UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrantx Filed by a Party other than the Registrant¨
Check the appropriate box:
¨ | Preliminary Proxy Statement |
¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
x | Definitive Proxy Statement |
¨ | Definitive Additional Materials |
¨ | Soliciting Material Pursuant to §240.14a-12 |
Mueller Water Products, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
x | No fee required. |
¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
(1) | Title of each class of securities to which the transaction applies: |
(2) | Aggregate number of securities to which the transaction applies: |
(3) | Per unit price or other underlying value of the 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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(2) | Form, Schedule or Registration Statement No.: |
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(4) | Date Filed: |
December 18, 200821, 2009
To My Fellow Stockholders:
It is my pleasure to invite you to attend the 20092010 Annual Meeting of Stockholders of Mueller Water Products, Inc. to be held on Wednesday,Thursday, January 28, 20092010 at 10:00 A.M. local time at the Four SeasonsCrowne Plaza Hotel Atlanta Perimeter at Ravinia in Atlanta, Georgia. The meeting will begin with a discussion of and voting on the matters described in the attached Proxy Statement and Notice of Annual Meeting, followed by my report on Mueller Water Products’ financial performance and operations.
The attached Proxy Statement is a critical element of theto our corporate governance process. Its purpose isWe use this document to answersolicit your questions,vote, and also to provide you with information about our Board of Directors and certain executive officers, inform you of steps we are taking to fulfill our responsibilities to you as stockholders, and a discussion ofdiscuss the proposals that require your vote.
Your vote is important to us. It is important that your views be represented whether or not you plan to attend the Annual Meeting. The Board’s recommendations are included with the description of each proposal in this Proxy Statement. In summary,Statement and the Board recommends that stockholders vote “FOR” proposals 1, 2 3 and 4.3. We encourage you to take the time to read each of the proposals and vote promptly by using either the Internet, orby telephone, or by returning a completed proxy card.card or voting instruction form.
We look forward to seeing you at the 20092010 Annual Meeting. For your convenience, a map and directions are provided on the back of this document. On behalf of theour management and directors, of Mueller Water Products, I want to thank you for your continued support and confidence in our company.
Sincerely,
GregoryGREGORY E. HylandHYLAND
Chairman of the Board, President and Chief Executive Officer
YOUR VOTE IS VERY IMPORTANT!
PLEASE REVIEW THE ATTACHED MATERIALS AND SUBMIT YOUR VOTE PROMPTLY USING THE INTERNET, BY TELEPHONE, OR BY MAIL.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 28, 20092010
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Mueller Water Products, Inc., a Delaware corporation (“Mueller Water Products” or the “Company”), will be held at 10:00 A.M., local time, on Wednesday,Thursday, January 28, 20092010 at the Four SeasonsCrowne Plaza Hotel 75 Fourteenth Street,Atlanta Perimeter at Ravinia, 4355 Ashford Dunwoody Road, Atlanta, Georgia 30309,30346, for the following purposes:
1. | To elect, as members of the Board of Directors to serve for the ensuing year, the ten nominees named in the accompanying Proxy Statement; |
2. | To approve the |
3. |
To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal |
To transact such other business as may properly come before the Annual Meeting and any |
Holders of record of the Company’s common stock at the close of business on December 3, 2008,November 30, 2009, the record date for voting at the Annual Meeting, are entitled to notice of and to vote at the Annual Meeting or any adjournmentadjournments thereof.
By Order of the Board of Directors
ROBERT BARKER
Corporate Secretary
Atlanta, Georgia
December 18, 200821, 2009
Please note that attendance at the meeting will be limited to stockholders of Mueller Water Products, Inc. as of the record date (or their authorized representatives). You will be required to provide the admission ticket that is detachable from your proxy card or provide other evidence of ownership. If your shares are held by a bank or broker, please bring to the meeting your bank or broker statement evidencing your beneficial ownership of Mueller Water Products stock as of the record date to gain admission to the meeting.
Page | ||
1 | ||
7 | ||
Proposal Two: Approval of the 2010 Management Incentive Plan | 11 | |
Proposal Three: Ratification of the Appointment of the Independent Registered Public Accounting Firm | 14 | |
15 | ||
Code of Business Conduct | ||
25 | ||
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1200 Abernathy Road, N.E.
Suite 1200
Atlanta, Georgia 30328
PROXY STATEMENT
The Company is furnishing this Proxy Statement in connection with the solicitation by the Board of Directors (the “Board” or the “Board��Board of Directors”) of Mueller Water Products, Inc. (“Mueller Water Products” or the “Company”) of proxies for its Annual Meeting of Stockholders and any adjournments of the meeting (the “Annual Meeting”) for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will be held on Wednesday,Thursday, January 28, 20092010 at 10:00 A.M., local time, at the Four SeasonsCrowne Plaza Hotel 75 Fourteenth Street,Atlanta Perimeter at Ravinia, 4355 Ashford Dunwoody Road, Atlanta, Georgia 30309.30346.
QUESTIONS ABOUT VOTING AND THE ANNUAL MEETING
What is the purpose of this Proxy Statement?
This Proxy Statement provides information regarding matters to be voted on at the Annual Meeting. Additionally, it contains certain information that the Securities and Exchange Commission (the “SEC”) requires the Company to provide annually to its stockholders. The Proxy Statement is also used by the Company’s Board of Directors to solicit proxies to be used at the Annual Meeting. Proxies are solicited to give all stockholders of record an opportunity to vote on the matters to be presented at the Annual Meeting, even if they cannot attend the meeting in person. The Board has designated a Proxy Committee, which will vote the shares represented by proxies at the Annual Meeting in the manner indicated by the proxies. The members of the Proxy Committee are Gregory E. Hyland, Evan L. Hart and Robert Barker.
The Proxy Statement is being made available to the holders of theour Series A Common Stock and Series B Common Stockcommon stock (“common stock”) beginning on or about December 18, 2008.21, 2009.
Who is entitled to vote on the matters discussed in the Proxy Statement?
The Company has issued and outstanding shares of two series of common stock: Series A Common Stock and Series B Common Stock, which are together referred to as the “common stock”. You are entitled to vote if you were a stockholder of record of Series A Common Stock or Series B Common Stockcommon stock of Mueller Water Products as of the close of business on December 3, 2008. There are differences in the voting rights of the Series A Common Stock and the Series B Common Stock, which are described in this Proxy Statement.November 30, 2009. Your shares can be voted at the meeting only if you are present in person or represented by a valid proxy.
What constitutes a quorum for the Annual Meeting?
The holders of a majority of the voting power of the outstanding shares of common stock as of the close of business on the record date, December 3, 2008,November 30, 2009, must be present, either in person
or represented by proxy, to constitute a quorum necessary to conduct the Annual Meeting. On the record date, there were issued and outstanding 29,643,521153,887,751 shares of Series A Common Stock and 85,844,920 shares of Series B Common Stock.common stock. This total excludes treasury shares, which are not considered outstanding for financial reporting purposes.outstanding. Shares represented by proxies received but marked as abstentions or as withholding voting authority for any or all director nominees, and shares represented by proxies received but reflecting broker non-votes, will be counted as present at the meeting for purposes of establishing a quorum.
How many votes am I entitled to for each share I hold?
With respect to the election of directors, the amendment of the Amended and Restated 2006 Stock Incentive Plan and the ratification of the appointment of the independent registered public accounting firm, eachEach share of Series A Common Stockcommon stock represented at the Annual Meeting is entitled to one vote and each share of Series B Common Stock represented at the Annual Meeting is entitled to eight votes. With respect to the conversion of all outstanding shares of Series B Common Stock into shares of Series A Common Stock, each share of Series A Common Stock and Series B Common Stock represented at the Annual Meeting is entitled to one vote. All shares entitled to vote and represented by properly executed proxies received before the polls are closed at the Annual Meeting, and not revoked or superseded, will be voted at the Annual Meeting in accordance with the instructions indicated by those proxies.
What proposals will require my vote?
You are being asked to vote on the following:
— | The election of the ten director nominees named in this Proxy Statement (Proposal 1); |
— | The |
|
— | The ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal |
— | Any other business properly coming before the meeting and any |
What vote is required to approve each proposal, and how will my vote be counted?
Proposal 1: Election of Directors
Directors are elected by a plurality of the votes, which means that theThe ten nominees who receive the highest number of properly executed votes will be elected as directors.
Proposal 2: Conversion of All Outstanding Shares of Series B Common Stock into Shares of Series A Common Stock
Approval of this proposal requires the affirmative vote of a majority of the votes entitled to be cast by the holders of Series A Common Stock and Series B Common Stock, voting together as a single class. Any share that is not voted (whether by abstention or otherwise) will have the effect of a vote against the proposal.
Proposal 3: Amendment to the Amended and Restated 2006 Stock2010 Management Incentive Plan
Approval of this proposal requires the affirmative vote of a majority of the votes cast.cast for and against the proposal. Any shares that are not voted (whether by abstention or otherwise) will have no impact on the vote.
Proposal 4:3: Ratification of the Appointment of the Independent Registered Public Accounting Firm
Approval of this proposal requires the affirmative vote of a majority of the votes cast.cast for and against the proposal. Any shares that are not voted (whether by abstention or otherwise) will have no impact on the vote.
How does the Board of Directors recommend that I vote?
The Board recommends that you vote:
— | “FOR” election of the ten director nominees named in this Proxy Statement (Proposal 1); |
— | “FOR” approval of the |
|
— | “FOR” ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal |
How can I vote?
You can vote in person by completing a ballot at the Annual Meeting, or you can vote prior to the meeting by proxy. Even if you plan to attend the meeting, we encourage you to vote your shares as soon as possible by proxy. You can vote by proxy using the Internet, by telephone or by mail, as discussed below.
How do I vote by proxy?
Vote by Internet: You can vote your shares using the Internet. Go to the website indicated on the proxy card or voting instruction form and follow the instructions. Internet voting is available twenty-four24 hours a day, seven days a week until 11:59 p.m. Eastern time on January 27, 2009.2010. You will be given the opportunity to confirm that your instructions have been properly recorded. If you vote onusing the Internet, you doNOT need to return a proxy card or voting instruction form. Please follow the instructions on the proxy card or voting instruction form carefully.
If you hold your shares in “street name” or “beneficial name” (that is, you hold your shares through a broker, bank, or other nominee), your ability to vote byusing the Internet depends on the voting processes of the broker, bank or other nominee.
Vote by Telephone: You can vote your shares by telephone if you have a touch-tone phone.telephone. Dial the toll-free telephone number indicated on the proxy card or voting instruction form and follow the instructions. Telephone voting is available twenty-four24 hours a day, seven days a week until 11:59 p.m. Eastern time on January 27, 2009. Easy-to-follow voice2010. Voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded. If you vote by telephone, you doNOT need to return a proxy card or voting instruction form. Please follow the instructions on the proxy card or voting instruction form carefully.
If you hold your shares in “street name” or “beneficial name” (that is, you hold your shares through a broker, bank, or other nominee), your ability to vote by telephone depends on the voting processes of the broker, bank or other nominee.
Vote by Mail:Mail If you prefer to: You can vote your shares by mail, markmail. Mark the proxy card or voting instruction form, sign and date it, and return it in the postage-paid envelope provided. If you sign the proxy card but do not specify how you want your shares to be voted, your shares will be voted by the Proxy Committee in favor of the election of all of the director nominees named in this Proxy Statement and in accordance with the Board’s recommendations on the other proposals listed on the proxy card. All properly executed proxy cards received before the polls are closed at the Annual Meeting, and not revoked or superseded, will be voted at the Annual Meeting in accordance with the instructions indicated by those proxy cards.
Shares Held by Employee Stock Purchase Plans:If you hold (i) shares of the Company’s Series A Common Stockcommon stock through the Mueller Water Products Employee Stock Purchase Plan or (ii) shares of the Company’s Series B Common Stock through the Walter IndustriesEnergy Employee Stock Purchase Plan, then your vote must be received by 11:59 p.m. Eastern time on January 27, 2009,25, 2010, unless you vote in person at the Annual Meeting.
Can I assign my proxy to someone else?
If you want to assign your proxy to someone other than the Proxy Committee, you should cross out the names of the Proxy Committee members appearing on the proxy card and insert the name(s) of up to three other people. The person(s) you have assigned to represent you must present your signed proxy card and a completed ballot at the meeting to vote your shares.
Can I change my mind after I vote?
If you vote by proxy, you can revoke that proxy at any time before it is voted at the meeting. You can do this in one of the following three ways:
(A) | Vote again |
(B) | Sign another proxy card with a later date and return it to us prior to the meeting; or |
(C) | Attend the Annual Meeting in person and cast a ballot. |
How will a proposal or other matter that was not included in the Proxy Statement be handled for voting purposes if it comes up at the Annual Meeting?
If any matter that is not described in this Proxy Statement should properly come before the meeting, the Proxy Committee will vote the shares represented by it in accordance with its members’ best judgment. The Proxy Committee will not use its discretionary voting authority with respect to any validly conducted solicitation in opposition. In addition, shares represented by proxy cards that are marked to deny discretionary authority to the Proxy Committee on other matters considered at the meetingAnnual Meeting will not be voted on these matters and will not be counted in determining the number of votes cast with respect to those matters. At the time this Proxy Statement was printed, the Companymanagement did not know of any other matters that might be presented for stockholder action at the Annual Meeting.
Who will tabulate and certify the vote?
Representatives of Broadridge Financial Solutions, Inc. will tabulate and certify the vote, and Carl T. Hagberg and AssociatesMs. Belinda Massafra will act as the independent inspector of elections for the Annual Meeting.
What is the difference between a registered stockholder and a beneficial holder of shares?
If your shares are registered directly in your name with our transfer agent, BNY Mellon, you are considered a “registered stockholder” with respect to those shares. If this is the case, the proxy materials have been sent or provided to you directly by Mueller Water Products. “Proxy materials” may include an annual report, a proxy statement and a proxy card or voting instruction form, as applicable.
If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial holder” of the shares held for you in what is known as “street
name.” If this is the case, the proxy materials have been forwarded to you by your brokerage firm, bank or other nominee, or their agent which is considered the stockholder of record with respect to these shares. As the beneficial holder, you have the right to direct your broker, bank or other nominee as to how to vote your shares by using the voting instruction form included in the proxy materials, or by voting viausing the Internet, by telephone, or the Internet.by mail. Follow the voting instructions provided in your proxy materials.
I am a beneficial holder. How are my shares voted if I do not return voting instructions?
Your shares may be voted if they are held in the name of a brokerage firm, even if you do not provide the brokerage firm with voting instructions. Brokerage firms have the authority, under the rules of the New York Stock Exchange, to vote shares on certain “routine”routine matters for which their customers do not provide voting instructions by the tenth day before the meeting. The election of directors and the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2009 are2010 is considered a routine matters.matter.
Because of a recent regulatory change, the election of directors is no longer considered routine. The conversion of all outstanding shares of Series B Common Stock into shares of Series A Common Stock and the amendmentapproval of the Amended and Restated 2006 Stock2010 Management Incentive Plan areis also not considered “routine”routine under the applicable rules. When a proposal is not a routine matter and the brokerage firm has not received voting instructions from the beneficial holder of the shares with respect to that proposal, the brokerage firm cannot CANNOTvote the shares on that proposal. This is called a “broker non-vote.” In tabulating the voting result for any particular proposal, shares that are subject to broker non-votes with respect to that proposal will not be considered votedvotes either for or against it. With respect to the three proposals scheduledIt is very important that you cast your vote if you want your shares to be voted onrepresented at the Annual Meeting that will be decided by a majority or plurality of the votes cast, broker non-votes on any proposal will have no effect on the outcome of the vote on that proposal at the Annual Meeting, assuming that a quorum is obtained. With respect to the proposal to convert all outstanding shares of Series B Common Stock into shares of Series A Common Stock, broker non-votes will have the effect of a vote against the proposal.Meeting.
What does it mean if I receive more than one Mueller Water Products stockholder package?
If you receive more than one package of proxy materials, this means that you have multiple accounts holding Mueller Water Products shares with brokers and/or our transfer agent. Please vote all of your shares by voting the control number on the proxy card or voting instruction form included in each package that you receive.
How are my Employee Stock Purchase Plan shares voted?
If you are a registered stockholder and/or you own Mueller Water Products shares in an Employee Stock Purchase Plan, and the accounts are registered in the same name, you will receive one package of proxy materials representing your combined shares. If your accounts are registered in different names, you will receive different packages of proxy materials. If you own shares only through an Employee Stock Purchase Plan, you will receive a package of proxy materials representing those shares.
What happens if I abstain from voting?
If your shares are represented at the Annual Meeting, in person or by proxy, but you abstain from voting on a matter, or include instructions in your proxy to abstain from voting on a matter, your shares will be counted for the purpose of determining if a quorum is present, but
will not be counted as either an affirmative vote or a negative vote with respect to that matter. With respect to the three proposals, scheduled to be voted on at the Annual Meeting thateach of which will be decided by a majority or plurality of the votes cast, abstentions will have no effect on the outcome of the vote, on that proposal at the Annual Meeting, assuming that a quorum is
obtained. With respect to the proposal to convert all outstanding shares of Series B Common Stock into shares of Series A Common Stock, abstentions will have the effect of a vote against the proposal.
What do I need to do if I want to attend the Annual Meeting?
You do not need to make a reservation to attend the Annual Meeting. However, attendance at the Annual Meeting is limited to Mueller Water Products stockholders, members of their immediate families or their named representatives. You will be required to provide the admission ticket that is detachable from your proxy card or provide other evidence of ownership. If your shares are held by a bank or broker, please bring to the meetingAnnual Meeting your bank or broker statement evidencing your beneficial ownership of the Company’s common stock as of the record date to gain admission to the meeting. The Company reserves the right to limit the number of representatives who may attend the meeting.
Who is soliciting proxies?
The Company will bear the cost of soliciting proxies. In addition to soliciting stockholders by mail, the Company will request banks, brokerage houses, and other custodians, nominees, and fiduciaries to forward solicitation materials to the beneficial owners of the common stock held of record by such persons and the Company will reimburse them for their reasonable out-of-pocket expenses incurred in doing so. The Company may use the services of its officers and other employees of the Company, who will receive no compensation for their services, other than their regular compensation, to solicit proxies personally, by telephone or by facsimile transmission. The Company has retained the services of The Altman Group, Inc. to aid in the solicitation of proxies, including the solicitation of proxies from brokerage firms, banks, nominees, custodians, and fiduciaries, for a fee not anticipated to exceed $7,000 plus expenses. Your cooperation in promptly voting by proxy via the medium of your choice will help to avoid additional expense.
IN ORDER THAT YOUR SHARES OF COMMON STOCK MAY BE REPRESENTED AT THIS MEETING IN CASE YOU ARE NOT PERSONALLY PRESENT, YOU ARE REQUESTED TO PLEASE SIGN, DATE, AND MAIL THE PROXY CARD OR VOTING INSTRUCTION FORM PROMPTLY OR FOLLOW THE DIRECTIONS PROVIDED ON YOUR PROXY CARD OR VOTING INSTRUCTION FORM.
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on January 28, 2009:2010:
This Proxy Statement and the Company’s Annual Report to Security Holders are available at www.muellerwaterproducts.com.www.muellerwaterproducts.com.
76
ELECTION OF DIRECTORS
The Board of Directors currently consists of ten members, each of whom will serve until the Annual Meeting and until his or her successor shall have been elected and qualified. These ten directors have been nominated to be elected at the Annual Meeting for an additional one year term. The ten nominees for election as directors are named below.
In the event that any such nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who is designated by the present Board of Directors to fill the vacancy. Management is not aware of any nominee who will be unable or will decline to serve as a director. The term of office for each person elected as a director will continue until the next Annual Meeting of Stockholders and until his or her successor has been elected and qualified.
The names of the nominees and certain information about them are set forth below:
Name | Age | Served as Director of the Company From | ||
Donald N. Boyce | 71 | 2006 | ||
Howard L. Clark, Jr. | 65 | 2006 | ||
Gregory E. Hyland | 58 | 2005 | ||
Jerry W. Kolb | 73 | 2006 | ||
Joseph B. Leonard | 66 | 2006 | ||
Mark J. O’Brien | 66 | 2006 | ||
Bernard G. Rethore | 68 | 2006 | ||
Neil A. Springer | 71 | 2006 | ||
Lydia W. Thomas | 64 | 2008 | ||
Michael T. Tokarz | 59 | 2006 |
![]() | Donald N. Boyce has been a member of our Board of Directors since April 2006. He was a director of Walter Energy, Inc. (“Walter Energy”, formerly Walter Industries, Inc.), a homebuilding, financial and natural resources company, from August 1998 to April 2006. Mr. Boyce served as Chairman of the Board of Walter Energy from November 2000 to March 2002 and as Chairman of the Board, President and Chief Executive Officer of Walter Energy from August 2000 to November 2000. During this time, Walter Energy owned United States Pipe and Foundry Company, LLC, one of the Company’s current subsidiaries. Mr. Boyce was Chairman of the Board of Directors of IDEX Corporation, a proprietary engineered industrial products manufacturing company, from April 1999 until March 2000, Chairman of the Board of Directors and Chief Executive Officer of IDEX Corporation from March 1998 until March 1999, and Chairman of the Board of Directors, President and Chief Executive Officer of IDEX Corporation from January 1988 until March 1998. |
![]() | Howard L. Clark, Jr. has been a member of our Board of Directors since April 2006. He has been a director of Walter Energy since March 1995. Mr. Clark has been a Vice Chairman in the Investment Banking Division of Barclays Capital, an investment banking firm, since September 2008. He previously served as Vice Chairman of Lehman Brothers Inc., an investment banking firm, from February 1993 to September 2008 and, before that, as Chairman and Chief Executive Officer of Shearson Lehman Brothers Inc., an investment banking firm. Mr. Clark is also a director of United Rentals, Inc., an equipment rental company, and White Mountains Insurance Group, Ltd., a financial services holding company. Mr. Clark is a director of NIBCO Inc., a privately held company that provides flow control solutions. | |
![]() | Gregory E. Hyland has served as Chairman of our Board of Directors since October 2005 and as President and Chief Executive Officer since January 2006. Mr. Hyland served as Chairman, President and Chief Executive Officer of Walter Energy from September 2005 until December 2006. Prior to that time, Mr. Hyland served as President, U.S. Fleet Management Solutions of Ryder System, Inc., a transportation and logistics company, from June 2005 to September 2005. He served as Executive Vice President, U.S. Fleet Management Solutions of Ryder from October 2004 to June 2005. Mr. Hyland was recently elected as a director of Ferro Corporation, a global supplier of technology-based performance materials for manufacturers. | |
![]() | Jerry W. Kolb has been a member of our Board of Directors since April 2006. He has been a director of Walter Energy since June 2003. Mr. Kolb previously served as a Vice Chairman of Deloitte & Touche LLP, a registered public accounting firm, from 1986 to 1998. | |
![]() | Joseph B. Leonard has been a member of our Board of Directors since April 2006. He was a director of Walter Energy from June 2005 to April 2007 and he rejoined that board in February 2009. Mr. Leonard was Chairman of AirTran Holdings, Inc., an airline holding company, from November 2007 to June 2008, Chairman and Chief Executive Officer of AirTran Holdings, Inc. from January 1999 to November 2007 and President of AirTran Holdings, Inc. from January 1999 through January 2001. Mr. Leonard is a director of Air Canada, a full service airline company. |
![]() | Mark J. O’Brien has been a member of our Board of Directors since April 2006. He was a director of Walter Energy from June 2005 to April 2009. Since March 2006, Mr. O’Brien has served as Chairman and Chief Executive Officer of Walter Investment Management Corp. (formerly Walter Industries’ Homes Business). Mr. O’Brien has served as President and Chief Executive Officer of Brier Patch Capital and Management, Inc., a real estate management and investment firm, since September 2004. Mr. O’Brien served in various executive capacities at Pulte Homes, Inc., a home building company, for 21 years, retiring as President and Chief Executive Officer in June 2003. | |
![]() | Bernard G. Rethore has been a member of our Board of Directors since April 2006. He has been a director of Walter Energy since March 2002. He has been Chairman Emeritus of Flowserve Corporation, a manufacturer of pumps, valves, seals and components, since April 2000. From January 2000 to April 2000, he served as Flowserve Corporation’s Chairman. He had previously served as Chairman, Chief Executive Officer and President of Flowserve Corporation. Mr. Rethore is a director of Belden, Inc., a manufacturer of signal transmission products, and Dover Corp., a diversified manufacturer of a wide range of proprietary products. | |
![]() | Neil A. Springer has been a member of our Board of Directors since April 2006. He was a director of Walter Energy from August 2000 to April 2006. Mr. Springer has been managing director of Springer & Associates, a board consulting and executive recruitment company, since 1994. Mr. Springer is also a director of IDEX Corporation, a proprietary engineered industrial products manufacturing company. | |
![]() | Lydia W. Thomashas been a member of our Board of Directors since January 2008. She served as President and Chief Executive Officer of Noblis, Inc., a public interest research and development company, from 1996 to September 2007. She was previously with The MITRE Corporation, Center for Environment, Resources and Space, serving as Senior Vice President and General Manager from 1992 to 1996, Vice President from 1989 to 1992 and Technical Director from 1982 to 1989. She is a director of Cabot Corporation, a global performance materials company. |
![]() | Michael T. Tokarz has been a member of our Board of Directors since April 2006. He has served as non-executive Chairman of the Board of Walter Energy since December 2006. Since February 2002, he has been a member of the Tokarz Group, LLC, a venture capital investment company. From January 1996 until February 2002, Mr. Tokarz was a member of the limited liability company that serves as the general partner of Kohlberg Kravis Roberts & Co. L.P., a private equity company. Mr. Tokarz also is a director of IDEX Corporation, a proprietary engineered industrial products manufacturing company, Conseco, Inc., an insurance provider, MVC Capital, Inc., a registered investment company, Dakota Growers Pasta Company, Inc., a manufacturer and marketer of dry pasta products, and Walter Investment Management Corp., a mortgage portfolio owner and mortgage servicer. |
A plurality of the votes cast in respect of the shares of common stock present in person or represented by proxy at the Annual Meeting and entitled to vote shall be required to elect the foregoing nominees (or their replacements as designated by the Board of Directors) to serve as directors. Unless otherwise instructed, the proxy holders will vote proxies held by themFOR the election of the nominees listed above.
The Board recommends a vote FOR the election of the ten nominees set forth above.
APPROVAL OF THE 2010 MANAGEMENT INCENTIVE PLAN
The Compensation and Human Resources Committee of the Board of Directors (the “Compensation Committee”) adopted the 2010 Management Incentive Plan (the “Incentive Plan”) in December 2009. The Board is recommending that stockholders approve the Incentive Plan at the Annual Meeting. If adopted by the stockholders, the Incentive Plan will replace the Company’s existing incentive bonus plans – the Executive Incentive Plan (for executives whose compensation may be subject to Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) and the Management Incentive Program (for all other executives and key employees).
The Incentive Plan is integral to the Company’s compensation strategies and programs. The Board believes that the Incentive Plan provides the flexibility that the Company needs to keep pace with its competitors and effectively recruit, motivate and retain the caliber of employees and directors essential for the Company’s success.
The Incentive Plan permits the grant of incentive cash awards. Stockholder approval of the Incentive Plan is intended to permit the performance-based awards discussed below to qualify for deductibility under Section 162(m) of the Internal Revenue Code. Key employees are eligible to receive awards under the Incentive Plan.
A summary of the principal features of the Incentive Plan is provided below, but is qualified in its entirety by reference to the full text of the Incentive Plan that is attached to this Proxy Statement as Exhibit A.
Administration and Eligibility
The Incentive Plan is administered by the Compensation Committee or, with respect to certain employees, the Chief Executive Officer or his designee (in either case, the “Administrator”). The Administrator determines who is eligible to participate in the Incentive Plan, prescribes the terms and conditions of all awards, and construes and interprets the terms of the Incentive Plan. Determinations of the Administrator are final, binding, and conclusive.
Performance Measures
The Incentive Plan requires the Administrator to establish performance goals for each participant at the beginning of each performance period. Performance goals will be selected from the list of possible performance measures contained in the Incentive Plan. Performance goals may be based on a combination of individual performance objectives and business objectives, and may relate, in whole or in part, to the performance of a segment, subsidiary or division rather than to the Company as a whole.
Any one or more of the following performance measures may be used by the Administrator as a goal for a bonus award, based on the relative or absolute attainment of specified levels of one or any combination of the performance measures:
— | Net sales or growth in net sales, |
— | Earnings, as determined by GAAP or before or after discontinued operations, or before interest, taxes, and depreciation and/or amortization (“EBITDA”), |
— | Earnings per share (including diluted earnings per share), |
— | Net income, |
— | Operating income before or after discontinued operations and/or taxes, |
— | Cash flow (including free cash flow) or cash position, |
— | Gross or operating margin, |
— | Stock price appreciation, |
— | Market share, |
— | Return (before or after taking into account taxation or tax rates) on sales, assets, equity, investment or invested capital, |
— | Cost reductions, |
— | Improvement of financial ratings, |
— | Working capital or working capital relative to some other measure (e.g., as a percent of net sales or return on net assets), |
— | Days of working capital, and |
— | Total stockholder return. |
The selected levels may be absolute in their terms or measured against or in relationship to net sales or other companies comparably, similarly or otherwise situated. Wherever feasible, the Administrator will establish target, threshold and maximum objectives for each performance goal.
At the time the performance goal is established, the Administrator will determine how the performance measure will be calculated. Unless otherwise determined by the Administrator, the following items will be excluded from the calculations:
— | Extraordinary, unusual or non-recurring items, |
— | Gains or losses on dispositions or the effect of discontinued operations, or mergers or acquisitions, |
— | The cumulative effects of changes in accounting principles or changes in laws or regulations affecting GAAP results (including tax laws and regulations), |
— | The writedown of assets, |
— | Charges for reorganization and restructuring, |
— | Material litigation, claims, judgments or settlements, and |
— | Cash pension funding in excess of predetermined levels. |
Awards
The Incentive Plan requires the Administrator to assign a target bonus to each participant, and the relative percentage weight to be assigned to the achievement of specific performance goals. In the event that a participant achieves more than the target assigned to a particular goal, the participant may receive up to twice the percentage weight allocated to such performance goal. In no event may a maximum bonus amount that a participant may be awarded for a fiscal year exceed $4 million. The Administrator may reduce, but may not increase, the maximum award for any participant under the Incentive Plan. The Administrator will approve the amounts of all final incentive awards.
New Incentive Plan Benefits
Because benefits under the Incentive Plan will depend on the Administrator’s actions and Company and individual performance against pre-established objectives, it is not possible to determine the benefits that will be received by executive officers and other key employees if the Incentive Plan is approved by the stockholders.
Million Dollar Deduction Limit
Pursuant to Section 162(m) of the Internal Revenue Code, the Company may not deduct compensation of more than $1 million that is paid to certain “covered employees” (i.e., any individual who, on the last day of the taxable year, is either the Company’s principal executive officer or an employee whose total compensation for the tax year is required to be reported to stockholders because they are among the three highest compensated officers for the tax year, other than the principal executive officer or principal financial officer). The limitation on deductions does not apply, however, to qualified “performance-based compensation.” The Incentive Plan is designed such that awards under the Incentive Plan may constitute qualified performance-based compensation and, as such, be exempt from the $1 million limitation on deductible compensation.
Approval by Stockholders
In order to be effective, the Incentive Plan must be approved by the affirmative vote of a majority of the votes cast in respect of the shares of common stock present in person or represented by proxy at the Annual Meeting and entitled to vote. Unless otherwise instructed, the proxy holders will vote proxies held by themFOR the approval of the 2010 Management Incentive Plan.
The Board recommends a vote FOR the 2010 Management Incentive Plan.
RATIFICATION OF THE APPOINTMENT OF THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has authority to retain and terminate the Company’s independent registered public accounting firm. The Audit Committee has appointed Ernst & Young LLP as the independent registered public accounting firm to audit the consolidated financial statements of the Company and its subsidiaries for the fiscal year ending September 30, 2010. Although stockholder ratification of the appointment of Ernst & Young LLP is not required, the Board of Directors believes that submitting the appointment to the stockholders for ratification is a matter of good corporate governance. For a description of the fees paid to Ernst & Young LLP, see “Fees and Services of the Independent Registered Public Accounting Firm.”
One or more representatives of Ernst & Young LLP are expected to be present at the Annual Meeting. The representatives will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate stockholder questions.
In order to ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2010, a majority of the votes cast in respect of the shares of common stock present in person or represented by proxy at the Annual Meeting and entitled to vote must be voted in favor of ratification. Unless otherwise instructed, the proxy holders will vote proxies held by themFOR the ratification of Ernst & Young LLP.
The Board recommends a vote FOR the ratification of Ernst & Young LLP.
The Board has adopted Corporate Governance Guidelines that are posted on the corporate governance page of the Company’s website atwww.muellerwaterproducts.com and are available in print to stockholders who request a copy. The Corporate Governance Guidelines set forth the practices the Board will follow with respect to matters such as director responsibilities, compensation, and access to management. In addition, the Corporate Governance Guidelines address the use of outside advisors, management succession and anthe annual self-evaluationself-assessment of the Board.
Mr. Gregory E. Hyland, our Chairman, President and Chief Executive Officer, is not independent because he is a member of management and an employee of the Company. Because of his past affiliation as an executive officer of our former parent, Walter Energy, Mr. Mark J. O’Brien iswas not independentconsidered “independent” under Section 303A.02(b)the rules applicable to listed companies on the New York Stock Exchange under the rules of the New York Stock Exchange Listed Company Manual because he has served as an employeeExchange. That rule applies to officers of former parent corporations for three years. As of December 15, 2009 (and therefore at the time of the Company’s former parent within the last three years.Annual Meeting), we believe Mr. O’Brien has been Chairman and Chief Executive Officerwill be considered independent under the rules of Walter Industries’ Homes and Finance Business since March 2006; other than his service as a director, he currently has no material relationship with the Company.New York Stock Exchange.
