ernst & Young LLP to
serve as our independent registered public accountant for the
year 2007 and requests that stockholders confirm such
appointment. Ernst & Young audited our consolidated
financial statements and managements report on internal
control over financial reporting for 2006. Representatives of
Ernst & Young will be present at the annual meeting and
will have an opportunity to make a statement if they so desire
and to respond to appropriate questions by stockholders. If our
stockholders do not confirm Ernst & Young as our
independent registered public accountant, the Audit Committee
will reconsider the appointment of our independent registered
public accountant.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU CONFIRM
THE
APPOINTMENT OF ERNST & YOUNG LLP AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTANT FOR 2007.
CORPORATE
GOVERNANCE AND BOARD MATTERS
The Board
of Directors
Our Board of Directors has four regularly scheduled meetings per
year. These meetings are usually held in our headquarters in
Cleveland, Ohio. The Board met nine times in 2006. Directors are
expected to attend Board meetings, our annual stockholders
meeting, and the meetings of the committees on which he or she
serves. During 2006, each director attended at least 75% of the
meetings of the Board and those committees on which he or she
served, except that Mr. Demetriou attended 69% of such
meetings. Each director in office in May 2006 attended our
annual meeting of stockholders held in May 2006.
Our independent directors meet in executive session during each
Board meeting. Lead independent director Katharine L. Plourde
presides at those executive sessions.
Director
Independence
In addition to the independence criteria under the NYSE listing
standards, our Board of Directors has adopted additional
standards to determine director independence. These standards
are located in our Corporate Governance Principles, which can be
found in the Corporate Governance portion of our
website (www.omgi.com).
The Board has affirmatively determined that Richard W.
Blackburn, Steven J. Demetriou, Katharine L. Plourde, David
L. Pugh and William J. Reidy meet these standards of
independence. Mr. Ulsh only recently joined the Board, and
the Board has not yet considered whether he meets the
independence standards. Mr. Leo Daley served as a director
from May 17, 2005 to May 2, 2006 and was independent
during his period of service. In assessing
Ms. Plourdes independence, the Board considered her
position as a director of one of our suppliers, Pall
Corporation. The Board determined that the supply relationship
between Pall and us did not impact Ms. Plourdes
independence or affect her ability to exercise independent
judgment as our director. In assessing Mr. Reidys
8
independence, the Board considered that Mr. Reidys
daughter is employed by PricewaterhouseCoopers, which provides
some of our internal audit, tax and transaction advisory
services. Mr. Reidys daughter has had no involvement
in our account and the Board determined that the relationship
did not impact Mr. Reidys independence or affect his
ability to exercise independent judgment as our director.
Board
Committees
The Board has a standing Audit Committee, Compensation
Committee, and Nominating and Governance Committee, each
composed solely of independent directors as defined by the NYSE
listing standards and our Corporate Governance Principles. Each
Committee has a charter that can be found in the Corporate
Governance portion of our website (www.omgi.com).
The Audit Committee, currently composed of Ms. Plourde and
Messrs. Blackburn, Demetriou and Reidy, met eight times in
2006. Mr. Reidy is the committee chairman. The committee is
responsible for:
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appointing our independent auditors and monitoring our financial
reporting process and internal control system;
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reviewing and approving in advance any nonaudit services
provided by the independent auditor;
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overseeing the internal audit and risk management
functions; and
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recording, reviewing and resolving as appropriate concerns
reported to us regarding accounting, auditing matters or
suspected fraud.
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In performing its functions, the Audit Committee acts in an
oversight capacity for our management processes and systems,
internal control structure, financial reporting and risk
management. It is not responsible for preparing or assuring the
accuracy of our financial statements or filings, or conducting
audits of financial statements. The Board has determined that
each member of the Audit Committee is independent as
defined by
Rule 10A-3
of the Securities Exchange Act of 1934. The Board also has
determined that each Audit Committee member is financially
literate and has designated Mr. Reidy as the Audit
Committee financial expert. The Audit Committees report
can be found under Report of the Audit Committee in
this proxy statement.
The Nominating and Governance Committee, currently composed of
Ms. Plourde and Messrs. Blackburn, Demetriou and
Reidy, met four times in 2006. Ms. Plourde is the committee
chair.
The Nominating and Governance Committee is responsible for:
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recommending to the Board corporate governance principles;
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overseeing adherence to the corporate governance principles
adopted by the Board;
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recommending to the Board criteria and qualifications for new
Board members;
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recommending to the Board nominees for appointment or election
as directors;
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recommending to the Board the establishment of
committees; and
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recommending to the Board the composition of committees and the
chairs of each.
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The process followed by the Nominating and Governance Committee
for selecting and nominating directors is explained below under
Process for Selecting and Nominating Directors.
9
The Compensation Committee, currently composed of
Ms. Plourde and Messrs. Blackburn, Demetriou and
Reidy, met five times in 2006. Mr. Demetriou is the
committee chairman. The Compensation Committee is responsible
for:
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considering and authorizing the compensation philosophy for our
personnel;
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reviewing and evaluating the chief executive officers
performance in light of corporate goals and objectives and,
together with any outside directors not on the Compensation
Committee, setting the chief executive officers
compensation and approving perquisites;
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reviewing and authorizing rates of compensation for other
executive officers;
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designating those employees and non-employee directors who will
receive awards under our incentive compensation plans, together
with the type and size of such grants;
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determining the bonus levels for key executives and middle
management employees under our bonus program; and
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participating in the analysis of our executive compensation
programs as described in the Compensation Discussion and
Analysis portion of this proxy statement.
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Each member of the Compensation Committee qualifies as a
non-employee director under
Rule 16b-3
promulgated under the Securities Exchange Act of 1934, an
outside director under Section 162(m) of the
Internal Revenue Code, and an independent director
as such term is defined in the NYSE listing standards and under
our Corporate Governance Principles. The Compensation Committee
has issued a report regarding the Compensation Discussion
and Analysis portion of this proxy statement, which report
can be found immediately following Executive
Compensation in this proxy statement.
Compensation
Committee Interlocks and Insider Participation
None of our directors who served on the Compensation Committee
during 2006 was a current or former officer or an employee of
ours or had any relationship with us that would be required to
be disclosed by us under applicable related party requirements.
There are no interlocking relationships between our executive
officers or directors and the board or compensation committee of
another entity.
Process
for Selecting and Nominating Directors
In its role as the nominating body for the Board, the Nominating
and Governance Committee reviews the credentials of potential
director candidates (including potential candidates recommended
by stockholders, current directors or management) and conducts
interviews and makes formal recommendations to the Board for the
annual and any interim election of directors. In making its
recommendations, the Nominating and Governance Committee
considers a variety of factors, including skills, diversity,
experience with business and other organizations of comparable
size, the interplay of the candidates experience with the
familiarity and background of other Board members, the extent to
which the candidate would be a desirable addition to the Board
and any committees of the Board, and such other factors as it
deems appropriate and in the best interests of us and our
stockholders. In addition, the Nominating and Governance
Committee has established the following minimum criteria for
board membership. Director candidates must have demonstrated
integrity and ethics both personally and professionally and have
a record of professional accomplishment. Each candidate must be
objective, inquisitive, practical, and possess mature judgment,
as well as be prepared to represent the long-term interests of
all our stockholders. Directors are required to fully
participate in Board and committee meetings. Each candidate
should not serve on more than three public company boards
(including ours) and should not be an executive of a company on
which one of our executives is a board member. Further, each
candidate (or immediate family member, or affiliate or
associate) shall not have any material personal, financial or
professional interest in any present or potential competitor of
ours. The Nominating and Governance Committee has retained a
third-party search firm to assist in the identification of
director candidates.
10
As part of the settlement of the shareholder derivative lawsuits
that were brought in connection with the decline in our stock
price after the third-quarter 2002 earnings announcement, we
have established a procedure for the appointment of two
stockholder-nominated directors. Under that procedure, a
designee appointed by the derivative plaintiffs may work in
coordination with our chairman or lead independent director to
identify potential director candidates. Prior to the date of
this proxy statement, we contacted the derivative
plaintiffs designee in accordance with the procedure. The
designee did not choose to assist in identifying director
nominees at this time.
The Nominating and Governance Committee will consider candidates
for director who are recommended by stockholders. Stockholder
recommendations should be submitted in writing to: Chair of the
Nominating and Governance Committee, OM Group, Inc., 127 Public
Square, 1500 Key Tower, Cleveland, Ohio
44114-1221 USA.
The recommendation letter shall include the candidates
name, age, business address, residence address, and principal
occupation, as well as the number of shares of our common stock
owned by the candidate. The recommendation letter should provide
all of the information that would need to be disclosed in the
solicitation of proxies for the election of directors under
Federal securities laws. Finally, the stockholder should also
submit the recommended candidates written consent to be
elected and commitment to serve if elected. The Nominating and
Governance Committee may also require a candidate to furnish
additional information regarding his or her eligibility and
qualifications. A complete copy of our Policies and Procedures
for Stockholders to Propose Candidates for Directors is
available by writing to our Nominating and Governance Committee
Chair.
Communications
with the Board
You may contact the Board, the lead independent director or the
independent directors as a group by sending a letter marked
Confidential and addressed to Lead Independent
Director, OM Group, Inc.,
c/o Valerie
Gentile Sachs, Secretary, 127 Public Square, 1500 Key Tower,
Cleveland, Ohio
44114-1221
USA.
Code of
Conduct and Ethics and Corporate Governance Principles
Our Code of Conduct and Ethics applies to all of our employees,
including our chief executive officer, our chief financial
officer and our controller. The Code of Conduct and Ethics, our
Corporate Governance Principles and all committee charters are
posted in the Corporate Governance portion of our website
(www.omgi.com). A copy of any of these documents is
available in print free of charge to any stockholder who
requests a copy by writing to OM Group, Inc., 127 Public Square,
1500 Key Tower, Cleveland, Ohio
44114-1221
USA, Attention: Gregory J. Griffith, Vice President, Strategic
Planning, Development and Investor Relations.
Certain
Relationships and Related Transactions
There were no transactions between us and our officers,
directors or any person related to our officers or directors, or
with any holder of more than 5% of our common stock, either
during 2006 or up to the date of this proxy statement.
We review all transactions between us and any of our officers
and directors. Our Code of Conduct and Ethics, which applies to
all employees, emphasizes the importance of avoiding situations
or transactions in which personal interests interfere with the
best interests of us or our stockholders. In addition, our
Corporate Governance Principles include procedures for
discussing and assessing relationships, including business,
financial, familial and nonprofit, among us and our officers and
directors. The Board reviews any transaction with a director to
determine, on a
case-by-case
basis, whether a conflict of interest exists. The Board ensures
that all directors voting on such a matter have no interest in
the matter and discusses the transaction with counsel as
necessary. The Board has delegated the task of discussing,
reviewing and approving transactions between us and any of our
officers to the Audit Committee.
11
SECURITY
OWNERSHIP OF DIRECTORS,
EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information concerning the number
of shares of our common stock beneficially owned by our current
directors, the named executive officers included in the summary
compensation table in this proxy statement, and all our
directors and executive officers as a group as of
January 31, 2007. As of January 31, 2007,
Mr. Scaminace beneficially owned approximately 1.0% of our
outstanding shares of common stock and all directors and
executive officers as a group beneficially owned approximately
1.6% of our outstanding shares of common stock.
The totals shown below for each person and for the group include
shares held personally, shares held under our Profit-Sharing
Plan, and shares acquirable within 60 days of
January 31, 2007 by the exercise of stock options granted
under our equity compensation plans. Each person has sole voting
and investment power with respect to all shares shown.
Amount
and Nature of Beneficial Ownership
as of January 31, 2007
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Name of
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Direct or Indirect
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Profit-Sharing
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Exercisable
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Beneficial Owner
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Ownership
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Plan
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Options
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Total
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Marcus P. Bak
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10,827
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1,670
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14,000
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26,497
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Richard W. Blackburn
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2,000
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2,000
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Steven J. Demetriou
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Stephen D. Dunmead
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11,750
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210
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56,000
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67,960
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Kenneth Haber
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9,750
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9,750
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Katharine L. Plourde
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1,000
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2,700
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3,700
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David L. Pugh
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William J. Reidy
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3,220
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3,220
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Valerie Gentile Sachs
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9,750
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16,667
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26,417
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Joseph M. Scaminace
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204,094
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102,582
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306,676
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Gordon A. Ulsh(1)
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All directors and executive
officers as a group (consisting of 12 persons)
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253,791
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1,880
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215,169
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470,840
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(1) |
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Mr. Ulsh was appointed as a director on February 16,
2007. |
The following table sets forth information concerning each
person known to us to be the beneficial owner of more than 5% of
our outstanding common stock as of December 31, 2006, which
is the latest date for which we know such information.
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Name and Address
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Amount and Nature
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of Beneficial Owner
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of Beneficial Ownership
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Percent of Class
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Goldman Sachs Asset Management,
L.P.
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3,040,346
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10.4
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%
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32 Old Slip
New York, New York 10005(1)
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FMR Corporation
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2,684,950
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9.14
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%
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82 Devonshire Street
Boston, Massachusetts 02109(2)
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Barclays Global Investors, NA
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1,596,906
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5.43
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%
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45 Fremont Street
San Francisco, California 94105(3)
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(1) |
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Information regarding share ownership was obtained from
Schedule 13G filed on January 10, 2007 by Goldman
Sachs Asset Management, L.P., which is an investment advisor
registered under the Investment |
12
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Advisers Act of 1940. Goldman Sachs Asset Management, L.P. has
sole voting power with respect to 2,606,807 of the shares listed
above and has sole dispositive power with respect to all
3,040,346 shares shown. |
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(2) |
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Information regarding share ownership was obtained from the
Schedule 13G/A filed jointly on January 10, 2007 by FMR
Corp., Edward C. Johnson 3d, Fidelity Management &
Research Company (Fidelity) and Fidelity Low Priced
Stock Fund. The ownership of Fidelity Low Priced Stock Fund
amounted to 2,600,000 shares or 8.853% of the common stock
outstanding. Fidelity Low Priced Stock Fund has its principal
business office at 82 Devonshire Street, Boston, Massachusetts
02109. Edward C. Johnson 3d and FMR Corp., through its
control of Fidelity, and the Fidelity Funds each has sole power
to dispose of the 2,637,450 shares owned by the Fidelity
Funds. Neither FMR Corp. nor Edward C. Johnson 3d, Chairman of
FMR Corp., has the sole power to vote or direct the voting of
the shares owned directly by the Fidelity Funds, which power
resides with the Funds Boards of Trustees. Fidelity
carries out the voting of the shares under written guidelines
established by the Funds Boards of Trustees. Members of
the Edward C. Johnson 3d family are the predominant owners of
Class B shares of common stock of FMR Corp., representing
approximately 49% of the voting power of FMR Corp. Edward C.
Johnson 3d is Chairman of FMR Corp. The Johnson family group and
all other Class B shareholders have entered into a
shareholders voting agreement under which all Class B
shares will be voted in accordance with the majority vote of
Class B shares. Accordingly, through their ownership of
voting common stock and the execution of the shareholders
voting agreement, members of the Johnson family may be deemed,
under the Investment Company Act of 1940, to form a controlling
group with respect to FMR Corp. Pyramis Global Advisors Trust
Company, an indirect wholly-owned subsidiary of FMR Corp. having
its principal business office at 53 State Street, Boston,
Massachusetts 02109, is the beneficial owner of
47,500 shares, or 0.162% of the Class A shares, as a
result of its serving as investment manager of the institutional
accounts owning such shares. Edward C. Johnson 3d and FMR Corp.,
through its control of Pyramis Global Advisors Trust Company,
each has sole dispositive power over 47,500 shares and sole
power to vote or direct the voting of 47,500 shares owned
by the institutional accounts as reported above. |
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(3) |
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Information regarding share ownership was obtained from the
Schedule 13G filed jointly on January 23, 2007 by
Barclays Global Investors, NA, Barclays Global
Fund Advisors, Barclays Global Investor, LTD, Barclays
Global Investors Japan Trust and Banking Company Limited and
Barclays Global Investors Japan Limited. Barclays Global
Investors, NA has an aggregate beneficial ownership of 643,853
of the shares listed above which represents 2.19% ownership of
the class, has sole voting power with respect to 516,616 of the
shares listed above and has sole dispositive power with respect
to 643,853 of the shares listed above. Barclays Global
Fund Advisors, an investment advisor registered under the
Investment Advisers Act of 1940, located at the above-listed
address, has an aggregate beneficial ownership of 934,283 of the
shares listed above which represents 3.18% ownership of the
class, and has sole voting power and sole dispositive power to
the 934,283 shares. Barclays Global Investors, LTD, located
at Murray House, 1 Royal Mint Court, London, EC3N 4HH, a bank as
defined by the Securities Exchange Act of 1934, has an aggregate
beneficial ownership of 18,770 of the shares listed above which
represents 0.06% ownership of the class, and has sole voting and
sole dispositive power to the 18,770 shares. Each of
Barclays Global Investors Japan Trust and Banking Company
Limited, a bank as defined by the Securities Exchange Act of
1934, and Barclays Global Investors Japan Limited, an investment
advisor registered under the Investment Advisers Act of 1940,
located at Ebisu Prime Square Tower,
8th Floor,
1-1-39 Hiroo Shibuya-Ku, Tokyo
150-0012
Japan, has no beneficial ownership of the shares listed above. |
13
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
This compensation discussion and analysis describes the
following aspects of our compensation system as it applies to
our executives:
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Our compensation philosophy and objectives;
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The means we employ to achieve our compensation objectives,
including the establishment of targeted total direct
compensation and the mix within that compensation;
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The elements of compensation that are included within total
direct compensation as well as compensation items in addition to
total direct compensation; and
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The reasons we have elected to pay these elements of
compensation to achieve our compensation objectives and how we
determine the amount of each element.