The Board annually assesses the outside affiliations of each director to determine if any of these affiliations could cause a potential conflict of interest or could interfere with the independence of the director. Based on information furnished by all directors regarding their relationships with Mueller Water Products and its subsidiaries and research conducted by management with respect to outside affiliations, the Board has determined that none of the directors has a material relationship with Mueller Water Products other than through his or her role as director, and, except as set forth above, each is independent because:
— | Each satisfies the categorical standards set forth below; |
— | Each satisfies the independence standards set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and |
— | Each satisfies the criteria for independence set forth in Section 303A.02(b) of the New York Stock Exchange Listed Company Manual. |
A determination of independence under these standards does not mean that a director is “disinterested” under Section 144 of the Delaware General Corporation Law. Each director, relevant Committee and the full Board may also consider whether any director is “disinterested” in any transaction brought before the Board ofor any Committee.
Categorical Standards of Independence
The Company has established categorical standards of independence for the Board of Directors.Board. These standards are outlined in the Company’s Corporate Governance Guidelines. To be considered “independent” for purposes of the director qualification standards, (A) the director
must meet bright-line independence standards under the New York Stock Exchange Listed Company Manual and (B) the Board must affirmatively determine that the director otherwise has no material relationship with the Company, directly or as an officer, shareowner or partner of an organization that has a relationship with the Company.
The Board of Directors considers the following relationships to be immaterial relationships that would not impair a director’s independence if they are conducted in the ordinary course of business:
(i) | The director is a director or trustee but not an executive officer or any member of his or her immediate family is a director, trustee or employee, but not an executive officer, of any other organization (other than the Company’s outside auditing firm) that does business with, or receives donations from, the Company; |
(ii) | The director or any member of his or her immediate family is an executive officer of any other organization which is indebted to the Company, or to which the Company is indebted, and the total amount of either company’s indebtedness to the other is less than $1 million or 2% of the total consolidated assets of the organization on which the director or any member of his or her immediate family serves as an executive officer, whichever is more; or |
(iii) | The director or any member of his or her immediate family serves as an executive officer of a charitable or educational organization that receives discretionary charitable contributions from the Company in a single fiscal year of less than $1 million or 2% of that organization’s consolidated gross revenues, whichever is more. |
Independence of Committee Members
Each of the members of the Audit, Compensation and Human Resources, (“Compensation Committee”), and Nominating and Corporate Governance Committees is independent in accordance with the New York Stock Exchange Listed Company Manual and the director independence standards set forth above. No member of the Audit Committee receives any compensation from Mueller Water Products other than directors’ fees and no member of the Audit Committee is an affiliated person of Mueller Water Products (other than by virtue of his or her directorship). Members of the Audit Committee meet the additional standards forof audit committee members of publicly traded companies required by the Sarbanes-Oxley Act of 2002. Members of the Compensation Committee meet the additional standards applicable to “outside directors” under Section 162(m) of the Internal Revenue Code and qualify as “non-employee directors” as defined in Rule 16b-3 under the Exchange Act.
Policy for Approval of Related Person Transactions
The Board of Directors has adopted a written Related Person Transaction Policy that is administered by the Nominating and Corporate Governance Committee.Committee (the “Nominating Committee”). This policy applies to any transaction or series of transactions in which the Company or a subsidiary is a participant, the amount involved exceeds or may be expected to exceed $120,000 and a related person has a direct or indirect material interest. Under the
Related Person Transaction Policy, a “related person” includes (A) any person who is or was, since the beginning of the last fiscal year, an executive officer, director or nominee for election as a director of the Company, (B) a greater than 5% beneficial owner of either series of the Company’s common stock or (C) an immediate family member of either of the foregoing. Under the Related Person Transaction Policy, management will determine whether a transaction meets the requirements of a Related Person Transaction requiring review by the Nominating Committee. Transactions that fall within this definition will be referred
to the Nominating Committee for approval, ratification or other action. Based on its consideration of all of the relevant facts and circumstances, the Nominating Committee will decide whether or not to approve such transaction and will approve only those transactions that are in the best interests of the Company. In addition, the Board of Directors has delegated to the Chair of the Nominating Committee the authority to pre-approve or ratify any transaction with a related person in which the aggregate amount involved is expected to be less than $500,000.
Except as described below, theThe Company did not engage in any transaction during the fiscal year ended September 30, 2008,2009, and has no currently proposed transaction, in which the amount involved exceeds $120,000 and a related person had or will have a direct or indirect material interest.
Mr. Howard Clark was a Vice Chairman of Lehman Brothers Inc. until September 2008. During fiscal 2008, Mueller Co.’s pension plans paid investment management fees of approximately $232,000 to Neuberger Berman, LLC, a subsidiary of Lehman Brothers Inc. The fees paid to Neuberger Berman are comparable to those paid to other investment management firms for similar services, and the amount of fees paid to Neuberger Berman is insignificant both to the Company and to Lehman Brothers. The Mueller Co. pension plans have used Neuberger Berman since before the Company’s initial public offering in May 2006. Under the New York Stock Exchange Listed Company Manual, this interest does not affect Mr. Clark’s independence.
Director Attendance at Board, Committee and Annual Meetings
During the fiscal year ended September 30, 2008,2009, the Board held nineseven meetings. Each director attended at least 75% of all meetings of the Board and of the Committees of the Board on which he or she served during fiscal 2008.2009. The non-management directors meet in executive session on at least a quarterly basis and the independent directors meet in executive session at least annually. The Chair of the Nominating and Corporate Governance Committee, currently Howard L. Clark, Jr., presides at the executive sessions of the non-management directors and the independent directors. In October 2009, Mr. Clark was elected the lead director of the Board of Directors of the Company.
Directors are expected to attend annual meetings of the stockholders of the Company. All of the directors except Mr. Tokarz attended the Company’s Annual Meeting of Stockholders held on January 30, 2008.28, 2009.
The Board has four standing Committees that assist the Board in carrying out its duties: the Audit Committee; the Compensation and Human Resources Committee; the Nominating and Corporate Governance Committee; and the Environmental, Health and Safety Committee. An additional Committee, the Executive Committee, meets only when called by the Chairman of the Board. The charter of each of these CommitteesCommittee (other than the Executive Committee) is available on the Company’s website atwww.muellerwaterproducts.com and may be obtained, without charge, by contacting the Corporate Secretary, Mueller Water Products, Inc., 1200 Abernathy Road, N.E., Suite 1200, Atlanta, Georgia 30328.
The Board of Directors has affirmatively determined that the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee consist entirely of independent directors under the rules established by the New York Stock Exchange and, as applicable, the Securities and Exchange Commission.SEC. The following chart shows information regarding the membership of each of the Board’s standing Committees:
Name | Audit | Compensation and Human | Nominating and Corporate Governance | Environmental Health and Safety | Executive | |||||
Donald Boyce | Chair | X | X | |||||||
Howard Clark Jr. | Chair | X | X | |||||||
Gregory E. Hyland | Chair | |||||||||
Jerry W. Kolb | X | X | ||||||||
Joseph Leonard | X | X | ||||||||
Mark J. O’Brien | X | |||||||||
Bernard G. Rethore | X | X | Chair | |||||||
Neil A. Springer | Chair | X | ||||||||
Lydia W. Thomas | ** | X | ||||||||
Michael T. Tokarz | X | X | X | |||||||
2008 Meetings | 13 | 4 | 3 | 3 | 1 |
Name | Audit | Compensation and Human Resources | Nominating and Corporate Governance | Environmental, Health and Safety | Executive | |||||
Donald N. Boyce | Chair | X | X | |||||||
Howard L. Clark, Jr. | Chair | X | Lead Director | |||||||
Gregory E. Hyland | Chair | |||||||||
Jerry W. Kolb | X | X | ||||||||
Joseph B. Leonard | X | X | ||||||||
Mark J. O’Brien | X | |||||||||
Bernard G. Rethore | X | X | Chair | |||||||
Neil A. Springer | Chair | X | ||||||||
Lydia W. Thomas | X | X | ||||||||
Michael T. Tokarz | X | X | X | |||||||
Fiscal 2009 Meetings | 12 | 4 | 4 | 3 | 2 |
Audit Committee
The Audit Committee’s primary purpose is to assist the Board in fulfilling its responsibility to the Company’s stockholders relating to the Company’s financial reporting processes and systems of internal control. The Audit Committee is also responsible for determining whether the Company’s financial systems and reporting practices are in accordance with applicable requirements. Further, the Audit Committee retains and terminates the Company’s independent auditors and approves services and fees of the independent auditors.
The Board of Directors has determined that all Audit Committee members are financially literate under the New York Stock Exchange Listed Company Manual. The Board of Directors has further determined that all of the members of the Audit Committee qualify as audit committee financial experts within the meaning of the rules and regulations of the Securities and Exchange Commission,SEC, and that all of such members are independent as required by the New York Stock Exchange Listed Company Manual.
The Audit Committee has adopted procedures for pre-approving all audit and non-audit services provided by the independent auditors. For both types of pre-approval, the Audit Committee considers whether such services are consistent with the Securities and Exchange Commission’sSEC’s rules on auditor independence. The Audit Committee also considers whether the independent auditors are able to provide the most effective services, for reasons such as their familiarity with the Company’s current and past business, accounting systems and internal operations, and whether the services enhance the Company’s ability to manage or control risks and improve auditfinancial reporting quality. The Audit Committee has delegated pre-approval
authority to the Chair of the Audit Committee with respect to individual projects up to $100,000. The Audit Committee periodically monitors the services rendered and actual fees paid to the
independent auditors to ensure that such services are within the parameters approved by the Audit Committee.
Compensation and Human Resources Committee
The Compensation Committee is responsible for overseeing the Company’s overall strategic human resources programs, including executive compensation, benefit plans and equity plans. The Compensation Committee approves and oversees the administration of the Company’s material benefit plans, policies and programs, including all of our equity-related incentiveequity plans and senior executive bonus plans. The Compensation Committee also reviews and approves principal elements of total compensation for the Company’s named executive officers and other executive officers and employment, severance, and change–in-control arrangements for the Company’s executive officers. Further, the Compensation Committee is responsible for reviewing and recommending compensation of non-employee directors to the full Board, as well as reviewing and recommending director’sdirectors’ and officer’sofficers’ indemnification and insurance matters.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is responsible for, among other things, establishing the criteria for and the qualifications of persons suitable for nomination as directors and reporting its recommendations to the Board. The Board determines the number of directors that shall constitute the Board of Directors, subject to the requirement set forth in the Company’s Bylaws that the number of directors shall be not less than six nor more than eleven. The Nominating and Corporate Governance Committee will consider candidates for election as directors of the Company submitted by stockholders. In identifying candidates for membership on the Board of Directors, the Nominating Committee takes into account all factors it considers appropriate, which may include strength of character, mature judgment, career specializations, relevant technical skills, diversity, and the extent to which a candidate would fill a need on the Board of Directors. The Nominating Committee’s policy with regard to director candidates submitted by stockholders is to consider such submissions in accordance with the procedures described below under “Director“– Director Nomination Process.”
Environmental, Health and Safety Committee
The Environmental, Health and Safety Committee reviews and updates, as appropriate, the policies and procedures of the Company regarding compliance with the various laws, regulations and rules pertaining to the environment and employee health safety and the environment.safety. The Environmental, Health and Safety Committee also monitors the Company’s compliance with Company policies and procedures concerning health, safety and the environment, and obtains regular reports from Company and subsidiary management, environmental counsel and health and safety personnel, as well as special reports when necessary or relevant to special projects. The Environmental, Health and Safety Committee reviews and approves the proposed scope of internal and independent environmental, health and safety audits and encourages activities that demonstrate sound environmental stewardship initiatives within the Company and with its customers and suppliers.
Executive Committee
The Executive Committee’s principal function is to exercise the interim powers delegated to the Executive Committee at any time when any matter requires expeditious action by the Board or when it would not be practical for the full Board to meet to review or act upon any matter. In addition, if the Board of Directors expressly provides by resolution, the Executive Committee can declare dividends payable on the securities of the Company during months when the Board does not meet.
The Executive Committee has and may exercise, during the intervals between meetings of the Board, all the powers and authority vested in the Board of Directors except the following: (A) the power or authority to amend the Company’s Certificate of Incorporation; (B) the power or authority to amend the Company’s Bylaws; (C) the power or authority to adopt an agreement of merger; (D) the power or authority to exchange, consolidate, sell, lease, pledge or exchange all or substantially all of the Company’s assets; (E) the power or authority to adopt or revoke a plan of dissolution; (F) the power or authority delegated to any other Committee of the Board of Directors; and (G) such other powers or authority as are restricted in the Delaware General Corporation Law or the Bylaws.
Role of Compensation Consultant
For fiscal 2008,2009, the Compensation Committee retained Hewitt Associates LLC (“Hewitt”) as its independent consultant to advise the Compensation Committee on executive compensation and related matters. Hewitt performed no other work for the Company in fiscal 2009. Pursuant to its charter, the Compensation Committee has the sole authority to approve the consultant’s fees and retention terms.
Hewitt assists the Compensation Committee by, among other things, providing external market data on compensation practices and programs of peer group companies. Specifically, the Compensation Committee asked Hewitt to collect data from the peer group companies to assess base pay,salary, bonus opportunity, bonus paid, long-term incentive practice and perquisites. For a description of Hewitt’s responsibilities, see “Role“Compensation Discussion and Analysis – Role of Compensation Consultant in Compensation Decisions.”
Prior to the Company’s spin-off from Walter Industries, Inc. (“Walter Industries”) in December 2006 (the “Spin-off”), Hewitt served as the actuary with respect to U.S. Pipe’s pension plans. In addition, through a competitive bidding process, Hewitt was considered for other engagements in fiscal 2008 but the Compensation Committee determined that the Company would not retain Hewitt in other capacities while the Committee was using Hewitt as its independent consultant. The Compensation Committee retained Hewitt as its consultant for fiscal 20092010 and determined that the Company would not retain Hewitt for any other projects in fiscal 20092010 without the prior consideration and consent of the Compensation Committee, based on any actual or perceived effects on the ability of Hewitt to act independently of the Company and management.Committee.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Donald N.Messrs. Boyce, Jerry W. Kolb, Bernard G. Rethore and Neil A. Springer. None of the members of the Compensation Committee is a former or current officer or employee of the Company or any of its subsidiaries.
Communicating with our Board of Directors
Stockholders and other interested persons may communicate towith the Chair of the Audit Committee or the Chair of the Nominating Committee (who has been designated as the Company’s lead director and Corporate Governance Committee,presides over meetings of independent directors and
non-management directors), in care of the Company’s Corporate Secretary at the Company’s principal executive office address —– 1200 Abernathy Road, N.E., Suite 1200, Atlanta, Georgia 30328. Further, stockholders and other interested persons may communicate with the Company’s non-management directors as a group in care of the Company’s Corporate Secretary at the Company’s principal executive office address.
Stockholders and other interested persons may also communicate with any of the independent directors, in care of the Company’s Corporate Secretary at the Company’s principal executive office address or by sending an e-mail message to the directors atboardofdirectors@muellerwp.com, or towith the Audit Committee at auditcommittee@muellerwp.com.by sending an e-mail message toauditcommittee@muellerwp.com. If the correspondence is specifically marked as a private communication for the Board of Directors (or a specific member or members of the Board), the Corporate Secretary will not open or read the correspondence, but will forward it to the addressee or the Chair of the Audit Committee. These procedures may change from time to time, and you are encouraged to visit our website for the most current means of contacting our directors.
In discharging its responsibility, the Nominating and Corporate Governance Committee (the “Nominating Committee”) receives input from the Chairman of the Board, other directors and the Nominating Committee’s professional search firm. It also considers and evaluates any candidates recommended by stockholders, as described below.
The Nominating Committee decides whether to further evaluate each candidate and may select an independent recruitingprofessional search firm to assist in the discharge of its duties. The evaluation includes a thorough reference check, interaction and interviews, and discussions about the candidate’s qualifications, availability and commitment. After discussion of each candidate’s qualifications, the Chair of the Nominating Committee interviews each candidate. The Nominating Committee Chair will select certain candidates to be interviewed by the Chairman of the Board and other members of the Nominating Committee. The Nominating Committee reviews the results of all interviews and makes a recommendation to the full Board thatwith respect to the election of the candidate be elected to the Board. The Board expects all candidates recommended to the full Board to have received the approval of all members of the Nominating Committee.
In order to identify the best candidates, the Board has directed the Nominating Committee to consider the key criteria and competencies for the directors described below. In addition, the Board has determined that its members should bring to the Company a broad range of experience, knowledge and judgment. The candidate must be prepared to represent the interests of the Company and all its stockholders, not the interests of particular constituencies.
The Nominating Committee uses a matrix of key criteria and competencies to evaluate potential candidates. The Nominating Committee carefully reviews all current directors and director candidates in light of these qualifications based on the context of the current and anticipated composition of the Board, the current and anticipated operating requirements of the Company and the long-term interests of the stockholders. In reviewing a candidate, the Nominating Committee considers the integrity of the candidate and whether the candidate would be
independent as defined in the Corporate Governance Guidelines and in the New
York Stock Exchange Listed Company Manual. The Nominating Committee expects a high level of involvement from its directors and reviews, if applicable, a candidate’s service on other boards to assess whether the candidate has sufficient time to devote to Board duties.
Key characteristics that are required for all directors are personal ethics and integrity, leadership, capabilities, business acumen, collaborative skills, interpersonal skills, commitment, and independence.
Key competencies that are not necessary for all directors but are necessary for the Board as a whole are general management expertise, financial expertise, multiple-part production/manufacturing/operations expertise, merger and acquisition experience, strategic planning expertise, corporate governance expertise, diversity of viewpoints, offshore sourcing expertise, marketing expertise, international business expertise, and government and regulatory affairs expertise.
Any stockholder who wishes to have the Nominating Committee consider a candidate is required to give written notice of the stockholder’s intention to make such a nomination. For a description of the procedures required to be followed for a stockholder to nominate a director, see “Procedures“Stockholder Information – Procedures for Business Matters and Director Nominations for Consideration at the 20102011 Annual Meeting of Stockholders – Notice Requirements for Nomination of Directors” of this Proxy Statement.Directors.” A proposed nomination that does not comply with these requirements will not be considered.
Code of Business Conduct Policy and Compliance ProgramEthics
The Board revised its Code of Business Conduct and Ethics (“Code of Conduct”) in June 2008. The Code of Conduct applies to all employees, directors, and officers of the Company and its subsidiaries. The Code of Conduct is posted on the corporate governance page of the Company’s website atwww.muellerwaterproducts.com and is available in print to stockholders who request a copy. The Company also has made available an Ethics Hotline, whereby employees can anonymously report a violation of the Code of Conduct. Any changes to the Code of Conduct will be posted on the Company’s website.
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis describes the compensation philosophy and structure under which the Company compensated its executive officers and othersPlease refer to our Annual Report on Form 10-K for the fiscal year ended September 30, 20082009 (“fiscal 2008”2009”) for additional information regarding the fiscal 2009 financial results discussed below.
Table of Contents
Executive Summary | 23 | |
Overview | 25 | |
Our Business in Fiscal 2009 | 25 | |
Compensation Philosophy | 25 | |
2009 Compensation Actions | 26 | |
Compensation Elements | 28 | |
Total Compensation | 30 | |
Risk and Incentive Compensation | 30 | |
Responsibilities of the Compensation Committee | 31 | |
Role of Management in Compensation Decisions . | 31 | |
Role of Compensation Committee in Compensation Decisions | 31 |
Factors Considered by the Compensation Committee | 33 | |
Peer Group Benchmarking | 33 | |
Tally Sheets | 34 | |
Wealth Accumulation Review | 35 | |
Rewarding Performance: Compensation Elements | 35 | |
Base Salary | 35 | |
Annual Cash Incentive Awards | 36 | |
Long-Term Equity-Based Compensation | 39 | |
Retirement Benefits | 40 | |
Other Benefits | 41 | |
Income Tax Consequences of Executive Compensation | 43 | |
Compensation Recovery (Clawback) Policy | 44 | |
Stock Ownership Policy | 44 |
UnderThe following summary provides an introduction to the oversight ofmore detailed disclosure set forth in this “Compensation Discussion and Analysis” (“CD&A”) section. This CD&A section is required to provide information about those executive officers whose names appear in the Summary Compensation Table on page 46 (our “named executive officers” or “NEOs”), but it also provides insight into the considerations the Compensation Committee and the Company maintains an executive compensation program for its executive officers that focuses on performance. The design and operationBoard use in overseeing the implementation of the program reflect the following objectives:Company’s compensation philosophy.
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— | For fiscal 2009, we targeted total compensation for our NEOs and other executives at the 50th percentile plus or minus 15% of targeted compensation for similar executive positions at other companies. We use a “peer group” of manufacturing companies, described in greater detail below, to benchmark that total compensation. |
— | We believe in “pay-for-performance” and link short-term and long-term incentive compensation to the achievement of measurable performance goals. |
— | We believe that our incentive plans, balanced with other aspects of our compensation program, do not encourage excessive risk-taking by executives. Cash incentive compensation supports our pay-for-performance compensation philosophy and rewards annual results. Long-term equity-based compensation serves as a retention mechanism and as a means to focus our executives on |
— | Our executives participate in the same group benefit programs available to our salaried employees. |
— | We offer our NEOs limited perquisites – a monthly car allowance, reimbursement for certain financial planning and |
— | Due to deteriorating economic conditions in the Company’s end markets, the Company experienced significant declines in sales in fiscal 2009. In response to the economy and our financial results, salaries were frozen, and pay for our directors and for certain executives was temporarily reduced. The Company did not meet the financial or operating goals the Compensation Committee established to achieve cash incentive compensation under the annual incentive plans applicable to our NEOs and other executives. As discussed below, the Compensation Committee determined to award incentive compensation on the basis of achievement of personal goals and |
— | Based on efforts that |
— | The market price of our common stock decreased significantly during fiscal 2008 and 2009. This decrease resulted in a significant decline in the value of all accumulated equity-based incentive compensation. Stock options granted prior to that decline are likely to have little or no value for an extended period of time into the future. |
— | Our executives generally cannot sell shares of our common stock until they reach minimum ownership levels. |
— | Our Compensation Committee is comprised solely of independent directors. The Compensation Committee uses a compensation consultant that does not provide any other services to the Company. |
— | We have never backdated or re-priced equity awards, which are generally awarded in late November/early December every year after the completion of the audit of the financial statements for the prior fiscal year. We do not time our equity award grants relative to the release of material, non-public information. |
Our Business in Fiscal 2009
During fiscal 2009, the operating subsidiaries of the Company faced unique business challenges due to the recession, the historic decline in new home construction, and the unprecedented drop in year-over-year state and municipal spending, all of which negatively affected our Mueller Co. and U.S. Pipe operating subsidiaries. The general recession negatively affected non-residential construction, which affected the end markets of our Anvil operating subsidiary.
Economic conditions deteriorated rapidly in fiscal 2009, negatively affecting our financial results. Our fiscal 2009 net sales were $1.428 billion, down 23% from $1.859 billion in fiscal 2008. The Company’s adjusted net loss was $35.7 million in fiscal 2009 compared to an adjusted net income of $53.1 million in fiscal 2008. We incurred $47.8 million in restructuring charges in fiscal 2009 as we attempted to better align our organization and cost structure with economic conditions. We recognized impairment charges of $970.9 million, fully writing off our goodwill and reducing the value of our trademarks and trade names by $101.4 million. Despite these objectives,results, during fiscal 2009, the Company had $90.8 million in free cash flow and reduced outstanding indebtedness by $355.3 million, using $166 million of the proceeds of an equity offering. The Company also amended its credit agreement in fiscal 2009 to provide more financial covenant flexibility resulting in, among other things, increased interest rates and new financial covenants.
Financial metrics accounted for 70% of each executive’s annual cash incentive opportunity. The Compensation Committee approved financial metrics for incentive compensation in the fall of 2008, before the severity of the deterioration that would affect the Company’s end markets in fiscal 20082009 had become apparent. Due to those conditions, the Company and the operating segments did not meet any of the financial performance goals and, as a result, the Compensation Committee did not award any cash incentive awards tied to those specific financial goals to the NEOs or other executives.
As discussed below, the Compensation Committee awarded NEOs cash incentive awards based on reaching certain individual goals and for their collective efforts in generating cash, repaying debt and managing working capital during the year.
Compensation Philosophy
The overall objective of our executive compensation program is to encourage and reward the creation of sustainable, long-term stockholder value. The Compensation Committee follows the following principles in overseeing the compensation program for the Company’s executives:
— | The Committee Seeks to Align Executives’ and Stockholders’ Interests — Executives’ interests are more directly aligned with the interests of our stockholders when compensation programs: (1) are significantly impacted by the |
value of our stock; (2) require significant ownership of our stock; and (3) emphasize both short- and long-term financial performance. |
— | The Committee Seeks to Set Executive Compensation at a Level that is Competitive — To attract qualified executives, motivate performance and retain executives with the abilities and skills needed to build long-term stockholder value, total compensation should be competitive and should reflect the value of comparable positions in the market and within the Company. |
— | The Committee Seeks to Motivate Achievement of Financial and Strategic Goals — A significant portion of an executive’s overall compensation is dependent on the achievement of short- and long-term financial goals and strategic objectives. Additionally, the portion of an executive’s total compensation that varies with performance is a function of the executive’s responsibilities and ability to influence results, and is tied to strategic goals determined at the beginning of each fiscal year. |
— | The Committee Seeks to Reward Superior Performance — While total compensation for an executive should be both competitive and tied to achievement of financial goals and strategic objectives, the Committee seeks to ensure that performance that exceeds target is appropriately rewarded and that rewards are proportionately smaller when performance does not meet targeted expectations. |
2009 Compensation Actions
Considering the financial challenges of fiscal 2009, the Compensation Committee took actions to align compensation with our peer group and appropriately adjust compensation, but also to compensate executives for individual efforts that promoted long-term value for our stockholders. In fiscal 2009, the Compensation Committee took the following actions:
Action | Considerations | Reason for Action | ||
—Modified custom peer group | —Peer group previously included companies comparable with the Company’s manufacturing businesses based on best available information from October 2007. | —To benchmark companies with businesses and annual revenue that are more comparable to that of the Company, based on better information from an expanded database of comparable companies |
Action | Considerations | Reason for Action | ||
—Redesigned incentive compensation plan to base 70% on financial results and 30% on the achievement of personal goals —No incentive compensation payments were made under the financial metrics portion of the plan | —Previously 80% of incentive compensation had been based on financial results and 20% had been based on the achievement of personal goals | —To help maintain effective incentives in light of the volatile economic environment —To help align the goals of the executive with the strategic goals of the Company —Although the achievement of personal goals is inherently more subjective than the achievement of financial goals, the Compensation Committee seeks to ensure that the personal goals are as objective as possible, and that rewards are based on its objective review of those goals | ||
—10% reduction in base salary (or hours worked for other salaried employees) coupled with voluntary 20% base salary reductions for executives (other than President of Anvil) from February to May 2009 | —Executives received 100% of base salary in fiscal 2008 | —Cost-cutting initiative as a response to economic conditions; voluntary executive reductions maintained pay equities with loss of income opportunities for other salaried employees | ||
—20% reduction of cash compensation for non- employee directors for a three month period | —Directors had formerly been paid as described in “Director Compensation” below | —Directors deemed it important to share in cost-cutting initiatives of executives and other Company personnel | ||
—Base salary freeze instituted for over a year to control costs | —Annual salary increases based on performance and cost of living will be renewed in fiscal 2010, with appropriate adjustments to be made for the time elapsed since the last salary review | —Cost-cutting initiative in response to economic conditions and the related declines in revenues in our businesses | ||
—Temporary suspension of 401(k) match from April 1, 2009 through December 31, 2009 | —Company generally provided a match of 100% on contributions up to 4% of each employee’s eligible compensation —The 401(k) match will be reinstated on January 1, 2010 | —Cost-cutting initiative in response to economic conditions and the related declines in revenues in our businesses |
Compensation Elements
Each element of our direct compensation program is reviewed and approved by the Compensation Committee and is intended to encourage and foster the following results and behaviors. The Compensation Committee reviews and approves the following elements of compensation for executives:
Compensation Element | Objective | Behavioral Focus | ||
Base salary | —Provide fixed compensation to the executive —Target represents 34% of total direct compensation for NEOs and 23% of the total direct compensation for the Chief Executive Officer | —Most directly comparable component of compensation to measure against peer group; rewards experience and individual performance —Not at risk | ||
Annual cash incentive awards | —Provides at-risk variable pay for short-term performance —Target represents 28% of total direct compensation for NEOs; 23% of the total direct compensation for the Chief Executive Officer —Paid in cash | —Rewards individual performance based upon operational results for business segment or total corporation performance as well as personal performance —At significant risk, depending on satisfaction of overall corporate, segment and personal goals | ||
Long-term equity awards | —Provides at-risk variable pay opportunity for long-term performance —Target represents 38% of total direct compensation for NEOs; 53% of the total direct compensation for the Chief Executive Officer —For fiscal 2009, 50% of the value was provided in nonqualified stock options and 50% of the value was provided in restricted stock units | —Rewards overall Company performance —Aligns executives with stockholders —At risk, based on stock price | ||
Employee benefits | —Promotes health and well-being of employees, including executives | —Annual indirect compensation —Not at risk | ||
Perquisites | —Promotes health and provides financial/tax assistance for executives and opportunities for reasonable business entertainment | —Annual entitlements —Not at risk |
The following charts set forth, for our CEO and for our other NEOs on average, the amount of each major element of the base salary, total cashfiscal 2009 target direct compensation and economic grant valuethe percentage of fiscal 2009 total target direct compensation represented by each major element, indicating the percentage of fiscal 2009 direct compensation that was at risk. The amounts and percentages are based upon the fiscal 2009 target levels for long-term equity incentives,each element at the time of approval.
Total Compensation
The Compensation Committee targets total compensation at the 50th percentile plus or minus 15%, subject to individual adjustments based on experience, length of service, individual performance and other factors deemed appropriate by the Committee, at the 50th percentile of the comparable position in the approved peer group. In May 2008, the Compensation Committee clarified that it targets the median plus or minus 15%, and not the 50th percentile specifically, in order to reflect the Compensation Committee’s original intention that the targets be a range of compensation and not a specific dollar amount.Committee. Depending on business and individual performance results, an executive officer’sexecutive’s total compensation may be within, below or above the target range for that position. If the Company’s or operating subsidiary’s performance does not meet the financial targets, or the individual does not meet personal goals, executives may receive only a fraction of their targeted total compensation
In OctoberThe Compensation Committee regularly reviews the total compensation of each executive and November 2007,compares it to the Board anticipatedtotal compensation of comparable executives in the Company’s peer group. The Committee regularly discusses the comparable total compensation data from its peer group with Hewitt, based on data collected by Hewitt. Based on information provided by Hewitt, we believe that the Company might facefiscal 2009 target total compensation opportunity for the NEOs (in an aggregate basis) was approximately 6% below the regressed 50th percentile target total compensation for similar executive positions in the peer group based on the most current available information.
Risk and Incentive Compensation
Because performance-based incentives play a difficult fiscal 2008 duelarge role in the Company’s executive compensation program, we believe it is important to ensure that incentives do not result in actions that may conflict with the continuing downturn in residential construction activity and other difficult economic conditions, including increased raw material costs. Management also forecasted that commercial construction spending would improve slightly in fiscal 2008. Executive compensation targets reflected these expectations. For fiscal 2008, 80%long-term best interests of the Company. The base salaries of the NEOs, reviewed against similar salaries at comparable companies, are a sufficient component of total compensation to discourage excessive risk taking. Annual bonuses are capped at 200% of the applicable target, amount of incentive-based compensation for corporate executives was tied to the Company’s adjusted net income and return on operating assets, and 20% was tied to the achievement of personal goals. For operating executives, the financial and operating targets wereunder our cash incentive plans are based on segment income from operationsupon budgeted earnings levels that are reviewed, carefully monitored and workingapproved by the Compensation Committee. The Compensation Committee approves financial or operational and personal targets that it and management believe can be achieved without the need to take inappropriate risks or make material changes to the Company’s business or strategy. Long-term incentive awards are granted in equity and value is realized through long-term appreciation of the Company’s stock price. Executives generally cannot sell shares until specified ownership levels have been met.
We use financial performance measures – such as “working capital as a percent of net sales.
Thesales” and “return on net operating assets” – to encourage the efficient use of the Company’s adjustedresources while discouraging excessive risk-taking. We believe that the use of operating income requires managers to consider the cost of their operations, and the use of consolidated net income for fiscal 2008 was $53.1 million and return on operating assets was 6.0% for fiscal 2008. These amounts were belowpromotes the compensation targets set by theuse of strategies to enhance stockholder value. The Compensation Committee for incentive-based compensation. With respectannually considers revisions to the segments, Anvil achieved bothmetrics used – and reviews progress against them at least once during the year – to ensure that incentive compensation is aligned with stockholder interests without excessive risk taking.
We believe the use of itswidely-used financial metrics for financial targets makes it unlikely that the attainment of those financial targets would be reasonably likely to increase the risk to the Company in a material way. The targets used in establishing personal incentive goals are intended to benefit the Company and we do not use goals that are reasonably likely to increase material risk to the Company over a longer period of time than the potential payout
of compensation targets, Mueller Co. achieved only its working capital targetfor the attainment of those goals. We believe that having incentive compensation components that represent a large percentage of total compensation and U.S. Pipe did not achieve either of its compensation targets.that vest over an extended period also discourages unnecessary or excessive risk taking.
Role and AuthorityResponsibilities of the Compensation Committee
The Compensation Committee oversees the Company’s executive compensation program and is composedcomprised entirely of independent directors. The Compensation Committee also is responsible for developingdevelops and reviewingreviews the Company’s executive compensation philosophy. The Compensation Committee’s responsibilities are described in its Charter, which is available on the corporate governance page of our website atwww.muellerwaterproducts.com. The Compensation Committee reviewsFor a description of the Charter annually and recommends to the Board any changes to the Charter that it considers necessary or important. The Board annually determines membershipresponsibilities of the Compensation Committee.