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Compensation
Philosophy and Objectives
Prior to 2006, we did not have a distinctly articulated
compensation philosophy. In late 2005, the Compensation
Committee of our Board engaged Towers Perrin, a global human
resource consulting firm, to undertake interviews of our senior
management and directors to determine their respective
understandings of our compensation structure and programs. These
interviews also solicited the views of senior management and
directors with respect to the compensation structure and
programs they believed would assist in accomplishing the
compensation objectives and supporting the corporate strategy of
the organization. Based upon the information developed from
these interviews and following a review of best industry
practices, we have established an articulated compensation
philosophy with the following primary objectives:
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Attract, retain and encourage the development of highly
qualified and motivated executives;
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Provide compensation that is competitive with our peers and
defined marketplace;
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Recognize and reward strong individual performance, on both an
annual and long-term basis and in a fashion that aligns the
interests of executives with those of our stockholders;
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Enhance the connection between our business results and the
compensation of executives; and
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Balance the cost of executive compensation with the targeted
goals to be achieved.
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Means of
Achieving Our Compensation Objectives
Targeted
Total Direct Compensation
Our primary focus in compensating executives is targeted
total direct compensation, which is comprised of base
salary, annual bonus and the estimated value of long-term
stock-based incentives.
In order to establish targeted total direct compensation for our
senior management, we collected competitive data for base
salaries, annual bonuses and long-term stock-based incentive
awards. Because our market for executive talent is national,
competitive data reflected the compensation of executives at
companies of comparable size and complexity on a nationwide
basis. In addition, the information collected related to both
metal companies and specialty chemical companies, since there
were no companies operating at the beginning of 2006 in both of
our business segments, nickel and cobalt-based specialty
chemicals. Most of the companies reviewed were publicly traded
in the United States and had annual sales that ranged from
approximately one-half to twice our sales for 2006, a range that
we find acceptable for officer compensation comparisons. While
the group includes some companies outside this range, the
majority of companies fall
14
within these guidelines. The median company in the group has
sales comparable to ours. The companies comprising the group
reviewed are:
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Commercial Metals Company
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Oregon Steel Mills, Inc.
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PolyOne Corporation
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AK Steel Holding Corporation
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Gibraltar Industries, Inc.
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Georgia Gulf Corporation
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Precision Castparts Corp.
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Century Aluminum Company
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FMC Corporation
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Allegheny Technologies Incorporated
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Kaiser Aluminum Corporation
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Cabot Corporation
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Reliance Steel & Aluminum
Co.
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Steel Technologies Inc.
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Albemarle Corporation
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IPSCO Inc.
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Tredegar Corporation
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Hercules Incorporated
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Worthington Industries Inc.
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Olympic Steel Inc.
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Ferro Corporation
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Harsco Corporation
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Wolverine Tube, Inc.
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H.B. Fuller Company
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Olin Corporation
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Titanium Metals Corporation
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A. Schulman Inc.
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Steel Dynamics, Inc.
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The Lubrizol Corporation
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Spartech Corporation
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Quanex Corporation
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RPM International Inc.
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Arch Chemicals, Inc.
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Cleveland-Cliffs Inc.
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Chemtura Corporation
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Kronos Worldwide, Inc.
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Mueller Industries, Inc.
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Cytec Industries Inc.
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Minerals Technologies Inc.
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Carpenter Technology Corporation
|
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Solutia Inc.
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GrafTech International Ltd.
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Chaparral Steel Company
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|
Valspar Corporation
|
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OMNOVA Solutions Inc.
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Wheeling Pittsburgh Steel
Corporation
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W.R. Grace & Co.
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MacDermid Incorporated
|
In addition to data derived from the public documents of peer
companies, we review data obtained from nationally recognized
compensation surveys for a broad range of companies of
comparable size and similar revenues. This additional
information helps confirm peer results and represents the
broader market in which we compete for senior executives.
We used this competitive data as a benchmark for analyzing each
executive position. In addition, we took into consideration the
facts that our chief executive officer and our general counsel
were hired in 2005 and our chief financial officer was hired in
early 2006, and that each of them had agreed upon individual
competitive compensation packages at the times of hire. For our
senior executives, we established targeted total direct
compensation following a review of competitive data, commitments
made to them upon hiring (with respect to those newly hired
executives), and their actual responsibilities without regard to
titles. The amounts established approximate the applicable
market medians, except as explained below regarding our chief
executive officer. We believe an approximate market median
result is appropriate for our executives because we expected to
achieve at least median performance and that result balances the
cost of the compensation program with the expected performance.
While we target total direct compensation at the market median,
an executives actual total direct compensation could vary
significantly depending upon the relationship between our actual
performance and target results. If our results are well above
target performance, executives have the opportunity to earn
compensation that is well above the relevant market median.
Conversely, executives may earn compensation that is well below
the relevant market median if our performance is well below
target levels.
The exception to this market median result is our chief
executive officer. His targeted total direct compensation level
generally is in the competitive top quartile. This reflects his
recruitment in 2005 and his resulting employment agreement with
us. His base salary, annual bonus and target stock-based
compensation levels were required to attract him to us. They
were also intended to replace the opportunities he received as
president and chief operating officer of The Sherwin-Williams
Company, a company that was several times larger than us. Our
chief executive officers recruitment package reflected our
boards desire to retain an appropriate individual to lead
our business transformation.
Compensation
Mix
We compensate our executives through a combination of base
salary, annual bonus and long-term stock-based incentive awards.
We balance that compensation among fixed and variable
compensation, short- and long-term compensation, and cash as
well as stock-based compensation. The satisfaction of
performance criteria is part of the determination of an
executives annual bonus and long-term incentive
compensation. The most senior executives, those who are able to
more directly influence our performance and strategic direction,
have incentive compensation opportunities that are predominately
tied to the achievement of specific, company-wide financial
targets. For executives with responsibility for a business
operation, incentive
15
compensation also is tied to the achievement of specific
business segment or unit performance targets
and/or
operational goals that are more directly influenced by that
individual.
The amount of targeted total direct compensation of executives
is allocated among the various types of compensation in a manner
designed to achieve our overall compensation objectives. Our
resulting compensation mix for the various executive levels for
2006 was approximately as follows:
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Annual Target
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Long-Term Stock-
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Executive Position
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Base Salary
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Bonus
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Based Awards
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Chief Executive Officer
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30%
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30%
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40%
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Chief Financial Officer
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40%
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25%
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35%
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|
Executive Level Vice
Presidents*
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43%
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22%
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35%
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|
Other Vice Presidents and
equivalents*
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48%
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24%
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28%
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* |
|
Actual percentages vary among our executive level vice
presidents and the other vice presidents and equivalent
positions because base salaries vary for individuals within
these categories and bonuses are based upon a percentage of base
salary. |
Elements
of Direct Compensation
Base
Salary
We use base salaries to provide a predictable level of current
income. Our base salaries are designed to assist in attracting,
retaining and encouraging the development of qualified
executives. The amount of each executives annual base
salary is based on that executives position, skills and
experience, individual performance and the salaries of
executives in comparable positions and responsibilities at peer
companies. It may also reflect an executives compensation
level prior to joining us. In addition, since there also is
competition for executives on a local basis across varying
industries, we also review local conditions to confirm the
competitiveness of our base salaries. When establishing base
salaries for our executives, we do not take into account any
awards previously made, including the results of equity-based
awards under our long-term incentive plans. In the case of the
chief executive officer, the compensation committee assesses his
performance and determines his base salary level. For other
executives, our chief executive officer assesses their
performance and makes recommendations of base salary levels for
consideration by the compensation committee.
A number of our senior executives have joined us recently and
have base salaries that are derived from amounts agreed upon at
the time of commencement of their employment. For
Mr. Scaminace, our chief executive officer, we agreed to a
base salary of $850,000 at the time of his employment in
mid-2005. The base salary reflected the amount agreed upon at
the time of his employment taking into consideration his
compensation at The Sherwin-Williams Company, where he had been
the president and chief operating officer, and the requirements
of the chief executive officer position with us. Since
Mr. Scaminace joined us in mid-2005, his base salary did
not increase for 2006. Under the terms of
Mr. Scaminaces employment agreement with us, which
has a term ending on May 31, 2008, his annual base salary
cannot be less than $850,000. In early 2007,
Mr. Scaminaces annual base salary was increased to
$882,300, based upon his achievement of performance goals and
objectives established at the beginning of 2006, including the
achievement of certain financial targets, refinement and
execution of the strategic plan, development of accountability
in our compensation systems, improvement in communication with
internal and external stakeholders, the development of future
leadership, and a review of the base salary levels for chief
executive officers of companies within our peer group.
Similarly, the 2006 base salaries of Mr. Haber, who became
chief financial officer in March 2006, and Ms. Sachs, who
joined us as general counsel in September 2005, were agreed upon
at the respective times of hire. The base salary of $325,000 for
each of Mr. Haber and Ms. Sachs took into
consideration their respective compensation at previous
employers and the requirements of their respective positions
with us. In early 2007, the annual base salaries of
Mr. Haber and Ms. Sachs were increased to $337,400,
based upon an assessment of their individual skills and
competencies, including their level of respective achievement of
specific
16
performance goals and objectives that were established early in
2006, and upon increases in the base salary level for executives
in those positions with companies within our peer group.
Mr. Dunmead and Mr. Bak, who were the general managers
of our two business segments during 2006, each had base salaries
of $348,140 for 2006. We set these base salaries at the
beginning of 2006, at which time we concluded they were
appropriate based on the requirements of the positions, the
skills and experience they each brought to us and their
performance in 2005. In early 2007, Mr. Dunmeads base
salary was increased to $360,740, based upon an assessment of
his individual skills and competencies, including his level of
achievement of specific performance goals and objectives that
were established at the beginning of 2006, and upon increases in
the base salary level for executives in similar positions with
companies within our peer group. On March 1, 2007, we
completed the sale of our nickel business to a third party.
Mr. Bak is the vice president and general manager of our
nickel business, and we expect that Mr. Baks
employment with us will not continue past March 31, 2007.
Accordingly, Mr. Baks base salary was not considered
for adjustment in 2007. However, in connection with the sale of
the nickel business, we agreed to pay Mr. Bak a retention
bonus of $348,140 and agreed to certain severance payments,
which are described under Potential Payments upon
Termination or Change in Control in this proxy statement.
Annual
Bonus
As part of the development of our new compensation philosophy
described above, we requested Towers Perrin to undertake a
review of our annual bonus practices and provide competitive
data about annual bonuses. As a result of that process, we
concluded our annual bonuses historically had not had a strong
relationship to our business results, had been granted and paid
generally on a subjective basis and were generally below the
bonus opportunities of our peer companies. In addition, in
connection with the recent hiring of executives, we had agreed
upon annual bonus opportunities that rewarded strong performance
at higher levels than our historical annual bonuses, as we
determined that those higher bonus levels were consistent with
then-current market practices.
As a result of these considerations, in 2006 we modified our
annual bonus program to provide employees, including executives,
with the opportunity to be rewarded based upon our financial
performance above established goals. Our current annual bonus
program is intended to provide incentives for executives to
endeavor to achieve targeted annual goals and receive rewards
when those goals are met or exceeded. When combined with base
salaries, annual bonus opportunities for our executives
generally are set to provide competitive total cash compensation
when target performance goals are met.
Under our current annual bonus program, an overall bonus pool is
funded based upon corporate results as measured by our operating
profit. We calculate operating profit by deducting from our net
sales the cost of products sold (including depreciation and
amortization) and selling, general and administrative expenses
of our total business, including the results of discontinued
operations. The overall bonus pool may be funded at a threshold
level, a target level or a maximum level, depending upon our
actual performance. These levels are designed to reflect
operating profit that ranges from an acceptable return to
stockholders (threshold), to a more demanding but achievable
result (target) and finally to a stretch objective that normally
would be achieved only periodically (maximum). Under the annual
bonus program, all bonuses are calculated on a linear basis
between these threshold and maximum levels. No bonuses are paid
if our operating profit is not at least at the established
threshold level, and no additional bonuses are earned if our
operating profit exceeds the established maximum level.
For our 2006 bonus plan, we established the following operating
profit objectives: threshold of $55.0 million, target of
$78.0 million and maximum of $105.3 million. The
target objective was based upon our budgeted operating profit
for 2006 and the threshold and maximum objectives were set to
reflect potential variances from our budgeted operating profit
based upon our historical business results. Bonuses are
self-funded in the sense that the threshold, target and maximum
operating profit objectives are net of the aggregate amount that
would be payable as bonuses at each level. Our actual operating
profit for 2006 (including discontinued operations) was
$301.2 million and thus the overall bonus pool for 2006 was
funded at the maximum level. In 2006, our business model was
primarily based on commodity metal pricing, which experienced
significant price volatility during
17
2006. This volatility resulted in exceptional and unpredictable
earnings for the year. However, under the terms of the program,
no additional executive bonuses were earned as a result of our
2006 operating profit being in excess of the $105.3 million
maximum established by the Compensation Committee.
Annual bonuses are paid in cash based upon varying factors
established for each executive level. As more fully described
below, some executive bonuses are based upon corporate
performance, some are based upon a combination of corporate
performance and satisfaction of individual goals, and some are
based upon a combination of corporate performance, satisfaction
of business segment or unit goals, and satisfaction of
individual goals. These factors are weighted and based upon
specific bonus opportunities that are established for various
executive levels as described below. We selected these
weightings and bonus opportunities based upon competitive
criteria and after obtaining the advice of our human resources
consultant, and they also reflect our subjective determination
of appropriate threshold, target and maximum goals. Our chief
executive officer has the discretion to recognize extraordinary
individual contributions separately from application of the
applicable objective factors and pay an individual above the
levels described. In addition, notwithstanding the performance
criteria established for bonuses, the Compensation Committee
reviews the proposed bonus compensation for our executives
following the availability of operating profit information for a
completed year and in light of the individual performance
reviews for executives eligible to receive bonuses, and it has
the authority to exercise discretion in approving the amount of
any bonus.
For 2006, the sole performance criteria for Mr. Scaminace
was operating profit. We selected this measure because of its
direct correlation with the interests of our
stockholders to drive consistency in our profit
performance. In keeping with our approach of balancing
compensation among fixed and variable compensation, short- and
long-term compensation and cash as well as stock-based
compensation, we established the target bonus level for
Mr. Scaminace at $850,000 for 2006, which reflected 100% of
his base salary and 30% of his targeted total direct
compensation for 2006. The terms of our annual bonus program as
applied to Mr. Scaminace for 2006 provided for him to earn
20% of his base salary if actual operating profit was at
threshold and 200% of his base salary if actual operating profit
met or exceeded the maximum level. For 2006, Mr. Scaminace
was paid his maximum annual bonus of $1,700,000 as our operating
profit exceeded the established maximum level and the
Compensation Committee did not exercise any discretion to reduce
or increase his award. Our annual bonus program will apply to
Mr. Scaminace in a comparable fashion for 2007.
For senior executives who do not have responsibility for a
business operation, 80% of their annual bonus opportunity is
based on operating profit and 20% is based on individual
performance objectives determined at the start of each year.
Their respective bonus opportunities are in keeping with the
approach described above to balance the mix of compensation.