Under the Compensation Committee’s Charter, the Compensation Committee, is responsible for overseeing the Company’s overall strategic human resources programs, including executive compensation, benefit plans and equity plans. The Compensation Committee approves and oversees the administrationsee “Corporate Governance – Committees of the Company’s material benefit plans, policies and programs, including all of our equity-related incentive plans and senior executive bonus
plans. The Compensation Committee also reviews and approves principal elements of total compensation for the Company’s named executive officers and other executive officers and employment, severance, and change-in-control arrangements for the Company’s executive officers.Board”.
Role of Management in Compensation Decisions
The Compensation Committee engages in active discussions with ourand the Chief Executive Officer concerningdiscuss the metrics that closely align performance targets of the business units and the Company with the strategic goals of the Company. The Compensation Committee and the Chief Executive Officer also discuss the individual personal goals and desired initiatives of each executive, to determine the extent to which performance metrics should be used in connection with different operational groups and the determination of performance targets as well as individual goals and initiatives and whether and to what extent criteria for the previous year have been achieved. With respect to our executive incentive compensation program, senior management plays an important role in our decision-making process, due to its direct involvement in and knowledge of the business goals, strategies, experiences and performance of the Company and its various operational units.
With respect to equity grants, theThe Compensation Committee reviews datainformation provided by Hewitt its independent compensation consultant, and uses that datainformation as a reference point for all equity grants. Thecomponents of compensation. Our Chief Executive Officer provides input on and makes recommendations to the Compensation Committee aswith respect to appropriate grant levels for executives other than himself.the compensation, including annual salary adjustments, short-term incentive adjustments and grants of awards under our incentive plans, of the executives. The Compensation Committee reviewsapproves the appropriatenesscompensation of these officers taking into consideration the Chief Executive Officer’s input and recommendations.
The Chairman of the recommendations ofCompensation Committee and another Committee member designated by him meet with the Chief Executive Officer with respect to such grantsdiscuss his performance and accepts or modifies recommendations as it deems appropriate.
In addition, senior executives regularly prepare meeting information forcompensation based on evaluations received from the Compensation Committee. Our Chief Executive Officer proposes toentire Board of Directors. These discussions are considered by the Compensation Committee compensation packages for new executive officers and annual salary increases for eachin setting all elements of the executive officers other than himself.From time to time,compensation for our Chief Executive Officer has recommended that the Compensation Committee consider additional compensation arrangements for one or more executive officers. See “Compensation Elements – Perquisites and Other Personal Benefits – Compensation Program for Anvil International Executives.”Officer.
Our Chief Executive Officer is not a member of the Compensation Committee and does not vote at Compensation Committee meetings. Although our Chief Executive Officer may call meetings of the Compensation Committee and he regularly attends Compensation Committee meetings, he is present only by invitation of the Compensation Committee; heCommittee and has no independent right to attend such meetings. In fiscal 2008,2009, our Chief Executive Officer was present at all of the Compensation Committee meetings. He doesmeetings, but he did not attendparticipate in the executive sessions of the Committee or participate in discussions aboutwhen his own compensation. Our Chief Executive Officer also participated in meetings between management, Hewitt and the chairman of the Compensation Committee.compensation was discussed.
Role of Compensation Consultant in Compensation Decisions
The Compensation Committee is authorized byUnder its Charter to engage its own independent advisors to assist in carrying out its responsibilities. Pursuant to that Charter, the Compensation Committee has sole authority to select and retain an independent compensation consultant. The consultant may not have any other relationship with the independent consultant. InCompany or management without the prior written approval of the Compensation
Committee. For each of fiscal 2009, fiscal 2008 and fiscal 2007, the Compensation Committee selected Hewitt to be theits independent compensation
consultant to the Committee. consultant. Hewitt continued to act as the compensation consultant to the Compensation Committee through fiscal 2008 and has been retained by the Committee for fiscal 2009. The independent consultant is precluded from providing any other services to the Company and will receive compensation from the Company only for services it provides to the Compensation Committee, except as identified to and approved by the Compensation Committee.2010.
In fiscal 2009, Hewitt’s responsibilities include:included:
— | providing recommendations regarding the composition of |
— | gathering and analyzing publicly available |
— | preparing and analyzing pay survey |
— | reviewing and advising on the performance measures to be used in incentive awards; |
— | reviewing and advising on all principal aspects of executive and non-employee director compensation, including base salaries, bonuses, and equity awards for |
— | using |
— | preparing other analyses and providing advice on other aspects of the Company’s executive compensation policies and programs as requested by the Compensation Committee. |
The Compensation Committee typically invites representatives of Hewitt to attend its meetings. During fiscal 2008,2009, Hewitt attended twoall of the Compensation Committee’s three regular meetings and one special meeting. The Compensation Committee expects Hewitt to provide advice on executive and director compensation matters as the Committee deems appropriate and/in person or as requested.by telephone. In the course of fulfilling its consulting responsibilities, representatives of Hewitt regularly communicatescommunicate with the Chairman of the Compensation Committee outside of regular committee meetings. Representatives of Hewitt meet with the Compensation Committee in executive sessions at most meetings. Hewitt also meets with management from time to time to gather information on and to review proposals that management may make to the Compensation Committee. However, Hewitt reports its findings to the Compensation Committee, not to management.
During fiscal 2008,2009, Hewitt advised the Compensation Committee on the appropriateness and merit of the recommendations made by management (primarily our Chief Executive Officer, as well as the Company’s Senior Vice President of Human Resources and other members of the Company’s executive compensation and benefits group), and provided supplementary background data with respect to management’s recommendations. During fiscal 2008,2009, Hewitt also provided the Compensation Committee and management with competitive compensation data for management to consider in setting or making recommendations regarding compensation levels. In providing management with
survey data and the Compensation Committee with advice, Hewitt relied on information it gathered directly, publicly available information regarding peer group companies, (see below), and Hewitt’s experience with companies inside and outside the peer group.
Hewitt uses a proprietary modified Black-Scholes model to value stock options and a discounted value methodology to value restricted stock units, taking into account the likelihood of forfeiture. During fiscal 2009, Hewitt calculated the number of stock options and restricted stock units to be provided to executives and other employees based on the value of the grants approved by the Compensation Committee. Those calculations reflect the value of the grants using Hewitt’s methodologies based on the closing stock price on the date of grant and may not represent the value at any other point in time or the value required by the SEC in the compensation tables below, or used for financial reporting purposes.
Factors Considered by the Compensation Committee
Peer Group Benchmarking
The Compensation Committee reviewed the fiscal 2008 peer group and requested that management and Hewitt consider certain revisions. Hewitt considered companies that were likely to compete with the Company for executive talent and investors, companies with similar organizational structures, strategic focus, and other considerations. Hewitt also only considered companies where there was sufficient data available to make comparisons, and where the size and scope of operations were sufficiently comparable.
For fiscal 2008,2009, the Compensation Committee identified aapproved the 26-company peer group of 26 companies whose executive compensation programs would be analyzed for benchmarking purposes based on companies selected by Hewitt and reviewed by management and the Compensation Committee.listed below. The peer group companies have a primary manufacturing component to their businesses, are publicly traded and registered with the Securities and Exchange Commission,SEC, and have annual revenue between $800$280 million and $6.5$7.0 billion. The median annual revenue for the peer group iswas $2.4 billion and the median market capitalization was $1.6 billion. Hewitt and management proposed companies that they believed, based on their industries and size, could potentially compete withWhere a company was smaller or larger than the Company, for talented executives. The Compensation Committee selected the followingHewitt used a market regression analysis to adjust peer group for fiscal 2008:
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In October 2008,pay data to make the Compensation Committee reviewed the fiscal 2008 peer group and determined that, based on several factors including company size, industry, and business model, a number of companies should be removed and replaced with adata more representative group of companies. The following companies will be excluded from the fiscal 2009 peer group: Dover Corporation, Hubbell Incorporated, Joy Global Inc., Lincoln Electric Holdings, Inc., Molex Incorporated, Nalco Holding Company, Tecumseh Products Company, Temple-Inland Inc., Thomas & Betts Corporation and Vulcan Materials Company. The following companies will be added to the fiscal 2009 peer group: Allegheny Technologies Incorporated, Armstrong World Industries, Inc., Badger Meter, Inc., EnPro Industries, Inc., Mueller
Industries, Inc., Otter Tail Corporation, Quanex Building Products Corporation, Robbins & Myers, Inc., The Shaw Group Inc. and Valmont Industries, Inc.comparable.
Tally SheetsFiscal 2009 Peer Group
In November 2007 and May 2008, the Compensation Committee reviewed compensation tally sheets for each executive officer. The tally sheets, which were prepared by management, contain information concerning current and historical dollar amounts of each component of the executive officer’s compensation, including salary, annual incentive pay (target and actual), outstanding equity awards, other benefits, potential change-in-control payments, severance payments and any other compensation arrangement. The tally sheets assist the Compensation Committee in tracking changes in an executive officer’s total direct compensation from year to year, and remaining aware of the compensation historically paid to each executive officer. The Compensation Committee expects to review updated tally sheets at least annually, and generally reviews them twice a year.
During 2008, the Compensation Committee reviewed a wealth accumulation analysis prepared by Hewitt. The Committee requisitioned the analysis to help it decide how elements of compensation affect long-term wealth accumulation by executives. The Compensation Committee reviews past awards and the potential for future awards in making present compensation decisions, including equity grants.
The five major elements that comprise the Company’s compensation program, along with a description and the purpose of each element, are set forth below. The Compensation Committee chose these particular elements of compensation after considering a number of factors, including competitive practices in the Company’s peer group and the Company’s objective to motivate executives to maximize operational and financial performance.
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(as of last fiscal year end) | |||
| $5.3 billion | $2.5 billion | ||
Ametek, Inc. | $2.5 billion | $3.2 billion | ||
| $3.4 billion | $1.2 billion | ||
Badger Meter, Inc. | $279.6 million | $429.1 million | ||
| $5.8 billion | $4.5 billion | ||
Crane Co. | $2.6 billion | $1.1 billion | ||
Curtiss-Wright Corporation | $1.8 billion | $1.5 billion | ||
Donaldson Company, Inc. | $2.2 billion | $3.5 billion | ||
EnPro Industries, Inc. | $1.2 billion | $436.7 million | ||
Flowserve Corporation | $4.5 billion | $2.9 billion | ||
FMC Technologies | $4.5 billion | $3.0 billion | ||
Graco Inc. | $817.3 million | $1.4 billion |
(last fiscal year)
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(as of last fiscal year end) | ||||
IDEX Corporation | ||||
Lennox International Inc. | $3.5 billion | $1.8 billion | ||
Mueller Industries, Inc. | $2.6 billion | $931.5 million | ||
Otter Tail Corporation | $1.3 billion | $825.5 million | ||
Pentair, Inc. | $3.4 billion | $2.3 billion | ||
Quanex Building Products Corporation | $868.9 million | $344.9 million | ||
Robbins & Myers, Inc | $787.2 million | $1.5 billion | ||
Roper Industries, Inc. | $2.3 billion | $3.9 billion | ||
Sauer-Danfoss Inc. | $2.1 billion | $422.4 million | ||
The Shaw Group Inc. | $7.0 billion | $4.1 billion | ||
The Stanley Works | $4.4 billion | $2.7 billion | ||
Valmont Industries, Inc. | $1.9 billion | $1.6 billion | ||
Watts Water Technologies, Inc. | $1.5 billion | $730.4 million | ||
Worthington Industries, Inc. | $2.6 billion | $1.1 billion |
In October 2009, the Compensation Committee reviewed the fiscal 2009 peer group and decided to retain the same peer group for fiscal 2010.
Tally Sheets
The Compensation Committee annuallyregularly reviews tally sheets for each executive, which are prepared by management and reviewed by Hewitt. They contain information concerning prior year compensation, proposed compensation for the current year and various termination-of-employment scenarios, including termination with or without cause, voluntary termination, retirement and termination after a change in control. The tally sheets also highlight multiple elements of compensation, including base salary, annualcash severance, value receivable under the cash incentive long-termplan, vesting of outstanding equity awards, health and perquisiteswelfare continuation, outplacement services and other personal benefits. the value of any tax gross-ups.
The tally sheets enable the Compensation Committee to see and evaluate the full range of executive compensation, understand the magnitude of potential payouts as a result of termination-of-employment scenarios and consider changes to our compensation program, arrangements and plans in light of emerging trends. The tally sheets, in certain circumstances, show different information than the information that is required to be shown under the heading “Executive Compensation – Potential Payments Upon Termination or Change-in-Control”. The tally sheets may show more or different information than is required by SEC regulations, or use current or projected stock prices, as opposed to year-end stock prices, and may use different assumptions than those used in preparing the table.
Wealth Accumulation Review
The Compensation Committee looks at “wealth accumulation” calculations – how much an executive is projected to earn or accrue over time through cash and equity compensation or receive through certain benefits – but reviews retirement benefitsit in the context of several relevant factors. The most significant vehicle for wealth accumulation is equity awards, and executives receive the full benefit from timeequity awards only with improved Company performance and the resulting improvement in stock price. This review is intended to time to maintain competitive benefit levels and complianceensure that management’s interests are aligned with applicable provisionsthe long-term interests of the Internal Revenue Code. Company and its stockholders.
The Compensation Committee currently expects to continue its policy of reviewingconsiders other factors such as whether the principal elementsmix of compensation at least annuallyshould change over time to reflect changing Company and retirement benefits onindividual circumstances. It also considers whether existing long-term awards already provide sufficient incentives to retain and motivate our executives, such that awards should be reduced or eliminated in a less frequent basis. In determiningparticular period, and makes assumptions as to the current value of the awards that have already been granted to the executives.
Rewarding Performance: Compensation Elements
The Compensation Committee oversees the various forms of compensation to reward performance and encourage the achievement of the Company’s near-term objectives and long term strategic goals.Base Salary provides a stable amount of fixed compensation to the executive, whileAnnual Cash Incentive Awards are used to reward financial and personal performance to achieve Company objectives. The Compensation Committee usesLong-Term Equity-Based Compensation to reward the executives for overall Company performance, and to align a significant portion of the overall compensation with the long-term interests of investors in the Company’s common stock. Finally, the Compensation Committee consideredoverseesRetirement Benefits andOther Benefits to promote the impact on each executive officer’s total compensationhealth, well-being and financial security of its decisions with respectour executives and their families, and, in some cases, to each specific element of compensation, as well as the executive’s past and expected future contributionsprovide perquisites comparable to our business.those available to other similarly-situated executives.
Base Salary
The Compensation Committee targetedregularly compares the base salary forof each executive officer (other than Mr. Smith) atto the 50th percentile of the comparable positionexecutives in the approved peer group plus or minus 15%group. In response to economic conditions, in December 2008 the Compensation Committee implemented a salary freeze applicable to most salaried employees of the median. The Compensation Committee assessed Mr. Smith’s compensation based on his yearsCompany. In addition, most of service to the Company’s divisions before the acquisition of Mueller Co. and Anvil International by the Company’s predecessor, his compensationexecutives took voluntary 20% base salary reductions for three months during prior periods when Mueller Co. and Anvil International were owned by private interests, his pending retirement from the Company and his rolefiscal 2009. It is currently expected that increases in providing transitional leadership to the Mueller Co. segment.salary will be processed in February 2010.
In determining actualbase salary for each executive, officer, the Compensation Committee assessedassesses the responsibilities associated with the position, individual contribution and performance, skill set, prior experience and external pressures to attract and retain talent and the compensation paid to other executives in the other executive officers. Duringpeer group companies and in the Company. Based on information provided by Hewitt, we believe that the aggregate fiscal 2008,2009 base salaries for the named executive officers were between 19.8%NEOs was approximately 5% below and 1.8% above the 50th percentile. On an aggregate basis, the base salary of the named executive officers in fiscal 2008 was 5.6% below theregressed 50th percentile ofbase salary for similar executive positions in the approved peer group.group based on the most current available information. Salaries earned by named executive officers in fiscal 20082009 are reflected in the “Salary” column (Column C) of the Summary Compensation Table on page 3446 of this Proxy Statement.
The following table shows, for each named executive officer who was employed by the Company at September 30, 2008, the percentage increase in his base salary from fiscal 2007 to fiscal 2008, and a comparison of his fiscal 2008 base salary to the peer group.
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Annual Cash Incentive CompensationAwards
Annual incentive compensation for fiscal 2008 was awarded toCertain of our named executive officers, other than our Chief Financial Officer, underexecutives were participants in our Executive Incentive Plan (the “Top Executive Bonus Plan”). and were awarded an opportunity to earn an annual incentive award for fiscal 2009. The Top Executive Bonus Plan, which was approved by our stockholders in January 2008, establishes an annual award pool of three percent (3%) of the Company’s operating income. In November or December of each year,For fiscal 2009, the Compensation Committee allocatesallocated the award pool to the participating employeesexecutives to establish a maximum incentive award for each such participant. For fiscal 2008, the pool was allocatedparticipant as follows:
Name | Percentage of Award Pool | ||
Gregory E. Hyland | % | ||
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Raymond P. Torok | |||
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TheIn order to qualify as performance-based compensation for purposes of the Top Executive Bonus Plan, the Compensation Committee may reduce, but may not increase, the maximum award for any participant and the size of the award pool. In determining the amount of incentive compensation that will be awarded toearned by each participant for the fiscal year, the Compensation Committee considers many factors including the pre-established financial/financial or operational goals and individual objectives that are described with respect to the Management Bonus Plan below.
The Compensation Committee awarded discretionary, non-incentive bonuses to Messrs. Smith and Fish in fiscal 2008. Mr. Smith received a discretionary bonus based on his years of service to the Company’s divisions before the acquisition of Mueller Co. and Anvil International by the Company’s predecessor, to make his compensation more closely approximate his compensation during prior periods when Mueller Co. and Anvil International were owned by private interests, and for his role in providing transitional leadership to the Mueller Co. segment. Mr. Fish received a discretionary bonus to compensate him for providing leadership, and for the performance of the Anvil International segment, which exceeded certain targets established by the Compensation Committee.
Annual incentive compensation opportunities for fiscal 2008 was2009 were awarded to our executive officersexecutives who are not covered by the Top Executive Bonus Plan under a different bonus plan called our Management Incentive Program (the “Management Incentive Program” (and referred to herein as the “Management Bonus Plan”). For consistency, the Compensation Committee uses the same types of goals and measurements for the Management Bonus Plan and the Top Executive Bonus Plan.
The Management Bonus PlanIncentive Program provides executive officersexecutives and other key employees with the opportunity to earn cash awards based on the achievement of pre-established measurable financial/operational and individual objectives. The Compensation Committee sets target bonuses to motivate and focus each executive on the achievement of annual financial/operational and individual performance goals and to remain competitive with the approved peer group.
For corporate-level executive officersexecutives and Mr. Torok, fromthe President of our U.S. Pipe segment, total cash compensation was targeted atsubsidiary, the Compensation Committee uses the 50th percentile relative toof the approved peer group plus or minus 15% of that median.
Prior to the acquisition of Mueller Co. and Anvil International by the Company’s predecessor,as a guide in setting target annual cash incentive compensation. The annual incentive opportunitiestarget for executive of those divisions wereMr. Fish is based on a designated percentage of athe pre-established bonus pool. That bonus pool was calculated as a designated percentage of a financial metric that measured overall profitability, and that metric varied over time. As a result, for Mr. Gaskin from Mueller Co. and Mr. Fish from Anvil International, total cash compensation for fiscal 2008 was not targeted at the 50th percentile relative to the approved peer group, and the Compensation Committee considered, in addition to its median targets, the services of Messrs. Gaskin and Fish to the Company’s divisionsexisted before the acquisition of Mueller Co. and Anvil International by the Company’s predecessor,predecessor. The Compensation Committee’s goal is to use appropriate opportunities to bring all executive compensation for the NEOs and theirother officers in line with the Company’s compensation during prior periods when Mueller Co.philosophies outlined above. Thus, the Committee uses the financial and Anvil International were owned by private interests.operational goals discussed below for each of the NEOs.
The Compensation Committee approved annual financial/operational and specific individual goals for each executive officer in the first quarter of fiscal 2008. In fiscal 2008, the2009. The potential incentive opportunity for each executive under the Management Bonus Plan was weighted 80%70% on the achievement of two financial/operational goals described below, and 20%30% on the achievement of specific individual goals. The amounts payable based on attainment of those goals is capped by the amount permitted under the Top Executive Bonus Plan. Under that Plan, the
Committee may decrease (using negative discretion) the amounts payable to participants in that Plan but may not increase the amounts payable. In fiscal 2009, the Company’s operating income was insufficient to permit any annual cash incentive payments to the participants under the Top Executive Bonus Plan.
Financial/Financial or Operational Goals
TheDuring the fourth quarter of 2008, the Board anticipated that the Company might face a difficult fiscal 2009 due to the continuing downturn in residential construction activity and the expected slowdown in both municipal spending and non-residential construction. Recognizing that business conditions would remain very challenging, the Compensation Committee uses “consolidated net income” and “return on operating assets” to determine whether corporate executives have satisfiedestablished financial and operational goals.performance targets for fiscal 2009 that were lower than actual results for fiscal 2008, taking into account expected revenue declines, the level of fixed costs and the potential for cost reductions. The Committee believed that the targets would be difficult to reach, but that they could be achieved with strong effort, based on the known economic conditions present at that time.
For corporate executives, the Compensation Committee selected consolidated“return on net income to reflect that corporate management is responsible for overall Company performance. The Compensation Committee selected return on operating assets,assets”, which represents (A) consolidated adjusted net income divided by (B) the average of the sum of certain components of working capital and fixed assets for each month during the year, and “consolidated net income” (as adjusted) as the financial metrics. Return on net assets was selected to ensure that management focuses on the efficient use of resources available to the Company.
For operating executives, the financial/operationalfinancial metrics arewere segment income from operations and working capital as a percent of net sales. The Compensation Committee selected segment income from operations to reflect that segment management hasthose executives have direct responsibility for only a portiontheir respective parts of the business, and segment results do not include an allocation of interest or income taxes.Company’s business. The Compensation Committee selected working capital as a percent of net sales to ensure that the operating executives strive to use Company assets efficiently. For Mr. Fish, the president of Anvil International, target income from operations would be achieved if Anvil International’s operating income improved by 8% over fiscal 2007. This target reflected the market expectation in November 2007 that commercial construction would grow in 2008. For the Mueller Co. and U.S. Pipe operating executives, target income from operations would be achieved if it remained equal to fiscal 2007. This target reflected the expectation in November 2007 that residential construction would decline in 2008.
All executives arewere entitled to receive a minimumthreshold incentive compensation payment if consolidated adjusted net income or segment adjusted income from operations, as applicable, in fiscal 2008 reached a specified percentage of the value of such metric in fiscal 2007,target, with a maximum payout as set forth in the chart below. Further, all executives arewere entitled to a minimum
threshold incentive compensation payment if return on net operating assets or working capital as a percent of net sales, as applicable, in fiscal 2008 improves2009 improved by a specified percentage over fiscal 2007,2008, with a maximum payout as set forth in the chart below.
The Compensation Committee chose relatively low threshold amounts becauseeconomic conditions in the Company’s end markets were even more severe than those contemplated in the fall of expectations in November 2007 that fiscal 2008, would be difficult forand the Company due toexperienced significant declines in revenues in fiscal 2009. Primarily as a result of the severity of the economic conditionsdownturn, the Company did not meet the financial or operating targets set for fiscal 2009 and the declineno bonuses were paid on account of financial or operating performance in the housing market.
fiscal 2009. The following table shows the fiscal 20082009 performance targets for each executive officer along with the attained results. The Compensation Committee considered these results in setting bonus payments under the Top Executive Bonus Plan. The Compensation Committee made certain adjustments to the fiscal 2008 calculations under the Management Bonus Plan to account for restructuring charges during fiscal 2008.
Financial/Operational Performance
(Financial/Operational Goals Have a Total Weight of 80%70% of the Incentive Target)
Performance as a Percentage of Prior Year Results Required to Achieve Bonus | ||||||||||||||
Financial/Operational Metric | Weight Assigned to Metric | Minimum | 100% of Target Bonus | Maximum (200% of | 2008 Actual | 2008 Payout (% of | ||||||||
Gregory E. Hyland and Evan L. Hart | Consolidated Net Income | 50% | 84% | 105% | 130% | 73.9% | 0% | |||||||
Return on Net Operating Assets | 30% | 100% | 105% | 120% | 73.8% | 0% | ||||||||
Thomas E. Fish | Anvil Income from Operations | 50% | 86% | 108% | 130% | 119.5% | 196.0% | |||||||
Working Capital as a Percent of Net Sales | 30% | 100% | 95% | 80% | 102.0% | 112.7% | ||||||||
Dale B. Smith and Doyce Gaskin | Mueller Co. Income from Operations | 50% | 80% | 100% | 130% | 83.0% | 14.9% | |||||||
Working Capital as a Percent of Net Sales | 30% | 100% | 95% | 80% | 104.6% | 128.8% | ||||||||
Raymond P. Torok | U.S. Pipe Income from Operations | 50% | 80% | 100% | 130% | 2.7% | 0% | |||||||
Working Capital as a Percent of Net Sales | 30% | 100% | 95% | 80% | 98.8% | 78.6% |
Results Required to Achieve Bonus (in millions of dollars) | (dollars in millions) | |||||||||||||
Financial/Operational Metric | Weight | Threshold | Target (100%) | Maximum (200%) | 2009 Actual | 2009 Payout (% of | ||||||||
Gregory E. Hyland, Evan L. Hart and Robert G. Leggett | Consolidated Adjusted Net Income | 50% | $17.3 | $23.0 | $55.8 | $(35.7) | 0.0% | |||||||
Return on Net Operating Assets | 20% | $6.0% | 9.3% | 13.8% | (4.2)% | 0.0% | ||||||||
Thomas E. Fish | Anvil Adjusted Income from Operations | 50% | $49.4 | $65.8 | $89.8 | $43.3 | 0.0% | |||||||
Working Capital as a Percent of Net Sales | 20% | 32.9% | 31.5% | 29.5% | 41.8% | 0.0% | ||||||||
Raymond P. Torok | U.S. Pipe Adjusted Income (Loss) from Operations | 50% | $2.4 | $4.8 | $14.3 | $(41.3) | 0.0% | |||||||
Working Capital as a Percent of Net Sales | 20% | 26.0% | 24.9% | 23.4% | 29.0% | 0.0% |
Individual Goals
With regard to individualIndividual goals have a total weight of 30% of the table below showstotal cash incentive target, and executives can earn between 0% and 200% of the performance range and percenttarget amount depending on the level of target that may be earned in connection with the satisfactionachievement of individual goals by the executive officers.goals. Individual goals are quantifiable to the extent practicable. All individual
goalspracticable and are also reviewed subjectively and thesubjectively. The percent of goal achieved is determined by the executive’s direct supervisor and agreed to or modified by the Chief Executive Officer and the Compensation Committee. In the case of the Chief Executive Officer, the Compensation Committee determines the percent achievement of any individual goal. Performance results may fall withingoals.
During fiscal 2009, the specified amounts indicated inCompany had no operating income, and therefore no performance bonuses could be paid to the table below andparticipants under the Compensation Committee may apply discretion so long as the award complies with the terms of the ManagementTop Executive Bonus Plan. The Compensation Committee considers matters such as market conditions, strategic plansreviewed the financial and executive contribution in using discretion to determine individual awards.
Individual Performance
(Individual Goals Have a Total Weight of 20%operating results of the Incentive Target)
Payable as a Percent of Target Dollars | ||||
At Minimum Performance | At Target Performance | At Maximum Performance | ||
0% | 100% | 200% |
Payout Amounts
IndividualCompany and the attainment by the participants in the Top Executive Bonus Plan of certain goals that had been assigned to them at the start of the fiscal year. The Compensation Committee also considered the performance of the Company during the year, the effects of external financial pressures on the Company’s end markets, the wealth accumulation models and comparisons of salaries and bonuses paid to comparable executives in peer group companies. The Compensation Committee also considered the collective efforts of the management team, including its efforts in generating cash, incentiverepaying debt and managing working capital during the year. Based on that review, the Compensation Committee determined to award payments to the following executives, which would not be payable under the Top Executive Bonus Plan, but which represents twice the target incentives for personal goals for these executives under the Management Bonus Plan were determined usingIncentive Program:
Gregory E. Hyland | $ | 474,000 | |
Thomas E. Fish | $ | 171,715 | |
Raymond P. Torok | $ | 92,694 |
In addition, Mr. Fish was entitled to receive an additional 25% of his 2008 and 2009 bonus payments, or $165,708, under the following calculation:
Incentive Payout =
(Income Goal: 50% of Target Bonus x Payout Factor)
+ (Other Financial/Operational Goal: 30% of Target Bonus x Payout Factor)
+ (Personal Goals: 20% of Target Bonus x Payout Factor)
For services rendered toAnvil Retention Program. See “ – Other Benefits – Compensation Program for Anvil Executives.” Because the Company in fiscal 2008, the Compensation Committee approved payment of an aggregate of $1,219,410 in performance-based and discretionary bonus awards to ten executive officers. These amounts were paid in December 2008.Actual amounts earned by the named executive officerspayments will not qualify as “performance-based” compensation under the Top Executive Bonus Plan or Management Bonus PlanSection 162(m) of the Internal Revenue Code, all of the bonus payments made to Messrs. Hyland and Fish will not be tax deductible.
Cash incentive awards paid to the NEOs for performance in fiscal 20082009 are reflected in the “Bonus” column (Column D) and the “Non-Equity Incentive Plan Compensation” column (Column G) of the Summary Compensation Table on page 3446 of this Proxy Statement. These amounts were paid in December 2009 following completion of the annual audit of the Company’s financial statements.
Long-Term Equity-Based Compensation
The Compensation Committee awards long-term equity-based incentive compensation to executive officersexecutives and certain key employees under the Company’s 2006 Stock Incentive Plan. The Compensation Committee believes that providing equity as a component of executive compensation assuresensures external competitiveness of total compensation, and motivates executive officersexecutives and key employees to focus on long-term Company performance, and aligns the interests of key employees with the interests of the stockholders. In addition, equity awards serve to retain executives during the vesting period since, in most circumstances, the awards will be forfeited if the executive leaves the employ of the Company before the award vestsawards vest or the applicable restrictions lapse.
Value of Fiscal 20082009 Equity Awards
The Compensation Committee based the annual equity awards made during fiscal 2008 on an economic value of the award targeted atused the 50th percentile relative to the approved peer group plus or minus 15%as a guide in setting the dollar amounts of the median,annual equity awards during fiscal 2009, but made adjustments as appropriateadvised by Hewitt based on the responsibilitieslevel of each executive officer,executive’s respective responsibilities with the Company and that executive’s potential ability to help the Company attain its strategic and operational goalsgoals. The Compensation Committee uses a dollar value to award the long-term equity-based compensation to the NEOs and performance of each executive officer. other executives.
In determining the actual number of stock options and restricted stock units to be granted, the Compensation Committee relied upon a detailed and consistent methodology, developedcalculations provided by Hewitt, to assign a value (the “economic value”) to each equity award.Hewitt. The economic value calculated for each award is based on aHewitt’s proprietary modified Black-Scholes methodology determined by Hewittfor options and discounted value methodology for restricted stock units. The economic value depends, in part, on the actual design features of the grant, includingand includes assumptions relating to term, vesting schedule, and the impact of certain employment terminations, among others. The Compensation Committee annually reviews the assumptions used by Hewitt in determining the economic value. The Committee reviewsvalues of those assumptions,awards and the economic value derived by using those assumptions, as well as the economic value derivedvalues used for each award under Statement of Financial Accounting Standard No. 123R (“FAS 123R”), which is used to determine the fair value for accountingfinancial reporting purposes. The(The economic values derived using the Hewitt modified Black-Scholes calculations do not necessarily match the fair values derived under FAS 123R.for financial reporting purposes.)
Before determining final awards, the Compensation Committee also considered the evaluation of each executive officer by our CEO. The followingChief Executive Officer.
During the last two fiscal years, the Company’s stock price has decreased as the Company’s businesses have faced a severe economic downturn caused by a decline in residential housing markets, deteriorating economic conditions in the Company’s end markets, and resulting decreases in revenues in the Company’s core businesses. This has resulted in a significant negative impact on the value of stock options and restricted stock units that were granted to executives over the past several years. This decline in value based on a closing stock price of $5.48 per share on September 30, 2009, as summarized in the table shows, for each named executive officer whobelow, was employedreviewed and considered by the Company at September 30, 2008, the grant date value of his equity award, and a comparison of hisCompensation Committee in making executive compensation decisions for fiscal 2008 equity award to the peer group.2009.
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Stock Option In the Money Value | Restricted Stock Unit Change in Face Value Since | |||||||||||
Grant Date | Grant Date Market Price | Date of Grant | As of 9/30/2009 | |||||||||
November 29, 2006 | $ | 15.09 | $ | 0.00 | ($ | 9.61 | ) | -63.68% | ||||
November 29, 2007 | $ | 10.66 | $ | 0.00 | ($ | 5.18 | ) | -48.59% | ||||
December 2, 2008 | $ | 5.49 | $ | 0.00 | ($ | 0.01 | ) | -0.18% |
Timing of Equity Awards
Equity awards are made to our named executive officers under our stockholder-approved incentive compensation plan. TheWhile the Compensation Committee may grant equity awards at its scheduled meetings or by unanimous written consent.consent, it generally grants annual awards at its November/December meeting each year, except for awards related to promotions and new hires. Grants approved during scheduled meetings become effective and are priced as of the date of approval or a predetermined future date (for example, new hire grants are effective as of the later of the date of approval or
the newly hired employee’s start date). Grants approved by unanimous written consent become effective and are priced as of the dateday following the date of the last Compensation Committee member’s signature or as of a predetermined future date. Except for the options granted to replace the cancelled Walter Industries (currently Walter Energy) options at the time of the Spin-off,distribution of the remaining stock of the Company held by Walter Industries (the “Spin-off”), all stock options have a per share exercise price equal to the closing stock price on the New York Stock Exchange on the effective date of the grant.
The Compensation Committee awarded each executive officer an annual grant of non-qualified stock options and restricted stock units at its meeting in November 2007. The economic value of these long-term equity grants was divided equally between non-qualified stock options and time-based restricted stock units. Information related to these awards is reflected in the Grants of Plan-Based Awards Table on page 41 of this Proxy Statement.
Retirement Benefits
The Company offers retirement benefits to its executive officersexecutives and other employees to provide a competitive source of retirement income. These retirement benefits are provided through the vehicles described below.
Retirement Savings Plan Applicable to Employees Generally
The Mueller Water Products, Inc. Retirement Savings Plan (“Savings Plan”) provides retirement benefits for non-union employees of the Company and participating subsidiaries after such employees complete a specified period of service. Messrs. Hyland, Hart, Leggett and Torok participate in the Savings Plan. Messrs. Smith andMr. Fish participateparticipates in the Mueller Group, Inc. Retirement Savings and Investment Plan I, a 401(k) plan sponsored by Mueller Water Products, Inc. (the “Mueller Savings Plan”).I.
Deferred Compensation Plans
Retirement Plan Applicable toAgreement with Mr. Hyland
. In accordance with the terms of Mr. Hyland’s employment agreement with Walter IndustriesEnergy dated as of September 9, 2005, the Company adopted a limited retirement savings plan effective April 1, 2007 (the “Retirement Plan”) for the benefit of Gregory E. Hyland, the Company’s Chairman and Chief Executive Officer.Mr. Hyland. That employment agreement was assigned to and assumed by the Company on December 14, 2006 in connection with the completion of the Spin-off.and was subsequently amended and restated.
The Retirement Plan is intended to constitute an unfunded plan of deferred compensation for Mr. Hyland. Under the Retirement Plan, the Company credits a bookkeeping account for Mr. Hyland. Commencing April 16, 2007 and as of the 16th day of each calendar month thereafter until the earlier of September 16, 2010 or Mr. Hyland’s death, disability or termination of employment for any reason other than cause, an amount equal to 10% of Mr. Hyland’s then current base salary is credited to such account. The amounts credited to the Retirement Plan bear interest at 120% of the long-term Applicable Federal Rate (as defined in the Internal Revenue Code) until payment. As ofAt September 30, 2008, $328,8752009, $423,812 has been accrued and credited to Mr. Hyland’s deferral account.
Upon termination of Mr. Hyland’s employment at the Company, other than for cause, all deferred compensation under the Retirement Plan will be paid as a lump sum to Mr. Hyland or his designated beneficiary, subject to early withdrawal and deferral rights detailed in the
terms of the Retirement Plan. Upon a termination of employment for cause, the entire Retirement Plan account will be forfeited.
The Company’s current year contributions to the Retirement Plan for Mr. Hyland can be found inwere $94,937. See the “Company Sponsored“Company-Sponsored Retirement Plan” column and footnote 2 of the All Other Compensation Table on page 3950 of this Proxy Statement.
Deferred Compensation Plan for All Executives. The Mueller Water Products, Inc. Executive Deferred Compensation Plan (the “Deferred Compensation Plan”) provides executive officers the opportunity to defer up to 70% of base salary and 100% of amounts earned under the Top Executive Bonus Plan or the Management Bonus Plan, as applicable. Taxes on deferred amounts are deferred until the amounts are withdrawn so that savings accumulate on a pre-tax basis. At the time the employee commences participation in the Deferred Compensation Plan, the employee may elect to receive payments upon termination of employment, death, disability or retirement in a lump sum or in equal installments. If the participating employee fails to make an election, deferred amounts are payable, at the discretion of the Company, in either a lump sum or equal installments. In fiscal 2009, none of our named executive officers participated in the Deferred Compensation Plan.
Perquisites and Other Personal Benefits
PerquisitiesPerquisites
The Company provides certain limited perquisites to the named executive officersNEOs that the Compensation Committee believes are reasonable and consistent with its overall compensation program. The limited perquisites provided are intended to better enablecontribute to the Companyimproved health of the executives, facilitate business development, enhance personal financial management, or represent a competitive practice that helps to attract and retain superior employees for key positions. executives.
In fiscal 2008,2009, the Compensation Committee offered its named executive officersNEOs and certain other executives either an automobile allowance or Company-leased vehicle, financial planning services, an executive physical exam and other perquisites. In limited cases, the Company has in some cases,the past provided for club memberships. memberships for NEOs. The two NEOs with club memberships use those clubs for business purposes, although they may use them for personal use as well.
The Compensation Committee annually reviews the level of perquisites provided to the named executive officersexecutives against the approved peer group. Effective in fiscal 2009, each executive officer will be reimbursed $3,000 for an executive physical exam upon completion of such exam. Certain perquisitesPerquisites provided to the named executive officersNEOs in fiscal 20082009 are set forth in the “AllAll Other Compensation” column of the Summary Compensation Table on page 3450 of this Proxy Statement.
Compensation Program for Anvil International Executives
In December 2007, the Company adopted a new compensation program for its Anvil Internationalbusiness segment (the “Anvil Retention Program”) in which Mr. Fish, Anvil International’sAnvil’s President, participates. This program iswas intended to incentivize Anvil International’sAnvil’s executives to remain with the Company and maximize the earnings of the Anvil International business.Mr.business. Mr. Fish iswas entitled to receive (a) a special bonus award equal to 100% of his base salary on October 1, 2007 if he remainsremained employed by Anvil International through September 30, 2009;2009 and (b) an incentive award equal to 25% of his annual bonus for the period between October 1, 2007 and September 30, 2009 (or an earlier date, under certain circumstances) so long as he (i) remains(1) remained continuously employed by Anvil International through the date of payment of such award and (ii) achieves(2) achieved his annual performance targets.
The Anvil Retention Program expired pursuant to its terms on September 30, 2009. Mr. Fish is also entitled toreceived an aggregate of $460,288 under the special bonus award if there is a changeAnvil Retention Program, consisting of control of Anvil International, and he is entitled to a termination payment equal to(A) $294,580, representing 100% of his base salary on October 1, 2007, and 100% of the greater(B) $165,708, representing 25% of his target bonusannual bonuses for fiscal 2008 and most recently paid bonus, if there is a change of control of Anvil International and his employment is terminated without cause during the two year period thereafter. Cause is defined as (a) conviction of a felony or any other crime involving dishonesty, fraud or moral turpitude; (b) fiduciary breach against the Company, Anvil International or the successor to Anvil International; (c) failure to adequately perform his duties; and (d) negligence in the performance of his duties.
Change of Control means that (a) any person that is not affiliated with the Company and is not a trustee or other fiduciary holding securities under an employee benefit plan of the Company becomes the beneficial owner of partnership interests of Anvil International
representing more than 51% of the combined voting power of Anvil International’s then outstanding partnership interests or (b) the Company sells or disposes of 51% or more of Anvil International’s assets to a person that is not an affiliate of the Company.fiscal 2009.
Severance Benefits
All of the named executive officers are entitled to general severance benefits. Information regarding applicable payments under such arrangements and agreements for the named executive officers is provided under the heading “Potential“Executive Compensation – Potential Payments Upon Termination or Change-in-Control” on page 4959 of this Proxy Statement.
Change-in-Control Agreements
The Compensation Committee believes that change-in-control agreements are an important component of executive officer compensation. Specifically, the Compensation Committee adopted change-in-control agreements that are intended to create incentives for certain members of our executive team to build stockholder value and to obtain the highest value possible for stockholders should wethe Company be acquired in the future, despite the risk of losing employment and potentially not having the opportunity to otherwise vest in equity awards which comprise a significant component of each executive’s compensation. The change-in-control arrangementsagreements for our executive officersexecutives are “double trigger,” meaning that acceleration of vesting and severance payments do not occur upon a change of control unless the executive’s employment is involuntarily terminated (other than for cause or for termination for good reason) within 24 months following thea change-in-control transaction. The Compensation Committee believes this structure strikes aan appropriate balance between the incentives and the executive hiring and retention effects described above,of incentivizing executives without providing these benefits to executives who continue to enjoy
employment with an acquiring company in the event of a change of controlchange-in-control transaction. The Compensation Committee also believes this structure is more attractive to potential acquiring companies, who may place significant value on retaining members of our executive team and who may perceive this goal to be undermined if executives receive significant acceleration payments in connection with such a transaction and are no longer required to continue employment to earn the remainder of their equity awards.
Change-in-controlMost change-in-control agreements with the Company’s executive officers who were employed by theoriginally entered into between Walter Energy and Company executives prior to the Spin-off were entered into when the Company was wholly-owned by Walter Industries.Spin-off. The Compensation Committee approved change-in-control agreements for executive officersexecutives who were hired or promoted by the Company subsequent to the Spin-off. Key terms, such as triggering events, multiples of pay that would be paid upon the occurrence of those events and the acceleration of equity awards, were based on the agreements previously adopted by Walter Industries. Mr. Smith does not have a change-in-control agreement because his severance arrangement generally protects him in the event of a termination following a change-in-control of the Company.Energy.
In September and October 2008, the Company entered into new change-in-control agreements with the Company’s named executive officers.NEOs. The revised agreements generally restaterestated the existing agreements, and includeincluded certain technical amendments to bring them into compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations thereunder. For a description of the change-in-control agreements, see “Employment,“Executive Compensation – Employment, Severance and Change-in-Control Arrangements.”
Employee Stock Purchase Plan
The Company’s Employee Stock Purchase Plan (“ESPP”) is a non-qualified stock purchase plan that provides all Company employees an opportunity to purchase our common stock through regular payroll deductions. Participation requires a minimum monthly deduction and cannot exceed 10% of monthly base salary. Further, no more than 1,000 shares can be purchased for any offering period and no more than $25,000 of common stock may be purchased by a participant in any calendar year. The ESPP is implemented through a series of three-month offering periods. The purchase price is equal to 85% of the lesser of the closing price of the common stock on the first trading day of the offering period and the closing price of the common stock on the last trading day of the offering period.
Messrs. Hart and Leggett are the only NEOs who participated in the ESPP in fiscal 2009.
Health and Welfare Benefits
The Company generally offers group medical, dental, vision and group life and long-term disability insurance in a flexible benefits package to all active U.S. Company employees, except as otherwise required by collective bargaining agreements. Every employee is provided life insurance up to one times his or her base salary at no charge to the employee. For an additional charge, the employee may obtain coverage up to four times base salary. Competitive health and welfare benefits are offered to non-U.S. employees.
Income Tax Consequences of Executive Compensation
Section 162(m) of the Internal Revenue Code limits the tax deductibility of compensation paid to each of the principal executive officer and the next three highest paid executive officers (excluding the chief financial officer) to $1 million in any year. However, performance-based
compensation that has been approved by stockholders is excluded from the $1 million limit if, among other requirements, the compensation is payable only upon attainment of pre-established, objective performance goals. Performance-based compensation such as annual cash incentive compensation under the Top Executive Bonus Plan and stock option awards meet these requirements, and as such are deductible by the Company when they are paid to the named executive officer. It is the intent of theCompany. The Compensation Committee intends to maximize the extent of tax deductibility of executive compensation under the provisions of Section 162(m) of the Internal Revenue Code so long as doing so is compatible with its determinations as to the most appropriate methods and approaches for the design and delivery of compensation. TheIn fiscal 2009, the Compensation Committee used the Top Executive Bonus Plandetermined to establish performance goals for management that meet the requirementspay non-deductible incentive-based compensation in lieu of the regulations promulgated under Section 162(m).performance-based compensation to Messrs. Hyland and Fish.
Compensation Recovery (“Clawback”) Policy
The Company’s revised employment agreements contain a provision that requires the executive, officer, to the extent required by law, to reimburse the Company following the publication of a restatement of the Company’s financial statements due to material noncompliance with any financial reporting requirement under the securities laws as a result of misconduct for (a) incentive-based or equity-based compensation received and (b) any profits realized from the sale of securities, in each case during the 12 months followingprior to discovery of the restatement.noncompliance. The Compensation Committee has exclusive authority to interpret and enforce this provision.
The Compensation Committee has adopted a “Clawback Policy” to recover pay that is determined to have been wrongfully earned by managerial or executive employees. As a result, all restricted stock units granted after November 30, 2009 will include a clause that reduces the number of equity awards upon the occurrence of certain events. The proposed 2010 Management Incentive Plan includes a similar clawback clause applicable to the grant of incentive awards under that plan. The Compensation Committee has the exclusive authority to interpret the Clawback Policy, and may offset compensation as necessary to recover amounts due under the Policy.
The Compensation Committee believes that equity ownership serves a fundamental role in aligning the interests of executives and outside directors with the Company’s stockholders. Under the Company’s stock ownership guidelines for executive officersexecutives and outside directors, the total stock value of the participant’s holdings of shares of common stock of the Company (including direct ownership, ownership by immediate family members and shares owned in retirement, savings and profit sharing plans) must equal or exceed the specified target value, as follows:
Position/Title | Target Ownership Limit | |
5 x base salary | ||
Group Presidents and Executive Vice Presidents | 3 x base salary | |
Senior Vice Presidents | 2 x base salary | |
Outside Directors | 4 x annual retainer |
In determining the value of shares held by any executive or outside director for purposes of this policy, the Compensation Committee considers (A) the higher of (1) the current market value or (2) the tax basis of vested restricted stock units and (B) the higher of (1) the market value of shares held by the participant or (2) the cost of shares purchased by the participant or otherwise acquired by vesting. Each individual has until the later of July 30, 2012, or five years from his or her date of employment, to achieve his or her respective ownership targets. If a participant is promoted,
he or she will have at least three years to increase his or her holdings to meet the new higher ownership requirement. Outstanding stock options and unvested restricted stock units for which the restrictions have not lapsed do not count toward the achievement of target ownership levels. Further long-term incentive grants can be modified in size and/or vehicle types to either penalize or to assist an executive in fulfilling the guidelines. The CEO and the Compensation Committee review the ownership of each executive officer and outside director annually.
Prior to attaining the target ownership levels, each executive officer and outside director may not sell shares of stock obtained through the Company’s compensation programs unless he or she holds (and after such sale will continue to hold) shares representing at least 60% of his or her ownership target. Any sales in excess of the allowable amount must be approved in advance by the Compensation Committee. Tendering shares to pay taxes, selling shares pursuant to a previously executed agreement to cover the payment of taxes, and tendering shares to pay the exercise price upon stock option exercises are permitted to the extent, in the Compensation Committee’s discretion, the individual is making adequate progress in achieving his or her ownership target.permitted.
Information regarding the beneficial stock ownership of the directors and named executive officers can be found under the heading “Beneficial Ownership of Common Stock — Ownership of Directors and Executive Officers.Stock.”
Throughout this proxy statement, the following individuals are collectively referred to as the “named executive officers”:
Corporate Executives
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Operations Executives
The Company is currently organized into three business segments, each led by a senior executive. The operations executives report to the Company’s Executive Vice President and Chief Operating Officer, Robert G. Leggett, who joined the Company on September 2, 2008.
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The following table describes total compensation earned during the year ended September 30, 20082009 (“fiscal 2008”2009”) for our named executive officers.NEOs. In addition, we provide supplemental tables below as additional information for our stockholders. These tables are not intended as a substitute for the information presented in the Summary Compensation Table, which is required by the rules of the Securities and Exchange Commission.SEC.
Name and Principal Position | Fiscal Year | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | All Other Compensation | Total | |||||||||||||||||||
(A) | (B) | (C) | (D) | (E) | (F) | (G) | (H) | (I) | |||||||||||||||||||
Gregory E. Hyland -Chairman, President and CEO | 2008 | $ | 785,000 | $ | 0 | $ | 3,110,976 | $ | 689,896 | $ | 158,000 | $ | 169,290 | $ | 4,913,162 | ||||||||||||
2007 | $ | 662,083 | (1) | $ | 0 | $ | 2,779,880 | $ | 411,864 | $ | 270,750 | (2) | $ | 330,476 | $ | 4,455,053 | |||||||||||
Evan L. Hart - SVP and Chief Financial Officer (3) | 2008 | $ | 215,542 | $ | 0 | $ | 43,494 | $ | 34,217 | $ | 34,200 | $ | 10,540 | $ | 337,993 | ||||||||||||
Dale B. Smith -Chief Executive Officer, Mueller Co. | 2008 | $ | 1,228,800 | $ | 200,000 | $ | 1,163,396 | $ | 217,574 | $ | 0 | $ | 29,499 | $ | 2,839,269 | ||||||||||||
2007 | $ | 415,200 | $ | 0 | $ | 1,860,339 | $ | 228,393 | $ | 581,200 | $ | 34,596 | $ | 3,119,728 | |||||||||||||
Raymond P. Torok -President, U.S. Pipe | 2008 | $ | 338,531 | $ | 0 | $ | 759,731 | $ | 154,349 | $ | 111,357 | $ | 35,696 | $ | 1,399,664 | ||||||||||||
2007 | $ | 326,087 | $ | 0 | $ | 669,811 | $ | 92,337 | $ | 91,836 | $ | 45,387 | $ | 1,225,458 | |||||||||||||
Thomas E. Fish -President, AnvilInternational | 2008 | $ | 304,399 | $ | 2,818 | $ | 559,577 | $ | 155,897 | $ | 526,114 | $ | 54,847 | $ | 1,603,652 | ||||||||||||
2007 | $ | 292,792 | $ | 56,682 | $ | 418,526 | $ | 83,254 | $ | 592,200 | $ | 53,987 | $ | 1,497,441 | |||||||||||||
Former Officers: | |||||||||||||||||||||||||||
Michael T. Vollkommer - EVP, Chief Financial Officer (4) (through July 15, 2008) | 2008 | $ | 327,141 | (5) | $ | 0 | $ | (73,227 | ) (6) | $ | 25,401 | (6) | $ | 0 | $ | 27,688 | $ | 307,003 | |||||||||
2007 | $ | 141,585 | $ | 0 | $ | 84,182 | $ | 58,502 | $ | 43,298 | $ | 8,100 | $ | 335,667 | |||||||||||||
Doyce Gaskin -President,Mueller Co. (7) (through June 24,2008) | 2008 | $ | 405,433 | (8) | $ | 0 | $ | 142,100 | (9) | $ | 67,456 | (9) | $ | 155,854 | (10) | $ | 403,364 | $ | 1,174,207 | ||||||||
2007 | $ | 264,333 | $ | 0 | $ | 417,156 | $ | 94,586 | $ | 139,291 | $ | 36,741 | $ | 952,107 |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||
(A) | (B) | (C) | (D) | (E) | (F) | (G) | (H) | (I) | ||||||||||||||||||
Gregory E. Hyland | 2009 | $ | 750,500 | $ | 474,000 | (2) | $ | 2,630,929 | $ | 720,418 | $ | 0 | $ | 151,974 | $ | 4,727,821 | ||||||||||
Chairman, President and Chief Executive Officer | 2008 | $ | 785,000 | $ | 0 | $ | 3,110,976 | $ | 689,896 | $ | 158,000 | $ | 169,290 | $ | 4,913,162 | |||||||||||
2007 | $ | 662,083 | (1) | $ | 0 | $ | 2,779,880 | $ | 411,864 | $ | 270,750 | (3) | $ | 330,476 | $ | 4,455,053 | ||||||||||
Evan L. Hart (4) | 2009 | $ | 270,750 | $ | 0 | $ | 182,655 | $ | 129,471 | $ | 102,600 | $ | 22,223 | $ | 707,699 | |||||||||||
Senior Vice President and Chief Financial Officer | 2008 | $ | 215,542 | $ | 0 | $ | 43,494 | $ | 34,217 | $ | 34,200 | $ | 10,540 | $ | 337,993 | |||||||||||
Robert G. Leggett (5) | 2009 | $ | 475,000 | $ | 0 | $ | 852,184 | $ | 251,427 | $ | 225,000 | $ | 165,015 | $ | 1,968,626 | |||||||||||
Executive Vice President and Chief Operating Officer | ||||||||||||||||||||||||||
Raymond P. Torok | 2009 | $ | 323,663 | $ | 92,694 | (2) | $ | 639,840 | $ | 176,631 | $ | 0 | $ | 38,180 | $ | 1,271,008 | ||||||||||
President, U.S. Pipe | 2008 | $ | 338,531 | $ | 0 | $ | 759,731 | $ | 154,349 | $ | 111,357 | $ | 35,696 | $ | 1,399,664 | |||||||||||
2007 | $ | 326,087 | $ | 0 | $ | 669,811 | $ | 92,337 | $ | 91,836 | $ | 45,387 | $ | 1,225,458 | ||||||||||||
Thomas E. Fish | 2009 | $ | 306,363 | $ | 632,003 | (2) | $ | 526,401 | $ | 183,695 | $ | 0 | $ | 45,369 | $ | 1,693,831 | ||||||||||
President, Anvil International | 2008 | $ | 304,399 | $ | 2,818 | $ | 559,577 | $ | 155,897 | $ | 526,114 | $ | 54,847 | $ | 1,603,652 | |||||||||||
2007 | $ | 292,792 | $ | 56,682 | $ | 418,526 | $ | 83,254 | $ | 592,200 | $ | 53,987 | $ | 1,497,441 | ||||||||||||
Former Officer: | ||||||||||||||||||||||||||
Dale B. Smith | 2009 | $ | 1,513,125 | $ | 0 | $ | 484,408 | $ | 31,892 | $ | 0 | $ | 217,251 | $ | 2,246,676 | |||||||||||
Former Chief Executive Officer, Mueller Co. | 2008 | $ | 1,228,800 | $ | 200,000 | $ | 1,180,318 | $ | 207,951 | $ | 0 | $ | 29,499 | $ | 2,846,568 | |||||||||||
2007 | $ | 415,200 | $ | 0 | $ | 1,860,339 | $ | 228,393 | $ | 581,200 | $ | 34,596 | $ | 3,119,728 |
(1) | Walter |
(2) | Messrs. Hyland, Torok and Fish participate in the Company’s Top Executive Bonus Plan under which no bonus amounts were earned for fiscal 2009. The Company’s Board of Directors authorized discretionary bonuses to Messrs. Hyland, Torok and Fish as described under “Compensation Discussion and Analysis—Rewarding Performance: Compensation Elements—Annual Cash Incentive Awards—Individual Goals. Also includes an aggregate of $460,288 paid to Mr. Fish under the Anvil Retention Program. See “Compensation Discussion and Analysis – Rewarding Performance: Compensation Elements – Other Benefits – Compensation Program for Anvil Executives”. |
(3) | Because Walter |
Mr. Hart was promoted from Vice President and Controller to Senior Vice President and Chief Financial Officer |
Mr. |
Salary (Column C)
These amounts reflect base salary earned by our named executive officers.NEOs. The Compensation Committee generally reviews executive officer salaries in November or December. Anyannually and any adjustments made by the Compensation Committee at that time are typicallywere historically implemented effective December 1. Accordingly, for each officer, salary for fiscal 20082009 reflects approximately two months compensation at the salary level established in November 2006,December 2007, and ten months compensation at the salary level established in November 2007.December 2008. Refer to “Compensation Discussion and Analysis – Rewarding Performance: Compensation Elements – Base Salary” on page 2135 of this Proxy Statement.
Due to currentthe severity of the economic conditions,downturn, salary increases that would have typically occurred in December 2008 have beenwere deferred until at least June 2009.February 2010, but the increase will take into account the length of time since the last salary adjustment.
Bonus (Column D)
These amounts reflect non-performance based cash incentive awards. With the exception of Messrs. Smith and Fish, the Company did not pay its named executive officers any such awards for fiscal 2008. Mr. Smith received a discretionary bonus based on his years of service to the Company’s divisions before the acquisition of Mueller Co. and Anvil International by the Company’s predecessor, to make his compensation more closely approximate his compensation during prior periods when Mueller Co. and Anvil Internationalthat were owned by private interests, and for his role in providing leadership to the Mueller Co. segment. Mr. Fish received a discretionary bonus to compensate him for providing transitional leadership, and for the performance of the Anvil International segment, which exceeded certain targets establishedawarded by the Compensation Committee. Neither Mr. Smith norIn fiscal 2009, the Compensation Committee awarded amounts that were not performance-based (as defined under the regulations adopted under Section 162(m) of the Internal Revenue Code) to Messrs. Hyland, Fish and Torok because of their attainment of certain individual objectives that were designed to promote varying corporate goals. In addition, Mr. Fish received compensation that was not tax deductible to the Company.awarded a special bonus. See “Compensation Discussion and Analysis – Rewarding Performance: Compensation Elements – Other Benefits – Compensation Program for Anvil Executives.”
Stock Awards (Column E)
These amounts reflect grants of restricted stock units. The dollar amounts for the awards represent the grant-date fair value-based compensation expense recognized in fiscal 2008 and fiscal 2007 under FAS 123Rduring each year for each named executive officerfinancial reporting purposes as reported in the audited financial statements contained in our fiscal 20082009 annual report. FAS 123R addresses the accounting for transactions in which a company issues equity instruments in exchange for goods or services. The recognized compensation expense of the stock awards recognized for financial reporting purposes will vary from the actual amount ultimately realized by the named executive officers based on a number of factors.NEOs. The ultimate value of the award to the employee will depend on the price of our Series A Common Stockcommon stock on the vesting date. All stock awards are made with or in reference todate that the Company’s Series A Common Stock.restrictions lapse. Details about fiscal 20082009 awards are included under the heading “Grant of Plan-Based Awards Table” beginning on page 4151 of this Proxy Statement.
The awards disclosed for fiscal 2007 consist of (A) awards made to the named executive officersNEOs in fiscal 2007 and (B) replacement equity awards made as of December 15, 2006 as a result of the Spin-off to replace outstanding Walter IndustriesEnergy equity awards that were unvested or restricted.awards.
Grant Date Fair Value vs. Market Value of Stock Awards.Due to the decline in the market price of our Series A Common Stock, ifIf the stock awards outstanding as of September 30, 2009 for which expense is shown in this column were valued in accordance withat the market value of the Company’s Series A Common Stockcommon stock as of September 30, 20082009 rather than the FAS 123R expense,financial reporting value, their valuations would differ.differ significantly. These differences are reflected in the supplemental table below for each named executive officer who was employed by the Company as of September 30, 2008.below.
Value of Stock Awards v. FAS 123R Expense(Restricted Stock Units) Outstanding at September 30, 2009 for Financial Reporting Purposes Versus Current Market Value (supplemental table)
Based on Total FAS 123R Expense | Based on 09/30/08 Market Value (a) | Value at Grant Date for Financial Reporting Purposes | Value at Fiscal Year End (2) | |||||||||||||||||||||||||||||||||||||||||||
Fiscal 2008 Grants | Prior Grants | Total (b) | Fiscal 2008 Grants | Prior Grants | Total | Fiscal 2009 Grants | Prior Grants | Total Value at Grant Date (1) | Fiscal 2009 Grants | Prior Grants | Total Value at Fiscal Year end | |||||||||||||||||||||||||||||||||||
Gregory E. Hyland | $ | 1,102,383 | $ | 9,520,966 | $ | 10,623,349 | $ | 928,649 | $ | 5,716,515 | $ | 6,645,164 | $ | 1,005,010 | $ | 3,337,949 | $ | 4,342,959 | $ | 1,003,180 | $ | 1,667,948 | $ | 2,671,128 | ||||||||||||||||||||||
Evan L. Hart | $ | 161,013 | $ | 42,358 | $ | 203,371 | $ | 151,546 | $ | 25,207 | $ | 176,753 | $ | 194,873 | $ | 149,693 | $ | 344,566 | $ | 194,518 | $ | 77,032 | $ | 271,550 | ||||||||||||||||||||||
Dale B. Smith | $ | 192,914 | $ | 3,475,346 | $ | 3,668,260 | $ | 162,511 | $ | 1,152,754 | $ | 1,315,265 | ||||||||||||||||||||||||||||||||||
Robert G. Leggett | $ | 139,193 | $ | 1,205,509 | $ | 1,344,702 | $ | 138,940 | $ | 609,990 | $ | 748,930 | ||||||||||||||||||||||||||||||||||
Raymond P. Torok | $ | 255,520 | $ | 2,222,740 | $ | 2,478,260 | $ | 215,250 | $ | 1,305,629 | $ | 1,520,879 | $ | 264,475 | $ | 612,621 | $ | 877,096 | $ | 263,994 | $ | 288,144 | $ | 552,138 | ||||||||||||||||||||||
Thomas E. Fish | $ | 259,763 | $ | 1,561,833 | $ | 1,821,596 | $ | 218,825 | $ | 878,082 | $ | 1,096,907 | $ | 275,609 | $ | 675,965 | $ | 951,574 | $ | 275,107 | $ | 262,147 | $ | 537,254 | ||||||||||||||||||||||
Dale B. Smith | $ | 0 | $ | 128,602 | $ | 128,602 | $ | 0 | $ | 66,111 | $ | 66,111 |
(2) | Value is based on the closing price of $5.48 per share of our common stock on September 30, 2009 on the New York Stock Exchange. |
Option Awards (Column F)
These amounts reflect grants of stock options. The dollar amounts for the awards represent the grant-date fair value-based compensation expense recognized in fiscal 2008 and fiscal 2007 under FAS 123Rduring the year indicated for each named executive officer andfinancial reporting purposes as reported in the audited financial statements contained in our fiscal 20082009 annual report. The recognized compensation expense of the option awards recognized for financial reporting purposes will vary from the actual amount ultimately realized by the named executive officersNEOs due to stock price fluctuations, and timing factors related to the officer’s realization of value from the option. Details about fiscal 20082009 awards are included under the heading “Grant of Plan-Based Awards Table” beginning on page 4151 of this Proxy Statement
The awards disclosed for fiscal 2007 consist of (A) awards made to the named executive officersNEOs in fiscal 2007 and (B) replacement equity awards made as of December 15, 2006 as a result of the Spin-off to replace outstanding Walter IndustriesEnergy equity awards that were unvested or restricted.awards.
Grant Date Fair Value vs. Market Value of Option Awards.Due toIf the decline in the market price of our Series A Common Stock, if the valuation for fiscal 2008 expense for the optionsstock option awards for which expense is shown in this column was based onwere valued at the September 30, 2009 intrinsic value of the award (calculated(defined as the difference between the value of the option based upon the shareclosing market price of our Series A Common Stock as of the market closecommon stock on September 30, 20082009 of $8.98$5.48 and the option exercise price) rather than the FAS 123R expense reflected in the Summary Compensation Table,, they would have no value as all of the outstanding options would beare “out of the money” and have no intrinsic value.. These amounts are reflected in the supplemental table below for each named executive officer who was employed by the Company as of September 30, 2008.below.
Intrinsic Value of Option Awards v. FAS 123R ExpenseVersus Value for Financial Reporting Purposes (supplemental table)
Grant Date (Original Walter Industries Grant Date, if Applicable) | Share Price at Grant Date | Option (a) | Total Options Granted on Grant Date | Intrinsic (b) | FY08 123R (c) | Grant Date (Original Walter Energy Grant Date, if Applicable) | Share Price at Grant Date | Option Grant Date Fair Value per Share (1) | Total Options Granted on Grant Date | Intrinsic Value of Grant at 09/30/09 (2) | FY09 Expense | ||||||||||||||||||||||||||||||
Gregory E. Hyland | 11/29/07 | $ | 10.66 | $ | 3.85 | 226,757 | – | $ | 446,363 | 02/22/06 | $ | 20.56 | $ | 2.58 | 69,611 | $ | 0 | $ | 7,920 | ||||||||||||||||||||||
11/29/06 | $ | 15.09 | $ | 5.90 | 88,300 | – | $ | 190,141 | 11/29/06 | $ | 15.09 | $ | 5.90 | 88,300 | $ | 0 | $ | 72,086 | |||||||||||||||||||||||
02/22/06 | $ | 20.56 | $ | 2.58 | 69,611 | – | $ | 38,346 | 11/29/07 | $ | 10.66 | $ | 3.85 | 226,757 | $ | 0 | $ | 289,922 | |||||||||||||||||||||||
09/16/05 | $ | 14.55 | $ | 0.82 | 113,358 | – | $ | 15,046 | 12/02/08 | $ | 5.49 | $ | 2.02 | 343,155 | $ | 0 | $ | 350,490 | |||||||||||||||||||||||
$ | 689,896 | $ | 720,418 | ||||||||||||||||||||||||||||||||||||||
Evan L. Hart | 07/31/08 | $ | 9.10 | $ | 3.36 | 24,752 | – | $ | 8,494 | 11/29/06 | $ | 15.09 | $ | 5.90 | 2,384 | $ | 0 | $ | 1,945 | ||||||||||||||||||||||
11/29/07 | $ | 10.66 | $ | 3.85 | 10,459 | – | $ | 20,589 | 11/29/07 | $ | 10.66 | $ | 3.85 | 10,459 | $ | 0 | $ | 13,372 | |||||||||||||||||||||||
11/29/06 | $ | 15.09 | $ | 5.90 | 2,384 | – | $ | 5,134 | 07/31/08 | $ | 9.10 | $ | 3.36 | 24,752 | $ | 0 | $ | 46,192 | |||||||||||||||||||||||
$ | 34,217 | 12/02/08 | $ | 5.49 | $ | 2.02 | 66,539 | $ | 0 | $ | 67,962 | ||||||||||||||||||||||||||||||
$ | 129,471 | ||||||||||||||||||||||||||||||||||||||||
Dale B. Smith | 11/29/07 | $ | 10.66 | $ | 3.85 | 39,683 | – | $ | 152,788 | ||||||||||||||||||||||||||||||||
11/29/06 | $ | 15.09 | $ | 5.90 | 55,188 | – | $ | 30,693 | |||||||||||||||||||||||||||||||||
Robert G. Leggett | 09/02/08 | $ | 10.83 | $ | 4.01 | 86,406 | $ | 0 | $ | 202,883 | |||||||||||||||||||||||||||||||
01/23/06 | $ | 17.26 | $ | 2.85 | 51,011 | – | $ | 34,093 | 12/02/08 | $ | 5.49 | $ | 2.02 | 47,528 | $ | 0 | $ | 48,544 | |||||||||||||||||||||||
$ | 217,574 | $ | 251,427 | ||||||||||||||||||||||||||||||||||||||
Raymond P. Torok | 11/29/07 | $ | 10.66 | $ | 3.85 | 52,560 | – | $ | 103,462 | 02/22/06 | $ | 20.56 | $ | 2.58 | 12,521 | $ | 0 | $ | 1,425 | ||||||||||||||||||||||
11/29/06 | $ | 15.09 | $ | 5.90 | 19,316 | – | $ | 41,594 | 11/29/06 | $ | 15.09 | $ | 5.90 | 19,316 | $ | 0 | $ | 15,770 | |||||||||||||||||||||||
02/22/06 | $ | 20.56 | $ | 2.58 | 12,521 | – | $ | 6,898 | 11/29/07 | $ | 10.66 | $ | 3.85 | 52,560 | $ | 0 | $ | 67,201 | |||||||||||||||||||||||
02/25/05 | $ | 11.96 | $ | 1.00 | 17,920 | – | $ | 2,395 | 12/02/08 | $ | 5.49 | $ | 2.02 | 90,304 | $ | 0 | $ | 92,235 | |||||||||||||||||||||||
$ | 154,349 | $ | 176,631 | ||||||||||||||||||||||||||||||||||||||
Thomas E. Fish | 11/29/07 | $ | 10.66 | $ | 3.85 | 53,433 | – | $ | 105,181 | 08/22/06 | $ | 16.95 | $ | 6.79 | 10,502 | $ | 0 | $ | 7,073 | ||||||||||||||||||||||
11/29/06 | $ | 15.09 | $ | 5.90 | 14,928 | – | $ | 32,144 | 11/29/06 | $ | 15.09 | $ | 5.90 | 14,928 | $ | 0 | $ | 12,187 | |||||||||||||||||||||||
08/22/06 | $ | 16.95 | $ | 6.79 | 10,502 | – | $ | 18,572 | 11/29/07 | $ | 10.66 | $ | 3.85 | 53,433 | $ | 0 | $ | 68,317 | |||||||||||||||||||||||
$ | 155,897 | 12/02/08 | $ | 5.49 | $ | 2.02 | 94,106 | $ | 0 | $ | 96,118 | ||||||||||||||||||||||||||||||
$ | 183,695 | ||||||||||||||||||||||||||||||||||||||||
Dale B. Smith | 11/29/06 | $ | 15.09 | $ | 5.90 | 55,188 | $ | 0 | $ | 0 | |||||||||||||||||||||||||||||||
11/29/07 | $ | 10.66 | $ | 3.85 | 39,683 | $ | 0 | $ | 31,892 | ||||||||||||||||||||||||||||||||
$ | 31,892 |
Non-Equity Incentive Plan Compensation (Column G)
These amounts reflect non-equity incentive plan compensation awards, which were earned by our named executive officersNEOs under our Top Executive Bonus Plan (or, for Mr. Hart,or the Management Bonus Plan) inIncentive Program based on Company and individual performance during fiscal 2009, fiscal 2008 and fiscal 2007. The earned amounts which were paid in December 2009, December 2008 and December 2007, were based on Company and individual performance during fiscal 2008 and fiscal 2007, respectively.2007.