Mr. Haber and Ms. Sachs are included in this group of
senior executives. Mr. Habers target bonus
opportunity for 2006 was $195,000, which was 60% of his base
salary. Ms. Sachss target bonus opportunity for 2006
was $162,500, which was 50% of her base salary. For 2006,
Mr. Haber could have earned a bonus between 12% and 120% of
his base salary, and Ms. Sachs could have earned a bonus
between 10% and 100% of her base salary, depending upon the
level of actual operating profit as compared to established
operating profit (as described above), and assuming satisfaction
of their respective individual performance objectives. For 2006,
Mr. Haber and Ms. Sachs each earned the maximum
applicable annual bonus opportunity, which was $390,000 for
Mr. Haber and $325,000 for Ms. Sachs, since our
operating profit exceeded the established maximum level (as
described above) and since they each met their individual
performance objectives. Mr. Habers individual
performance objectives for 2006 were to achieve a specific cash
flow objective and reduce material weaknesses in our financial
controls. Ms. Sachss individual performance
objectives for 2006 were development of our legal department,
resolution of certain legacy legal issues (including litigation
with our former chief executive officer, which settled in
February 2007), and monetizing our nickel business. No
discretion was exercised by our chief executive officer or the
Compensation Committee to modify the amounts of bonuses
otherwise earned by Mr. Haber or Ms. Sachs. Our annual
bonus program will apply to Mr. Haber and Ms. Sachs in
a comparable fashion for 2007.
For senior executives with responsibility for a business segment
or unit, their performance goals are weighted toward the
operational performance of the business segment or unit that
they influence. This increases the effectiveness of our bonus
program because it rewards individuals for results that they
have some immediate ability to control and influence. For these
executives,
40-80% of
their annual bonus opportunity is
18
based upon our operating profit, up to 40% is based upon their
respective business segment or unit performance and 20% is based
upon individual performance objectives determined at the start
of each year. Their respective bonus opportunities are in
keeping with the approach described above to balance the mix of
compensation. Mr. Dunmead and Mr. Bak were included in
this group of senior executives for 2006.
Mr. Dunmead and Mr. Bak each had target bonus
opportunities for 2006 of $174,070, which was 50% of his base
salary. For 2006, each of these executives could have earned
between 10% and 100% of his base salary, depending on the level
of actual operating profit as compared to established operating
profit (on the basis described above), his business segment
performance and his individual performance. For 2006,
Mr. Dunmead earned his maximum applicable bonus opportunity
of $348,140. This bonus amount resulted from achievement of the
established maximum levels of operating profit and business
segment performance for which Mr. Dunmead had
responsibility, each of which represented 40% of his bonus
opportunity, together with satisfaction by Mr. Dunmead of
his individual performance objectives, which represented the
remaining 20% of his bonus opportunity. Mr. Dunmeads
individual performance objectives for 2006 were to achieve
certain production levels at our joint venture operation in the
Democratic Republic of Congo, integration of a recent
acquisition in Asia and successful launch of a new information
system at one of the facilities in our Specialties business
segment. Our annual bonus program will apply to Mr. Dunmead
in a comparable fashion for 2007.
For 2006, Mr. Bak earned a bonus of $341,000, which was 98%
of his maximum applicable bonus opportunity. This bonus amount
resulted from achievement of the established maximum levels of
operating profit and business segment performance for which
Mr. Bak had responsibility, each of which represented 40%
of his bonus opportunity, together with satisfaction by
Mr. Bak of most, but not all, of his individual performance
objectives, which represented the remaining 20% of his bonus
opportunity. As indicated above, we do not expect Mr. Bak
to be employed by us after March 31, 2007. Under the terms of
his retention agreement, described below under Potential
Payments upon Termination or Change in Control,
Mr. Bak will be entitled to a prorated bonus for 2007.
Long-Term
Stock-Based Compensation
Historically, the primary form of our long-term incentive
compensation consisted of nonqualified stock options. We
selected stock options because we believed they were a
competitive form of compensation expected by our senior
management and because we would receive a corporate tax
deduction upon exercise of an
in-the-money
option. With the change in the accounting treatment of options,
we, like many companies, re-examined the cost and competitive
need for options, which process included a review of competitive
data regarding stock-based awards. We determined that a
combination of stock options, time-based restricted stock and
performance-based restricted stock would provide a package of
incentive compensation that would more effectively motivate
executives, reinforce the need for strong long-term financial
results, continue to align the interests of our executives with
the interests of our stockholders, build executive stock
ownership among a new management team, retain executives in a
cyclical business embarking upon a significant transformation
and balance the cost of the incentives with the targeted
results. Because of the potential adverse tax consequences to us
of paying compensation that is not performance-based, we sought
and received stockholder approval in 2006 to modify the terms of
our 2002 Stock Incentive Plan to include performance criteria
for grants of restricted stock. In addition, as described in
this proxy statement under Proposal 2. 2007 Incentive
Compensation Plan, we are proposing for stockholder
approval a new incentive compensation plan to replace our
existing long-term incentive compensation plans.
In 2006, we established targeted long-term stock-based
compensation opportunities by salary range for senior management
based upon executive position and competitive market
information. The target is expressed as a monetary value that is
derived from a percentage of an executives base salary and
is meant to equal median levels for executives in comparable
positions at similar size companies and peer organizations. The
targeted long-term stock-based compensation value is balanced
among stock options (50%), time-based restricted stock (20%) and
performance-based restricted stock (30%). The stock options are
designed to maintain a strong tie between the interests of our
executives and our stockholders because options produce rewards
to executives only if our stock price increases. Time-based
restricted stock is designed to retain and
19
build equity ownership among a new management team about to
undertake significant change. Performance-based restricted stock
is designed to provide incentives and rewards for achieving
specified longer-term financial results as well as increasing
our common stock price. The mix between reward elements
emphasizes performance rewards (80% of the total delivered as
options and performance-based restricted stock) more than
service-based rewards (20% in the form of time-based restricted
stock). Moreover, it strikes what we consider a reasonable
balance between stock price appreciation awards (50% of the
total as options) and those based on sustained long-term
financial results (30% as performance-based restricted stock).
The Compensation Committee also grants awards under our
long-term incentive compensation plans to employees who are not
included in our senior executive group. Awards to these
participants historically have been in the form of stock
options. For tax reasons, awards made to executives and other
participants who are not U.S. residents generally are made
in the form of stock options.
In 2006, we established target grant guidelines for each element
for each executive. They were based on several factors,
including our historical stock price performance for 2005, the
estimated present value associated with each award element, an
executives relative level, the monetary value of an
executives target long-term stock-based compensation and
the targeted mix of long-term incentive opportunities. Target
grants are generally awarded to all eligible participants,
although the chief executive officer may make recommendations to
the Compensation Committee to adjust an individuals awards
based on the individuals performance, responsibilities or
involvement in strategic initiatives.
To reinforce the commitment to long-term results and retain
executives, our long-term awards fully vest in three years. Our
stock options become exercisable in equal increments over a
three-year period. Time-based restricted stock awards vest three
years after their grant date. Performance-based restricted stock
awards are earned only upon satisfaction of performance targets
relating to a three-year period (for example, for awards granted
in May 2006, the three-year period will end December 31,
2008).
We award performance-based restricted stock at the maximum
value, which is double the target value, shortly after the start
of each performance period. In order for performance-based
restricted stock to be earned, we must achieve specified
performance goals for the three-year performance period covered
by the award. We established two performance criteria for the
performance-based restricted stock awards made in 2006: total
operating profit and average return on net assets, in each case
for the applicable three-year period. Both of these measures are
based on consolidated results, with no weights given to business
unit or individual performance. This approach emphasizes the
need for our senior executives to focus on the overall company
performance that will ultimately create value for stockholders.
We believe that these measures are important in terms of
achieving desired profitability and effectively managing our
assets, key financial measures of our long-term success. These
performance criteria are weighted equally and each will
determine vesting of up to 50% of the total performance-based
restricted shares. Based on our actual operating profit over the
three-year performance period, between 0% and 50% of the total
performance-based restricted shares will vest. Based on our
actual return on net assets over the three-year performance
period, between 0% and 50% of the total performance-based
restricted shares will vest. No shares will be earned if total
operating profit for the three-year period is not above the
established threshold level, regardless of the average return on
net assets for the period. Shares will be earned on a linear
basis between the established threshold and maximum levels.
These performance criteria are among those approved by our
stockholders, with the result that we expect the value of any
earned performance-based restricted stock to be tax-deductible
by us.
Our established performance levels were designed to reflect
reasonable performance that would be minimally acceptable to
stockholders and achieved fairly frequently (threshold),
performance that is more demanding and should be achieved
approximately one-half of the time (target), and outstanding
performance that would be met relatively infrequently (maximum).
However, our business historically has been and currently
remains significantly exposed to metal price volatility, which
has caused material variations in our results from year to year.
This reality must be taken into account when considering the
likelihood of achieving established performance measures during
a future three-year performance period. In addition, the recent
sale of our nickel business and our related strategic
transformation plan make any prediction of such likelihood even
more uncertain as regards the
2006-2008
performance period.
20
Our named executive officers received the following equity-based
awards for 2006, which are generally consistent with the
approach outlined above:
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Performance-Based
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Time-Based Restricted
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Executive
|
|
Stock Options
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|
Restricted Stock(1)
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Stock
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|
|
J. Scaminace
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|
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67,744
|
(2)
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30,400
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|
|
7,500
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|
K. Haber
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10,500
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|
|
7,650
|
|
|
|
2,100
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|
S. Dunmead
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|
10,500
|
|
|
|
7,650
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|
|
|
2,100
|
|
M. Bak
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|
|
10,500
|
|
|
|
7,650
|
|
|
|
2,100
|
|
V. Sachs
|
|
|
10,500
|
|
|
|
7,650
|
|
|
|
2,100
|
|
|
|
|
(1) |
|
Maximum award. Target awards are one-half of this level. |
|
(2) |
|
Mr. Scaminaces option grant was made in December 2005
under the terms of his employment agreement. This award was
taken into account as part of his targeted long-term stock-based
compensation for 2006. |
In establishing award levels, we may or may not consider the
equity ownership levels of the recipients or compensation
previously paid, including prior stock-based awards that are
fully vested. Our primary focus is to retain executives in light
of prevailing competitive conditions and to motivate executives
in ways that support our strategic direction. Accordingly, we
will consider taking such equity ownership and prior
compensation and awards into account only if we believe it would
be consistent with our corporate interests.
Our current and intended future practice is to make long-term
stock-based awards at the first Compensation Committee meeting
held following the availability of preliminary financial results
for the previous fiscal year and availability of the current
year operating plan. This meeting customarily is held in
February in conjunction with our regularly scheduled Board
meeting, and this practice permits us to consider the
preliminary prior-year results and future expectations when
making new grants. We made stock option and long-term time-based
restricted stock awards on February 7, 2007. We deferred
the grant of long-term performance-based restricted stock awards
until March 9, 2007, in order to permit the Compensation
Committee to appropriately consider the March 1 sale of our
nickel business and the potential use of proceeds from that sale
in establishing performance objectives for the 2007 awards. From
time to time, we also may grant awards in connection with new
hires and promotions, at the time of those events. We grant
stock options only with an exercise price equal to or greater
than the market price of our common stock on the grant date. We
do not attempt to time the grant of stock-based awards to the
release of material nonpublic information. Our practice is to
publicly release financial results for completed annual and
quarterly periods at approximately the same time we file the
required annual or quarterly report with the SEC.
Other
Compensation Elements
Special
Recognition Bonus
On February 7, 2007, the Compensation Committee provided
special recognition bonuses to several members of our senior
management group. These bonuses were in amounts approximating
their target 2006 bonus opportunities, with one-half of the
bonus payable in cash and one-half of the bonus payable in
performance-based restricted stock. The cash portion related to
performance in 2006 and was paid in February 2007. The
performance-based restricted stock is subject to achievement of
an established earnings target for our Specialties business
segment during any one of the years in the three-year period
ending December 31, 2009. The Compensation Committee
awarded these bonuses to acknowledge the substantial time and
effort spent by each of these individuals in the sale of the
nickel business and to motivate these key executives to continue
our transformation by growing our Specialties business through
organic growth and strategic acquisitions. The bonuses were as
follows:
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|
Name
|
|
Total Bonus
|
|
|
Cash
|
|
|
Restricted Stock
|
|
|
K. Haber
|
|
$
|
195,000
|
|
|
$
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97,500
|
|
|
|
1,906 shares
|
|
S. Dunmead
|
|
|
174,000
|
|
|
|
87,000
|
|
|
|
1,700 shares
|
|
V. Sachs
|
|
|
162,000
|
|
|
|
81,000
|
|
|
|
1,583 shares
|
|
21
Perquisites
We reviewed our perquisite practices as part of the overall
review of compensation undertaken in early 2006. Perquisites for
our senior executives other than Mr. Scaminace were limited
in 2006 to an $18,000 annual car allowance and dues for one club
(two clubs for Mr. Dunmead). Mr. Scaminace received no
perquisites. Annual dues for clubs ranged from $5,160 to $8,250.
Executives are not permitted to use our corporate jet for
personal travel. We have season tickets to Cleveland-based
professional basketball, baseball and football games and from
time to time have tickets to musical, theatrical, dance and
other performing arts events. These tickets are primarily
intended to be used to entertain customers and suppliers. On
those occasions when tickets are not used for business-related
entertainment, they may be used by a wide range of our
employees, including our executives, through a lottery process
or on an invited basis.
The incremental costs of the perquisites furnished to our named
executive officers during 2006 are included in the All
Other Compensation column of the Summary Compensation
Table below.
In February 2007, our Board decided to eliminate the car
allowance and club dues perquisites described above. Subsequent
to March 31, 2007, in lieu of receiving any specific
perquisites or personal benefits, each of our senior executive
officers other than Mr. Scaminace will receive an annual
payment of $25,000. Mr. Scaminace will not receive this
annual payment as he does not receive any perquisites.
Retirement
Plans
Our senior executives participate in our qualified
profit-sharing plan that is available generally to all of our
employees and also participate in our benefit restoration plan,
which is a nonqualified excess plan available to
employees with base salaries in excess of certain limits imposed
by the Internal Revenue Code for qualified plans ($220,000 for
2006). These plans are designed to encourage savings for
retirement, as we do not maintain a defined benefit plan that
provides a specified level of income following retirement. Our
contributions to these plans for our named executive officers
are included in the All Other Compensation column of
the Summary Compensation Table below. Our benefit restoration
plan is discussed below under Nonqualified Deferred
Compensation.
Change
in Control Agreements and Severance Agreements
We have entered into change in control agreements with all of
our senior executives. We believe that the change in control
agreements serve to protect us against the loss of key
executives in the context of the current uncertainty in our
business model and our transformation to a more
customer-focused, value-added business. We also have severance
agreements with all of our senior executives, which are designed
to protect our executives in the event of their termination as a
result of the sale of nickel business and the related change in
our overall business. These agreements are discussed below under
Potential Payments upon Termination or Change in
Control.
Tax
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code generally
disallows a tax deduction to publicly held companies for
compensation in excess of $1 million in any taxable year
paid to the chief executive officer or the four next most highly
compensated executive officers. However, compensation in excess
of $1 million is deductible if it meets the criteria for
being performance based within the meaning of
Section 162(m). Our stock option and performance-based
restricted stock awards satisfy the conditions for being
performance based under Section 162(m).
Time-based restricted stock awards and bonuses paid under our
annual bonus plan do not currently satisfy the
Section 162(m) performance-based conditions.
We generally endeavor to award compensation in a manner that
satisfies the conditions for tax deductibility. However, we will
not necessarily limit executive compensation to amounts
deductible under Section 162(m), but rather intend to
maintain the flexibility to structure our compensation programs
so as to best promote our interests and the interests of our
stockholders. For instance, we have established
Mr. Scaminaces targeted total direct compensation at
the level described above, even though it may not be
22
fully deductible, because we believe such compensation is
appropriate under relevant market conditions and is consistent
with the objectives of our executive compensation program as
applied to Mr. Scaminace.
Summary
Compensation Table
Described below is a summary of the provisions of the employment
agreements that we have with certain named executive officers
and the restricted stock and stock option programs that are part
of our compensation strategy, together with a summary of the
2006 total compensation of each named executive officer.
Employment
Agreements
On May 26, 2005, we entered into an employment agreement
with Mr. Scaminace that provides for
Mr. Scaminaces employment as our chief executive
officer for a term beginning on June 13, 2005 and
continuing until May 31, 2008. Under the terms of the
agreement, Mr. Scaminace received an annual base salary in
2006 of $850,000 and is eligible for an annual bonus. Under the
terms of his employment agreement, Mr. Scaminace was
granted an award of 166,194 shares of our restricted common
stock. The restricted common stock will vest on May 31,
2008 if Mr. Scaminace remains employed by us on that date.