All Other Compensation (Column H)
These amounts reflect the combined value of the named executive officer’seach NEO’s perquisites and compensation that is not otherwise reflected in the table. Amounts for fiscal 20082009 consist of the following additional non-cash compensation paid to our named executive officers:NEOs:
Fiscal 20082009 All Other Compensation (supplemental table)
Name | Company Sponsored Retirement Plan | Automobile Allowance or Use of Leased Vehicle | Financial Planning | Club Dues | Company | Other | Total | Company Sponsored Retirement Plan | Vehicle Allowance or Use of a Leased Vehicle | Financial Planning (1) | Company Contributions to 401(k) Plans (2) | Life and Long-Term Disability Insurance | Other | Total | |||||||||||||||||||||||||||||||||||||||||||||
Gregory E. Hyland | $ | 90,933 | (2) | $ | 24,000 | $ | 8,270 | $ | 36,887 | (3) | $ | 9,200 | $ | 0 | $ | 169,290 | $ | 94,937 | (3 | ) | $ | 24,000 | $ | 8,600 | $ | 7,110 | $ | 9,844 | $ | 7,483 | (4 | ) | $ | 151,974 | |||||||||||||||||||||||||
Evan L. Hart | $ | 0 | $ | 3,000 | $ | 0 | $ | 0 | $ | 7,540 | $ | 0 | $ | 10,540 | $ | 0 | $ | 18,000 | $ | 0 | $ | 2,565 | $ | 1,658 | $ | 0 | $ | 22,223 | |||||||||||||||||||||||||||||||
Robert G. Leggett | $ | 0 | $ | 18,000 | $ | 6,263 | $ | 4,500 | $ | 4,686 | $ | 131,566 | (5 | ) | $ | 165,015 | |||||||||||||||||||||||||||||||||||||||||||
Raymond P. Torok | $ | 0 | $ | 18,000 | $ | 0 | $ | 3,066 | $ | 8,251 | $ | 8,863 | (6 | ) | $ | 38,180 | |||||||||||||||||||||||||||||||||||||||||||
Thomas E. Fish | $ | 0 | $ | 18,000 | $ | 7,500 | $ | 6,127 | $ | 4,061 | $ | 9,681 | (7 | ) | $ | 45,369 | |||||||||||||||||||||||||||||||||||||||||||
Dale B. Smith | $ | 0 | $ | 9,499 | (4) | $ | 0 | $ | 1,600 | $ | 18,400 | $ | 0 | $ | 29,499 | $ | 0 | $ | 15,701 | (8 | ) | $ | 5,986 | $ | 0 | $ | 9,145 | $ | 186,419 | (9 | ) | $ | 217,251 | ||||||||||||||||||||||||||
Raymond B. Torok | $ | 0 | $ | 18,000 | $ | 3,700 | $ | 4,796 | $ | 9,200 | $ | 0 | $ | 35,696 | |||||||||||||||||||||||||||||||||||||||||||||
Thomas E. Fish | $ | 0 | $ | 18,000 | $ | 9,134 | $ | 325 | $ | 17,519 | $ | 9,869 | (5) | $ | 54,847 | ||||||||||||||||||||||||||||||||||||||||||||
Michael T. Vollkommer | $ | 0 | $ | 17,100 | $ | 2,784 | $ | 0 | $ | 7,804 | $ | 0 | $ | 27,688 | |||||||||||||||||||||||||||||||||||||||||||||
Doyce Gaskin | $ | 0 | $ | 12,635 | (6) | $ | 0 | $ | 1,340 | $ | 18,909 | $ | 370,480 | (7) | $ | 403,364 |
(1) | Each |
(2) | The Company suspended matching contributions to its 401(k) plan on behalf of salaried employees from April 1, 2009 through December 31, 2009. |
(3) | In accordance with the terms of Mr. Hyland’s employment agreement, the Company adopted a limited retirement savings |
Represents relocation benefits. |
(6) | Represents the |
Represents the |
Grants of Plan-Based Awards Table
The following table summarizes the equity awards made to our named executive officersNEOs during fiscal 20082009 on a grant-by-grant basis. During fiscal 2008, the Company granted restricted stock units and stock options to each of the named executive officers.
Each of the equity-based awards granted during fiscal 20082009 and reported in the Grants of Plan-Based Awards Table was granted under, and is subject to the terms of, the Amended and Restated 2006 Stock Incentive Plan (the “2006 Stock Plan”). The 2006 Stock Plan is administered by the Compensation Committee. The Compensation Committee has authority to interpret the plan provisions2006 Stock Plan and make all required determinations under the plan.Plan. Awards granted under the plan are transferable to trusts established solely for the benefit of the grantee’s family members or to a beneficiary of a named executive officeran NEO upon his death.
Fiscal 20082009 Grants of Plan-Based Awards Table
Grant (B) | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | Award Type (F) | Grant Date Fair Value of Stock and Option Awards ($) (G) | All Other Awards: | All Other Awards: | Exercise or Base of (J) | ||||||||||||||||||||||||||||||||||||||||||
Name (A) | Grant (B) | All Other Shares of Stock or Units (#) (F) | All Other Securities Underlying Options (#) (G) | Exercise or Base Price of Option Awards ($/Sh) | Grant of Stock and Awards (I) | |||||||||||||||||||||||||||||||||||||||||||
Estimated Future Payouts Under Non-Equity Incentive Plan Awards | ||||||||||||||||||||||||||||||||||||||||||||||||
Grant (B) | Threshhold (C) | Target (D) | Maximum (E) | Award Type (F) | Grant Date Fair Value of Stock and Option Awards ($) (G) | All Other Awards: | All Other Awards: | Exercise or Base of (J) | Threshold ($) (C) | Target ($) (D) | Maximum ($) (E) | |||||||||||||||||||||||||||||||||||||
Gregory E. Hyland | $ | 0 | $ | 790,000 | $ | 1,315,287 | $ | 0 | $ | 790,000 | $ | 0 | (1) | |||||||||||||||||||||||||||||||||||
11/29/2007 | NQO | $ | 873,014 | 226,757 | $ | 10.66 | 12/02/08 | 183,062 | $ | 1,005,010 | ||||||||||||||||||||||||||||||||||||||
11/29/2007 | RSU | $ | 1,102,383 | 103,413 | 12/02/08 | 343,155 | $ | 5.49 | $ | 693,173 | ||||||||||||||||||||||||||||||||||||||
Evan L. Hart | $ | 0 | $ | 171,000 | $ | 342,000 | $ | 0 | $ | 171,000 | $ | 342,000 | ||||||||||||||||||||||||||||||||||||
07/31/2008 | NQO | $ | 83,167 | 24,752 | $ | 9.10 | 12/02/08 | 35,496 | $ | 194,873 | ||||||||||||||||||||||||||||||||||||||
07/31/2008 | RSU | $ | 110,165 | 12,106 | 12/02/08 | 66,539 | $ | 5.49 | $ | 134,409 | ||||||||||||||||||||||||||||||||||||||
11/29/2007 | NQO | $ | 40,267 | 10,459 | $ | 10.66 | ||||||||||||||||||||||||||||||||||||||||||
11/29/2007 | RSU | $ | 50,848 | 4,770 | ||||||||||||||||||||||||||||||||||||||||||||
Dale B. Smith | $ | 0 | $ | 0 | $ | 745,329 | ||||||||||||||||||||||||||||||||||||||||||
Robert G. Leggett | $ | 0 | $ | 375,000 | $ | 750,000 | ||||||||||||||||||||||||||||||||||||||||||
11/29/2007 | NQO | $ | 152,780 | 39,683 | $ | 10.66 | 12/02/08 | 25,354 | $ | 139,193 | ||||||||||||||||||||||||||||||||||||||
11/29/2007 | RSU | $ | 192,914 | 18,097 | 12/02/08 | 47,528 | $ | 5.49 | $ | 96,007 | ||||||||||||||||||||||||||||||||||||||
Raymond P. Torok | $ | 0 | $ | 255,524 | $ | 394,586 | $ | 0 | $ | 255,524 | $ | 0 | (1) | |||||||||||||||||||||||||||||||||||
11/29/2007 | NQO | $ | 202,356 | 52,560 | $ | 10.66 | 12/02/08 | 48,174 | $ | 264,475 | ||||||||||||||||||||||||||||||||||||||
11/29/2007 | RSU | $ | 255,520 | 23,970 | 12/02/08 | 90,304 | $ | 5.49 | $ | 182,414 | ||||||||||||||||||||||||||||||||||||||
Thomas E. Fish | $ | 0 | $ | 364,572 | $ | 526,115 | $ | 0 | $ | 364,572 | $ | 0 | (1) | |||||||||||||||||||||||||||||||||||
11/29/2007 | NQO | $ | 205,717 | 53,433 | $ | 10.66 | 12/02/08 | 50,202 | $ | 275,609 | ||||||||||||||||||||||||||||||||||||||
11/29/2007 | RSU | $ | 259,763 | 24,368 | 12/02/08 | 94,106 | $ | 5.49 | $ | 190,094 | ||||||||||||||||||||||||||||||||||||||
Michael T. Vollkommer | $ | 0 | $ | 288,600 | $ | 577,200 | ||||||||||||||||||||||||||||||||||||||||||
11/29/2007 | NQO | $ | 214,761 | 55,782 | $ | 10.66 | ||||||||||||||||||||||||||||||||||||||||||
11/29/2007 | RSU | $ | 271,190 | 25,440 | ||||||||||||||||||||||||||||||||||||||||||||
Doyce Gaskin | $ | 0 | $ | 312,800 | $ | 482,272 | ||||||||||||||||||||||||||||||||||||||||||
11/29/2007 | NQO | $ | 226,984 | 58,957 | $ | 10.66 | ||||||||||||||||||||||||||||||||||||||||||
11/29/2007 | RSU | $ | 286,615 | 26,887 | ||||||||||||||||||||||||||||||||||||||||||||
Dale B. Smith | $ | 0 | $ | 0 | $ | 0 |
(1) | Messrs. Hyland, Torok and Fish participate in the Company’s Top Executive Bonus Plan under which the size of the incentive compensation pool is based on income from operations. There was no income from operations for fiscal 2009. Therefore, the Company’s Top Executive Bonus Plan for fiscal 2009 was not funded. |
Estimated Future Payouts Under Non-Equity Incentive Plan Awards (Columns C, D and E)
These amounts reflect the annual cash incentive compensation amounts that could have been earned during fiscal 20082009 based upon the achievement of performance goals under our Top Executive Bonus Plan or the Management Bonus Plan,Incentive Program, as applicable. The target incentive awards are based on a pre-determined percentage of each executive’s salary. The maximum incentive award is equal to (1) a specified percentage of the award pool, which consists of 3% of operating income, for executives participating in the Top Executive Bonus Plan and (2) up to twice the amount of the target incentive award for executives participating in the Management Incentive Program. The amounts of annual cash incentive compensation earned in fiscal 20082009 by our named executive officersNEOs were paid in December 2008.2009. These amounts are reflected in Column G of the Summary Compensation Table on page 3446 of this Proxy Statement. The terms of these awards are described under the heading “Compensation Discussion and Analysis – Rewarding Performance: Compensation Elements – Annual Cash Incentive Compensation.”
During fiscal year 2009, the Company had no operating income, and therefore no performance bonuses could be paid to the participants under the Top Executive Bonus Plan. The Compensation Committee determined to award payments to the executives that were not payable under the Top Executive Bonus Plan, but which represent twice the target incentives for personal goals for these executives under the Management Incentive Plan based on the achievement of personal goals and the collective efforts of the NEOs, including their efforts in generating cash, repaying debt and managing working capital during the year. In addition, Mr. Fish was entitled to receive payments under the Anvil Retention Program. Because the payments will not qualify as “performance-based” compensation under the Top Executive Bonus Plan or Section 162(m) of the Internal Revenue Code, the bonus payments made to Messrs. Hyland and Fish will not be tax deductible, to the extent that the total compensation (including
compensation arising from the lapse of restrictions on restricted stock units) of Messrs. Hyland and Fish otherwise exceed $1,000,000.
Award TypeAll Other Stock Awards (Column F)
NQO refersRepresent restricted stock units granted during fiscal 2009. Each restricted stock unit entitles the grantee to non-qualifiedreceive one share of our common stock options. RSU referswhen the restrictions lapse. The restrictions on all such restricted stock units lapse in equal installments on the first, second and third anniversary of the date of grant. Further, the restrictions on these restricted stock units lapse automatically upon the death, disability or retirement of the grantee. Holders of restricted stock units do not have the right to vote or dispose of their restricted stock units and do not have dividend rights with respect to their restricted stock units.
All Other Option Awards (Column G)
Upon vesting, each stock option entitles the grantee to purchase one share of our common stock at a specified exercise price. These stock options vest in equal installments on the first, second and third anniversary of the date of grant. Once vested, options will generally remain exercisable until their normal expiration dates, which are 10 years from the grant date. Grantees generally have three months to exercise any vested options upon termination of employment. This period is extended to two years in the event termination results from death, disability or retirement. All outstanding options will immediately terminate if the grantee is terminated by us for cause.
Exercise Price of Option Awards (Column H)
Each stock option granted during fiscal 2009 was granted with a per-share exercise price equal to the closing price of the underlying common stock on the New York Stock Exchange on the grant date.
Grant Date Fair Value of Stock and Option Awards (Column G)I)
These amounts reflect the aggregate fair value of the award on the grant date determined in accordance with FAS 123R.generally accepted accounting principles. This is the amount the Companywe will record as compensation expense in itsour financial statements over the vesting period of the award.
All Other Stock Awards (Column H)
These awards represent restricted stock units granted to named executive officers in fiscal 2008. All such restricted stock units vest in equal installments on the first, second and third anniversary of the date of grant. Further, these restricted stock units vest automatically upon the death, disability or retirement of the grantee. Retirement is defined in the 2006 Stock Plan as such time as the executive’s age plus years of service equals or exceeds 70, but only after the executive’s 60th birthday. The named executive officers do not have the right to vote or dispose of the restricted stock units and do not have any dividend rights with respect to the restricted stock units.
All Other Option Awards (Column I)
All stock options granted to named executive officers in fiscal 2008 were granted with a per-share exercise price equal to the fair market value of a share of our Series A Common Stock on the grant date. For these purposes, and in accordance with the terms of the 2006 Stock Plan and our option grant practices, the fair market value is equal to the closing price per share of our Series A Common Stock on the New York Stock Exchange on the applicable grant date.
These stock options vest in equal installments on the first, second and third anniversary of the option grant. Once vested, each option will generally remain exercisable until its normal expiration date, which is ten years from the date of grant. Subject to any accelerated vesting that may apply upon a qualified retirement or as determined by the Compensation Committee, the unvested portion of the option will immediately terminate upon a termination of the named executive officer’s employment. The named executive officer will generally have three months to exercise the vested portion of the option following a termination of employment. This period is extended to two years if the termination is a result of the named executive officer’s death, disability or retirement. The option (whether or not vested) will immediately terminate if the named executive officer is terminated by us for cause.
The stock options granted to named executive officers during fiscal 2008 do not include any dividend rights.
Outstanding Equity Awards at Fiscal Year-End Table
The equity awards reflected in the table below were outstanding as ofat September 30, 2008.2009. In connection with the Spin-off, in December 2006, outstanding equity grants relating to Walter IndustriesEnergy common stock that the executive officers had previously received from Walter IndustriesEnergy were replaced by equity grants of comparable value from the Company. The vesting periodperiods and termination datedates of the replacement long-term equity grants iswere unchanged from the vesting periodperiods and termination datedates of the original Walter IndustriesEnergy grants.
Outstanding Equity Awards as of September 30, 20082009
Option Awards (1) | Stock Awards (2) | Option Awards | Stock Awards | ||||||||||||||||||||||||||||||||||||
Original Walter Industries Grant Date (3) | Mueller (3) | Number of Securities Underlying Unexercised Options (#) | Number of Securities Underlying Unexercised Options (#) | Option ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) (4) | Original Walter Energy Grant Date (1) | Mueller Date | Number of Securities Unexercised Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Have Not | Market Have Not | |||||||||||||||||||||||||
Name | Exercisable | Unexercisable | Exercisable | Unexercisable (2) | |||||||||||||||||||||||||||||||||||
Gregory E. Hyland | 11/29/2007 | – | 226,757 | $10.66 | 11/29/2017 | 103,413 | $ 928,649 | 09/16/05 | 12/15/06 | 113,358 | 0 | $ | 14.55 | 09/16/15 | 56,680 | $ | 310,606 | ||||||||||||||||||||||
11/29/2006 | 29,433 | 58,866 | $15.09 | 11/29/2016 | 103,964 | $ 933,597 | 02/22/06 | 12/15/06 | 69,611 | 0 | $ | 20.56 | 02/22/16 | 74,784 | $ | 409,816 | |||||||||||||||||||||||
5/25/2006 | 401,155 | $3,602,372 | 11/29/06 | 58,867 | 29,433 | $ | 15.09 | 11/29/16 | 103,964 | $ | 569,723 | ||||||||||||||||||||||||||||
02/22/2006 | 12/15/2006 | 46,406 | 23,205 | $20.56 | 2/22/2016 | 74,784 | $ 671,560 | 11/29/07 | 75,586 | 151,171 | $ | 10.66 | 11/29/17 | 68,942 | $ | 377,802 | |||||||||||||||||||||||
09/16/2005 | 12/15/2006 | 113,358 | – | $14.55 | 9/16/2015 | 56,680 | $ 508,986 | 12/02/08 | 0 | 343,155 | $ | 5.49 | 12/02/18 | 183,062 | $ | 1,003,180 | |||||||||||||||||||||||
Evan L. Hart | 7/31/2008 | – | 24,752 | $ 9.10 | 7/31/2018 | 12,106 | $ 108,712 | 11/29/06 | 1,590 | 794 | $ | 15.09 | 11/29/16 | 2,807 | $ | 15,382 | |||||||||||||||||||||||
11/29/2007 | – | 10,459 | $10.66 | 11/29/2017 | 4,770 | $ 42,835 | 11/29/07 | 3,487 | 6,972 | $ | 10.66 | 11/29/17 | 3,180 | $ | 17,426 | ||||||||||||||||||||||||
11/29/2006 | 794 | 1,590 | $15.09 | 11/29/2016 | 2,807 | $ 25,207 | 07/31/08 | 8,251 | 16,501 | $ | 9.10 | 07/31/18 | 8,070 | $ | 44,224 | ||||||||||||||||||||||||
Dale B. Smith | 11/29/2007 | – | 39,683 | 11/29/2017 | 18,097 | $ 162,511 | |||||||||||||||||||||||||||||||||
11/29/2006 | 55,188 | – | $15.09 | 12/31/2010 | 12/02/08 | 0 | 66,539 | $ | 5.49 | 12/02/18 | 35,496 | $ | 194,518 | ||||||||||||||||||||||||||
5/25/2006 | 128,369 | $1,152,754 | |||||||||||||||||||||||||||||||||||||
Robert G. Leggett | 09/02/08 | 28,802 | 57,604 | $ | 10.83 | 09/02/18 | 111,312 | $ | 609,990 | ||||||||||||||||||||||||||||||
1/23/2006 | 12/15/2006 | 51,011 | – | $17.26 | 12/31/2010 | 12/02/08 | 0 | 47,528 | $ | 5.49 | 12/02/18 | 25,354 | $ | 138,940 | |||||||||||||||||||||||||
Raymond P. Torok | 11/29/2007 | – | 52,560 | $10.66 | 11/29/2017 | 23,970 | $ 215,251 | 08/04/04 | 12/15/06 | 21,593 | 0 | $ | 4.22 | 08/04/14 | |||||||||||||||||||||||||
11/29/2006 | 6,438 | 12,878 | $15.09 | 11/29/2016 | 22,742 | $ 204,223 | 02/25/05 | 12/15/06 | 8,960 | 0 | $ | 11.96 | 02/25/15 | ||||||||||||||||||||||||||
5/25/2006 | – | – | 102,070 | $ 916,589 | 02/22/06 | 12/15/06 | 12,521 | 0 | $ | 20.56 | 02/22/16 | 13,859 | $ | 75,947 | |||||||||||||||||||||||||
02/22/2006 | 12/15/2006 | 8,346 | 4,175 | $20.56 | 2/22/2016 | 13,859 | $ 124,454 | 11/29/06 | 12,877 | 6,439 | $ | 15.09 | 11/29/16 | 22,742 | $ | 124,626 | |||||||||||||||||||||||
02/25/2005 | 12/15/2006 | 8,960 | – | $11.96 | 2/25/2015 | 6,722 | $ 60,364 | 11/29/07 | 17,520 | 35,040 | $ | 10.66 | 11/29/17 | 15,980 | $ | 87,570 | |||||||||||||||||||||||
08/4/2004 | 12/15/2006 | 21,593 | – | $ 4.22 | 8/4/2014 | 12/02/08 | 0 | 90,304 | $ | 5.49 | 12/02/18 | 48,174 | $ | 263,994 | |||||||||||||||||||||||||
Thomas E. Fish | 11/29/2007 | – | 53,433 | $10.66 | 11/29/2017 | 24,368 | $ 218,825 | 08/22/06 | 10,502 | 0 | $ | 16.95 | 08/22/16 | 14,016 | $ | 76,808 | |||||||||||||||||||||||
11/29/2006 | 4,976 | 9,952 | $15.09 | 11/29/2016 | 17,576 | $ 157,832 | 11/29/06 | 9,952 | 4,976 | $ | 15.09 | 11/29/16 | 17,576 | $ | 96,316 | ||||||||||||||||||||||||
8/22/2006 | 7,000 | 3,502 | $16.95 | 8/22/2016 | 14,016 | $ 125,864 | 11/29/07 | 17,811 | 35,622 | $ | 10.66 | 11/29/17 | 16,245 | $ | 89,023 | ||||||||||||||||||||||||
5/25/2006 | 66,190 | $ 594,386 | 12/02/08 | 0 | 94,106 | $ | 5.49 | 12/02/18 | 50,202 | $ | 275,107 | ||||||||||||||||||||||||||||
Michael T. Vollkommer (5) | 5/14/2007 | 14,030 | – | $15.53 | 10/16/2008 | ||||||||||||||||||||||||||||||||||
Doyce Gaskin (6) | 11/29/2007 | 58,957 | – | $10.66 | 6/24/2010 | ||||||||||||||||||||||||||||||||||
Dale B. Smith | 01/23/06 | 12/15/06 | 51,011 | 0 | $ | 17.26 | 12/31/10 | ||||||||||||||||||||||||||||||||
11/29/2006 | 4,240 | – | $15.09 | 6/24/2010 | 11/29/06 | 55,188 | 0 | $ | 15.09 | 12/31/10 | |||||||||||||||||||||||||||||
9/27/2006 | 1,874 | – | $14.70 | 6/24/2010 | 11/29/07 | 13,228 | 26,455 | $ | 10.66 | 11/29/17 | 12,064 | $ | 66,111 | ||||||||||||||||||||||||||
8/22/2006 | 3,356 | – | $16.95 | 6/24/2010 |
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(2) |
Unexercisable options granted on 11/29/07 vest 50% on each of 11/29/09 and 11/29/10.
Unexercisable options granted on 07/31/08 vest 50% on each of 07/31/10 and 07/31/11. Unexercisable options granted on 12/02/08 vest in thirds on each of 12/02/09, 12/02/10 and 12/02/11.
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(3) |
Restrictions on restricted stock units granted by Walter Energy on 02/22/06 lapse on 02/22/13 unless lapsing accelerates as a result of stock price performance.
Restrictions on restricted stock units granted on 08/22/06 lapse on 02/22/13 unless lapsing accelerates as a result of stock price performance.
Restrictions on restricted stock units granted on 11/29/06 lapse on 11/29/13 unless lapsing accelerates as a result of stock price performance.
Restrictions on outstanding restricted stock units granted on 11/29/07 lapse 50% on each of 11/29/09 and 11/29/10.
Restrictions on outstanding restricted stock units granted on 07/31/08 lapse 50% on each of 07/31/10 and 07/31/11.
Restrictions on outstanding restricted stock units granted on 09/02/08 lapse 50% on each of 09/02/10 and 09/02/11.
Restrictions on restricted stock units granted on 12/02/08 lapse in thirds on each of 12/02/09, 12/02/10 and 12/02/11.
Where applicable, accelerated vesting occurs when the Company’s common stock maintains a closing market price in excess of a 10% compound annual growth rate (13% for restricted stock units granted on 11/29/06) for 60 consecutive calendar days. When such an event occurs, 25% of the original grant vests on the next anniversary date of the grant.
(4) |
Option Exercises and Stock Vested Table
This table shows stock options exercised by our named executive officersNEOs during fiscal 20082009 and restricted stock units held by our named executive officers that vestedNEOs for which restrictions lapsed during fiscal 2008.2009. The dollar values shown in this table are not the grant-date fair value or recognized compensation expense disclosed elsewhere in this Proxy Statement.
Fiscal 20082009 Option Exercises and Stock Vested Table
Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||
Name | Number of Shares Exercise | Value Realized on Exercise | Number of Shares Vesting (#) | Number of Shares Surrendered for Taxes | Value Realized on Vesting (1) | Number of (#) | Value Realized on ($) | Number of (#) | Value Realized ($) (1) | |||||||||||||||||
Name | ||||||||||||||||||||||||||
– | – | 28,339 | – | $ | 269,787 | 0 | $ | 0 | 435,626 | $ | 1,648,476 | |||||||||||||||
Evan L. Hart | – | – | – | – | – | 0 | $ | 0 | 5,626 | $ | 25,373 | |||||||||||||||
Dale B. Smith | – | – | 115,988 | – | $ | 1,104,206 | ||||||||||||||||||||
Robert G. Leggett | 0 | $ | 0 | 32,189 | $ | 144,851 | ||||||||||||||||||||
Raymond P. Torok | – | – | 6,720 | 2,600 | $ | 55,642 | 0 | $ | 0 | 116,782 | $ | 430,022 | ||||||||||||||
Thomas E. Fish | – | – | – | – | – | 0 | $ | 0 | 74,313 | $ | 286,998 | |||||||||||||||
Michael T. Vollkommer | – | – | – | – | – | |||||||||||||||||||||
Doyce Gaskin | – | – | 126,818 | (2) | – | $ | 1,022,077 | |||||||||||||||||||
Dale B. Smith | 0 | $ | 0 | 134,402 | $ | 496,724 |
(1) | Equals the closing price of our |
None of our named executive officersNEOs participate in anya defined benefit pension plan. Each named executive officerNEO participates in one of our 401(k) plans, under which they receivehe receives matching Company contributions in accordance with the terms of the applicable plan. Company matching contributions were eliminated from April 1, 2009 through December 31, 2009.
Employment, Severance and Change-in-Control Arrangements
As of September 30, 2008,2009, the Company had employment agreements with each of the named executive officers.NEOs other than Mr. Smith, who retired from the Company on December 31, 2008. The employment agreements with the NEOs other than Mr. Fish were amended in February 2009 to provide for a 20% reduction of the executive’s salary from February 16, 2009 to May 15, 2009.
Gregory E. Hyland.Hyland. Mr. Hyland’s employment agreement with the Company effective as of September 15, 2008 replaces the agreement with Walter IndustriesEnergy dated September 16, 2006 that was assigned to the Company upon the Spin-off. The employment agreement provides for the following:
— | An annual base salary of $790,000; |
— | An opportunity to earn an annual target bonus of 100% of annual base salary, with a payout range from zero to |
— | An annual equity opportunity |
— | A car allowance of $2,000 per month; |
— | Four weeks vacation each year; |
— | Reimbursement of tax planning and club membership expenses; |
— | Entitlement to participate in an unfunded deferred compensation plan; and |
— | Severance of 24 months base salary and 12 months target bonus (with pro rata bonus for the year of termination and continuation of fringe benefits during the 24 month severance period) in the event that he is terminated without cause or resigns following a significant diminution in pay or responsibilities. |
Evan L. Hart. Mr. Hart’s employment agreement with the Company, dated July 16, 2008, provides for the following:
— | A starting base salary of $285,000 per year, which will be reviewed annually; |
— | An opportunity to earn an annual target bonus of 60% of annual base salary, with a payout range from zero to |
— | An annual equity opportunity commensurate with an executive-level position at the Company; |
— | A car allowance of $1,500 per month; |
— | Four weeks vacation each year; and |
— | Severance of 18 months salary and 18 months target bonus (with pro rata bonus for the year of termination and continuation of fringe benefits during the 18 month severance period) in the event that he is terminated without cause or if he terminates employment for good reason. |
Robert G. Leggett. Mr. Leggett’s employment agreement with the Company, dated September 15, 2008, provides for the following:
— | A starting base salary of $500,000 per year, which will be reviewed annually; |
— | An opportunity to earn an annual target bonus of 75% of annual base salary, with a payout range from zero to up to twice the amount of the target (based on the satisfaction of predetermined goals); |
— | An annual equity opportunity commensurate with an executive-level position at the Company; |
— | A car allowance of $1,500 per month; |
— | Four weeks vacation each year; |
— | A special bonus of $100,000 payable on September 2, 2010; and |
— | Severance of 18 months salary and 18 months target bonus (with pro rata bonus for the year of termination and continuation of fringe benefits during the 18 month severance period) in the event that he is terminated without cause or if he terminates employment for good reason. |
Thomas E. Fish.Mr. Fish’s letter agreement with the Company, dated July 31, 2006, provides for the following:
— | A base salary of $286,000 per year, subject to annual increase equal to the greater of 4% and a cost of living adjustment, calculated as set forth in the letter agreement; |
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Effective October 1, 2005, participation in the Company’s Executive Incentive Plan with an annual target bonus level of $380,000 up to a maximum of two times target, subject to change from time to |
— | Benefits commensurate with an executive-level position at the Company; |
— | Five weeks vacation each year; |
— | If |
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— | If any payment under the letter agreement or any other agreement with the Company results in the imposition of any excise or additional tax on Mr. Fish that would constitute an “excess parachute payment”, the Company will make an additional payment to Mr. Fish to cover the full cost of such excise or additional tax payment so that Mr. Fish is in the same after-tax position had he not been subject to the excise or additional tax. |
For a description of Mr. Fish’s other compensation agreement, see “Compensation Program for Anvil International Executives” on page 29 of this Proxy Statement.
Dale B. Smith.Mr. Smith’s letter agreement with the Company, which was originally entered into upon acquisition of Mueller Group by Walter Industries in January 2006, was modified on November 1, 2007. The agreement, as modified, provides for the following:
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Effective as of October 1, 2008, the agreement was modified to provide that Mr. Smith will devote his full time attention to the affairs of the Company through December 31, 2008. After that date, Mr. Smith will be engaged only as agreed through December 12, 2009.