In addition, Mr. Scaminace was granted options to purchase
254,996 shares of our common stock, of which options for
80,001 shares vested on May 31, 2006, options for
85,050 shares will vest on May 31, 2007 and options
for 89,945 shares will vest on May 31, 2008, if
Mr. Scaminace remains employed by us on those dates. The
options that vested in 2006 have an exercise price equal to the
market price for common stock on the date of the grant ($24.89),
while the remaining options have exercise prices set above the
grant date market price for common stock ($28.67 for the options
vesting in 2007 and $33.67 for the options vesting in 2008).
On September 7, 2005, we entered into an employment
agreement with Ms. Sachs that provided for
Ms. Sachss employment as vice president, general
counsel and corporate secretary beginning on September 26,
2005. Under the terms of the agreement, Ms. Sachs received
an initial annual base salary of $325,000 and is eligible for an
annual bonus. Under the terms of her employment agreement,
Ms. Sachs was granted options to purchase
50,000 shares of common stock, which will vest in equal
annual increments over a three-year period if Ms. Sachs
remains employed by the Company on those anniversary dates. The
options have an exercise price equal to the market price for
common stock on the date of the grant ($20.86).
On March 6, 2006, we entered into an employment agreement
with Mr. Haber that provided for his employment as our
chief financial officer. Under the terms of his agreement,
Mr. Haber received an initial base salary of $325,000 and
is eligible for an annual bonus.
The benefits that Messrs. Scaminace and Haber,
Ms. Sachs and the other named executive officers will
receive upon a termination of their employment or a change in
control are discussed below under Potential Payments upon
Termination and Change in Control.
Restricted
Stock and Stock Option Programs
We maintain a 1998 Long-Term Incentive Compensation Plan and a
2002 Stock Incentive Plan, which allow us to award stock options
to our employees and our directors and other types of awards,
including time-based and performance-based restricted stock, to
our employees. Our Compensation Committee administers both plans.
Under these plans, the option exercise price of stock options
may not be less than the per share fair market value of our
common stock on the grant date. Our historical practice has been
to grant stock options at an exercise price equal to the average
of the high and low prices of our common stock on the NYSE on
the date the option is granted. As a result, we may grant stock
options at an exercise price that is greater or less than the
closing price of our common stock on the NYSE on the grant date.
As described above, we also have granted stock options to our
chief executive officer at exercise prices above the market
price on the date of grant. We do not price stock options on a
date other than the grant date. The stock options we grant are
exercisable in equal increments over a three-year period from
the grant date and no option may be exercised prior to one year
from the date of grant, except in event of a change in control,
death, disability or retirement.
23
If an employees employment ceases due to a change in
control, death, disability or retirement, all unvested stock
options become immediately exercisable. If employment ceases for
any reason other than a change in control, death, disability or
retirement, unvested stock options are forfeited and any vested
but unexercised options may be exercised within three months of
cessation of employment. Our outstanding stock options expire
ten years after their grant date.
Our time-based restricted stock vests three years after the
grant date, and our performance-based restricted stock is earned
upon satisfaction of performance targets relating to a
three-year period. If an employees employment ceases for
any reason other than a change in control, death or disability,
unvested restricted stock awards are forfeited. If an
employees employment ceases due to a change in control,
all unvested time-based restricted stock vests, and all unvested
performance-based restricted stock vests at the target
performance level. In the event of an employees death or
disability, a pro rata portion (determined by the number of days
from the date of grant as compared to the full three-year
period) of unvested time-based restricted stock will vest, and
the employee will remain eligible to receive a pro rata portion
(determined in the same manner) of unvested performance-based
restricted stock, as determined at the end of the performance
period. Employees receiving restricted stock awards have voting
rights and the right to receive any dividends that are declared,
even before that restricted stock is vested or earned.
The table below summarizes the total compensation paid to or
earned by each named executive officer for the fiscal year ended
December 31, 2006.
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Change in
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Pension
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Value and
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Non-Equity
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Nonqualified
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Incentive
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Deferred
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Stock
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Option
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Plan
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Compensation
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All Other
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Bonus(1)
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Awards(2)
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Awards(2)
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Compensation
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Earnings(3)
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Compensation(4)
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Name and Principal Position
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Year
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Salary($)
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($)
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($)
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($)
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($)
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($)
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($)
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Total($)
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J. Scaminace
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2006
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$
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850,000
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$
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1,700,000
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$
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1,661,162
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$
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1,283,517
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$
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336
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$
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72,115
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$
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5,567,130
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K. Haber(5)
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2006
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261,250
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487,500
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68,501
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34,790
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|
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51,000
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903,041
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S. Dunmead
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2006
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348,140
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435,140
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68,501
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238,965
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676
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105,720
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1,197,142
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M. Bak
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2006
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348,140
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348,140
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68,501
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238,965
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1,795
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102,115
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1,107,656
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V. Sachs
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2006
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325,000
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406,000
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68,501
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186,335
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59,520
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1,045,356
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(1) |
|
The amounts in this column reflect amounts paid under our annual
bonus program and also reflect, for Messrs. Haber and
Dunmead and for Ms. Sachs, cash amounts paid as a special
recognition bonus. Our annual bonus program and the special
recognition bonuses are discussed above under Compensation
Discussion and Analysis. |
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(2) |
|
The amounts in this column reflect the dollar amount recognized
for financial reporting purposes for 2006, in accordance with
FAS 123(R), for awards made pursuant to our stock-based
incentive plans and may include amounts from awards granted in
prior years. Assumptions used in the calculation of the amounts
are included in note 13 to our consolidated financial
statements included in our Annual Report on Form
10-K for the
fiscal year ended December 31, 2006. |
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(3) |
|
The amounts in this column reflect the above-market earnings on
compensation that is deferred under our Benefit Restoration
Plan, which is discussed below under Nonqualified Deferred
Compensation. |
24
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(4) |
|
The amounts in this column are comprised of the following: |
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Employee
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Auto Allowance
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Club Dues
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Benefit Plans(a)
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J. Scaminace
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$
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72,115
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K. Haber
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$
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18,000
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33,000
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S. Dunmead
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18,000
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$
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13,020
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74,700
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M. Bak
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18,000
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7,540
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76,575
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V. Sachs(b)
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18,000
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8,520
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33,000
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(a) |
|
These amounts reflect contributions by us to our qualified
Profit-Sharing and Retirement Plan and to our nonqualified
Benefit Restoration Plan, allocated to the accounts of the named
executives. These amounts have not been received by the
executives. |
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(b) |
|
During 2006, Ms. Sachs used sporting event tickets
purchased by us for one event, at no incremental cost to us. |
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(5) |
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Mr. Haber was appointed as our chief financial officer on
March 6, 2006. |
25
Grants of
Plan-Based Awards in 2006
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All Other
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All Other
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Estimated Possible Payouts Under
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Stock
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Option
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Equity Incentive Plan Awards(1)
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Awards:
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Awards:
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Grant Date
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Closing
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Number of
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Number of
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Exercise or
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Fair Value
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Market
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Shares of
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Securities
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Base Price
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of Stock and
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Price at
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Stock or
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Underlying
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of Option
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Option
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Grant
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Threshold
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Target
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Maximum
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Units
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Options
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Awards(2)
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Awards
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Date(2)
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Name
|
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Grant Date
|
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(#)
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(#)
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(#)
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(#)
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(#)
|
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($/Sh)
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|
($)
|
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($/Sh)
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|
|
J. Scaminace
|
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|
5/1/2006
|
(3)
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|
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7,500
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|
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|
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$
|
215,700
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5/2/2006
|
(4)
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0
|
|
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|
15,200
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|
|
30,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
875,520
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(5)
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K. Haber
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|
|
5/1/2006
|
|
|
|
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|
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10,500
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|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28.76
|
|
|
|
156,555
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|
|
$
|
28.66
|
|
|
|
|
5/1/2006
|
(3)
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|
|
|
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,396
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|
|
|
|
|
|
|
|
5/2/2006
|
(4)
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|
|
0
|
|
|
|
3,825
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|
|
|
7,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,320
|
(5)
|
|
|
|
|
S. Dunmead
|
|
|
5/1/2006
|
|
|
|
|
|
|
|
10,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.76
|
|
|
|
156,555
|
|
|
|
28.66
|
|
|
|
|
5/1/2006
|
(3)
|
|
|
|
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,396
|
|
|
|
|
|
|
|
|
5/2/2006
|
(4)
|
|
|
0
|
|
|
|
3,825
|
|
|
|
7,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,320
|
(5)
|
|
|
|
|
M. Bak
|
|
|
5/1/2006
|
|
|
|
|
|
|
|
10,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.76
|
|
|
|
156,555
|
|
|
|
28.66
|
|
|
|
|
5/1/2006
|
(3)
|
|
|
|
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,396
|
|
|
|
|
|
|
|
|
5/2/2006
|
(4)
|
|
|
0
|
|
|
|
3,825
|
|
|
|
7,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,320
|
(5)
|
|
|
|
|
V. Sachs
|
|
|
5/1/2006
|
|
|
|
|
|
|
|
10,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.76
|
|
|
|
156,555
|
|
|
|
28.66
|
|
|
|
|
5/1/2006
|
(3)
|
|
|
|
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,396
|
|
|
|
|
|
|
|
|
5/2/2006
|
(4)
|
|
|
0
|
|
|
|
3,825
|
|
|
|
7,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,320
|
(5)
|
|
|
|
|
|
|
|
(1) |
|
The time-based restricted stock and stock option awards
reflected in these columns were granted under our 1998 Long-Term
Incentive Compensation Plan, and all performance-based
restricted stock awards reflected in these columns were granted
under our 2002 Stock Incentive Plan. |
|
(2) |
|
In accordance with our historical practice, stock option awards
were granted in 2006 at an exercise price equal to the average
of the high and low price of our common stock on the NYSE on the
date the award was granted. |
|
(3) |
|
Time-based restricted stock award. |
|
(4) |
|
Performance-based restricted stock award. |
|
(5) |
|
Based upon the maximum value of performance-based awards, which
is double the target value. |
26
Outstanding
Equity Awards at 2006 Fiscal Year-End
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards:
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Payout
|
|
|
|
|
|
|
|
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Unearned
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
Shares,
|
|
|
Unearned
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Shares or
|
|
|
Units or
|
|
|
Shares,
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Units of
|
|
|
Other
|
|
|
Units or
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Unexercised
|
|
|
Option
|
|
|
|
|
|
|
Stock That
|
|
|
Stock That
|
|
|
Rights
|
|
|
Other Rights
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Unearned
|
|
|
Exercise
|
|
|
Option
|
|
|
|
Have
|
|
|
Have Not
|
|
|
That Have
|
|
|
That Have
|
|
|
|
Options
|
|
|
Options
|
|
|
Options
|
|
|
Price
|
|
|
Expiration
|
|
|
|
Not Vested
|
|
|
Vested
|
|
|
Not Vested
|
|
|
Not Vested
|
|
Name
|
|
(#) Exercisable
|
|
|
(#) Unexercisable
|
|
|
(#)
|
|
|
($/Sh)
|
|
|
Date
|
|
|
|
(#)(1)
|
|
|
($)(2)
|
|
|
(#)(3)
|
|
|
($)(2)
|
|
J. Scaminace
|
|
|
22,581
|
|
|
|
45,163
|
(5)
|
|
|
|
|
|
|
18.70
|
|
|
|
12/29/2015
|
|
|
|
|
166,194
|
(4)
|
|
$
|
7,525,264
|
|
|
|
30,400
|
|
|
$
|
1,376,512
|
|
|
|
|
80,001
|
|
|
|
|
|
|
|
|
|
|
$
|
24.89
|
|
|
|
6/13/2015
|
|
|
|
|
7,500
|
|
|
|
339,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,050
|
(6)
|
|
|
|
|
|
|
28.67
|
|
|
|
6/13/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,945
|
(7)
|
|
|
|
|
|
|
33.67
|
|
|
|
6/13/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
K. Haber
|
|
|
|
|
|
|
10,500
|
(8)
|
|
|
|
|
|
|
28.76
|
|
|
|
5/1/2016
|
|
|
|
|
2,100
|
|
|
|
95,088
|
|
|
|
7,650
|
|
|
|
346,392
|
|
S. Dunmead
|
|
|
|
|
|
|
10,500
|
(8)
|
|
|
|
|
|
|
28.76
|
|
|
|
5/1/2016
|
|
|
|
|
2,100
|
|
|
|
95,088
|
|
|
|
7,650
|
|
|
|
346,392
|
|
|
|
|
20,000
|
|
|
|
10,000
|
(9)
|
|
|
|
|
|
|
31.38
|
|
|
|
11/8/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
18.22
|
|
|
|
11/3/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
59.20
|
|
|
|
11/5/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
46.75
|
|
|
|
11/6/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
36.25
|
|
|
|
11/5/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M. Bak
|
|
|
|
|
|
|
10,500
|
(8)
|
|
|
|
|
|
|
28.76
|
|
|
|
5/1/2016
|
|
|
|
|
2,100
|
|
|
|
95,088
|
|
|
|
7,650
|
|
|
|
346,392
|
|
|
|
|
|
|
|
|
10,000
|
(9)
|
|
|
|
|
|
|
31.38
|
|
|
|
11/8/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
59.20
|
|
|
|
11/5/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
46.75
|
|
|
|
11/6/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V. Sachs
|
|
|
|
|
|
|
10,500
|
(8)
|
|
|
|
|
|
|
28.76
|
|
|
|
5/1/2016
|
|
|
|
|
2,100
|
|
|
|
95,088
|
|
|
|
7,650
|
|
|
|
346,392
|
|
|
|
|
16,667
|
|
|
|
33,333
|
(10)
|
|
|
|
|
|
|
20.86
|
|
|
|
9/26/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The unvested shares reflected in this column are time-based
restricted shares that will vest on May 1, 2009, except as
indicated for Mr. Scaminace. |
|
(2) |
|
Based upon the closing market price of our common stock on the
NYSE on December 29, 2006, which was $45.28. |
|
(3) |
|
The unearned shares reflected in this column are
performance-based restricted shares that will vest, if at all,
on December 31, 2008. |
|
(4) |
|
These shares vest on May 31, 2008. |
|
(5) |
|
These options vest in equal installments on December 29,
2007 and 2008. |
|
(6) |
|
These options vest on May 31, 2007. |
|
(7) |
|
These options vest on May 31, 2008. |
|
(8) |
|
These options vest in three equal installments on May 1,
2007, 2008 and 2009. |
|
(9) |
|
These options vest on November 8, 2007. |
|
(10) |
|
These options vest in equal installments on September 26,
2007 and 2008. |
Option
Exercises and Stock Vested During 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of Shares
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
Acquired on
|
|
|
Value Realized
|
|
|
Acquired on
|
|
|
Value Realized on
|
|
|
|
Exercise
|
|
|
on Exercise
|
|
|
Vesting
|
|
|
Vesting
|
|
Name
|
|
(#)
|
|
|
($)
|
|
|
(#)
|
|
|
($)
|
|
|
J. Scaminace
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
K. Haber
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S. Dunmead
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M. Bak
|
|
|
69,440
|
|
|
$
|
1,355,529
|
|
|
|
|
|
|
|
|
|
V. Sachs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Nonqualified
Deferred Compensation
Our Benefit Restoration Plan is a nonqualified, unfunded
retirement plan that we maintain and that provides retirement,
death, and disability benefits, at our sole discretion, to key
employees who are in a select group of highly compensated or
management employees whose retirement savings and profit-sharing
benefits are subject to certain limitations under the Internal
Revenue Code of 1986, as amended. If an executive retires after
attaining age 65 or after attaining 55 with at least ten
years of service, or becomes disabled or dies, his or her
benefits are generally distributed over a
15-year
period.