Raymond P. Torok. Mr. Torok’s employment agreement with the Company, effective as of September 15, 2008, replaces the agreement with Walter IndustriesEnergy, dated July 14, 2005, which was assigned to the Company upon the Spin-off. The agreement provides for the following:
— | An annual base salary initially at $340,698; |
— | An opportunity to earn an annual target bonus of 75% of annual base |
— | An annual equity opportunity; |
— | A car allowance of $1,500 per |
— | Four weeks vacation each year; and |
— | Severance of 18 months salary and 18 months target bonus (with pro rata bonus for the year of termination and continuation of fringe benefits during the 12 month severance period) in the event that he is terminated without cause. |
Potential Payments Upon Termination or Change-in-Control
As ofAt September 30, 2008,2009, the Company had a change-in-control agreement with each of Messrs. Hyland, Hart, Leggett and Torok. Messrs. Smith andMr. Fish dodoes not have a change-in-control agreementsagreement with the Company; however, thehis employment agreements for each of them contemplateagreement contemplates severance arrangements in the event of termination without cause as described above. Mr. Smith was not entitled to any change-in-control payments at September 30, 2009.
Under each Executive Change-in-Control Severance Agreement,our change-in-control agreements, if employment is terminated other than for “Cause” or for “Good Reason” within 24 months following a change-in-control, the executive would be entitled to a lump-sum payment equivalent to base salary and annual incentive bonus (generally calculated as the average of their actual annual incentive bonuses over the preceding three years) for, and continuation of certain benefits, such as group life and medical insurance coverage for a period of 24 months. Mr. Hyland’s agreement also provides for the continuation of reimbursement for club memberships and tax planning during that period. The severance benefits under the change-in-control agreements also include the immediate vesting of all unvested stock options restricted stock and/orand restricted stock units. The agreements provide for an additional payment sufficient to eliminate the effect of any applicable excise tax on severance payments in excess of an amount determined under Section 280G of the Internal Revenue Code. Payments subject to the excise tax would not be deductible by the Company. The agreements provide that no executive is entitled to receive duplicative severance benefits under any other Company-related plans or programs if benefits are triggered.
The following table sets forth ourthe potential benefits that each named executive officerNEO would be entitled to receive upon termination of employment in the situations outlined below. These disclosed amounts are estimates only and do not necessarily reflect the actual amounts that would be paid to the named executive officers,NEOs, which would only be known at the time that they become eligible for payment. The amountamounts shown in the table are the amounts that could be payable under existing plans and arrangements if the named executive officer’sNEO’s employment had terminated as ofon September 30, 2008,2009, including a gross-up for certain taxes in the event that any payments made in connection with a change in control were subject to the excise tax imposed by Section 4999 of the Internal Revenue Code. The table below does not include amounts to which the named executive officersNEOs would be entitled that are already described in the compensation tables appearing earlier in this Proxy Statement, including the value of equity awards that have already vested. The definitions that apply follow the table below.
The termination events pursuant to which the named executive officersNEOs are entitled to potential payments are set forth in the first column and are as follows:
A – Severance arrangement for termination without cause or for good reason
B – Termination without cause after a change-in-control or, if applicable, sale of segment
C – Death, disability or retirement
Potential Payments Upon Termination Without Cause or Change-in-Control Table
Cash Severance | Pro Rata (1) | Vesting of (2) | Health and Welfare Continuation | Outplacement (3) | Sec 280G Related (4) | Total | ||||||||||||||||||||||||||||||||||||||||||||
Name | Cash Severance | Bonus (1) | Vesting of (2) | Health and Welfare Continuation | Outplacement (3) | Sec 280G Excise Tax and Related Gross-Up (4) | Total | |||||||||||||||||||||||||||||||||||||||||||
Gregory E. Hyland | A | $ | 2,370,000 | (5) | $ | 790,000 | $ | 0 | $ | 36,358 | (7) | $ | 0 | $ | 0 | $ | 3,196,358 | A | $ | 2,370,000 | (5) | $ | 474,000 | $ | 0 | $ | 37,722 | (7) | $ | 0 | $ | 0 | $ | 2,881,722 | ||||||||||||||||
B | $ | 3,160,000 | (6) | $ | 790,000 | $ | 6,645,164 | $ | 36,358 | (7) | $ | 276,500 | $ | 0 | $ | 10,908,022 | B | $ | 2,181,833 | (6) | $ | 474,000 | $ | 2,671,127 | $ | 37,722 | (7) | $ | 276,500 | $ | 0 | $ | 5,641,182 | |||||||||||||||||
C | $ | 0 | $ | 0 | $ | 928,649 | $ | 0 | $ | 0 | $ | 0 | $ | 928,649 | C | $ | 0 | $ | 0 | $ | 1,380,982 | $ | 0 | $ | 0 | $ | 0 | $ | 1,380,982 | |||||||||||||||||||||
Evan L. Hart | A | $ | 684,000 | (8) | $ | 171,000 | $ | 0 | $ | 12,180 | (9) | $ | 0 | $ | 0 | $ | 867,180 | A | $ | 684,000 | (8) | $ | 102,600 | $ | 0 | $ | 14,086 | (10) | $ | 0 | $ | 0 | $ | 800,686 | ||||||||||||||||
B | $ | 912,000 | (6) | $ | 171,000 | $ | 176,754 | $ | 16,240 | (7) | $ | 99,750 | $ | 680,828 | $ | 2,056,572 | B | $ | 706,800 | (6) | $ | 102,600 | $ | 271,550 | $ | 18,781 | (7) | $ | 99,750 | $ | 542,257 | $ | 1,741,738 | |||||||||||||||||
C | $ | 0 | $ | 0 | $ | 151,547 | $ | 0 | $ | 0 | $ | 0 | $ | 151,547 | C | $ | 0 | $ | 0 | $ | 256,168 | $ | 0 | $ | 0 | $ | 0 | $ | 256,168 | |||||||||||||||||||||
Dale B. Smith | A | $ | 1,787,671 | (10) | $ | 0 | $ | 1,315,265 | $ | 18,349 | (11) | $ | 0 | $ | 0 | $ | 3,121,285 | |||||||||||||||||||||||||||||||||
Robert G. Leggett | A | $ | 1,488,896 | (9) | $ | 225,000 | $ | 0 | $ | 28,627 | (10) | $ | 0 | $ | 0 | $ | 1,742,523 | |||||||||||||||||||||||||||||||||
B | $ | 1,450,000 | (6) | $ | 225,000 | $ | 748,930 | $ | 38,170 | (7) | $ | 175,000 | $ | 1,134,535 | $ | 3,771,635 | ||||||||||||||||||||||||||||||||||
C | $ | 0 | $ | 0 | $ | 162,511 | $ | 0 | $ | 0 | $ | 0 | $ | 162,511 | C | $ | 0 | $ | 0 | $ | 748,930 | $ | 0 | $ | 0 | $ | 0 | $ | 748,930 | |||||||||||||||||||||
Raymond P. Torok | A | $ | 894,332 | (8) | $ | 255,524 | $ | 0 | $ | 22,212 | (9) | $ | 0 | $ | 0 | $ | 1,172,068 | A | $ | 894,332 | (8) | $ | 92,694 | $ | 0 | $ | 26,303 | (10) | $ | 0 | $ | 0 | $ | 1,013,329 | ||||||||||||||||
B | $ | 1,192,443 | (6) | $ | 255,524 | $ | 1,520,881 | $ | 29,616 | (7) | $ | 119,244 | $ | 0 | $ | 3,117,708 | B | $ | 878,654 | (6) | $ | 92,694 | $ | 552,137 | $ | 35,070 | (7) | $ | 119,244 | $ | 0 | $ | 1,677,799 | |||||||||||||||||
C | $ | 0 | $ | 0 | $ | 215,251 | $ | 0 | $ | 0 | $ | 0 | $ | 215,251 | C | $ | 0 | $ | 0 | $ | 351,564 | $ | 0 | $ | 0 | $ | 0 | $ | 351,564 | |||||||||||||||||||||
Thomas E. Fish | A | $ | 1,279,831 | (12) | $ | 0 | $ | 0 | $ | 25,521 | (9) | $ | 0 | $ | 0 | $ | 1,305,352 | A | $ | 717,117 | (11) | $ | 0 | $ | 0 | $ | 26,457 | (10) | $ | 0 | $ | 0 | $ | 743,574 | ||||||||||||||||
B | $ | 2,324,706 | (13) | $ | 0 | $ | 1,096,907 | $ | 25,521 | (9) | $ | 0 | $ | 0 | $ | 3,447,134 | B | $ | 717,117 | (11) | $ | 0 | $ | 537,254 | $ | 26,457 | (10) | $ | 0 | $ | 0 | $ | 1,280,828 | |||||||||||||||||
C | $ | 0 | $ | 364,572 | $ | 218,825 | $ | 0 | $ | 0 | $ | 0 | $ | 583,397 | C | $ | 0 | $ | 0 | $ | 364,130 | $ | 0 | $ | 0 | $ | 0 | $ | 364,130 | |||||||||||||||||||||
D | $ | 1,665,554 | (14) | $ | 0 | $ | 1,096,907 | $ | 25,521 | (9) | $ | 0 | $ | 0 | $ | 2,787,982 |
(1) | 2009 and therefore include the full fiscal 2009 bonus. |
(2) |
(3) | Outplacement services will be provided for up to two years, but will not exceed 35% of the named executive officer’s base salary at the time of termination. |
(4) | The gross-up for |
(5) | Cash severance |
(6) | Cash severance |
(7) | Welfare benefits are continued for up to |
(8) | Cash severance |
(9) | Cash severance is equal to 1.5 times annual base salary plus 1.5 times target bonus plus the value of certain restricted stock units that would vest within 18 months. |
(10) | Welfare benefits are continued for up to |
(11) |
A named executive officer’sAn NEO’s rights upon the termination of his employment will depend upon the circumstances of the termination. Central to an understanding of the rights of each named executive officerNEO under the employment agreements is an understanding of the definitions of “Cause” and “Good Reason” that are used in those agreements.
— | The Company hasCauseto terminate the executive officer: |
¡ | Under the employment agreements upon (A) conviction or guilty plea of a felony or any crime involving fraud or dishonesty; (B) theft or embezzlement of property from the Company; (C) refusal to perform his employment duties; (D) fraudulent preparation of financial information of the Company; willful conduct that is demonstrably and materially injurious to the Company; or (E) willful violation of material Company policies or procedures. |
¡ | Under the change-in-control agreements upon (A) conviction or guilty plea of a felony or any crime involving fraud or dishonesty; (B) refusal to perform his employment duties; (C) fraudulent preparation of financial information of the Company; or (D) willful conduct that is demonstrably and materially injurious to the Company. |
— | The executive officer hasGood Reason to terminate his employment: |
¡ | Under the employment agreements if the Company (A) assigns the executive officer duties that are materially inconsistent with his position or materially reduce or alter the executive officer’s position; (B) requires that the executive officer be based at a location different from the location of his principal job location or office; or (C) materially reduces the executive officer’s base salary. |
¡ | Under the change-in-control agreements if the Company (A) assigns the executive officer duties that are materially inconsistent with his position or materially reduce or alter the executive officer’s position; (B) requires that the executive officer be based at a location in excess of 50 miles from the location |
of his principal job location or office; (C) reduces the executive officer’s base salary; (D) fails to continue in effect any of the Company’s benefit plans in which the executive officer participates unless such failure to continue the benefits pertains to all plan participants generally; (E) fails to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform the Company’s obligations under the agreement; or (F) materially breaches any of the provisions of the agreement. |
— | Achange-in-control of the Company exists if: |
¡ | Any person acquires more than 30% of the combined voting power of the Company’s outstanding securities; |
¡ | A majority of the Company’s Board of Directors is replaced; |
¡ | A merger or consolidation of the Company is completed, with more than a |
¡ | The Company’s stockholders approve a plan or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets. |
DIRECTORS’DIRECTOR COMPENSATION
The Compensation Committee, which consists solely of independent directors, is responsible for reviewing and considering any revisions to director compensation. The Board reviews the Compensation Committee’s recommendations and determines the amount of director compensation. The Board determined that compensation for non-employee directors should be a mix of cash and equity-based compensation. The interests orof directors are aligned with the interests of stockholders by linking a portion of their compensation to stock performance. DirectorsUnder our stock ownership guidelines, directors are expected to keep all of the shares, net of shares used to pay the exercise price or withholding taxes, that they receive as compensation until they own shares equal in market value to at least four times their annual retainer.
Non-employee directors receive an annual retainer of $45,000. The Chair of the Audit Committee receives $10,000 for serving as the Chair of that Committee and the Chair of the Compensation and Human Resources Committee receives an additional $5,000.$5,000 for serving as Chair. We pay annual retainers in quarterly installments.
Beginning in 2009, theThe Compensation Committee authorized an increase for fiscal 2009 in the annual cash retainer for the Chair of the Audit Committee to $12,000 per year for serving as the Chair of that Committee, and increased the annual cash retainer for the Chair of the Compensation Committee to $7,500 per year for serving as Chair. In addition, the Compensation Committee approved the payment of an annual cash retainer of $7,500 for the Chair of the Nominating Committee for serving as Chair.
The Board of Directors determined to reduce director cash compensation and Corporate Governance Committee. In recognitionmeeting fees by 20% during the period from mid-February to mid-May 2009, in conjunction with a voluntary reduction in salaries taken by most of the deferral ofCompany’s executives during the same period. Further, recognizing that salary increases atfor the Company,Company’s executives and employees were being deferred, the Compensation CommitteeBoard of Directors deferred any changesthe annual increase in director fees in fiscal 2009 until July 1, 2009.
In addition, theThe Chair of the Special Committee that was appointed to evaluate the proposed conversion of the Company’s Series B Common Stockcommon stock into Series A Common Stock will receivecommon stock received $10,000 for serving as Chair.
The Compensation Committee authorized an increase for fiscal 2010 in the annual cash retainer for the Chair of the Compensation Committee to $10,000 per year for serving as Chair, and authorized an annual cash retainer for the Chair of the Environmental, Health and Safety Committee of $7,500 per year for serving as Chair.
Non-employee directors receive $1,500 for each regular Board and Committee meeting that they attend. Meeting fees are paid quarterly for all meetings attended during the preceding quarter.
The 2006 Stock Plan provides that, on the date of its Annual Stockholders Meeting, the Company will grant each non-employee director who is re-elected to the Board and has served as a director for a period of at least six months, equity awards with an economic value determined by the Compensation Committee. In addition, the Plan provides that each director shall receive an initial equity grant on that date the he or she commences service as a director, the economic value and terms of which shall be as determined by the Compensation Committee. For fiscal 2008,2009, the Compensation Committee determined that the annual equity grant for continuing non-employee directors had an economic value of $65,000 split equally between stock options and restricted stock units, and that the equity award for the new director elected in January 2008 shallwould have an economic value of $65,000 and would be made exclusively in restricted stock units. In connection with this program, on January 30, 2008, each non-employee director other than Dr. Thomas was awarded (a) options to purchase 9,701 shares of Series A Common Stock with an exercise price equal to $7.95, the closing price on the grant date, and (b) 4,362 restricted stock units. On January 30, 2008, Dr. Thomas was granted 8,724 restricted stock units.
In October 2008, the Board determined that, effective fiscal 2009, the economic value of the annual equity grants to continuing non-employee directors will be $80,000 split equally between stock options and restricted stock units.
In connection with this program, on January 28, 2009, each non-employee director was awarded (a) options to purchase 9,546 shares of common stock with an exercise price equal to $7.76 per share, the closing price of the common stock on the New York Stock Exchange on the grant date, and (b) 5,494 restricted stock units.
The Company reimburses the directors for their travel and related expenses in connection with attending Board and Committee meetings and Board-related activities.
The following table shows fiscal 20082009 compensation for our non-employee directors. Mr. Hyland, our Chairman, President and Chief Executive Officer, does not receive any compensation in connection with his service as a director.
Fiscal 20082009 Director Compensation Table
Name | Fees Earned Or Paid in Cash | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | All Other Compensation | Total | Fees Earned or Paid in Cash ($) | Stock Awards ($) (2) | Option Awards ($) (2) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||||||||||||||||||||
Donald Boyce | $ | 80,000 | $ | 34,678 | $ | 73,373 | $ | 0 | $ | 0 | $ | 188,051 | |||||||||||||||||||||||||||||||||||||||
Howard Clark Jr. | $ | 66,000 | $ | 14,138 | $ | 56,825 | $ | 0 | $ | 0 | $ | 136,963 | |||||||||||||||||||||||||||||||||||||||
Name | Annual Retainer (1) | Meeting Fees | Total | Stock Awards ($) (2) | Option Awards ($) (2) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||||||||||||||||||||||||
$ | 48,875 | $ | 30,600 | $ | 79,475 | ||||||||||||||||||||||||||||||||||||||||||||||
Howard L. Clark Jr. | $ | 45,375 | $ | 23,100 | $ | 68,475 | $ | 32,714 | $ | 41,552 | $ | 0 | $ | 142,741 | |||||||||||||||||||||||||||||||||||||
Jerry W. Kolb | $ | 84,000 | $ | 34,678 | $ | 73,373 | $ | 0 | $ | 0 | $ | 192,051 | $ | 43,500 | $ | 33,000 | $ | 76,500 | $ | 42,633 | $ | 45,993 | $ | 0 | $ | 165,126 | |||||||||||||||||||||||||
Joseph B. Leonard | $ | 82,500 | $ | 14,138 | $ | 56,825 | $ | 0 | $ | 0 | $ | 153,463 | $ | 43,500 | $ | 37,200 | $ | 80,700 | $ | 36,615 | $ | 44,104 | $ | 0 | $ | 161,419 | |||||||||||||||||||||||||
Mark J. O’Brien (3) | $ | 63,000 | $ | 14,138 | $ | 56,825 | $ | 0 | $ | 0 | $ | 133,963 | |||||||||||||||||||||||||||||||||||||||
Mark J. O’Brien | $ | 43,500 | $ | 14,400 | $ | 57,900 | $ | 42,898 | $ | 48,212 | $ | 0 | $ | 149,010 | |||||||||||||||||||||||||||||||||||||
Bernard G. Rethore | $ | 93,000 | $ | 15,130 | $ | 57,625 | $ | 0 | $ | 0 | $ | 165,755 | $ | 43,500 | $ | 36,000 | $ | 79,500 | $ | 57,592 | $ | 58,045 | $ | 0 | $ | 195,137 | |||||||||||||||||||||||||
Neil A. Springer | $ | 98,500 | $ | 34,678 | $ | 73,373 | $ | 0 | $ | 0 | $ | 206,551 | $ | 53,500 | $ | 39,000 | $ | 92,500 | $ | 42,633 | $ | 45,993 | $ | 0 | $ | 181,126 | |||||||||||||||||||||||||
Lydia W. Thomas | $ | 42,000 | $ | 28,276 | $ | 0 | $ | 0 | $ | 0 | $ | 70,276 | $ | 53,500 | $ | 26,100 | $ | 79,600 | $ | 44,439 | $ | 11,434 | $ | 0 | $ | 135,473 | |||||||||||||||||||||||||
Michael T. Tokarz | $ | 69,000 | (4) | $ | 14,138 | $ | 56,825 | $ | 0 | $ | 0 | $ | 139,963 | ||||||||||||||||||||||||||||||||||||||
Michael T. Tokarz (3) | $ | 43,500 | $ | 23,100 | $ | 66,600 | $ | 30,965 | $ | 40,406 | $ | 1,326 | (4) | $ | 139,297 |
(1) |
Name | Annual Retainer | Meeting Fees | Fees for 2007 Meetings Paid in Cash in 2008 (a) | Total | ||||||||||||||
Donald Boyce | $ | 50,000 | $ | 27,000 | $ | 3,000 | $ | 80,000 | ||||||||||
Howard Clark Jr. | $ | 45,000 | $ | 21,000 | $ | 0 | $ | 66,000 | ||||||||||
Jerry W. Kolb | $ | 45,000 | $ | 39,000 | $ | 0 | $ | 84,000 | ||||||||||
Joseph B. Leonard | $ | 45,000 | $ | 37,500 | $ | 0 | $ | 82,500 | ||||||||||
Mark J. O’Brien | $ | 45,000 | $ | 18,000 | $ | 0 | $ | 63,000 | ||||||||||
Bernard G. Rethore | $ | 45,000 | $ | 45,000 | $ | 3,000 | $ | 93,000 | ||||||||||
Neil A. Springer | $ | 55,000 | $ | 40,500 | $ | 3,000 | $ | 98,500 | ||||||||||
Lydia W. Thomas | $ | 30,000 | $ | 12,000 | $ | 0 | $ | 42,000 | ||||||||||
Michael T. Tokarz | $ | 45,000 | $ | 24,000 | $ | 0 | $ | 69,000 |
(2) |
|
|
At September 30, 2009, the non-employee directors held outstanding equity securities as follows:
Option Awards | Stock Awards | |||||||||||||
Number of Securities Underlying Unexercised Options (#) | ||||||||||||||
Grant Date | Exercisable | Unexercisable (a) | Option Exercise Price ($) | Option Expiration Date | Number (b) | Market Value of Shares or Units of Stock that have not Vested ($)(c) | ||||||||
All non-employee directors other than Dr. Thomas | 01/30/2008 | – | 9,701 | $7.95 | 01/30/2018 | 4,362 | $39,171 | |||||||
03/22/2007 | 4,200 | 8,400 | $14.19 | 03/22/2017 | – | – | ||||||||
05/25/2006 | 7,132 | 3,568 | $16.00 | 05/25/2016 | – | – | ||||||||
Total | 11,332 | 21,669 | 4,362 | $39,171 | ||||||||||
Dr. Thomas | 01/30/2008 | – | – | – | 01/30/2018 | 8,724(d) | $78,342 |
Option Awards | Stock Awards | |||||||||||||||
Number of Securities Underlying Unexercised Options (#) | ||||||||||||||||
Name | Grant Date | Exercisable (a) | Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) (b) | Market Value of Shares or Units of Stock That Have Not Vested ($) (c) | |||||||||
All non-employee directors other than Lydia W. Thomas | 05/25/06 | 10,700 | 0 | $ | 16.00 | 05/25/16 | 0 | $ | 0 | |||||||
03/22/07 | 8,400 | 4,200 | $ | 14.19 | 03/22/17 | 0 | $ | 0 | ||||||||
01/30/08 | 3,233 | 6,468 | $ | 7.95 | 01/30/18 | 2,908 | $ | 15,936 | ||||||||
01/28/09 | 0 | 9,546 | $ | 7.76 | 01/28/19 | 5,494 | $ | 30,107 | ||||||||
Total | 22,333 | 20,214 | 8,402 | $ | 46,043 | |||||||||||
Lydia W. Thomas | 01/30/08 | 5,816 | $ | 31,872 | ||||||||||||
01/28/09 | 0 | 9,546 | $ | 7.76 | 01/28/19 | 5,494 | $ | 30,107 | ||||||||
Total | 0 | 9,546 | 11,310 | $ | 61,979 |
(a) | Except as otherwise indicated, all outstanding stock options vest in equal installments on the first, second and third anniversary of the grant date. |
(b) | All restrictions on restricted stock units |
(c) | Represents the number of restricted stock units |
(3) |
Mr. Tokarz deferred the receipt of all of the director compensation that would have been paid in cash for his services to the Company in fiscal |
(4) | Dividends paid on the accumulated phantom shares of our common stock. Such dividends were paid on identical terms to dividends paid on our common stock. See “– Deferred Compensation” below. |
The Board adopted the Mueller Water Products, Inc. Directors’ Deferred Fee Plan, as amended, under which non-employee directors may elect to defer all or a portion of their
directors’ fees. The Company’sCompany credits the deferred fees, at each electing director’s option, to either an income account or a stock equivalent account, or divides the fees between the two accounts. If a director elects the income account, the Company credits the director’s fees otherwise payable as a dollar amount to the director’s income account on the date such fees would otherwise have been paid. The Company credits the income account quarterly with interest at an annual rate equal to the yield of a 10-year U.S. Treasury Note at the beginning of such calendar quarter plus 1.00%. If a director elects the stock equivalent account, the Company converts the director’s fees otherwise payable during a calendar quarter to stock equivalent shares equal in number to the maximum number of shares of Series A Common Stock,common stock, or fraction thereof (to the nearest one hundredth (1/100) of one share), which could be purchased with the dollar amount of such fees at the closing market price of the Series A Common Stockcommon stock on the first businesstrading day of the following calendar quarter, or if that date is not a trading date, on the next trading date. The Company credits the income account quarterly with interest at an annual rate equal to the yield of a 10-year U.S. Treasury Note as of the beginning of such calendar quarter plus 1.00%.quarter. The Company credits the stock equivalent account with stock equivalent shares equal in number to the maximum number of shares of Series A Common Stock,common stock, or fraction thereof (to the nearest one hundredth (1/100) of one share), which could have been purchased with the cash dividend, if any, which would have been payable had the participant been the actual owner of the number of shares of Series A Common Stockcommon stock credited to his account as ofat the payment date for such dividend.
The Company makes deferred payments in January of the year determined by the non-employee director pursuant to an election filed with the Corporate Secretary of the Company. The payments may be made in any calendar year not earlier than the year in which the participant has his 72nd birthday or the year of the participant’s termination of his services as a director, with the payment made in cash in one, five, ten or fifteen annual installments as determined by the participating director in his election form. Payments from the income account are made in cash and payments from the stock equivalent account are made in cash at the Series A Common Stock’s then current market value. During fiscal 2008,2009, Mr. Tokarz was the only non-employee director that participated in this plan.
REPORT OF THE COMPENSATION AND HUMAN RESOURCES
COMMITTEE OF THE BOARD
The Compensation and Human Resources Committee participated in the preparation of the Compensation Discussion and Analysis, reviewing successive drafts and discussing the drafts with management. Based on its review and discussions with management, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for fiscal 20082009 and the Company’s 20092010 Proxy Statement.
Compensation and Human Resources Committee |
Donald N. Boyce,Chair |
Jerry W. Kolb |
Bernard G. Rethore |
Neil A. Springer |
REPORT OF THE AUDIT COMMITTEE OF THE BOARD
The Audit Committee reports as follows with respect to the audit of the Company’s consolidated financial statements for the year ended September 30, 2008:2009:
The Audit Committee’s responsibility is to monitor and oversee the Company’s financial reporting, internal controls and audit functions. The Audit Committee has reviewed and discussed the consolidated financial statements with management and Ernst & Young LLP, the Company’s independent registered public accounting firm for fiscal 2008.2009. Management is responsible for the preparation, presentation and integrity of the Company’s financial statements; accounting and financial reporting principles; establishing and maintaining disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act); establishing and maintaining internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)); evaluating the effectiveness of disclosure controls and procedures; evaluating the effectiveness of internal control over financial reporting; and evaluating any change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
Ernst & Young LLP was responsible for performing an independent audit of the consolidated financial statements and expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in the United States of America. Ernst & Young LLP was also responsible for performing an independent audit of, and expressing an opinion on, the Company’s internal control over financial reporting.
The Audit Committee reviewed the report of management contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 20082009 filed with the Securities and Exchange Commission,SEC, as well as Ernst & Young LLP’s Reports of Independent Registered Public Accounting Firm included in the Company’s Annual Report on Form 10-K related to its audits of the consolidated financial statements and the internal control over financial reporting.
The Audit Committee has discussed with Ernst & Young LLP the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, “Communication with Audit Committees.” In addition, Ernst & Young LLP has provided the Audit Committee with the written disclosures and the letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence and the Audit Committee has discussed with Ernst & Young LLP their firm’s independence.
Based on the foregoing discussions with and reports of management and the independent auditors of the Company and the Audit Committee’s review of the representations of management, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended September 30, 20082009 for filing with the Securities and Exchange Commission.SEC.
Audit Committee |
Neil A. Springer,Chair |
Jerry W. Kolb |
Joseph B. Leonard |
Bernard G. Rethore |
FEES AND SERVICES OF THE INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Audit Committee has appointed Ernst & Young LLP (“Ernst & Young”) as the independent registered public accounting firm to audit the accounts of the Company and its subsidiaries for the fiscal year endingended September 30, 2009.
Fees Paid to the Independent Registered Public Accounting Firm
The following table sets forth the approximate aggregate fees that Ernst & Young billed to the Company for the fiscal yearyears ended September 30, 20082009 and that PricewaterhouseCoopers LLP billed to the Company for the fiscal year ended September 30, 20072008 (in millions).
Fiscal 2008 | Fiscal 2007 | |||||||
Audit Fees | $ | 2.7 | (1) | $ | 3.5 | (2) | ||
Audit-Related Fees | 0 | 0.9 | (3) | |||||
Tax Fees | 0 | 0.1 | (4) | |||||
All Other Fees | 0 | 0.2 | (5) | |||||
Total Fees | $ | 2.7 | $ | 4.7 | ||||
Fiscal 2009 | Fiscal 2008 | |||||||
Audit fees | $ | 2.8 | (1) | $ | 2.7 | (1) | ||
Audit-related fees | 0.3 | (2) | 0 | |||||
Tax fees | 0 | 0 | ||||||
All other fees | 0 | 0 | ||||||
Total fees | $ | 3.1 | $ | 2.7 | ||||
(1) | These amounts reflect fees for professional services performed by Ernst & Young for the annual audit (including out-of-pocket expenses), quarterly reviews of the Company’s consolidated financial statements and statutory audits of the Company’s subsidiaries. |
(2) | These amounts reflect fees for professional services performed by |
Pre-Approval of Services Performed by the Independent Registered Public Accounting Firm
The Company has adopted a policy regarding pre-approval of non-audit services to be performed by the Company’s audit firm. Specifically, non-audit fees to be incurred by the Company’s outside auditor for services permitted by the Sarbanes-Oxley Act to be performed by the outside auditor must be approved in advance by the Audit Committee Chair (for individual projects in amounts up to $100,000) or the Audit Committee. No non-audit services were performed by Ernst & Young in fiscal 2008.2009.
Prior Independent Registered Public Accounting Firm
On December 20, 2007, the Audit Committee dismissed PricewaterhouseCoopers LLP and appointed Ernst & Young to serve as our independent auditor for fiscal 2008.2009.
PricewaterhouseCoopers LLP had audited the accounts and records of the Company and its subsidiaries from the Company’s initial public offering in May 2006 through fiscal 2007. PricewaterhouseCoopers LLP’s reports on our consolidated financial statements for the fiscal year ended September 30, 2006 and 2007 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting
principles. During fiscal 2007 and fiscal 2006, there were (1) no disagreements between us and PricewaterhouseCoopers LLP on any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers LLP, would have caused PricewaterhouseCoopers LLP to make reference to the subject matter of the disagreement in its report on our consolidated financial statements for such years and (2) no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K except that, as disclosed in Item 4 of the Company’s quarterly reports for the quarters ended December 31, 2005, March 31, 2006 and June 30, 2006, management concluded that a material weakness in internal control over the preparation, review and presentation and disclosure of the Company’s consolidated financial statements existed because the Company lacked personnel with expertise in financial reporting and control procedures necessary for SEC registrants. During the fourth quarter of the Company’s fiscal year ended September 30, 2006, management remediated the material weakness.
During fiscal 2006 and fiscal 2007 and the subsequent interim period preceding their appointment as the Company’s registered independent public accounting firm, neither the Company nor anyone on its behalf consulted Ernst & Young regarding either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, nor has Ernst & Young provided to the Company a written report or oral advice regarding such principles or audit opinion.
BENEFICIAL OWNERSHIP OF COMMON STOCK
Ownership of Directors and Executive Officers
The following table furnishes information, as of November 15, 2008,2009, as to: (A) shares of common stock beneficially owned by each current director, each nominee for director and each named executive officerNEO of the Company; and (B) shares of common stock beneficially owned by all current directors and named executive officers of the Company as a group;group. Mr. Smith, who retired from the Company as of December 31, 2008, is omitted from this table. Except as indicated below, to the knowledge of the Company, each person indicated in the following table has sole voting and (C)investment power as to the name and addressshares shown.
As of eachNovember 15, 2009, there was no person known by the Company to be the beneficial owner of more than 5% of the outstanding shares of common stock. Except as indicated below, to the knowledge of the Company, each person indicated in the following tables has sole voting and investment power as to the shares shown.
Name of Beneficial Owner | Number of Shares of Series A Common Stock Beneficially Owned | Percent of Series A Common Stock Outstanding | Number of Shares of Series B Common Stock Beneficially Owned | Percent of Series B Common Stock Outstanding | |||||||
Donald N. Boyce, Director | 21,332 | (A) | * | 3,304 | * | * | |||||
Howard L. Clark, Director | 11,332 | (A) | * | 3,000 | * | * | |||||
Gregory E. Hyland, Chairman, President and Chief Executive Officer | 395,365 | (B) | * | 8,262 | * | * | |||||
Jerry W. Kolb, Director | 15,332 | (A) | * | 9,652 | * | * | |||||
Joseph B. Leonard, Director | 21,332 | (A) | * | 0 | * | * | |||||
Mark J. O’Brien, Director | 21,332 | (A) | * | 0 | * | * | |||||
Bernard G. Rethore, Director | 20,332 | (A) | * | 12,304 | * | * | |||||
Neil A. Springer, Director | 19,332 | (A) | * | 826 | * | * | |||||
Lydia W. Thomas, Director | 0 | 0 | |||||||||
Michael T. Tokarz, Director | 21,332 | (A) | * | 0 | * | * | |||||
Thomas E. Fish, President, Anvil | 49,206 | * | 0 | * | * | ||||||
Dale B. Smith, Chief Executive Officer, Mueller Co. | 346,448 | 1.2 | % | 0 | * | * | |||||
Raymond P. Torok, President, U.S. Pipe | 90,068 | * | 222 | * | * | ||||||
Evan L. Hart, Senior Vice President and Chief Financial Officer | 9,836 | * | 0 | * | * | ||||||
All current directors and executive officers as a group (20 individuals) | 1,122,182 | (C) | 3.8 | % | 81,319 | * | * |
Ownership of Principal Stockholders
The following table sets forth beneficial ownershipThis information as of December 3, 2008,is based on information furnished by the specified persons pursuant to Schedules 13D or 13G filed by each of them with the SecuritiesSEC and Exchange Commission. Except foron the information detailed in these publicly available schedules currently on file with the SEC,number of shares of the Company has no credible information that any other persons beneficially own 5% or moreoutstanding as of any seriesNovember 15, 2009.
As of the Company’sNovember 15, 2009, there were 153,887,751 shares of common stock.stock outstanding.