We annually credit (on January 1 of each year) each
participating executives Benefit Restoration Plan account
with the amount that would have been allocated to his or her
qualified retirement savings and profit-sharing plan account,
assuming that no limits were imposed, reduced by the actual
benefit allocated to his or her qualified plan account and
further reduced by the percentage of the qualified plan
contribution attributable to any cash election made by the
executive. Earnings are calculated by multiplying the balance of
each participants Benefit Restoration Plan account at the
beginning of the year by the five-year rolling average annual
composite yield on Moodys Corporate Bond Yield Index for
the immediate preceding five years. The amounts shown below as
contributed by us were credited to the indicated executive
accounts as of January 1, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
Registrant
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
|
Contributions
|
|
|
Contributions
|
|
|
Earnings in
|
|
|
Withdrawals/
|
|
|
Balance at
|
|
Name
|
|
in Last FY ($)
|
|
|
in Last FY(1) ($)
|
|
|
Last FY ($)
|
|
|
Distributions ($)
|
|
|
Last FYE ($)
|
|
|
J. Scaminace
|
|
|
|
|
|
$
|
39,115
|
|
|
$
|
2,566
|
|
|
|
|
|
|
$
|
41,681
|
|
K. Haber
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S. Dunmead
|
|
|
|
|
|
|
41,700
|
|
|
|
5,158
|
|
|
|
|
|
|
|
83,783
|
|
M. Bak
|
|
|
|
|
|
|
43,575
|
|
|
|
13,691
|
|
|
|
|
|
|
|
222,388
|
|
V. Sachs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All contributions are included in the All Other
Compensation column of the Summary Compensation Table
above. |
Potential
Payments upon Termination or Change in Control
We maintain employment agreements, severance agreements and
change in control agreements with certain of our named executive
officers, who also participate in our long-term incentive plans.
The following summaries describe and quantify the payments that
each named executive officer would receive if his or her
employment with us were terminated or if we had a change in
control and such executive officers employment were
terminated following the change in control. The summaries assume
that the termination
and/or
change in control occurred on December 29, 2006 (the last
business day of 2006) and that the relevant stock price is the
closing market price of our common stock on the NYSE on
December 29, 2006, which was $45.28.
Payments
Pursuant to Employment Agreement with Chief Executive
Officer
We have entered into an employment agreement with
Mr. Scaminace, our chief executive officer. If we terminate
Mr. Scaminaces employment for cause, we will not be
obligated to make any payments to him other than salary earned
but not yet paid as of the termination date. As defined in the
employment agreement, cause means
(a) commission of a felony, (b) fraud, embezzlement or
misappropriation of our funds or acts of dishonesty that are
materially inimical to our best interest, (c) violation of
the noncompetition provision contained in the employment
agreement or (d) abandonment of or consistent failure to
perform duties, other than for reason of disability.
If we terminate Mr. Scaminaces employment without
cause, Mr. Scaminace will receive a lump-sum payment that
consists of (a) his base salary earned but unpaid through
the date of termination, (b) an amount reflecting his
accrued but unused vacation days and (c) two times the
total of his average annual base salary and
average bonus amount. His average annual base salary
is determined by adding (x) his annual base
28
salary rate in effect immediately before the termination and
(y) if his base salary rate has been increased at least
once during the term of the employment agreement, the base
salary rate in effect before the most recent increase, and
dividing that sum by two. His average bonus amount is equal to
the greater of (A) the aggregate bonuses received during
the term of the employment agreement prior to termination
divided by the number of bonuses received or (B) $950,000.
The lump-sum payment must be made within ten days of termination
pursuant to normal payroll practices.
If Mr. Scaminace suffers from a disability, defined as a
condition that renders him unable to perform his duties by
reason of illness or injury for a period of more than six
consecutive months, we have the right to terminate his
employment. If terminated for reason of disability,
Mr. Scaminace will receive (a) his base salary through
the month in which his employment terminates, payable as soon as
practicable, and (b) an amount equal to two times the sum
of his average annual base salary and his average bonus amount,
both as defined above, payable in 24 equal monthly installments.
These payments will be offset by any payments or benefits
received by him from any disability plan maintained by us at the
time of the disability.
If Mr. Scaminace dies, we will pay his beneficiary or
estate the same payments as described above for a termination
without cause, as well as any payments or benefits provided by
any insurance program maintained by us in which he participated
at the time of death.
Mr. Scaminaces employment agreement requires that he
comply with certain covenants and requirements upon termination.
Mr. Scaminace must maintain the confidentiality of all of
our information, must not solicit present or prospective
employees, customers or suppliers for a period of two years
following termination, must not compete with us for a period of
two years following termination, and must not disparage us, our
employees, stockholders, officers or directors.
The payments that would have been made to Mr. Scaminace
pursuant to his employment agreement, assuming a termination of
his employment as of December 29, 2006, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned But
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
Accrued
|
|
|
|
|
|
|
Salary
|
|
|
Vacation
|
|
|
Severance
|
|
|
Without Cause
|
|
$
|
16,346
|
|
|
|
|
|
|
$
|
4,350,000
|
|
Disability(1)
|
|
|
16,346
|
|
|
|
|
|
|
|
4,350,000
|
|
Death(2)
|
|
|
16,346
|
|
|
|
|
|
|
|
4,350,000
|
|
|
|
|
(1) |
|
These payments will be decreased by any payments or benefits
Mr. Scaminace receives from any disability plan maintained
by us at the time of disability. |
|
(2) |
|
These payments will be increased by any benefits provided by any
insurance program maintained by us in which he participated at
the time of death. |
Payments
Pursuant to Severance Agreements
We have entered into severance agreements with
Messrs. Haber and Dunmead and with Ms. Sachs. Each of
Messrs. Haber and Dunmead and Ms. Sachs is entitled to
certain payments in the event of termination during the term of
the severance agreement. Termination means
(a) termination for any reason other than death,
disability, or cause (which includes commission of a felony;
fraud, embezzlement or misappropriation of our funds; acts of
dishonesty in the course of employment that are materially
inimical to our best interests; and the failure to perform
duties other than due to disability) and (b) the assignment
of duties that are materially inconsistent with the
executives position, authority, duties and
responsibilities or results in the material diminution of the
executives position. Ms. Sachss severance
agreement also defines termination to include a
material change in her reporting structure. In the event of a
termination under a severance agreement, each executive is
entitled to a lump-sum payment equal to 1.5 times his or her
annual base salary then in effect plus any base salary earned
through the termination date and bonus for the prior fiscal
year, to the extent not otherwise paid. The payment must be made
within ten days of termination pursuant to normal payroll
practices.
29
In order to receive the payments outlined above, each executive
must provide us with an agreement that contains a general
release from future liability or suit, a nonsolicitation and
nondisparagement provision, a waiver of continued participation
in our employee benefit and welfare plans, a requirement to
maintain the confidentiality of our information, and a six-month
noncompetition provision.
The payments that would have been made to each executive,
assuming a termination as of December 29, 2006, are
indicated below.
|
|
|
|
|
|
|
|
|
|
|
Earned But
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Salary
|
|
|
Severance
|
|
|
K. Haber
|
|
$
|
6,250
|
|
|
$
|
487,500
|
|
S. Dunmead
|
|
|
6,695
|
|
|
|
522,210
|
|
V. Sachs
|
|
|
6,250
|
|
|
|
487,500
|
|
Payments
in the Event of Death, Disability or Retirement
If any named executive officer retires, dies or becomes disabled
while employed by us, any unvested options held by that
executive officer will become exercisable immediately. If any
named executive officer dies or becomes disabled, a pro rata
portion (determined by the number of days from the date of grant
as compared to the full three-year period) of unvested
time-based restricted will vest, and the employee will remain
eligible to receive a pro rata portion (determined in the same
manner) of unvested performance-based restricted stock, as
determined at the end of the performance period. In accordance
with the terms of our Benefit Restoration Plan, discussed above
under Nonqualified Deferred Compensation, each named
executive officers benefits accumulated under the plan
will be distributed over a
15-year
period in the event of retirement, death or disability, unless
we decide to make a lump-sum payment. In addition, if
Mr. Scaminaces employment ceases by reason of death
or disability, he will receive those payments described above
under Payments Pursuant to Employment Agreement with Chief
Executive Officer.
The table below sets forth payments that would have been made in
the event of death, disability or retirement, assuming that such
event had occurred on December 29, 2006 and based upon the
closing market price of our common stock on the NYSE on that
date. The death or disability column includes
payments under the Benefit Restoration Plan, the value of
unvested options that would have become exercisable upon death
or disability, and the value of time-based restricted stock that
would vest upon such an event. The retirement column
includes only payments under the Benefit Restoration Plan and
the value of unvested options that would have become exercisable
upon retirement, as unvested restricted stock awards do not vest
upon retirement. No amount is included in the table for
performance-based restricted stock awards since the value of
such awards is determinable only at the end of the performance
period.
|
|
|
|
|
|
|
|
|
|
|
Death or
|
|
|
|
|
|
|
Disability
|
|
|
Retirement
|
|
|
J. Scaminace
|
|
$
|
7,664,180
|
|
|
$
|
3,699,056
|
|
K. Haber
|
|
|
194,560
|
|
|
|
173,460
|
|
S. Dunmead
|
|
|
417,343
|
|
|
|
396,243
|
|
M. Bak
|
|
|
555,948
|
|
|
|
534,848
|
|
V. Sachs
|
|
|
1,008,552
|
|
|
|
987,452
|
|
Payments
in Event of a Change in Control
We have entered into a change in control agreement with each of
our named executive officers. In the event that payments are
made pursuant to these agreements, the payments and covenants
required under these agreements supersede any other agreement
between us and the named executive officer. For example, if
Mr. Scaminace is terminated following a change in control
and receives the benefits outlined below, he will not receive
any of the payments or benefits under his employment agreement
or any other agreement with us.
30
Under each change in control agreement, two events must take
place before an executive receives payment. First, a change in
control must occur. A change in control is defined
as any of the following: (a) the acquisition by an
individual, group or entity of beneficial ownership of 33% or
more of our outstanding voting shares (not including any
acquisition from us, by us or by our employee benefit plan),
(b) the members of the board of directors in place at the
time of the agreement cease to constitute a majority of the
board (for reasons other than death or disability), subject to
certain circumstances, or (c) the consummation of a
reorganization, merger or consolidation or sale of all or
substantially all of our assets, subject to certain limitations
and conditions set forth in the agreement.
Second, the executives employment must be terminated,
either by us without cause or by the executive for
good reason, during the term of the change in
control agreement. Termination without cause means
termination for any reason other than death, retirement,
disability or cause, as each term is defined in the agreement.
Termination for good reason includes: (a) the
assignment of duties inconsistent with the executives
position or any other action that results in the diminution in
such position, authority, duties or responsibilities,
(b) the failure to provide the executive with salary and
benefits equal to or greater than those in effect prior to a
change in control, (c) the requirement that the executive
work from a location that is more than 50 miles from the
location from which he or she worked prior to the change in
control, or a requirement that the executive travel on business
to a substantially greater extent than prior to the change in
control, or (d) the failure to require any successor to our
business to assume and agree to the change in control agreement.
In addition to the above, Mr. Scaminaces agreement
includes the following additional good reason
termination provisions: (i) a reduction in his salary from
the highest level in effect for the year prior to the change in
control, (ii) the aggregate compensatory opportunities
provided to him after a change in control are reduced below the
levels provided prior to a change in control, subject to certain
limitations, (iii) after the change in control, he is not
permitted to participate in the compensatory programs generally
available to executives of the surviving entity, (iv) the
surviving entity has headquarters outside of the Cleveland
metropolitan area, (v) he determines in good faith that he
is unable to fulfill his duties as chief executive officer after
the change in control or that the companys strategic plan
varies materially from the plan that was in place prior to the
change in control, or (vi) he ceases to be a member of the
board of directors of the surviving entity for reasons other
than death, disability or voluntary resignation.
In the event that both triggering events occur, each named
executive officer will be entitled to the following payments:
|
|
|
|
|
Full base salary earned through date of termination and bonus
for last completed fiscal year, to the extent not otherwise paid;
|
|
|
|
Target bonus (based on 100% achievement of performance goals)
for the fiscal year of termination, pro-rated based on the
number of days employed during that year;
|
|
|
|
Lump-sum payment equal to two times the sum of (a) base
salary equal to the greater of the annual base salary in effect
immediately before the change in control or the highest rate of
base salary in effect at any time prior to termination and
(b) additional compensation as defined in the
agreement and based on the three-year average (or modified
average if the period of employment is less than three years) of
the total annual incentive compensation, commissions, bonuses
and nonqualified deferred compensation amounts. In
Mr. Scaminaces case, this payment will be equal to
three times the sum of (x) the highest base salary in
effect prior to termination and (y) additional
compensation as defined in the agreement and based on the
three-year average (or modified average if the period of
employment is less than three years) of the total annual
incentive compensation, commissions, bonuses and nonqualified
deferred compensation amounts, which amount shall not be less
than $950,000;
|
|
|
|
Lump-sum payment equal to the aggregate spread between the
exercise prices of all stock options held by the executive and
the higher of (a) the mean of the high and low trading
prices of our common stock on the NYSE on the termination date
or (b) the highest price per share actually paid in
connection with the change in control;
|
31
|
|
|
|
|
The immediate vesting and redemption of all unvested shares of
restricted stock at a price equal to the higher of (a) the
mean of the high and low trading prices of our common stock on
the NYSE on the termination date or (b) the highest price
per share actually paid in connection with the change in control;
|
|
|
|
Cash payment equal to any unvested portion of the
executives interest in any of our nonqualified retirement
plans or tax-qualified pension plans;
|
|
|
|
Continued coverage or lump-sum payment to fund continuing
coverage under the life and health insurance programs, as well
as a lump sum payment equal to 15% of the amount in the
Additional Payment column of the following table to
fund continuing disability coverage and any other employee
benefit programs, in which the executive participated prior to
termination, all for a period of two years (three years for
Mr. Scaminace) following termination; and
|
|
|
|
Gross-up payments to reimburse the executive for any
excise taxes incurred in relation to the above payments.
|
If an executive receives payment under these agreements, then
the executive agrees not to compete with our successor for a
period of one year from the termination date. The executive also
agrees to maintain the confidentiality of our and our
successors information and to not disparage us or our
successor or our respective directors, partners, officers or
employees. The executive also must provide a general release of
all claims and causes of action against us arising from or
relating to the executives employment with us.
The payments that would have been made to the named executive
officers, assuming a change in control and related termination
had occurred on December 29, 2006 and based upon the
closing market price of our common stock on the NYSE on that
date, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned But
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Restricted
|
|
|
Retirement
|
|
|
Welfare
|
|
|
Tax
|
|
|
|
Unpaid
|
|
|
|
|
|
Target
|
|
|
Additional
|
|
|
Option
|
|
|
Stock
|
|
|
Plan
|
|
|
Benefit
|
|
|
Gross-Up
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
Bonus
|
|
|
Payment
|
|
|
Payment
|
|
|
Payment
|
|
|
Payment
|
|
|
Payment
|
|
|
Payment
|
|
|
J. Scaminace
|
|
$
|
16,346
|
|
|
|
|
|
|
$
|
850,000
|
|
|
$
|
6,525,000
|
|
|
$
|
5,888,798
|
|
|
$
|
9,241,376
|
|
|
$
|
41,681
|
|
|
$
|
1,020,752
|
|
|
$
|
5,765,401
|
|
K. Haber
|
|
|
6,250
|
|
|
|
|
|
|
|
195,000
|
|
|
|
1,625,000
|
|
|
|
173,460
|
|
|
|
441,480
|
|
|
|
|
|
|
|
272,918
|
|
|
|
1,107,808
|
|
S. Dunmead
|
|
|
6,695
|
|
|
|
|
|
|
|
174,070
|
|
|
|
1,176,373
|
|
|
|
1,411,290
|
|
|
|
441,480
|
|
|
|
83,783
|
|
|
|
214,864
|
|
|
|
853,813
|
|
M. Bak
|
|
|
6,695
|
|
|
|
|
|
|
|
174,070
|
|
|
|
1,130,707
|
|
|
|
312,460
|
|
|
|
441,480
|
|
|
|
222,388
|
|
|
|
198,774
|
|
|
|
|
|
V. Sachs
|
|
|
6,250
|
|
|
|
|
|
|
|
162,500
|
|
|
|
1,256,000
|
|
|
|
1,394,460
|
|
|
|
441,480
|
|
|
|
|
|
|
|
217,568
|
|
|
|
860,749
|
|
Payments
to Mr. Bak in connection with the Sale of the Nickel
Business
On February 9, 2007, we entered into a retention and
severance agreement with Mr. Bak, who was the general
manager of our nickel business that was sold on March 1,
2007. This agreement was designed to help retain Mr. Bak at
a time when his services were vital to completing a transaction
we believe is critical to our
long-term
strategy and to stockholders. In connection with the completion
of that sale, and in recognition of Mr. Baks crucial
role in that transaction, Mr. Bak received the payments
indicated below, and became entitled to receive certain other
severance payments, in accordance with the terms of this
agreement. In the event that Mr. Bak receives severance
benefits under this agreement, this agreement will supersede
Mr. Baks change in control agreement described above.
Mr. Bak will retain his rights under other plans and
incentive compensation programs.
We agreed to pay Mr. Bak a retention bonus equal to one
year of his base salary in effect at the time of the agreement,
which was $348,140. Mr. Bak will receive fifty percent of
the retention bonus within 30 days of the sale and the
remaining fifty percent will be paid within 90 days of the
sale. If Mr. Bak is involuntarily terminated without cause
by us prior to receiving the full amount of the retention bonus,
or if Mr. Bak terminates his employment with us for good
reason after payment of the first 50% but prior to payment of
the remainder of his retention bonus, he will still be entitled
to receive the payments. However, if Mr. Bak retires,
resigns or is terminated for cause prior to receipt of the
payments, Mr. Bak forfeits any remaining payment for the
retention bonus. As defined in the retention and severance
agreement, termination for cause includes
termination for (a) conviction of a felony that is
materially and demonstrably injurious to us, (b) willful
misconduct or gross negligence in the performance of duties or
(c) a breach of the retention agreement, and termination
for good reason means the assignment inconsistent
with his position, authority, duties or
32
responsibilities or any other diminution in position, authority,
duties or responsibilities, excluding any isolated, inadvertent
and insubstantial action taken by us that is promptly remedied.
Mr. Bak will also receive certain severance benefits if he
is involuntarily terminated by us without cause within
150 days of the sale or if he resigns for good reason any
time during the period commencing on the 31st day and
ending on the 150th day after the sale. If
Mr. Baks employment is terminated in accordance with
these provisions, he will receive the following payments:
|
|
|
|
|
Full base salary earned through the date of termination and
bonus for 2006, to the extent not otherwise paid;
|
|
|
|
Bonus for 2007, pro rated based on the number of days employed
during 2007 and based on our actual performance;
|
|
|
|
Target bonus payout of 75% of base salary, payable on the
six-month anniversary of termination;
|
|
|
|
Eighteen months of base salary, with the first six months
payable on the six-month anniversary of termination or as soon
thereafter as practicable and the seventh through eighteenth
month payments paid monthly;
|
|
|
|
Reimbursement (including a related tax
gross-up)
for medical and dental coverage for the shorter of eighteen
months or the period until Mr. Bak is re-employed and
provided with similar benefits;
|
|
|
|
The immediate vesting of all shares of restricted stock or stock
options, with grants of performance-based restricted stock
vesting based on the target performance
level; and
|
|
|
|
Outplacement services for a period of six months.
|
Mr. Bak is subject to a one-year noncompetition and
confidentiality provision in connection with the retention bonus.
The payment that Mr. Bak is entitled to receive in
connection with the sale of the nickel business is indicated
below under the Retention Bonus column. The
additional amounts that he will receive if he is involuntarily
terminated without cause or resigns for good reason after the
sale are also indicated below. We expect that Mr. Baks
employment with us will not continue past March 31, 2007.
For purposes of making this calculation only, we assumed that
such termination or resignation occurred on March 1, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Welfare
|
|
|
Tax
|
|
|
Accelerated
|
|
|
Value of
|
|
|
|
|
|
|
Retention
|
|
|
Severance
|
|
|
Annual
|
|
|
Target
|
|
|
Benefit
|
|
|
Gross - Up
|
|
|
Equity
|
|
|
Outplacement
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
Payment
|
|
|
Bonus
|
|
|
Bonus
|
|
|
Payments
|
|
|
Payments
|
|
|
Awards
|
|
|
Services
|
|
|
M. Bak
|
|
$
|
12,051
|
|
|
$
|
348,140
|
|
|
$
|
522,210
|
|
|
|
*
|
|
|
$
|
261,105
|
|
|
$
|
18,306
|
|
|
$
|
14,120
|
|
|
$
|
877,058
|
|
|
$
|
1,750
|
|
|
|
|
* |
|
Mr. Baks annual bonus will be based upon our
financial performance for 2007, which is not determinable prior
to the completion of the year. |
33
Director
Compensation
The following table reflects the compensation that we paid to
non-employee directors for the fiscal year ended
December 31, 2006. Mr. Scaminace, a director who is
also our chief executive officer, does not receive additional
compensation for his service as a director and is not included
in the following table.
In 2006, outside directors received an annual fee of $100,000.
The chair of the Audit Committee received an additional annual
payment of $20,000, and the chairs of the Compensation Committee
and the Nominating and Governance Committee each received an
additional annual payment of $10,000. Ms. Plourde, the lead
independent director, received an additional annual payment of
$20,000. The outside directors annual fee currently is
paid in cash.
The Board has increased the annual directors fee to
$110,000 for 2007, and if the proposed 2007 Incentive
Compensation Plan is adopted, we will have the ability to pay a
portion of outside directors annual compensation in shares
of our common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and
|
|
|
|
|
|
|
|
|
|
Fees
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
Earned
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
Or Paid in
|
|
|
Stock
|
|
|
Option
|
|
|
Incentive Plan
|
|
|
Compensation
|
|
|
All Other
|
|
|
|
|
Name
|
|
Cash ($)
|
|
|
Awards ($)
|
|
|
Awards ($)(1)
|
|
|
Compensation ($)
|
|
|
Earnings
|
|
|
Compensation ($)
|
|
|
Total ($)
|
|
|
R. Blackburn
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
100,000
|
|
L. Daley(2)
|
|
|
35,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,048
|
|
S. Demetriou
|
|
|
108,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,195
|
|
K. Plourde
|
|
|
130,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,000
|
|
W. Reidy
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,000
|
|
|
|
|
(1) |
|
As of December 31, 2006, Mr. Reidy and
Ms. Plourde had outstanding stock options for the purchase
of 3,220 and 2,700 shares, respectively, of our common
stock, from grants made prior to 2006. |
|
(2) |
|
Mr. Daley served as a director until May 2, 2006. |
COMPENSATION
COMMITTEE REPORT
The Compensation Committee has reviewed and discussed with
management the Compensation Discussion and Analysis included in
this proxy statement. Based on this review and discussions, the
Compensation Committee recommended to the Board of Directors
that such Compensation Discussion and Analysis be included in
this proxy statement and the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 filed with the
Securities and Exchange Commission.
Compensation Committee
Steven J. Demetriou, Chairman
Richard W. Blackburn
Katharine L. Plourde
William J. Reidy
34
DESCRIPTION
OF PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the fees paid for services
provided by Ernst & Young for the fiscal years ended
December 31, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Audit Fees
|
|
$
|
2,600,980
|
|
|
$
|
3,041,500
|
|
Audit-Related Fees
|
|
|
51,986
|
|
|
|
103,200
|
|
Tax Fees
|
|
|
273,210
|
|
|
|
531,300
|
|
All Other Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,926,176
|
|
|
$
|
3,676,000
|
|
|
|
|
|
|
|
|
|
|
The following is a description of the nature of the services
related to the fees disclosed in the table above. All of the
nonaudit services provided by the independent auditor were
pre-approved by the Audit Committee in accordance with its
pre-approval procedures, except for de minimis services in 2006
(representing approximately 1.4% of the total fees paid by us to
the independent auditor) that were approved by the Audit
Committee subsequent to their performance. Services of a similar
nature and amount were pre-approved by the Audit Committee in
prior years. The Audit Committee has considered whether Ernst
& Youngs provision of nonaudit services is compatible
with maintaining its independence.
Audit
Fees
These are fees for professional services rendered by
Ernst & Young for the audits of our annual consolidated
financial statements and of managements assessment and the
effectiveness of internal control over financial reporting, the
review of unaudited condensed consolidated financial statements
included in our quarterly reports on
Form 10-Q,
audits of foreign subsidiary financial statements required by
local statutes and services that are typically rendered in
connection with statutory and regulatory filings or engagements.
Audit-Related
Fees
These are fees for assurance and related services rendered by
Ernst & Young that are reasonably related to the
performance of the audit or the review of our consolidated
financial statements that are not included as audit fees. These
services include employee benefit plan audits and consulting on
financial accounting and reporting.
Tax
Fees
These are fees for professional services rendered by
Ernst & Young with respect to tax compliance, tax
advice and tax planning. These services include the review of
tax returns, tax assistance in foreign jurisdictions and
consulting on tax planning matters.
All Other
Fees
These are fees for professional services rendered by
Ernst & Young that do not fit within the above category
descriptions.
35
REPORT OF
THE AUDIT COMMITTEE
The Audit Committee has reviewed and discussed with our
management and with our independent registered public
accountant, Ernst & Young LLP, the consolidated
financial statements of OM Group, Inc. and its subsidiaries as
set forth in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006. The Audit
Committee has (a) discussed with Ernst & Young
those matters required to be discussed by Statement on Auditing
Standards No. 61, as amended (AICPA, Professional
Standards, Vol. 1. AU Section 380), as adopted by the
Public Company Accounting Oversight Board in Rule 3200T,
(b) received from Ernst & Young the written
communications required by Independence Standards Board Standard
No. 1 (Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees), as
adopted by the Public Company Accounting Oversight Board in
Rule 3600T, and (c) discussed with Ernst &
Young its independence from us and our management.
Ernst & Young has confirmed to us that it is in
compliance with all rules, standards and policies of the
Independence Standards Board and the Securities and Exchange
Commission governing auditor independence. Based on these
reviews and discussions, the Audit Committee recommended to the
Board of Directors that the audited consolidated financial
statements for the fiscal year ended December 31, 2006 be
included in the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 filed with the
Securities and Exchange Commission.
Audit Committee
William J. Reidy, Chairman
Richard W. Blackburn
Steven J. Demetriou
Katharine L. Plourde
SECTION 16(a)
BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires officers, directors, and persons who own more than 10%
of a registered class of equity securities to file reports of
ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and greater than 10%
stockholders are required by SEC regulations to furnish us with
copies of all Section 16(a) reports they file.
Based solely upon a review of Forms 3 and 4 (including
amendments to such forms) furnished to us during 2006 and
Forms 5 furnished with respect to 2006, no director,
officer or beneficial owner of more than 10% of our outstanding
common stock failed to file on a timely basis during 2006 or
prior fiscal years any reports required by Section 16(a).
STOCKHOLDER
PROPOSALS
FOR THE 2008 ANNUAL MEETING
Any stockholder who intends to present a proposal at the 2008
annual meeting and who wishes to have the proposal included in
our proxy statement and form of proxy for that meeting must
deliver the proposal to us at our executive offices no later
than December 1, 2007.
Any stockholder who intends to present a proposal at the 2008
annual meeting other than for inclusion in our proxy statement
and form of proxy must deliver the proposal to us at our
executive offices not later than January 31, 2008, or such
proposal will be untimely. If a stockholder fails to submit the
proposal by January 31, 2008, we reserve the right to
exercise discretionary voting authority on the proposal.
36
SOLICITATION
BY BOARD; EXPENSES OF SOLICITATION
Our Board of Directors has sent you this proxy statement. We
will pay all expenses in connection with the solicitation of the
enclosed proxy. In addition to solicitation by mail, our
officers and employees may solicit proxies by telephone, in
writing or in person, without receiving any extra compensation
for such activities. We have retained The Proxy Advisory Group,
LLC, a proxy soliciting firm, to assist in the solicitation of
proxies for an estimated fee of $8,500 plus reimbursement of
reasonable
out-of-pocket
expenses. We also will reimburse brokers and nominees who hold
shares in their names for their expenses incurred to furnish
proxy materials to the beneficial owners of such shares.
OM GROUP, INC.
Valerie Gentile Sachs
Secretary
37
EXHIBIT A
2007
Incentive Compensation Plan
The purpose of this 2007 Incentive Compensation Plan (the
Plan) is to advance the long-term interests of OM
Group, Inc. (the Corporation) by
(i) motivating key personnel by means of incentive
compensation,
(ii) furthering the identity of interests of participants
with those of the stockholders of the Corporation through the
ownership and performance of the common stock of the
Corporation, and
(iii) permitting the Corporation to attract and retain key
personnel and directors whose judgment is important to the
successful conduct of the business of the Corporation.
Toward this objective, the Committee may grant awards to key
personnel of the Corporation and its subsidiaries and to
non-employee directors of the Corporation, on the terms and
subject to the conditions set forth in this Plan.
2.1 Award means any form of stock option,
stock appreciation right, restricted stock award, phantom stock
or restricted stock unit award, or performance bonus granted
pursuant to the provisions of this Plan.
2.2 Award Agreement means a written
document evidencing an Award granted pursuant to this Plan and
establishing the terms, conditions, restrictions and limitations
applicable to such Award. To the extent an Award Agreement is
inconsistent with the terms of this Plan, this Plan shall govern
the rights of the Participant.
2.3 Board means the Board of Directors of
the Corporation.
2.4 Change in Control means any one or
more of the following:
(i) The Corporation is merged, consolidated or reorganized
into or with another corporation or other legal person, and
immediately after such merger, consolidation or reorganization
less than fifty percent (50%) of the combined voting power of
the then-outstanding securities of such corporation or person
immediately after such transaction are held directly or
indirectly in the aggregate by the holders of voting shares of
the Corporation immediately prior to such transaction;
(ii) The Corporation sells all or substantially all of its
assets to any other corporation or other legal person, and less
than fifty percent (50%) of the combined voting power of the
then-outstanding securities of such corporation or person
immediately after such sale are held directly or indirectly in
the aggregate by the holders of voting shares of the Corporation
immediately prior to such sale;
(iii) Any person or group of persons (as the term
person is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act), becomes the
beneficial owner (as the term beneficial owner is
defined under
Rule 13d-3
or any successor rule or regulation promulgated under the
Exchange Act) of securities (a) representing 50% or more of
the issued and outstanding shares of the Corporation or
(b) possessing the power to elect a majority of the Board
of the Corporation, except that any acquisition directly from
the Corporation, any acquisition by the Corporation, or any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Corporation or any Subsidiary
shall not constitute a Change in Control;
(iv) The Corporation files a report or proxy statement with
the Securities and Exchange Commission pursuant to the Exchange
Act disclosing in response to an item of
Form 8-K
or Schedule 14A (or any successor schedule, form or report
or item therein) that a Change in Control of the Corporation has
occurred;
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(v) The stockholders of the Corporation approve the
liquidation or dissolution of the Corporation; or
(vi) If during any period of two consecutive years,
individuals who at the beginning of any such period constitute
the Board cease for any reason to constitute at least a majority
of the Board, provided that each director who is first elected,
or first nominated for election by the Corporations
stockholders, by a vote of at least two-thirds of the directors
of the Corporation (or a committee of the Board) then still in
office who were directors of the Corporation at the beginning of
any such period will be deemed to have been a director of the
Corporation at the beginning of such period.
Notwithstanding anything else in this Plan, a Change in
Control shall not include any change for reasons of
bankruptcy, insolvency, or otherwise for the benefit of the
creditors of the Corporation or, if applicable, a Subsidiary of
the Corporation.
2.5 Change in Control Price means the
higher of (i) the mean of the high and low trading prices
for the Corporations Common Stock on the Stock Exchange on
the date of the Change in Control or (ii) the highest price
per share actually paid for the Common Stock in connection with
the Change in Control of the Corporation.
2.6 Code means the Internal Revenue Code
of 1986, as amended from time to time.
2.7 Committee means the Compensation
Committee of the Board, or such other committee designated by
the Board, authorized to administer the Plan, composed of not
fewer than two directors, each of whom shall be a
Non-Employee Director under
Rule 16b-3
of the Exchange Act or any successor rule or statute and shall
be an outside director for purposes of
Section 162(m) of the Code or any successor rule or statute.
2.8 Common Stock means common stock, par
value $.01, of the Corporation.
2.9 Exchange Act means the Securities
Exchange Act of 1934, as amended.
2.10 Key Employee means an employee of
the Corporation or a Subsidiary who holds a position of
responsibility in a managerial, administrative or professional
capacity and whose performance, as determined by the Committee
in the exercise of its sole and absolute discretion, makes
appropriate the grant of an Award under this Plan.
2.11 Non-Employee Director means any
director of the Corporation who is not an employee of the
Corporation.
2.12 Participant means any individual to
whom an Award has been granted by the Committee under this Plan.
2.13 Stock Exchange means the New York
Stock Exchange or, if the Common Stock is no longer traded on
the New York Stock Exchange, such other market price reporting
system on which the Common Stock is traded or quoted and is
designated by the Committee after it determines that such other
exchange is both reliable and reasonably accessible.
2.14 Subsidiary means a corporation or
other business entity in which the Corporation directly or
indirectly has an ownership interest of fifty percent or more.
The Plan shall be administered by the Committee except as
otherwise expressly provided in this Plan. Subject to the
express provisions of this Plan, the Committee shall have the
conclusive authority to construe and interpret this Plan and any
Award Agreement under this Plan and to establish, amend and
rescind policies and procedures for the administration of this
Plan and shall have such additional authority as the Board may
from time to time determine to be necessary or desirable.