Name and Mailing Address | Number of Shares of Series A Common Stock Beneficially Owned | Percent of Series A Common Stock Outstanding | Number of Shares of Series B Common Stock Beneficially Owned | Percent of Series B Common Stock Outstanding | ||||||
Abrams Capital, LLC (1) | 5,000,000 | 5.8 | % | |||||||
c/o Pamet Capital Management, L.P. | ||||||||||
222 Berkeley Street, 22nd Floor | ||||||||||
Boston, MA 02116 | ||||||||||
Barclays Global Investors, NA (2) | 1,998,575 | 6.9 | % | |||||||
45 Fremont Street | ||||||||||
San Francisco, CA 94105 | ||||||||||
Deutsche Bank AG (3) | 1,531,800 | 5.3 | % | |||||||
Theodor-Heuss-Allee 70 | ||||||||||
60468 Frankfurt am Main | ||||||||||
Federal Republic of Germany | ||||||||||
Dreman Value Management, LLC (4) | 1,586,850 | 5.5 | % | |||||||
520 East Cooper Avenue, Suite 230-4 | ||||||||||
Aspen, CO 81611 | ||||||||||
Fairholme Capital Management, L.L.C. (5) | 12,358,300 | 14.4 | % | |||||||
Bruce R. Berkowitz | ||||||||||
Fairholme Funds, Inc. | ||||||||||
1001 Brickell Bay Drive, Suite 3112 | ||||||||||
Miami, FL 33131 | ||||||||||
Harris Associates Investment Trust (6) | 8,078,814 | 9.4 | % | |||||||
Two North LaSalle Street, Suite 500 | ||||||||||
Chicago, IL 60602 | ||||||||||
Invesco Ltd. (7) | 5,717,082 | 6.7 | % | |||||||
1360 Peachtree Street NE | ||||||||||
Atlanta, GA 30309 | ||||||||||
KBC Asset Management Ltd. (8) | 3,888,472 | 13.3 | % | |||||||
Joshua Dawson House | ||||||||||
Dawson Street | ||||||||||
Dublin 2 Ireland | ||||||||||
Moody Aldrich Partners LLC (9) | 1,916,545 | 6.6 | % | |||||||
18 Sewall Street | ||||||||||
Marblehead, MA 01945 |
Name and Mailing Address Pictet Asset Management SA (10) 60 Route Des Acacias Geneva 73 Switzerland SG Americas Securities, LLC (11) 1221 Avenue of the Americas New York, NY 10020 State Street Bank and Trust Company (12) 222 Franklin Street Boston, MA 02110 Name of Beneficial Owner Donald N. Boyce, Director Howard L. Clark, Jr., Director Gregory E. Hyland, Chairman, President and Chief Executive Officer Jerry W. Kolb, Director Joseph B. Leonard, Director Mark J. O’Brien, Director Bernard G. Rethore, Director Neil A. Springer, Director Lydia W. Thomas, Director Michael T. Tokarz, Director Thomas E. Fish, President, Anvil Evan L. Hart, Senior Vice President and Chief Financial Officer Robert G. Leggett, Executive Vice President and Chief Operating Officer Raymond P. Torok, President, U.S. Pipe All current directors and executive officers as a group (20 individuals) Number of
Shares of
Series A
Common
Stock
Beneficially
Owned Percent of
Series A
Common
Stock
Outstanding Number of
Shares of
Series B
Common
Stock
Beneficially
Owned Percent of
Series B
Common
Stock
Outstanding 4,292,891 5.0 % 1,870,984 6.4 % 1,639,114 5.6 % Number of
Shares of
Common
Stock
Beneficially
Owned Percent of
Outstanding
Common
Stock 37,091 (A) * 26,787 (A)(B) * 1,043,584 (C) * 43,939 (A) * 33,787 (A) * 33,787 (A) * 50,091 (A) * 32,613 (A) * 2,908 * 233,787 (A) * 193,947 (D) * 67,604 (E) * 108,311 (F) * 245,295 (G) * 2,553,442 (H) 1.66 %
* |
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ELECTION OF DIRECTORS
The Board of Directors currently consists of ten members, each of whom will serve until the Annual Meeting and until his or her successor shall have been elected and qualified. These ten directors are to be elected at the Annual Meeting. The ten nominees for election as Directors are named below.
In the event that any such nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who is designated by the present Board of Directors to fill the vacancy. The Company is not aware of any nominee who will be unable or will decline to serve as a director. The term of office for each person elected as a director will continue until the next Annual Meeting of Stockholders and until his or her successor has been elected and qualified.
The names of the nominees and certain information about them are set forth below:
Name | Age | Served as Director of the Company From | ||
Donald N. Boyce | 70 | 2006 | ||
Howard L. Clark, Jr. | 64 | 2006 | ||
Gregory E. Hyland | 57 | 2005 | ||
Jerry W. Kolb | 72 | 2006 | ||
Joseph B. Leonard | 65 | 2006 | ||
Mark J. O’Brien | 65 | 2006 | ||
Bernard G. Rethore | 67 | 2006 | ||
Neil A. Springer | 70 | 2006 | ||
Lydia W. Thomas | 64 | 2008 | ||
Michael T. Tokarz | 58 | 2006 |
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If a quorum is present or represented at the Annual Meeting, a plurality of the votes cast in respect of the shares of common stock present in person or represented by proxy at the Annual Meeting and entitled to vote shall be required to elect the foregoing nominees (or their replacements as designated by the Board of Directors) to serve as directors. Abstentions from voting will have no effect. Broker non-votes will not affect the outcome of this proposal because shares that constitute broker non-votes are not considered “shares present” for voting purposes. Generally, broker non-votes occur on a matter when a broker is not permitted to vote on that matter without instruction from the beneficial owner and instructions are not given. Unless otherwise instructed, the proxy holders will vote proxies held by themFOR the election of the nominees listed above.
The Board recommends a vote FOR the election of the nominees set forth above.
THE CONVERSION OF ALL OUTSTANDING SHARES OF
SERIES B COMMON STOCK INTO SHARES OF SERIES A COMMON STOCK
Our Board of Directors, based on the recommendation and approval of a special committee of the Board of Directors, as discussed below, has authorized, and recommends for approval, a proposal for the conversion (the “Conversion”) of each outstanding share of Series B Common Stock of the Company into one (the “Exchange Ratio”) share of Series A Common Stock in accordance with Section 4.3(f)(vi) of the Company’s Restated Certificate of Incorporation. More information about that recommendation, and the reasons for that recommendation, are set forth below. Whether you are a holder of the Series A Common Stock or the Series B Common Stock, you are encouraged to read this section carefully.
Under Section 4.3(f)(vi) of the Company’s Restated Certificate of Incorporation, approval of the Conversion proposal will require the affirmative vote of a majority of the votes entitled to be cast by the holders of the Series A Common Stock and the holders of the Series B Common Stock, voting together as a single class, and neither series of common stock shall be entitled to a separate class or series vote. Abstentions and broker non-votes will not be counted as a vote for the Conversion proposal and will have the same effect as a vote against the Conversion proposal. For your reference, Section 4.3(f)(vi) of the Company’s Restated Certificate of Incorporation is set forth in Appendix A hereto.
If the proposal is approved by the stockholders, each share of Series B Common Stock will be converted automatically into a share of Series A Common Stock – which means all shares of the Company’s common stock thereafter will be Series A Common Stock and will have the identical rights and preferences, and specifically that each share of our common stock will have one vote per share.
The Conversion proposal will not require an amendment to the Restated Certificate of Incorporation, but if the Conversion is approved, our Board of Directors will authorize the filing of a certificate of retirement in connection with the Series B Common Stock in accordance with Section 4.3(f)(xvii) of the Company’s Restated Certificate of Incorporation and may also approve further restatement of the Restated Certificate of Incorporation, as permitted by Section 245 of the Delaware General Corporation Law, to eliminate other elements of the Restated Certificate of Incorporation that are no longer necessary, provided that there is no discrepancy between the further restatement of the Restated Certificate of Incorporation and the original document. We expect to file the proposed certificate of retirement and the further amendment and restatement of the Restated Certificate of Incorporation with the Secretary of State as soon as practicable after obtaining stockholder approval.
Assuming the Conversion is approved, the Company will have authorization to issue a single class of Series A Common Stock following the Conversion. The total number of shares authorized for issuance will consist of 600,000,000 shares of Series A Common Stock and 60,000,000 shares of Preferred Stock, the same number of shares the Company is currently authorized to issue under the Restated Certificate of Incorporation.
Background of the Dual-Class Structure
The Company currently has two classes of common stock outstanding – Series A Common Stock and Series B Common Stock. The powers, privileges, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, are identical in all respects except for voting rights. In accordance with the Restated Certificate of Incorporation, each holder of Series A Common Stock is entitled to one vote per share and each holder of the Series B Common Stock is generally entitled to eight votes per share.
As of December 3, 2008, there were 29,643,521 shares of the Series A Common Stock outstanding held by 25 stockholders of record and 85,844,920 shares of the Series B Common Stock outstanding held by 120 stockholders of record. As of that date, the outstanding Series B Common Stock represented approximately 74.3% of the Company’s shares of outstanding common stock, and approximately 95.9% of the total voting power of the outstanding common stock.
The dual-class common stock structure was created prior to the Company’s initial public offering in May 2006, so that the Company’s former parent, Walter Industries, Inc. (“Walter Industries”), could complete our initial public offering of the Series A Common Stock and still distribute the remaining shares of the Company’s common stock held by Walter Industries – all the outstanding shares of the Series B Common Stock – in a tax free spin-off (the “Spin-off”). In connection with the Spin-off, Walter Industries obtained a ruling from the Internal Revenue Service (“IRS”) that the distribution would be tax-free to Walter Industries and its shareholders for U.S. federal income tax purposes.
The Company’s Restated Certificate of Incorporation limits certain actions of the Company in connection with the Conversion. Section 4.3(f)(vi) provides that the Company must receive an opinion of counsel or a favorable private letter ruling from the IRS to the effect that the Conversion will not affect the tax-free treatment of the Spin-off. The opinion of counsel or private letter ruling must be satisfactory to Walter Industries in its sole and absolute discretion, which shall be exercised in good faith solely to preserve the tax-free status of the Spin-off. In determining whether an opinion or ruling is satisfactory, Walter Industries was entitled to consider, among other factors, the appropriateness of any underlying assumptions and representations used as a basis for the opinion or ruling. As discussed below, the Company obtained the opinion of counsel required by Section 4.3(f)(vi) and Walter Industries has confirmed that such opinion is satisfactory.
Prior to the Spin-off, Walter Industries and the Company also entered into an Income Tax Allocation Agreement dated May 26, 2006 (the “Tax Allocation Agreement”) governing the rights and responsibilities of the Company and Walter Industries with respect to certain tax matters. The Tax Allocation Agreement contains certain additional covenants applicable to the Company, including a covenant to comply with and not take any action inconsistent with the representations made to the IRS in connection with the request for the private letter ruling obtained by Walter Industries. In addition, under the Tax Allocation Agreement, we would be required to indemnify Walter Industries for any tax imposed on Walter Industries as a result of the Conversion. The Tax Allocation Agreement will continue to be effective in accordance with its terms.
Trading History and Disadvantages of the Dual-Class Structure
Since the Spin-off, management of the Company believes that a significant amount of confusion has arisen among stockholders, analysts, the financial media and other members of the financial community with respect to the Company’s dual-class capital structure. The use of different trading symbols by the NYSE (“MWA” and “MWA.B”) for the two classes has contributed to the confusion, given that these trading symbols have been reproduced, recorded or described in different ways by various sources. Some stockholders have reported an inability to use certain reporting services to find trading prices for the Series B Common Stock. As a result, the public may have obtained conflicting and confusing financial information from various third-party sources. The Company has been required to spend time and resources correcting flawed information and educating existing and potential investors.
Since the adoption of the Company’s dual-class structure, the Series A Common Stock has generally traded on the New York Stock Exchange at a premium to the Series B Common Stock, despite the higher voting powers afforded the Series B Common Stock. The difference in trading between the two classes of common stock has fluctuated between a Series A Common Stock discount of 1.6% and a premium of 27.0% as compared to the closing trading price for the Series B Common Stock during the period from the time of the Spin-off on December 14, 2006 to the end of the Company’s first full fiscal year on September 30, 2007. During the second fiscal year from October 1, 2007 through September 30, 2008, the Series A Common Stock traded at a discount as low as 8.6% and a premium as high as 63.9% as compared to the closing trading price for the Series B Common Stock. Moreover, the trading discount for the Series B Common Stock has generally increased during volatile trading markets. For example, the average discount for the Series B Common Stock as compared to the closing trading price for the Series A Common Stock was approximately 20.9% between October 1, 2008 and October 29, 2008, the day before the announcement that the Board of Directors would present the Conversion proposal to the stockholders.
The average daily trading volume of the Series A Common Stock in the most recent fiscal year is greater than that of the Series B Common Stock, despite the greater number of outstanding shares of the Series B Common Stock. While we believe that the differing liquidity profiles may be partially responsible for the price disparity between the two classes of common stock, we do not have a view as to the underlying causes of the lower trading volume of the Series B Common Stock.
The trading differential between the Series A Common Stock and the Series B Common Stock and the market confusion described above has given rise to certain business difficulties for the Company. We believe that it is important for us to have the flexibility to use equity as consideration in future acquisitions or to raise capital, although no such acquisitions or offerings are contemplated at this time. The dual-class structure may pose an obstacle to the use of equity as an acquisition currency, given that a recipient of our common stock would need to evaluate the attributes and trading characteristics of our two classes of common stock, and may perceive that either class has certain advantages or disadvantages compared to the other. For example, the Series A Common Stock has an attractive liquidity profile and generally trades at a higher price, but has reduced voting rights, and the Series B Common Stock has a less attractive liquidity profile but has greater voting rights. Similarly, we believe
that the less attractive liquidity profile of the Series B Common Stock and the generally lower price could make it a costly instrument to raise capital from potential investors. Using Series A Common Stock to raise capital could exacerbate the differences in the liquidity profiles of the two classes.
The trading differential also creates unnecessary complexity in the use of options and other stock-based awards as compensation to retain management and key employees. The Company’s Amended and Restated 2006 Stock Incentive Plan requires that we grant equity compensation awards to management and other key employees in the form of only Series A Common Stock.
In summary, we believe that the conversion of the Series B Common Stock into Series A Common Stock is in the best interests of the Company and both the holders of the Series A Common Stock and the Series B Common Stock in that we expect the Conversion will improve the liquidity profile of our common stock overall, allow for easier analysis and valuation of the new single class of common stock, and eliminate confusion within the financial community regarding the current dual-class structure. In addition, we expect that the new capital structure will enable us to use the Company’s capital stock more effectively as acquisition currency and for possible future offerings to potential investors, although no such acquisitions or offerings are contemplated at this time. Finally, we believe that the new capital structure will simplify the Company’s employee compensation incentives. Nevertheless, we cannot guarantee that the benefits of a simplified capital structure will be accomplished to the extent and in the manner we currently expect, if at all.
Considerations Involving the Conversion Proposal
This trading volume disparity, and the price differential prior to the announcement of the Conversion proposal, led the Company’s management to discuss the trading patterns of the different classes with outside advisors, including financial and legal advisors. In August 2008, management met with the Board of Directors to request that the Board of Directors formally consider actions in light of the trading history and its effect on the stockholders. In reviewing the matter, the Board of Directors considered the history of the two classes of common stock, the marketplace confusion that existed as a result of the presence of two classes of stock, and its effect on liquidity. The Board of Directors considered the reports of various analysts, received a presentation from an investment banking firm, and reviewed the terms of the Restated Certificate of Incorporation.
The Board of Directors noted that a Conversion proposal under Section 4.3(f)(vi) would require an opinion of counsel or private letter ruling from the IRS satisfactory to Walter Industries, and considered whether there was any potential for a conflict of interest for the members of the Board of Directors who were also members of the board of directors of Walter Industries. The Board of Directors determined to form a committee of directors who were not also directors of Walter Industries to further discuss options available to the Company and to make a recommendation to the full Board of Directors and the stockholders in light of the upcoming stockholders’ meeting. The Board of Directors appointed a special committee comprised of Dr. Lydia W. Thomas and Messrs. Donald N. Boyce, Gregory E. Hyland, Joseph B. Leonard, and Neil A. Springer (the “Special Committee”). Dr. Thomas was elected to be the chairperson of the Committee.
The Special Committee retained an outside law firm, Latham & Watkins LLP, to assist it in its deliberations and considerations. Members and representatives of the Special Committee interviewed investment banking firms and selected Banc of America Securities to render financial advice to the Special Committee as it considered the Conversion proposal. The Special Committee also retained special tax counsel, King & Spalding LLP, to advise it in its deliberations and to render the tax opinion required to be satisfactory to Walter Industries.
During the month of October 2008, the Special Committee held three meetings regarding the proposed Conversion. The Special Committee reviewed steps taken by other companies to eliminate a dual-class structure under similar circumstances. At a further meeting of the Special Committee on October 28, 2008, Banc of America Securities reviewed with the Special Committee its financial analysis and delivered to the Special Committee an oral opinion, which was confirmed by delivery of a written opinion dated October 28, 2008, to the effect that, as of that date and based on and subject to various assumptions and limitations described in its opinion, the Exchange Ratio provided for in the Conversion was fair, from a financial point of view, to holders of the Series A Common Stock and the Series B Common Stock. Such opinion is discussed below.
In addition to the Banc of America Securities’ opinion, the Special Committee considered other factors at that meeting and received the advice of its legal and financial advisers. Among other things, the Special Committee discussed with and received advice from its tax counsel regarding whether the proposed reclassification was likely to affect the tax-free nature of the Spin-off. After a review of all the factors, and receipt of the presentation and opinion of Banc of America Securities, the Special Committee determined to propose the Conversion to the stockholders and to recommend to the stockholders that the Conversion be approved. The Special Committee also determined to recommend to the Board of Directors that the Conversion be presented to the stockholders, and that the Board of Directors adopt the recommendation of the Special Committee and approve the proposal for submission to the stockholders.
Factors Considered by the Special Committee
In determining to approve and recommend the Conversion proposal, the Special Committee considered a number of factors, including the possible benefits that the Company and its stockholders may derive from each of the following:
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The Special Committee also considered the following factors in connection with its approval and recommendation of the Conversion proposal:
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This discussion of information and factors considered by the Special Committee is not intended to be exhaustive, but includes the material factors considered by the Special Committee in making its decision. In view of the wide variety of factors considered by the Special Committee in connection with its evaluation of the Conversion proposal and the complexity of these matters, the Special Committee did not consider it practicable to, nor did it attempt to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. In considering the factors described above, individual members of the Special Committee may have given different weight to different factors.
Factors Considered by the Board of Directors
On October 29, 2008, the Board of Directors reviewed and discussed the recommendation of the Special Committee with the Special Committee and outside counsel for the Special Committee. Based on all of the information considered by it, the Board of Directors determined to adopt the recommendation of the Special Committee and approved the Conversion proposal and recommended that it be submitted to the stockholders for their approval in the manner contemplated by Section 4.3(f)(vi) of the Company’s Restated Certificate of Incorporation.
In determining that the Conversion proposal is advisable and fair to, and in the best interests of, the Company and the holders of the Series A Common Stock and the Series B Common
Stock, the Board of Directors carefully considered (i) the conclusions and recommendations of the Special Committee, (ii) each of the factors referred to above as having been taken into account by the Special Committee, (iii) the King & Spalding LLP tax opinion and (iv) the opinion of Banc of America Securities, dated October 28, 2008, to the Special Committee and the Board of Directors as to the fairness, from a financial point of view, and as of the date of the opinion, of the Exchange Ratio provided for in the Conversion to the holders of the Series A Common Stock and the Series B Common Stock as more fully described below in the section entitled “Opinion of the Financial Advisor”. The Board of Directors considered these factors and other factors as a whole and did not quantify or otherwise assign relative weights to the different factors. Individual directors may have assigned in their own view varying weights to different factors.
Opinion of the Financial Advisor
The Company has retained Banc of America Securities to act as financial advisor to the Special Committee in connection with the proposed Conversion. Banc of America Securities is an internationally recognized investment banking firm, which is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. The Special Committee selected Banc of America Securities to act as its financial advisor in connection with the Conversion on the basis of Banc of America Securities’ experience, qualifications, reputation in the investment community and its familiarity with the Company.
On October 28, 2008, at a meeting of the Special Committee held to consider and evaluate the Conversion, Banc of America Securities delivered to the Special Committee an oral opinion, which was confirmed by delivery of a written opinion dated October 28, 2008 to the Special Committee and the Board of Directors, to the effect that, as of the date of the opinion and based on and subject to various assumptions and limitations described in its opinion, the Exchange Ratio provided for in the Conversion was fair, from a financial point of view, to the holders of Series A Common Stock and the holders of Series B Common Stock.
The full text of Banc of America Securities’ written opinion to the Special Committee and the Board of Directors, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Appendix B to this document and is incorporated by reference herein in its entirety. The following summary of Banc of America Securities’ opinion is qualified in its entirety by reference to the full text of the opinion. Banc of America Securities delivered its opinion to the Special Committee and the Board of Directors for the benefit and use of the Special Committee and the Board of Directors in connection with and for purposes of their evaluation of the Exchange Ratio from a financial point of view. Banc of America Securities’ opinion does not address any other aspect of the Conversion and does not constitute a recommendation to any stockholder as to how to vote or act in connection with the proposed Conversion.
In connection with rendering its opinion, Banc of America Securities:
In arriving at its opinion, Banc of America Securities assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with it and relied upon the assurances of the Company’s management that they were not aware of any facts or circumstances that would make such information or data inaccurate or misleading in any material respect. Banc of America Securities has not made or been provided with any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company, nor did Banc of America Securities make any physical inspection of the Company’s properties or assets. Banc of America Securities did not evaluate the solvency of the Company under any state or federal laws relating to bankruptcy, insolvency or similar matters. Banc of America Securities assumed, at the Company’s direction, that the final resolution submitted to the Company’s stockholders for approval would not differ in any material respect from the terms and conditions described to Banc of America Securities by the Company’s management as of October 28, 2008, and that the Conversion will be consummated in accordance with Article IV, Section 4.3(f)(vi) of the Restated Certificate of Incorporation. Banc of America Securities also assumed, at the Company’s direction, that the Conversion will not affect the treatment under Section 355 of the Internal Revenue Code of the distribution, effected December 14, 2006, by Walter Industries of all of its Company shares, which distribution was made pro rata to holders of Walter Industries’ capital stock in connection with the Spin-off, and that the Conversion will otherwise qualify as a tax-free exchange and recapitalization for United States federal income tax purposes. Banc of
America Securities noted that it is not a legal or tax expert and relied upon, without assuming any responsibility for independent verification or liability therefor, the assessment of the Company’s legal and tax advisors with respect to the legal and tax matters related to the Conversion.
Banc of America Securities expressed no view or opinion as to any terms or other aspects of the Conversion (other than the Exchange Ratio to the extent expressly specified in the opinion), including, without limitation, the form or structure of the Conversion. Banc of America Securities’ opinion was limited to the fairness, from a financial point of view, of the Exchange Ratio to the holders of Series A Common Stock and the holders of Series B Common Stock, and no opinion or view was expressed with respect to the relative fairness of the Exchange Ratio to the holders of Series A Common Stock as compared to the holders of Series B Common Stock, or with respect to the fairness of the amount, nature or any other aspect of the compensation to any of the Company’s officers, directors or employees, or class of such persons, relative to the Exchange Ratio. Furthermore, no opinion or view was expressed as to the relative merits of the Conversion in comparison to other strategies or transactions that might be available to the Company or in which the Company might engage or as to the Company’s underlying business decision to proceed with or effect the Conversion. Banc of America Securities did not express any opinion as to what the value of Series A Common Stock actually would be when issued or the prices at which Series A Common Stock or Series B Common Stock would trade at any time. In addition, Banc of America Securities expressed no opinion or recommendation as to how any stockholder should vote or act in connection with the Conversion. Except as described above, the Company imposed no limitations on the investigations made or procedures followed by Banc of America Securities in rendering its opinion.
Banc of America Securities’ opinion was necessarily based on financial, economic, monetary, market and other conditions and circumstances as in effect on, and the information made available to Banc of America Securities as of, the date of its opinion. It should be understood that subsequent developments may affect its opinion, and Banc of America Securities does not have any obligation to update, revise or reaffirm its opinion. The issuance of Banc of America Securities’ opinion was approved by Banc of America Securities’ Fairness Opinion Review Committee.
The following represents a brief summary of the material financial analyses presented by Banc of America Securities to the Special Committee and the Board of Directors in connection with its opinion.The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by Banc of America Securities, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by Banc of America Securities. Considering the data set forth in the tables belowwithout considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses.
Historical Trading Activity of Series A Common Stock and Series B Common Stock. For the time period commencing December 14, 2006 through October 22, 2008, Banc of America
Securities reviewed publicly available information for each quarter (including calendar year Fourth Quarter 2006 beginning December 14, 2006 and calendar year Fourth Quarter 2008 through October 22, 2008) regarding the Series A Common Stock and the Series B Common Stock, including with respect to maximum premiums between the Series A Common Stock and the Series B Common Stock, the average daily trading volume, and the period ending short interest. The results of this review were as follows:
Quarterly Trading Statistics
Calendar Year Quarter | Q4 ‘06 | Q1 ‘07 | Q2 ‘07 | Q3 ‘07 | Q4 ‘07 | Q1 ‘08 | Q2 ‘08 | Q3 ‘08 | Q4 ‘08 | ||||||||||||||||||
Average Series A Premium (Discount) to Series B | $0.16 | $0.12 | $0.64 | $1.53 | $0.89 | ($0.28) | $0.10 | $0.73 | $1.56 | ||||||||||||||||||
Maximum Series A Premium | $ | 0.37 | $ | 0.42 | $ | 4.01 | $ | 3.32 | $ | 2.46 | $ | 0.48 | $ | 0.43 | $ | 3.50 | $ | 1.91 | |||||||||
Maximum Series B Premium | $ | 0.03 | $ | 0.23 | NA | NA | $ | 0.93 | $ | 0.65 | $ | 0.70 | $ | 0.36 | NA | ||||||||||||
Series A ADTV (shares 000s) | 2,066 | 610 | 613 | 652 | 559 | 449 | 494 | 645 | 730 | ||||||||||||||||||
Series B ADTV (shares 000s) | 2,970 | 610 | 511 | 606 | 596 | 302 | 256 | 349 | 693 | ||||||||||||||||||
Series A Short Interest (shares 000s) (a) | 8,196 | 8,571 | 13,921 | 12,648 | 9,952 | 8,745 | 9,878 | 10,427 | NA | ||||||||||||||||||
Series B Short Interest (shares 000s) (a) | 77 | 2,931 | 2,132 | 1,376 | 2,533 | 2,400 | 2,703 | 1,664 | NA |
Source: Bloomberg as of October 22, 2008.
Note: “ADTV” means “average daily trading volume.”
Note: Quarters represent calendar year quarters as opposed to fiscal year quarters.
Banc of America Securities noted that for most of the reviewed time periods the Series A Common Stock was trading at a premium to the Series B Common Stock, that the trading volume of the Series A Common Stock was higher than the trading volume of the Series B Common Stock, and that the short interest of the Series A Common Stock was higher than the short interest of the Series B Common Stock.
Selected Publicly Traded Companies Analysis. Banc of America Securities reviewed publicly available financial and stock market information for the Company’s common stock and for the following 13 publicly traded companies in the flow control and building products industries:
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Using publicly available information as of October 22, 2008, for each of the selected publicly traded companies, Banc of America Securities reviewed information with respect to the public float, average absolute percentage daily price changes, average daily trading volume and the median absolute percentage daily price change per $5 million of trading volume for such companies and compared it to that of the Company. The results were as follows:
Trading Statistics of the Company and Selected Flow Control Peers ($ in millions)
Public Float (b) | Average Absolute % Daily Price Change 2008 YTD | Average Daily Trading Volume 2008 YTD | Median Absolute % Daily Price Change Per $5MM Trading Volume YTD (d) | |||||||||
MWA Series A | $ | 199 | 3.3 | % | $ | 4.9 | 3.0 | % | ||||
MWA Series B | $ | 446 | 2.8 | % | $ | 2.7 | 4.5 | % | ||||
MWA Pro Forma (a) | $ | 645 | 3.1 | % (c) | $ | 7.7 | 1.8 | % (e) | ||||
CIR | $ | 518 | 2.7 | % | $ | 10.0 | 1.1 | % | ||||
CR | $ | 903 | 1.9 | % | $ | 15.5 | 0.5 | % | ||||
FLS | $ | 3,016 | 3.0 | % | $ | 110.1 | 0.1 | % | ||||
IEX | $ | 1,770 | 1.8 | % | $ | 19.7 | 0.3 | % | ||||
PNR | $ | 2,501 | 1.8 | % | $ | 29.4 | 0.2 | % | ||||
WTS | $ | 693 | 2.2 | % | $ | 16.8 | 0.6 | % |
Trading Statistics of the Company and Selected Building Products Peers ($ in millions)
Public Float (b) | Average Absolute % Daily Price Change 2008 YTD | Average Daily Trading Volume 2008 YTD | Median Absolute % Daily Price Change Per $5MM Trading Volume YTD (d) | |||||||||
MWA Series A | $ | 199 | 3.3 | % | $ | 4.9 | 3.0 | % | ||||
MWA Series B | $ | 446 | 2.8 | % | $ | 2.7 | 4.5 | % | ||||
MWA Pro Forma (a) | $ | 645 | 3.1 | % (c) | $ | 7.7 | 1.8 | % (e) | ||||
AWI | $ | 422 | 1.9 | % | $ | 10.2 | 0.7 | % | ||||
BDK | $ | 2,918 | 1.8 | % | $ | 63.5 | 0.1 | % | ||||
MAS | $ | 3,985 | 2.5 | % | $ | 110.1 | 0.1 | % | ||||
MHK | $ | 2,621 | 2.2 | % | $ | 64.7 | 0.1 | % | ||||
OC | $ | 1,726 | 2.1 | % | $ | 24.6 | 0.4 | % | ||||
SHW | $ | 5,445 | 2.0 | % | $ | 110.8 | 0.1 | % | ||||
SWK | $ | 2,575 | 1.8 | % | $ | 38.9 | 0.2 | % |
Source: FactSet Research Systems, Public filings.
Banc of America Securities noted that (i) the public floats of the Company’s Series A Common Stock and Series B Common Stock were lower than those of most of the peer companies, (ii) the average absolute percentage daily price changes for the Company’s Series A Common Stock and Series B Common Stock were higher than those of most of the peer companies, (iii) the average daily trading volume of the Company’s Series A Common Stock and Series B Common Stock were lower than those of the peer companies, and (iv) the median absolute percent daily price changes per $5 million of trading volume for the Company’s Series A Common Stock and Series B Common Stock were higher than those of the peer companies.
Banc of America Securities also reviewed the short interest as a percentage of public float of the Company’s Series A Common Stock and Series B Common Stock and compared it with that of the selected publicly traded companies as of January 12, 2007 (shortly after the Spin-off) and September 30, 2008. Banc of America Securities noted that on each of the selected dates, the short interest as a percentage of public float of the Company’s Series A Common Stock was substantially higher than that of the selected comparable companies.
Selected Publicly Traded Companies with Dual-Class Capital Structures.Banc of America Securities identified forty companies that had two classes of publicly traded common stock with different voting rights and a market capitalization of greater than $100 million. Of those forty companies:
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Selected Precedent Transactions.Banc of America Securities reviewed, to the extent publicly available, financial information relating to ten transactions in which the applicable company recapitalized its equity into a single class of common stock from a dual class of common stock that had been created as a result of a spin-off transaction. In each selected reclassification transaction, two classes of a single company with differential voting rights were reclassified or combined into a single class of common stock. With respect to each such transaction, Banc of America Securities reviewed the exchange ratio and the average premium/discount of the high vote shares to the low vote shares of the spin-off company at specified dates following the spin off and through the announcement of the reclassification.
Miscellaneous
No company, business or transaction used in the above analyses is identical or directly comparable to the Company or to the Conversion. Accordingly, an evaluation of the above analyses is not entirely mathematical. Rather, the above analyses involve complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the information regarding the companies, business segments or transactions to which the Company and the Conversion were compared.
As noted above, the discussion set forth above is a summary of the material financial analyses presented by Banc of America Securities to the Special Committee and the Board of Directors in connection with its opinion and is not a comprehensive description of all analyses undertaken by Banc of America Securities in connection with its opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to partial analysis or summary description. Banc of America Securities believes that its analyses summarized above must be considered as a whole. Banc of America Securities further believes that selecting portions of its analyses and the factors considered or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying Banc of America Securities’ analyses and opinion. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was given greater weight than any other analysis referred to in the summary.
In performing its analyses, Banc of America Securities considered industry performance, general business and economic conditions and other matters, many of which are beyond the control of the Company. Banc of America Securities’ analyses were prepared solely as part of Banc of America Securities’ analysis of the fairness, from a financial point of view, of the Exchange Ratio provided for in the Conversion and were provided to the Special Committee in connection with the delivery of Banc of America Securities’ opinion. The analyses do not purport to be appraisals or reflect the prices at which the Company might actually be sold or the prices at which any securities have traded or may trade at any time in the future.
The Special Committee and the Board of Directors determined to submit the Conversion to a stockholder vote on the terms and pursuant to the procedures contemplated by Section 4.3(f)(vi) of the Company’s Restated Certificate of Incorporation. As described above, Banc of America Securities’ opinion and analyses were only one of many factors considered by the Special Committee and the Board of Directors in their respective evaluations of the proposed Conversion and should not be viewed as determinative of the views of the Special Committee, the Board of Directors or the Company’s management with respect to the Conversion or the Exchange Ratio.
The Company has agreed to pay Banc of America Securities for its services in connection with the Conversion an aggregate fee of $750,000, which was payable upon the rendering of Banc of America Securities’ opinion. In addition, the Company has agreed to reimburse Banc of America Securities for its expenses incurred in connection with Banc of America Securities’ engagement and to indemnify Banc of America Securities, any controlling person of Banc of America Securities and each of their respective directors, officers, employees, agents and affiliates against specified liabilities, including liabilities under the federal securities laws.