In addition, in order to enable employees who are foreign
nationals or employed outside the United States, or both, to
receive Awards under this Plan, the Committee may adopt such
policies and subplans as are necessary or advisable, in the
opinion of the Committee, to effectuate the purposes of the Plan.
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Any Key Employee or Non-Employee Director is eligible to become
a Participant in this Plan.
5.1 Aggregate Number of Shares. The
aggregate number of shares of Common Stock of the Corporation as
to which Awards may be made under this Plan (including any
annual stock issuances made to Non-Employee Directors pursuant
to Section 11) shall be 3,000,000, subject to
adjustment as provided in this Plan. Such shares may be made
available from authorized and unissued shares of the Corporation
or from shares that have been reacquired by the Corporation and
held as treasury shares.
Notwithstanding the foregoing, subject to adjustment as provided
in this Plan,
(i) the number of shares subject to Awards made to any one
person in any calendar year shall not exceed 250,000; and
(ii) the total number of shares subject to Awards that are
other than stock option and stock appreciation rights Awards
made under this Plan shall not exceed 1,500,000.
5.2 Shares Covered by
Awards. For purposes of calculating the number of
shares of Common Stock deemed to be granted under this Plan,
each Award, in whatever form, shall be deemed to be a grant of a
number of shares of Common Stock equal to the number of shares
represented by the stock options, stock appreciation rights,
shares of restricted stock, shares of phantom stock or
restricted stock units set forth in the Award, except that:
(i) in the case of any Award as to which the exercise of
one right nullifies the exercisability of another, the number of
shares deemed to have been granted shall be the maximum number
of shares (and/or cash equivalents) that could have been
acquired upon the maximum exercise or settlement of the
Award; and
(ii) in the case of any performance-based restricted stock
Award that provides for payments in excess of 100% of the number
of shares set forth in the Award Agreement, the number of shares
granted shall be deemed to be the maximum number of shares
(and/or the cash equivalent) issuable under the Award at the
highest level of performance.
5.3 Use and Re-grant Availability of
Shares. For purposes of calculating the number of
shares of Common Stock available for Awards under this Plan,
(i) any Award or portion of an Award that has been settled
by the payment of cash shall be deemed to have used the number
of shares covered by the Award; and
(ii) any shares subject to any Award that is forfeited or
otherwise terminated without the issuance of shares or payment
of other consideration shall again be available for issuance
under this Plan.
The Committee shall select, from time to time, those Key
Employees and Non-Employee Directors who shall be Participants
in the Plan and shall determine the type or types of Awards to
be made to each Participant. The terms, conditions and
restrictions of each Award shall be set forth in an Award
Agreement in a form approved by the Committee.
7.1 Grants. Awards may be granted
in the form of stock options. Stock options may be incentive
stock options within the meaning of Section 422 of the Code
or non-statutory stock options (i.e., stock options that are not
incentive stock options), or a combination of both, or any
particular type of tax-advantaged option authorized by the Code
from time to time.
A-3
7.2 Terms and Conditions of
Options. An option shall be exercisable in whole
or in such installments and at such times as may be determined
by the Committee, provided that no stock option shall be
exercisable more than ten years after the date of grant. The
exercise price of a stock option shall be established by the
Committee, but such price shall not be less than the per share
fair market value of the Common Stock, as determined by the
Committee, on the date of the grant of the stock option, subject
to adjustment as provided in Sections 17 and 18.
7.3 Restrictions Relating to Incentive Stock
Options. Stock options issued in the form of
incentive stock options shall, in addition to being subject to
all applicable terms, conditions, restrictions and limitations
established by the Committee, comply with Section 422 of
the Code. Incentive stock options shall be granted only to
full-time employees of the Corporation and its Subsidiaries
within the meaning of Section 424 of the Code. The
aggregate fair market value (determined as of the date the
option is granted) of shares with respect to which incentive
stock options are exercisable for the first time by an
individual during any calendar year (under this Plan or any
other plan of the Corporation or any Subsidiary that provides
for the granting of incentive stock options) may not exceed
$100,000 or such other number as may be applicable under the
Code from time to time. Any incentive stock option that is
granted to any employee who is, at the time the option is
granted, deemed for purposes of Section 422 of the Code or
any successor provision, to own shares of the Corporation
possessing more than ten percent of the total combined voting
power of all classes of shares of the Corporation or of a parent
or subsidiary of the Corporation, shall have an option exercise
price that is at least 110% of the fair market value of the
shares at the date of grant and shall not be exercisable after
the expiration of five years from the date it is granted.
7.4 Additional Terms and
Conditions. The Board may, in the Award Agreement
or otherwise, establish such other terms, conditions,
restrictions or limitations on any stock option Award as it
considers appropriate, provided they are not inconsistent with
this Plan, including provisions relating to:
(i) the vesting of such option;
(ii) payments to be made by the Participant at the time of
exercise of such option relating to any taxes associated with
such exercise;
(iii) any requirement imposed on the Participant to retain
the Common Stock acquired upon exercise of such option; and
(iv) the exercisability of such options upon the cessation
of employment or service as a director.
7.5 Payment. Upon exercise, a
participant may pay the exercise price of a stock option in cash
or shares of Common Stock, or a combination of cash and shares
of Common Stock, or such other consideration as the Committee
may deem appropriate. The Committee shall establish appropriate
methods for accepting Common Stock and may impose such
conditions as it deems appropriate on the use of such Common
Stock to exercise a stock option.
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8.
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Stock
Appreciation Rights
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8.1 Grants. Awards may be granted
in the form of stock appreciation rights (SARs).
SARs shall entitle the recipient to receive a payment equal to
the appreciation in market value of a stated number of shares of
Common Stock from the price stated in the Award Agreement (which
price may not be less than the fair market value of the Common
Stock on the date of grant of the SAR) to the market value of
the Common Stock on the date of exercise or surrender. An SAR
may be granted in tandem with all or a portion of a related
stock option under the Plan (Tandem SARs) or may be
granted separately (Freestanding SARs).
8.2 Terms and Conditions of Tandem
SARs. Subject to the limitations contained in the
preceding paragraph, a Tandem SAR shall be exercisable to the
extent, and only to the extent, that the related stock option is
exercisable. Upon exercise of a Tandem SAR as to some or all of
the shares covered by an Award, the related stock option shall
be cancelled automatically to the extent of the number of SARs
exercised, and such shares shall not be eligible for re-grant
under this Plan.
A-4
8.3 Terms and Conditions of Freestanding
SARs. Freestanding SARs shall be exercisable in
whole or in such installments and at such times as may be
determined by the Committee, provided that no Freestanding SAR
shall be exercisable more than ten years after the date of
grant. The base price of a Freestanding SAR also shall be
determined by the Committee, provided that such price shall not
be less that the fair market value of the Common Stock, as
determined by the Committee, on the date of the grant of the
Freestanding SAR.
8.4 Deemed Exercise. The Committee
may provide that an SAR shall be deemed to be exercised at the
close of business on the scheduled expiration date of such SAR,
if at such time the SAR by its terms is otherwise exercisable
and, if so exercised, would result in a payment to the
Participant.
8.5 Additional Terms and
Conditions. The Committee may, in the Award
Agreement or otherwise, establish such other terms, conditions,
restrictions or limitations on any SAR Award as it considers
appropriate, provided that they are not inconsistent with this
Plan.
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9.
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Restricted
Stock Awards
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9.1 Grants. Awards may be granted
in the form of restricted stock Awards, in such numbers and at
such times as the Committee shall determine.
9.2 Award Restrictions. Restricted
stock Awards shall be subject to such terms, conditions,
restrictions or limitations as the Committee deems appropriate,
provided they are not inconsistent with this Plan, including
restrictions on vesting and transferability, forfeiture
provisions, requirements of continued employment or service as a
director, individual performance or the financial performance of
the Corporation or a segment or identified business of the
Corporation. Notwithstanding the foregoing, the vesting schedule
for restricted stock Awards must at a minimum be (i) for
three years for shares that vest based upon continued employment
or service as a director, and (ii) for one year for shares
that vest based upon the financial performance of the
Corporation or a segment or identified business of the
Corporation in accordance with performance criteria established
by the Committee as described in Section 9.5 of this Plan.
9.3 Rights as Shareholders. During
the period in which any shares of Common Stock are subject to
any of the conditions, restrictions or limitations referenced in
the preceding paragraph, the Committee may, in its discretion,
grant to the Participant to whom such restricted shares have
been awarded all or any of the rights of a stockholder with
respect to such shares, including the right to vote such shares
and to receive dividends paid on shares of Common Stock.
9.4 Evidence of Award. Any
restricted stock Award granted under this Plan may be evidenced
in such manner as the Committee deems appropriate, including
book-entry registration or issuance of a stock certificate or
certificates.
9.5 Performance Criteria. In the
event that restricted stock Awards are granted subject to the
financial performance of the Corporation, such restricted stock
Awards shall be earned upon the satisfaction of such performance
targets related to such performance periods as are established
by the Committee at the time of grant. The Committee may
establish performance targets in terms of any or all of the
following: sales, sales growth, gross margins,
operating profit, operating profit growth, net income, net
income growth, earnings per share, growth in earnings per share,
EBITDA, cash flow per share, total stockholder returns, return
on equity, return on invested capital, return on net assets
employed, common stock price or common stock price appreciation.
Performance targets may utilize various combinations of or
changes in any of the above measures, or may utilize any one or
more of the above measures as relates to an identified business
or segment of the Corporations operations or as relates to
the performance of the Corporation as compared to other
entities. Performance targets applicable to restricted stock
Awards may vary from Award to Award and from Participant to
Participant. When determining whether performance targets have
been attained, the Committee shall have the discretion to make
adjustments to take into account extraordinary or nonrecurring
items or events, or unusual nonrecurring gains or losses
identified in the Corporations financial statements,
provided such adjustments are made in a manner consistent with
Section 162(m) of the Code (to the extent applicable). To
the extent appropriate, restricted stock Awards that are made to
Participants subject to Section 162(m) of
A-5
the Code are intended to qualify under Section 162(m) and
the Committee shall interpret the terms of such Awards in a
manner consistent with that intent.
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10.
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Phantom
Stock and Restricted Stock Units
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10.1 Grants. Awards may be granted
in the form of phantom stock or restricted stock unit Awards.
Such Awards shall entitle the Participant to receive the market
value or the appreciation in value of an equivalent number of
shares of Common Stock on a settlement date determined by the
Committee.
10.2 Additional Terms and
Conditions. The Committee may, in the Award
Agreement or otherwise, establish such other terms, conditions,
restrictions or limitations on any Award of phantom stock or
restricted stock units as it considers appropriate, provided
they are not inconsistent with this Plan, including restrictions
on vesting and transferability, forfeiture provisions,
requirements of continued employment or service as a director,
individual performance or the financial performance of the
Corporation or a segment or identified business of the
Corporation. Notwithstanding the foregoing, the minimum vesting
schedule requirements set forth in Section 9.2 of this Plan
shall apply to any time-based or performance-based phantom stock
or restricted stock unit Awards. The provisions of
Section 9.5 of this Plan shall be applicable to phantom
stock or restricted stock unit Awards that are subject to the
financial performance of the Corporation or a segment or
identified business of the Corporation.
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11.
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Annual
Stock Issuance to Non-Employee Directors
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Each Non-Employee Director may receive all or any portion of his
or her annual compensation as a Non-Employee Director in the
form of Common Stock, as determined annually by the Board. The
Board shall have the absolute discretion to determine the
amount, if any, of Non-Employee Director annual compensation
that shall be paid in the form of Common Stock in any year,
which may vary from year to year. Any shares of Common Stock
that are determined by the Board to be issuable pursuant to this
Section shall be issued to Non-Employee Directors as promptly as
practicable following the measurement date for any
installment(s) of such annual compensation being paid in whole
or in part in Common Stock, as determined by the Board. The
measurement date should be the last business day of the relevant
quarter for which compensation is being paid in Common Stock,
and for purposes of determining the number of shares of Common
Stock to be issued, shares shall be valued at the average of the
high and low sale price of Common Stock on the New York Stock
Exchange on the applicable measurement date for such installment
or installments. No fractional shares of Common Stock shall be
issued, and any fractional shares so calculated shall be paid in
cash. No Award Agreement need be executed with respect to any
stock issuances to Non-Employee Directors pursuant to this
Section.
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12.
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Annual
Incentive Awards
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The Committee is responsible for administering the annual
incentive program of the Corporation, which provides annual
bonus opportunities to certain employees of the Corporation and
its Subsidiaries. The Committee shall select, from time to time,
those employees of the Corporation and its Subsidiaries who
shall participate in the annual incentive program for a
particular year and shall determine the annual bonus opportunity
available for each employee so selected. Annual bonus
opportunities shall be based upon such factors and subject to
such terms and conditions as shall be provided in the annual
incentive program for a particular year, which may include
satisfaction of corporate performance goals, segment or
identified business performance goals and individual objectives.
To the extent that annual bonus opportunities are determined for
any employee to be subject to the financial performance of the
Corporation or a segment or identified business of the
Corporation (a performance bonus), such performance
bonus shall be earned upon the satisfaction of such performance
targets as are established by the Committee in its
administration of the annual incentive program, which
performance targets shall be one or more of the performance
targets set forth in Section 9.5 of this Plan. The
provisions of Section 9.5 of this Plan shall be applicable
to annual bonus opportunities that are subject to the financial
performance of the Corporation or a segment or identified
business of the Corporation, such that performance bonus awards
made to employees subject to Section 162(m) of the Code are
intended to qualify under Section 162(m) to the extent
appropriate. The Committee shall interpret the terms of such
A-6
awards in a manner consistent with that intent to the extent
appropriate. The maximum dollar amount of any performance bonus
payable to an employee in any calendar year is $10,000,000.
Except as otherwise provided in this Plan, Award Agreements may
provide that, at the discretion of the Committee, payment of
Awards may be made in cash, Common Stock, a combination of cash
and Common Stock, or any other form of property as the Committee
shall determine. Further, the terms of Award Agreements may
provide for payment of Awards in the form of a lump sum or
installments, as determined by the Committee. All payments of
Awards shall be made in a manner consistent with the
requirements of Section 409A of the Code.
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14.
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Dividends
and Dividend Equivalents
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If an Award is granted in the form of a restricted stock Award
or a phantom stock or restricted stock unit Award, the Committee
may choose, at the time of the grant of the Award, to include as
part of such Award an entitlement to receive dividends or
dividend equivalents, subject to such terms, conditions,
restrictions or limitations as the Committee may establish.
Dividends and dividend equivalents shall be paid in such form
and manner and at such times as the Committee shall determine.
All dividends or dividend equivalents that are not paid
currently may, at the Committees discretion, accrue
interest or be reinvested into additional shares of Common Stock.
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15.
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Termination
of Employment or Service as Director
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The Committee may adopt administrative policies and procedures
and/or
provide in Award Agreements with respect to the rights under an
Award of a Participant who ceases to be employed by either the
Corporation or a Subsidiary or ceases to be a director of the
Corporation, whether because of death, disability, resignation,
termination or retirement pursuant to an established retirement
plan or policy of the Corporation or of the applicable
Subsidiary. All such administrative policies and procedures
shall comply with the requirements of Section 409A of the
Code.
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16.
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Assignment
and Transfer
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The rights and interests of a Participant under the Plan or an
Award may not be assigned, encumbered or transferred other than,
in the event of the death of a Participant, by will or the laws
of descent and distribution.
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17.
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Adjustments
Upon Changes in Capitalization
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In the event of any change in the outstanding shares of Common
Stock by reason of any reorganization, recapitalization, stock
split, stock dividend, combination or exchange of shares,
merger, consolidation or any change in the corporate structure
or shares of the Corporation, the maximum aggregate number and
class of shares as to which Awards may be granted under the Plan
(as well as the limitations upon the number of shares that may
be the subject of Awards to any individual in a calendar year
and the aggregate number of shares subject to Awards other than
stock options and SARs) and the number and class of shares
issuable pursuant to then-outstanding Awards (together with the
exercise price of any outstanding stock option or SAR) shall be
appropriately adjusted by the Committee, whose determination
shall be final.
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18.
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Extraordinary
Distributions and Pro Rata Repurchases
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In the event the Corporation shall at any time when an Award is
outstanding make an Extraordinary Distribution (as defined
below) in respect of Common Stock or effect a Pro Rata
Repurchase of Common Stock (as defined below), the Committee
shall consider the economic impact of the Extraordinary
Distribution or Pro Rata Repurchase on Participants and make
such adjustments as it deems equitable under the circumstances.
The determination of the Committee shall, subject to revision by
the Board, be final and binding upon all Participants.
A-7
As used in this Plan, the term Extraordinary
Distribution means any dividend or other distribution of
(i) cash, where the aggregate amount of such cash dividend
or distribution together with the amount of all cash dividends
and distributions made during the preceding twelve months, when
combined with the aggregate amount of all Pro Rata Repurchases
(for this purpose, including only that portion of the aggregate
purchase price of such Pro Rata Repurchases that is in excess of
the fair market value of the Common Stock repurchased during
such twelve-month period), exceeds ten percent of the aggregate
fair market value of all shares of Common Stock outstanding on
the record date for determining the stockholders entitled to
receive such Extraordinary Distribution, or
(ii) any shares of capital stock of the Corporation (other
than shares of Common Stock), other securities of the
Corporation, evidences of indebtedness of the Corporation or any
other person or any other property (including shares of any
Subsidiary of the Corporation), or any combination of such items.
As used in this Plan, Pro Rata Repurchase means any
purchase of shares of Common Stock by the Corporation or any
Subsidiary pursuant to any tender offer or exchange offer,
whether or not subject to Section 13(e) of the Exchange Act
or any successor provision of law, or pursuant to any other
offer available to substantially all holders of Common Stock,
provided that no purchase of shares of Common Stock made by the
Corporation or any Subsidiary in open market transactions shall
be deemed to be a Pro Rata Repurchase.
The Corporation or the applicable Subsidiary shall be entitled
to deduct from any payment under this Plan, regardless of the
form of such payment, the amount of all applicable income and
employment taxes required by law to be withheld with respect to
such payment or may require the Participant to pay to it such
taxes prior to and as a condition of the making of such payment.
The Committee may allow a Participant to pay the amount of taxes
required by law to be withheld from an Award by withholding from
any payment of Common Stock due as a result of such Award, or by
permitting the Participant to deliver to the Corporation, shares
of Common Stock having a fair market value, as determined by the
Committee, equal to the amount of such required withholding
taxes.
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20.
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Noncompetition
Provision
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Unless the Award Agreement specifies otherwise, a Participant
shall forfeit all unexercised, unearned or unvested Awards if
(i) in the opinion of the Committee, the Participant,
without the written consent of the Corporation, engages directly
or indirectly in any manner or capacity as principal, agent,
partner, officer, director, employee or otherwise in any
business or activity competitive with the business conducted by
the Corporation or any Subsidiary; or
(ii) the Participant performs any act or engages in any
activity that in the opinion of the Committee is detrimental to
the best interests of the Corporation.
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21.
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Regulatory
Approvals and Listings
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Notwithstanding anything contained in this Plan to the contrary,
the Corporation shall have no obligation to issue or deliver
certificates of Common Stock evidencing restricted stock Awards
or any other Award payable in Common Stock prior to
(i) the obtaining of any approval from any governmental
agency that the Corporation shall, in its sole discretion,
determine to be necessary or advisable,
(ii) the admission of such shares to listing on the Stock
Exchange, and
(iii) the completion of any registration or other
qualification of such shares under any state or federal law or
ruling of any governmental body that the Corporation shall, in
its sole discretion, determine to be necessary or advisable.
A-8
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22.
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No Right
to Continued Employment or Grants
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Participation in this Plan shall not give any Key Employee any
right to remain in the employ of the Corporation or any
Subsidiary. The Corporation or, in the case of employment with a
Subsidiary, the Subsidiary, reserves the right to terminate the
employment of any Key Employee at any time. The adoption of this
Plan shall not be deemed to give any Key Employee or any other
individual any right to be selected as a Participant, to be
granted any Awards under this Plan or if granted an Award in any
year, to receive Awards in any subsequent year.
The Board reserves the right to amend, suspend or terminate this
Plan at any time, subject to any applicable requirements for
stockholder approval imposed by the Stock Exchange or any law or
regulation. The Committee may amend the terms of any outstanding
Award, but no such amendment may impair the rights of any
Participant without his or her consent or amend the terms of any
Award that is intended to qualify as performance-based
compensation under Section 162(m) of the Code so as to
increase the amount otherwise payable under the Award.
The Plan shall be governed by and construed in accordance with
the laws of the State of Ohio.
25.1 Stock Options. In the event of
a Change in Control, stock options not otherwise exercisable at
the time of the Change in Control shall become fully exercisable
upon such Change in Control.
25.2 Stock Appreciation Rights. In
the event of a Change in Control, Tandem SARs not otherwise
exercisable at the time of the Change in Control shall become
exercisable to the extent that the related Stock Option is
exercisable. Freestanding SARs not otherwise exercisable at the
time of a Change in Control also shall become fully exercisable
upon such Change in Control. In the event of a Change in Control:
(i) the Corporation shall make payment to Participants with
respect to SARs in cash in an amount equal to the appreciation
in the value of the SAR from the base price specified in the
Award Agreement to the Change in Control Price;
(ii) such cash payments to Participants shall be due and
payable, and shall be paid by the Corporation, immediately upon
the occurrence of such Change in Control; and
(iii) after the payment provided for in (ii) above,
Participants shall have no further rights under SARs outstanding
at the time of such Change in Control.
25.3 Restricted Stock Awards. In
the event of a Change in Control, all restrictions and
conditions (including performance targets, at the target level)
previously established with respect to restricted stock Awards
shall conclusively be deemed to have been satisfied.
Participants shall be entitled to have issued to them the shares
of Common Stock described in the applicable Award Agreements,
free and clear of any restriction or restrictive legend, except
that if upon the advice of counsel to the Corporation, shares of
Common Stock cannot lawfully be issued without restriction, then
the Corporation shall make payment to Participants in cash in an
amount equal to the Change in Control Price of the Common Stock
that otherwise would have been issued. In such event:
(i) such cash payments to Participants shall be due and
payable, and shall be paid by the Corporation, immediately upon
the occurrence of such Change in Control; and
(ii) after the payment provided for in (i) above,
Participants shall have no further rights under restricted stock
Awards outstanding at the time of such Change in Control.
A-9
25.4 Phantom Stock or Restricted Stock
Units. In the event of a Change in Control:
(i) all restrictions and conditions (including any
performance targets, at the target level) previously established
with respect to phantom stock or restricted stock unit Awards
shall conclusively be deemed to have been satisfied and
Participants shall be entitled to receive cash in satisfaction
of their rights under phantom stock or restricted stock unit
Awards in accordance with the amounts otherwise payable by the
Corporation pursuant to the Award Agreement;
(ii) such cash payments to Participants shall be due and
payable, and shall be paid by the Corporation, immediately upon
the occurrence of such Change in Control; and
(iii) after the payment provided for in (ii) above,
Participants shall have no further rights under phantom stock or
restricted stock unit Awards outstanding at the time of such
Change in Control.
25.5 Annual Incentive Awards. To
the extent that the Committee has determined bonus opportunities
for employees under the annual incentive program of the
Corporation based upon the financial performance of the
Corporation or a segment or identified business of the
Corporation, in the event of a Change in Control, all
performance targets shall conclusively be deemed to have been
satisfied at the target level. In addition, all individual
objectives related to bonus opportunities shall conclusively be
deemed to have been satisfied. In the event of a Change in
Control:
(i) employees participating in the annual incentive program
shall be entitled to receive payment of bonuses on the basis
described above, and such bonuses shall be paid by the
Corporation immediately upon the occurrence of such Change in
Control; and
(ii) after the payment provided for in (i) above, such
employees shall have no further rights to bonus payments under
such annual incentive plan.
25.6 Miscellaneous. Upon a Change
in Control, no action shall be taken that would adversely affect
the rights of any Participant or the operation of this Plan with
respect to any Award to which the Participant may have become
entitled under this Plan on or prior to the date of the Change
in Control or to which the Participant may become entitled as a
result of such Change in Control.
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26.
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No Rights
as Stockholder or Interest in Corporation Assets
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No Participant shall have any rights as a stockholder as a
result of participation in this Plan except as provided in this
Plan. To the extent any person acquires a right to receive
payments from the Corporation under this Plan, such rights shall
be no greater than the rights of an unsecured creditor of the
Corporation.
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27.
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Payment
by Subsidiaries
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Settlement of Awards to employees of Subsidiaries shall be made
by and at the expense of such Subsidiary. Except as prohibited
by law, if any portion of an Award is to be settled in shares of
Common Stock, the Corporation shall sell and transfer to the
Subsidiary, and the Subsidiary shall purchase, the number of
shares necessary to settle that portion of the Award.
This Plan shall become effective upon adoption of the Plan by
the Board, provided that such effectiveness shall be subject to
the approval of the stockholders of the Corporation. Awards may
be granted under this Plan at any time prior to ten years from
the adoption of the Plan by the Board, at which time the Plan
shall expire but without affecting any Awards then outstanding.
A-10
OM
Group, Inc.
c/o National City Bank
Shareholder Services Operations
Locator 5352
P. O. Box 94509
Cleveland, OH 44101-4509
Vote by Telephone
Have
your voting instruction card
available when you call the Toll-Free number
1-888-693-8683 using a touch-tone
phone, and follow the simple
instructions to record your
vote.
Vote by Internet
Have your voting instruction card
available when you access the
website www.cesvote.com and follow
the simple instructions to record
your vote.
Vote by Mail
Please mark, sign and date
your voting instruction card and return it in
the postage-paid envelope provided
or return it to: National City Bank,
P.O. Box 535300,
Pittsburgh, PA 15253.
Vote by Telephone
Call Toll-Free using a
Touch-Tone phone:
1-888-693-8683
Vote by Internet
Access the Website and
Cast your vote:
www.cesvote.com
Vote by Mail
Return your voting instruction
card in
the Postage-Paid
envelope provided
Vote 24 hours a day, 7 days a week!
If you vote by telephone or Internet, please do not send your voting instruction card by mail.
Side B / Uninstructed Shares
è
ê Please fold and detach card at
perforation before mailing.
ê
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OM GROUP, INC.
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Confidential
Voting Instructions SIDE A |
The undersigned, a Participant in the OMG Profit-Sharing and Retirement Savings Plan, hereby
instructs the Trustee under the Plan to vote the shares subject to this instruction at the 2007
Annual Meeting of OM Group, Inc., and at any adjournment thereof, in accordance with the
instructions on this card.
Unless otherwise instructed on this card, the trustee will, upon receipt of a properly executed
instruction card, vote FOR proposals 1, 2 and 3. See accompanying PARTICIPATION NOTICE for
explanation of the confidentiality, timing deadlines and other details concerning this instruction.
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Election of directors to serve terms expiring at our annual meeting in 2010. |
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(1) Katharine L. Plourde
(2) David L. Pugh |
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Election of a director to serve a term expiring at our annual
meeting in 2009. |
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(3) Gordon A. Ulsh
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o FOR
the nominees listed above |
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o WITHHOLD
AUTHORITY |
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to vote for all
nominees listed above |
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(Instructions: If you wish to withhold authority to vote for any
nominee, write that nominees name on the line below.) |
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2. |
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To adopt the 2007 Incentive Compensation Plan. |
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o FOR |
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o AGAINST |
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ABSTAIN |
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3. |
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To confirm the appointment of Ernst & Young LLP as our independent registered public accounting firm. |
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o FOR |
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o AGAINST |
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ALSO, IF DESIRED, COMPLETE, DATE AND
SIGN THE OTHER SIDE OF THIS CARD (SIDE
B) FOR ANY UNINSTRUCTED SHARES.
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Dated: |
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, 2007 |
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Signature of Participant |
PLEASE SIGN, DATE AND RETURN THE VOTING
INSTRUCTIONS USING THE ENCLOSED
ENVELOPE.
ê Please fold and detach card at
perforation before mailing.
ê
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OM GROUP, INC.
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Confidential
Voting Instructions SIDE B |
The
undersigned Participant, acting as a Named Fiduciary under the OMG Profit-Sharing and Retirement Savings Plan, hereby
instructs the Trustee under the Plan to vote the shares subject to this instruction at the 2007
Annual Meeting of OM Group, Inc., and at any adjournment thereof, in accordance with the
instructions on this card.
Unless otherwise instructed, the trustee will, upon receipt of a properly executed
instruction card, vote FOR proposals 1, 2 and 3. See accompanying PARTICIPATION NOTICE for
explanation of the confidentiality, timing deadlines and other details concerning this instruction.
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1. |
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Election of directors to serve terms expiring at our annual meeting in 2010. |
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(1) Katharine L. Plourde
(2) David L. Pugh |
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Election of a director to serve a term expiring at our annual
meeting in 2009. |
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(3) Gordon A. Ulsh
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o FOR
all nominees listed above |
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o WITHHOLD
AUTHORITY |
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to vote for all
nominees listed above |
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(Instructions: If you wish to withhold authority to vote for any
nominee, write that nominees name on the line below.) |
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2. |
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To adopt the 2007 Incentive Compensation Plan. |
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o FOR |
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o AGAINST |
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ABSTAIN |
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3. |
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To confirm the appointment of Ernst & Young LLP as our independent registered public accounting firm. |
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o FOR |
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o AGAINST |
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ABSTAIN |
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ALSO, IF DESIRED, COMPLETE, DATE AND
SIGN THE OTHER SIDE OF THIS CARD (SIDE
A) FOR ANY UNINSTRUCTED SHARES.
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Dated: |
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, 2007 |
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Signature of Participant |
PLEASE SIGN, DATE AND RETURN THE VOTING
INSTRUCTIONS USING THE ENCLOSED
ENVELOPE.
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OM
Group, Inc.
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c/o National City Bank Shareholder Services Operations Locator 5352 P. O. Box 94509 Cleveland, OH 44101-4509
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Vote by Telephone
Have your voting instruction card available when you call the
Toll-Free number 1-888-693-8683 using a touch-tone phone,
and follow the simple instructions to record your vote.
Vote by Internet
Have your voting instruction card available when you access the website
www.cesvote.com and follow the simple instructions to record your vote.
Vote by Mail
Please mark, sign and date your voting instruction card and return it in the
postage-paid envelope provided or return it to: National City Bank, P.O. Box 535300, Pittsburgh, PA 15253.
Vote by Telephone
Call Toll-Free using a
Touch-Tone phone:
1-888-693-8683
Vote by Internet
Access the Website and
Cast your vote:
www.cesvote.com
Vote by Mail
Return your voting instruction
card in the Postage-Paid
envelope provided
Vote
24 hours a day, 7 days a week !
If
you vote by telephone or Internet, please do not send your voting instruction card by mail.
ê Please fold and detach card at perforation before mailing.ê
OM GROUP, INC. |
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PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS |
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The undersigned appoints Joseph M. Scaminace and Valerie Gentile Sachs, or both of them,
with full power of substitution, to vote the shares of the undersigned at the
Annual Meeting of Stockholders of OM Group, Inc. to be held on May 8, 2007 and at any adjournment thereof.
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Dated:
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, 2007 |
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Signature |
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Signature |
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Please sign name exactly as it appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee or
guardian, give your full title as such. In case of a corporation, a duly
authorized officer should sign on its behalf.
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YOUR VOTE IS IMPORTANT
If you do not vote by telephone or Internet, please sign and date this proxy card and return it
promptly in the enclosed postage-paid envelope, or otherwise to National City Bank, P.O. Box
535300, Pittsburgh, PA 15253, so your shares may be represented at the Annual Meeting. If you
vote by telephone or Internet, it is not necessary to return this proxy card.
ê Please fold and detach card at perforation before mailing. ê
The Board of Directors recommends that votes be cast FOR the election of all nominees and FOR
proposals 2 and 3. If no specification is made, authority is granted to cast the vote of the
undersigned for election of the nominees and for Proposals 2 and 3.
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1.
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Election of directors to serve terms expiring at our annual meeting in 2010:
Election of a director to serve a term expiring at our annual meeting in 2009:
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(1)
(3)
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Katharine L. Plourde
Gordon A. Ulsh
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(2) |
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David L. Pugh |
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o
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FOR the nominees listed above
(except as indicated to the contrary below)
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o
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WITHHOLD AUTHORITY
to vote for all nominees listed above |
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(Instructions: If you wish to withhold authority to vote for any nominee, write that nominees name
on the line below.)
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2. |
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To adopt the 2007 Incentive Compensation Plan. |
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o
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FOR
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o
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AGAINST
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o
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ABSTAIN |
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3. |
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To confirm the appointment of Ernst & Young LLP as our independent registered public
accounting firm. |
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o
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FOR
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o
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AGAINST
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o
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ABSTAIN |
(Continued on reverse side)