Banc of America Securities and its affiliates comprise a full service securities firm and commercial bank engaged in securities trading and brokerage activities and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and financial advisory services and other commercial services and products to a wide range of corporations and individuals. In the ordinary course
of their businesses, Banc of America Securities and its affiliates may actively trade the debt, equity or other securities or financial instruments (including bank loans or other obligations) of the Company and certain of its affiliates for their own accounts or for the accounts of customers, and accordingly, Banc of America Securities or its affiliates may at any time hold long or short positions in such securities or financial instruments.
Banc of America Securities and its affiliates have in the past provided, currently are providing, and in the future may provide investment banking, commercial banking and other financial services to the Company and have received or in the future may receive compensation for the rendering of these services, including (i) having acted or acting as administrative agent and joint lead arranger for, and lender under, certain credit facilities of the Company, (ii) having acted as dealer manager for a debt tender offer and consent solicitation of the Company, (iii) having acted as lead manager for a debt offering of the Company, (iv) having acted as co-manager for the initial public offering of the Company, and (v) having provided or providing certain interest rate swaps, commodity swaps, treasury and trade services for the Company. In addition, Banc of America Specialist, Inc., an affiliate of Banc of America Securities, acts as a specialist for the Company’s Series A Common Stock and Series B Common Stock on the New York Stock Exchange. Banc of America Securities also acted as financial advisor to Walter Industries in connection with the Spin-off.
Principal Effects of the Proposed Conversion
If the proposed Conversion is approved and becomes effective, each share of our outstanding Series B Common Stock will automatically be converted into one share of our Series A Common Stock. The Company, in accordance with Section 4.3(f)(xvii) of the Restated Certificate of Incorporation, will then file a certificate of retirement with the State of Delaware and will subsequently file, in accordance with Section 245 of the Delaware General Corporate Law, a further restatement of the Restated Certificate of Incorporation with the State of Delaware, which together will have the effect of eliminating from the further restatement of the Restated Certificate of Incorporation all elements that are no longer necessary, including all references to Series B Common Stock. The number of shares of common stock we are authorized to issue, 600,000,000, will not change, and we will continue to be authorized to issue up to 60,000,000 shares of Preferred Stock. The total number of outstanding shares of common stock will not change at the time of the proposed Conversion. There are no shares of Preferred Stock currently outstanding and none will be issued as a result of the Conversion.
If the Conversion becomes effective, it will have the following effects, among others, on the holders of the Series A Common Stock and the Series B Common Stock and on the Company.
Voting Power of Holders of Series A Common Stock and Series B Common Stock
The holders of the Series A Common Stock currently have one vote per share. The holders of the Series B Common Stock currently have eight votes per share, except that the holders of the Series B Common Stock only have one vote per share with respect to the vote on the proposed Conversion. After the proposed Conversion, all holders of outstanding Series A Common Stock will have one vote per share.
Economic Interests of Holders of Series A Common Stock and Series B Common Stock
The proposed Conversion will have no impact on the economic interest of holders of Series A Common Stock or the Series B Common Stock in the assets of the Company.
Capitalization
As noted, the proposed Conversion will have no impact on the total issued and outstanding shares of common stock or on the total number of shares of common stock we are authorized to issue.
Accounting Matters
If the proposed conversion becomes effective, we will revise the stockholders’ equity portion of the Company’s balance sheet to show the par value attributable to a single class of common stock rather than the two current classes separately.
Market Price of the Company’s Common Stock
If the proposed Conversion becomes effective, the market price of shares of the Company’s Series A Common Stock will depend on many factors, including our future performance, general market conditions and conditions in the markets in which we operate. Accordingly, we cannot predict the price at which the Company’s Series A Common Stock will trade after the proposed Conversion occurs.
New York Stock Exchange Listing of the Company’s Common Stock, CUSIP Numbers
If authorization is received from the New York Stock Exchange, then, after the proposed Conversion becomes effective, all of the Company’s outstanding common stock will be listed on the New York Stock Exchange under the ticker symbol “MWA”. We also expect that our Series B Common Stock, “MWA.B”, will be delisted if the proposed Conversion is approved. Our Series A Common Stock (including such shares into which our Series B Common Stock is converted) will retain and use the CUSIP security identification number presently assigned to our Series A Common Stock.
Stock Incentive Plans and Employee Stock Purchase Plans
Outstanding options to purchase shares of Series A Common Stock and other awards with respect to the Series A Common Stock issued under employee stock-based incentive plans will remain outstanding as options and awards for the same number of shares of common stock upon the same terms as in effect before the Conversion.
United States Federal Income Tax Consequences of the Proposed Conversion
The following is a summary of the material U.S. federal income tax consequences of the proposed Conversion to the Company’s stockholders and to the Company. This discussion is based on the Internal Revenue Code, the Treasury Regulations promulgated thereunder,
published statements by the IRS and other applicable authorities on the date of this proxy statement, all of which are subject to change, possibly with retroactive effect. This discussion does not address the tax consequences to holders that are subject to special tax rules, such as banks, insurance companies, regulated investment companies, personal holding companies, foreign entities, nonresident alien individuals, broker-dealers and tax-exempt entities. Further, it does not address any state, local or foreign income or other tax consequences, or any consequences based on facts particular to a given holder. This summary assumes that the shares of Series A Common Stock or Series B Common Stock are held as capital assets, as defined in Section 1221 of the Internal Revenue Code, immediately prior to the proposed Conversion.
The material U.S. federal income tax consequences of the proposed Conversion are as follows:
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No gain or loss will be recognized for U.S. federal income tax purposes by the Company upon the Conversion of shares of Series B Common Stock into Series A Common Stock.
We cannot assure you that the IRS or the courts will not take contrary positions. You should consult your tax advisor for a full understanding of the tax consequences of the proposed Conversion.
Required Vote
As set forth in the Company’s Restated Certificate of Incorporation, the proposed Conversion of shares of Series B Common Stock into shares of Series A Common Stock requires the affirmative vote of the holders of a majority of the votes entitled to be cast by holders of the Series A Common Stock and holders of the Series B Common Stock, voting together as a single class. Each holder of Series A Common Stock and Series B Common Stock is entitled to cast one vote per share on the proposed Conversion. If we are unable to obtain the required approval, the Conversion of the Series B Common Stock into Series A Common Stock will not occur.
Reservation of Right to Abandon Proposed Conversion
The Board of Directors reserves the right to abandon the proposed Conversion without further action by our stockholders at any time before the Annual Meeting. Although the Board of
Directors does not currently anticipate exercising its right to abandon the proposed Conversion and is not currently aware of specific events that would cause it to abandon the proposed Conversion, should the Board of Directors subsequently determine that the conversion of the Series B Common Stock into Series A Common Stock is no longer in the best interests of the Company or its stockholders, the Board will not proceed with the proposed Conversion.
The completion of the proposed Conversion is expressly contingent upon the continuing effectiveness of the opinion of counsel we have received from King & Spalding LLP that the proposed Conversion will not adversely affect the tax-free status of the Spin-off.
No Appraisal Rights
Stockholders do not have appraisal rights under Delaware General Corporation Law or under the Company’s Restated Certificate of Incorporation in connection with this proposed Conversion.
Procedure for Effecting Conversion and Impact on Holders of Stock Certificates
The proposed Conversion will be effective automatically on the date on which the stockholders approve such Conversion. We will then file with the Secretary of State of the State of Delaware a certificate of retirement to our Restated Certificate of Incorporation as well as a further restatement of the Restated Certificate of Incorporation that removes all elements that are no longer necessary, including all references to the Series B Common Stock.
Following the proposed Conversion, any book entry representing shares of Series B Common Stock will automatically represent an equal number of shares of Series A Common Stock and it will not be necessary for record holders of Series B Common Stock to take any action to cause their Series B Common Stock to be converted to Series A Common Stock.
The Board recommends a vote FOR this proposal.
AMENDMENT TO THE AMENDED AND RESTATED 2006 STOCK INCENTIVE PLAN
The Board of Directors adopted the 2006 Stock Incentive Plan on May 24, 2006 and amended and restated the Plan on November 30, 2007. The Board is recommending that stockholders approve the amendment to the Amended and Restated 2006 Stock Incentive Plan (as amended, the “Stock Plan”) at the Annual Meeting. The amendment increases the shares available for issuance under the Stock Plan from 8,000,000 shares to 16,000,000 shares. The Stock Plan is integral to the Company’s compensation strategies and programs. The Board believes that the Stock Plan provides the flexibility that the Company needs to keep pace with its competitors and effectively recruit, motivate, and retain the caliber of employees and directors essential for achievement of the Company’s success.
As of December 3, 2008, there were 1,536,728 shares available for future grant under the Stock Plan of the original 8,000,000 shares reserved for issuance.
The Stock Plan permits the grant of options, restricted stock units, restricted stock, stock appreciation rights (“SARs”), performance awards and other stock-based awards (collectively, “stock awards”). Stockholder approval of the Stock Plan is intended to permit the performance-based awards discussed below to qualify for deductibility under Section 162(m) of the Internal Revenue Code. Individuals eligible to receive awards and grants under the Stock Plan include employees, officers, consultants, advisors, and directors of the Company and its subsidiaries. As of September 30, 2008, there are 9 directors, 11 executive officers and approximately 75 employees other than executive officers who are authorized to receive awards under the Stock Plan.
The table below sets forth information with respect to stock and option awards made to our executive officers, directors and employees under the Stock Plan during fiscal 2008.
Fiscal 2008 Plan Benefits
Amended and Restated 2006 Stock Incentive Plan | ||||||
Number of Units Granted | ||||||
Name and Position | Dollar Value (1) | RSUs | Options | |||
Gregory E. Hyland Chairman, President and CEO | $2,000,000 | 103,413 | 226,757 | |||
Evan L. Hart Senior Vice President and Chief Financial Officer | $ 292,244 | 16,876 | 35,211 | |||
Dale B. Smith Chief Executive Officer, Mueller Co. | $ 350,000 | 18,097 | 39,683 | |||
Raymond P. Torok President, U.S. Pipe | $ 463,577 | 23,970 | 52,560 | |||
Thomas E. Fish President, Anvil | $ 471,279 | 24,368 | 53,433 | |||
Michael T. Vollkommer (2) Executive Vice President, Chief Financial Officer (through July 15, 2008) | $ 492,003 | 25,440 | 55,782 | |||
Doyce Gaskin President, Mueller Co. (through June 24, 2008) | $ 519,998 | 26,887 | 58,957 | |||
Current Executive Group (11 people) | $6,233,857 | 384,005 | 609,733 | |||
Non-Executive Director Group (9 people) | $ 584,956 | 43,620 | 77,608 | |||
Non-Executive Officer Employee Group | $3,099,739 | 165,319 | 345,339 |
(1) Based on the economic value on the grant date of awards made in fiscal 2008.
(2) These grants were forfeited in connection with Mr. Vollkommer’s resignation, and as of the date of this Proxy Statement are no longer outstanding.
A summary of the principal features of the Stock Plan is provided below, but is qualified in its entirety by reference to the full text of the Stock Plan that is filed as Exhibit 10.5 to our Form 10-K for fiscal 2008.
Shares Available for Issuance
The amendment increases the share pool of the Stock Plan from 8,000,000 shares to 16,000,000 shares. As of December 3, 2008, the 16,000,000 shares represent 35.4% of the
outstanding shares of Series A Common Stock and 2.2% of the total outstanding voting power. If all outstanding Series B shares had been converted into Series A shares as of December 3, 2008, then the 16,000,000 shares would have represented 12.2% of the outstanding shares of Series A Common Stock and 12.2% of the total outstanding voting power.
As of December 3, 2008, there were outstanding under the Stock Plan an aggregate of 3,287,750 options to purchase common stock with a weighted average exercise price of $9.55 and a weighted average remaining term of 9.11 years, as well as 2,661,515 restricted stock units. As of December 3, 2008, there were 1,536,728 shares available for future grant under the Stock Plan.
If any stock award granted under the Stock Plan expires or is cancelled or otherwise terminated, without having been exercised or redeemed in full, or if any stock award is reacquired or repurchased by the Company prior to vesting, the shares covered by such stock awards would again be available for use under the Stock Plan.
Administration and Eligibility
The Stock Plan is administered by the Compensation Committee. The Compensation Committee determines who among those eligible to participate in the Stock Plan will be granted stock awards, determines the types of awards to be granted, prescribes the terms and conditions of all awards, and construes and interprets the terms of the Stock Plan. Determinations of the Compensation Committee are final, binding, and conclusive.
Award Limits
In any one fiscal year, no participant may be granted stock awards in respect of more than one million shares or with a value in excess of $5 million, provided that in connection with an employee’s initial service an employee may be granted stock awards in respect of an additional 300,000 shares or with a value in excess of $5 million that do not count against the limits set forth above. These award limits are subject to the adjustment provisions discussed below.
Type of Awards
Stock Options
The Compensation Committee is authorized to grant stock options to participants. The stock options may be either nonqualified stock options or incentive stock options. The exercise price of any stock option must be equal to or greater than the fair market value of a share on the date the stock option is granted. The term of a stock option cannot exceed ten years.
Subject to the terms of the Stock Plan, the option’s terms and conditions, which include but are not limited to, exercise price, vesting, treatment of the award upon termination of employment, and expiration of the option, would be determined by the Compensation Committee and set forth in an award agreement.
Payment for shares purchased upon exercise of an option must be made in full at the time of purchase. The exercise price may be paid (A) in cash or by check; or (B) at the discretion of
the Compensation Committee, (i) in shares of Series A Common Stock of the Company that have been held by the participant for more than six months; (ii) pursuant to a “same day sale” program that results in either the receipt of cash or check by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds; (iii) by reduction of the Company’s liability to the option holder; (iv) by any other form of consideration permitted by law but excluding a promissory note or other form of deferred payment; or (v) by a combination of the foregoing.
Stock Appreciation Rights (“SARs”)
The Compensation Committee is authorized to grant two types of SARs to participants: stand-alone SARs and stapled SARs. The terms and conditions of the SAR would be set forth in an award agreement. SARs may be exercised at such times and be subject to such other terms, conditions, and provisions as the Compensation Committee may impose.
Stand-Alone SARs.Stand-alone SARs cover a specified number of shares of Series A Common Stock and are redeemable upon such terms and conditions as the Compensation Committee may establish. Upon redemption, the holder is entitled to receive a distribution from the Company in an amount equal to the excess of the aggregate fair market value of the shares of Series A Common Stock underlying the redeemed right over the aggregate base price in effect for those shares. The number of shares of Series A Common Stock underlying each stand-alone SAR and the base price in effect for those shares is determined by the Compensation Committee (but the base price must be equal to or greater than the fair market value of a share on the date of grant). The distribution with respect to any redeemed stand-alone SAR may be made in shares of Series A Common Stock, in cash, or partly in shares and partly in cash, as determined by the Compensation Committee.
Stapled SARs.Stapled SARs may only be granted concurrently with an option to acquire the same number of shares of Series A Common Stock as the number of such shares underlying the stapled SARs. Stapled SARs are redeemable upon such terms and conditions as the Compensation Committee may establish and grant a holder the right to elect among (A) the exercise of the concurrently granted option for shares of Series A Common Stock, at which time the number of shares of Series A Common Stock subject to the stapled SAR would be reduced by an equivalent number, (B) the redemption of the stapled SARs in exchange for a distribution from the Company in an amount equal to the excess of the aggregate fair market value of the number of vested shares of Series A Common Stock underlying the redeemed right over the aggregate base price in effect for those shares, or (C) a combination of both (A) and (B). The distribution with respect to any redeemed stapled SAR may be made in shares of Series A Common Stock, in cash, or partly in shares and partly in cash, as determined by the Compensation Committee.
Other Stock-Based Awards
The Compensation Committee may grant an award of a restricted stock bonus, restricted stock purchase right, phantom stock unit, restricted stock unit, performance share bonus, performance share unit or other stock-based award that is valued in whole or in part by reference to the fair market value of the Series A Common Stock. Each stock–based award will be subject to an award agreement which shall contain such terms and conditions as the
Compensation Committee shall deem appropriate. Stock-based awards may be transferable by the holder only upon the terms and conditions as are set forth in the applicable award agreement.
A restricted stock bonus grants to a Stock Plan participant the right to receive restricted stock without any requirement for payment. A restricted stock purchase right grants to a Stock Plan participant a right to purchase a specified number of shares of the Company’s Series A Common Stock at a price determined by the Compensation Committee. A phantom stock unit award grants the right to receive the value of one share of the Company’s Series A Common Stock, under conditions specified by the Compensation Committee, in cash or shares. A restricted stock unit award grants to a Stock Plan participant the right to the value of one share of the Company’s Series A Common Stock upon vesting, in cash or shares. A performance share bonus grants shares of the Company’s Series A Common Stock, without any requirement for payment by the participant, under conditions specified by the Compensation Committee. A performance share unit grants the right to receive the value of one share of the Company’s Series A Common Stock upon vesting. All of these other stock-based awards are subject to such additional terms and conditions as the Compensation Committee determines is appropriate.
Non-Discretionary Awards for Non-Employee Directors
The Stock Plan provides for annual grants to each director, who is not also an employee, at the time of his or her re-election to the Board if he or she has served as a director for a period of at least six months on the relevant grant date. The Stock Plan also provides that, on the first day following the date that a director (who is not also an employee) commences service on the Board, an initial grant of a stock award shall automatically be made to the director. The Compensation Committee determines the types of award and the number of shares subject to the annual and initial grants in its sole discretion. All director grants become fully vested upon the director’s retirement. The terms and conditions of any award would be set forth in an award agreement.
Vesting
If the vesting of an award under the Stock Plan is based solely on the participant’s continuous service with the Company, the award will not fully vest in less than three years and if the vesting of the award is based on the achievement of performance criteria, the award will not fully vest in less than one year.
Acceleration
The Compensation Committee has the power to accelerate exercisability and/or vesting of an award under the Stock Plan only in the case of death, disability, retirement or change of control (as defined in the Stock Plan).
De Minimis Cap
Notwithstanding any other provision of the Stock Plan, the Compensation Committee may grant awards that do not conform to the requirements of the Stock Plan so long as such awards issued after the date of approval of the Stock Plan by the stockholders do not exceed 10% of the shares authorized for issuance under the Stock Plan.
Amendment of the Stock Plan
The Compensation Committee has the right to amend the Stock Plan and award agreements, except that the Compensation Committee generally may not amend the Stock Plan or any award agreement in a manner that would materially impair the rights of the holder of an award without the holder’s consent. In addition, the Compensation Committee may not amend the Stock Plan absent stockholder approval to the extent such approval is required by applicable law, regulation or exchange requirement.
Termination of the Stock Plan
The Stock Plan will terminate on May 23, 2016 unless earlier terminated by the Board. Termination cannot, however, materially impair the rights of the holder of an award outstanding at the time of the termination in the absence of the holder’s consent.
Repricing of Options or SARs
Unless the Company’s stockholders approve such adjustment, the Compensation Committee does not have authority to make any adjustments to options or SARs that would reduce or would have the effect of reducing the exercise price of an option or SAR previously granted under the Stock Plan.
Adjustments
In the event of a reclassification, recapitalization, merger, consolidation, reorganization, spin-off, split-up, stock dividend, stock split or reverse stock split, or similar transaction or other change in corporate structure affecting the Company’s Series A Common Stock, adjustments and other substitutions will be made to the Stock Plan, including adjustments in the maximum number of shares subject to the Stock Plan and other numerical limitations. Adjustments will also be made to awards under the Stock Plan as the Compensation Committee in its discretion deems equitable.
Federal Income Tax Consequences
The Company has been advised by counsel that the federal income tax consequences as they relate to awards are as follows:
Incentive Stock Options (ISOs)
An optionee does not generally recognize taxable income upon the grant or upon the exercise of an ISO. Upon the sale of ISO shares, the optionee recognizes income in an amount equal to the excess, if any, of the fair market value of those shares on the date of sale over the exercise price of the ISO shares. The income is taxed at the long-term capital gains rate if the optionee has not disposed of the stock within two years after the date of the grant of the ISO and has held the shares for at least one year after the date of exercise, and the Company is not entitled to a federal income tax deduction. The holding period requirements are waived when an optionee dies.
The exercise of an ISO may in some cases trigger liability for the alternative minimum tax.
If an optionee sells ISO shares before having held them for at least one year after the date of exercise and two years after the date of grant, the optionee recognizes ordinary income to the extent of the lesser of: (A) the gain realized upon the sale; or (B) the difference between the exercise price and the fair market value of the shares on the date of exercise. Any additional gain is treated as long-term or short-term capital gain depending upon how long the optionee has held the ISO shares prior to disposition. In the year of any such disposition, the Company receives a federal income tax deduction in an amount equal to the ordinary income that the optionee recognizes, if any, as a result of the disposition.
Nonqualified Stock Options (NQOs)
An optionee does not recognize taxable income upon the grant of an NQO. Upon the exercise of such a stock option, the optionee recognizes ordinary income to the extent the fair market value of the shares received upon exercise of the NQO on the date of exercise exceeds the exercise price. The Company receives an income tax deduction in an amount equal to the ordinary income that the optionee recognizes upon the exercise of the stock option.
Restricted Stock
A participant who receives an award of restricted stock does not generally recognize taxable income at the time of the award. Instead, the participant recognizes ordinary income in the first taxable year in which his or her interest in the shares becomes either: (A) freely transferable; or (B) no longer subject to substantial risk of forfeiture. The amount of taxable income is equal to the fair market value of the shares less the cash, if any, paid for the shares.
A participant may elect to recognize income at the time of grant of restricted stock in an amount equal to the fair market value of the restricted stock (less any cash paid for the shares) on the date of the award. The Company receives a compensation expense deduction in an amount equal to the ordinary income recognized by the participant in the taxable year in which restrictions lapse (or in the taxable year of the award if, at that time, the participant had filed a timely election to accelerate recognition of income).
Other Awards
In the case of an exercise of a SAR or an award of restricted stock units, phantom stock units, a performance share bonus, performance share units, or other stock awards, the participant would generally recognize ordinary income in an amount equal to any cash received and the fair market value of any shares received on the date of payment or delivery. In that taxable year, the Company would receive a federal income tax deduction in an amount equal to the ordinary income that the participant has recognized.
Section 409A
Section 409A of the Internal Revenue Code provides special tax rules applicable to programs that provide for a deferral of compensation. Failure to comply with those requirements will result in accelerated recognition of income for tax purposes along with an additional 20% penalty tax. While certain awards under the Stock Plan could be subject to Section 409A, the Plan has been drafted to comply with the requirements of Section 409A.
Million Dollar Deduction Limit
Pursuant to Section 162(m) of the Internal Revenue Code, the Company may not deduct compensation of more than $1 million that is paid to certain “covered employees” (i.e., any individual who, on the last day of the taxable year, is either the Company’s principal executive officer or an employee whose total compensation for the tax year is required to be reported to stockholders because he or she is among the three highest compensated officers for the tax year, other than the principal executive officer or principal financial officer). The limitation on deductions does not apply, however, to qualified “performance-based compensation.” Certain awards under the Stock Plan may constitute qualified performance-based compensation and, as such, would be exempt from the $1 million limitation on deductible compensation.
Under the Stock Plan, any performance goals applicable to awards intended to qualify as “performance-based compensation” under Section 162(m) will be based on one or more of the following criteria: consolidated earnings (before or after taxes); net income; operating income; earnings per share; book value per share; return on stockholders’ equity; expense management; return on investment; improvements in capital structure; profitability of an identifiable business unit or product; maintenance or improvement of profit margins; stock price; market share; improvement in revenues or sales; costs and/or cost reductions or savings; cash flow; working capital; return on invested capital or assets; consummation of acquisitions or sales of certain assets, subsidiaries or other businesses; funds from operations; and pre-tax income. Any such performance goals must be objective and approved by the Compensation Committee in a manner consistent with Section 162(m). The foregoing criteria may relate to the Company, one or more of its subsidiaries, or one or more of its divisions or units, or a combination of the foregoing, and may be applied on an absolute basis or be relative to one or more peer group company or indices, all as the Compensation Committee shall determine.
Stock Plan Benefits
Because benefits under the Stock Plan will depend on the Compensation Committee’s actions and the fair market value of the Series A Common Stock at various future dates, it is not possible to determine the benefits that will be received by directors, executive officers and other employees if the Stock Plan is approved by the stockholders. On December 3, 2008 the closing price of Series A Common Stock was $5.79.
Approval by Stockholders
In order to be effective, the Stock Plan must be approved by the affirmative vote of a majority of the votes cast. Any shares that are not voted (whether by abstention or otherwise) will have no impact on the vote.
The Board recommends a vote FOR the amendment to the Amended and Restated
2006 Stock Incentive Plan.
RATIFICATION OF THE APPOINTMENT OF THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has authority to retain and terminate the Company’s independent registered public accounting firm. The Audit Committee has appointed Ernst & Young LLP as the independent registered public accounting firm to audit the accounts of the Company and its subsidiaries for the fiscal year ending September 30, 2009. Although stockholder ratification of the appointment of Ernst & Young LLP is not required, the Board of Directors believes that submitting the appointment to the stockholders for ratification is a matter of good corporate governance.
In order to ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2009, a majority of the votes cast by the stockholders must be voted in favor of ratification.
The Board recommends a vote FOR the ratification of Ernst & Young LLP.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires executive officers and directors and persons who beneficially own more than 10% of the Company’s common stock (the “Reporting Persons”) to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission.SEC. Executive officers, directors and greater than 10% beneficial owners are required by Securities and Exchange CommissionSEC rules to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the Company and written representations from the executive officers and directors, the Company believes that the Reporting Persons complied with all Section 16(a) filing requirements during the fiscal year ended September 30, 20082009 except for (a) Mr. Hart’s initial Form 4, which was filed approximately 2 days late because his filing codes had not been assigned by the Securities and Exchange Commission, (b) a Form 4 for Mr. ClarkFish that was inadvertently filed late because the trade was not communicated to the Company by his broker, and (c) Form 5 filings that reported broker-initiated dividend reinvestment purchases by Mr. Fish and Ms. Zakas.approximately four weeks late.
Other Business for Presentation at the 20092010 Annual Meeting
The Board and management do not nowcurrently intend to bring before the Annual Meeting any matters other than those disclosed in the Notice of Annual Meeting of Stockholders, nor do they know of any business which other persons intend to present at the Annual Meeting. Should any other matter or business requiring a vote of stockholders arise, the persons named in the enclosed proxy intend to exercise the authority conferred by the proxy and vote the shares represented thereby in respect of any such other matter or business in accordance with their best judgment in the interest of the Company.
Consolidated financial statements for Mueller Water Products, Inc. are included in the Annual Report on Form 10-K for the fiscal year ended September 30, 20082009 filed with the Securities and Exchange Commission,SEC, Station Place, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, and the New York Stock Exchange in the United States. A copy of the Form 10-K (excluding exhibits) will be furnished, without charge, by writing to the Corporate Secretary, Mueller Water Products, Inc., 1200 Abernathy Road, N.E., Suite 1200, Atlanta, Georgia 30328. The Form 10-K is also available on the Company’s website atwww.muellerwaterproducts.com.
Stockholder Proposals for Inclusion in 20092011 Proxy Statement
The Company encourages stockholders to contact the Corporate Secretary prior to submitting a stockholder proposal or any time they have concerns about the Company. At the direction of the Board, the Corporate Secretary acts as the corporate governance liaison to stockholders.
If any stockholder intends to present a proposal for inclusion in the Company’s proxy materials for the 20102011 Annual Meeting of Stockholders, such proposal must be received by the Company not later than the close of business at 5:00 p.m. (Eastern time) on August 20, 20092010 for inclusion, pursuant to Rule 14a-8 under the Exchange Act, in the Company’s Proxy Statementproxy statement for such meeting. Such proposal also will need to comply with SEC regulations regarding the inclusion of stockholder proposals in Company-sponsored proxy materials. In order to allow the Company to identify the proposal as being subject to Rule 14a-8 and to respond in a timely manner, stockholder proposals are required to be submitted to the Office of the Corporate Secretary as follows:
Corporate Secretary
Mueller Water Products, Inc.
1200 Abernathy Road, N.E.
Suite 1200
Atlanta, Georgia 30328
Phone: 770-206-4232
Fax: 770-206-4260
Procedures for Business Matters and Director Nominations for Consideration at the 20102011 Annual Meeting of Stockholders
The Company’s Bylaws provide a formal procedure for bringing business before the Annual Meeting of Stockholders. A stockholder proposing to present a matter, or nominate a director, for consideration at the 20102011 Annual Meeting of Stockholders is required to deliver a written notice to the Corporate Secretary of the Company, no earlier than the close of business at 5:00 p.m. (Eastern time) on August 20, 20092010 and not later than September 19, 2009.2010. In the event that the date of the 20102011 Annual Meeting of Stockholders is more than 30 days before or more than 60 days after the anniversary date of the 20092010 Annual Meeting of Stockholders, the notice must be delivered to the Corporate Secretary of the Company not earlier than the 120th day prior to such Annual Meeting of Stockholders and not later than the later of the 90th day prior to such Annual Meeting of Stockholders or, if the first public announcement of the date of such Annual Meetingannual meeting is less than 100 days prior to the date of such annual meeting, the 10th day following the day on which public announcement of the date of such annual meeting is first made by the Company.
Notice Requirements for Business Matters
The notice must contain all of the information specified in Section 2.03(A)(3) of the Company’s Bylaws, including the name and address of the stockholder and the beneficial
owner on whose behalf the proposal is made, the class and number of shares of the Company’s stock owned beneficially by such stockholder and such beneficial owner, any derivative instrument directly or indirectly owned beneficially by such stockholder. The notice must also set forth a brief description of the business desired to be brought, the text of the proposal and the reasons for conducting such business at the meting,annual meeting, and a description of all agreements, arrangements and understandings between such stockholder and beneficial owner, if any, and any other person or persons in connection with the proposal of such business by such stockholder. If the notice does not contain all of the information specified in Section 2.03(A)(3) of the Company’s Bylaws, the proposed business will not be transacted at the Annual Meeting of Stockholders.annual meeting. Such Bylaw provisions are not intended to affect any rights of stockholders to request inclusion of proposals in the Company’s Proxy Statement pursuant to Rule 14a-8 under the Exchange Act.
Pursuant to Rule 14a-4 under the Exchange Act, if a stockholder notifies the Company after November 3, 20092010 of an intent to present a proposal at the Company’s 20102011 Annual Meeting of Stockholders (and for any reason the proposal is voted upon at that Annual Meeting of Stockholders)annual meeting), the Company’s proxy holders will have the right to exercise discretionary voting authority with respect to the proposal, if presented at the meeting, without including information regarding the proposal in its proxy materials.
The foregoing notice requirements will be deemed satisfied by a stockholder if the stockholder has notified the Company of his intention to present a proposal at an annual meeting in compliance with Rule 14a-8 (or any successor thereof) under the Exchange Act and such stockholder’s proposal has been included in a proxy statement that has been prepared by the Company to solicit proxies for such annual meeting. The Company may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Company.
Notice Requirements for Nomination of Directors
The Nominating and Corporate Governance Committee will consider stockholder recommendations for Directors.directors. Stockholder recommendations must be forwarded by the stockholder to the Corporate Secretary of the Company with biographical data about the recommended individual.
The Company’s Bylaws provide the formal procedure for nominations by stockholders of Directordirector candidates. A stockholder intending to make such a nomination is required to deliver to the Corporate Secretary of the Company, a notice that contains all of the information specified in Section 2.03(A)(3) of the Company’s Bylaws, including the name and address of the stockholder and the beneficial owner on whose behalf the proposal is made, the class and number of shares of the Company’s stock owned beneficially by such stockholder and such beneficial owner, any derivative instrument directly or indirectly owned beneficially by such stockholder. As to each person, if any, whom the stockholder proposes to nominate for election or reelection to the Board of Directors, the notice must set forth all information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder, Act, including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected, and a description
of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships between or among such stockholder and beneficial owner, if any, and each proposed nominee. If the notice does not contain all of the information specified in Section 2.03(A)(3) of the Company’s Bylaws, the proposed business will not be transacted at the Annual Meeting of Stockholders.annual meeting. Such Bylaw provisions are not intended to affect any rights of stockholders to request inclusion of proposals in the Company’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.
By Order of the Board
ROBERT BARKERROBERT BARKER
Corporate Secretary
Mueller Water Products, Inc.
Atlanta, Georgia
December 18, 200821, 2009
MUELLER WATER PRODUCTS, INC.
2010 MANAGEMENT INCENTIVE PLAN
Section 4.3(f)(vi) ofAdopted by the Company’s Restated Certificate of IncorporationCompensation and Human Resources Committee on
(vi) InDecember 1, 2009
I. | Purpose |
This Management Incentive Plan (the “Plan”), is intended to promote the eventinterests of a Tax-Free Spin-Off, shares of Series B Common Stock transferred to stockholders of either Walter or the Series B Transferee shall not convert to shares of Series A Common Stock. Following such Tax-Free Spin-Off at any time, the Corporation may submit for stockholder approval, subject to the conditions set forth below, a proposal to convert all outstanding shares of Series B Common Stock into shares of Series A Common Stock;provided, however,that the Corporation has received an opinion of counsel or a favorable private letter ruling from the Internal Revenue Service, in either case satisfactory to Walter or the Series B Transferee, as the case may be, in its sole and absolute discretion, which shall be exercised in good faith solely to preserve the tax-free status of the Tax-Free Spin-Off (and in determining whether an opinion or ruling is satisfactory, Walter or the Series B Transferee may consider, among other factors, the appropriateness of any underlying assumptions and representations if used as a basis for the opinion or ruling, and Walter or the Series B Transferee may determine that no opinion or ruling would be acceptable to Walter or the Series B Transferee, as the case may be), to the effect that such conversion will not affect the tax-free treatment of the Tax-Free Spin-Off. If such an opinion or ruling is received, approval of such conversion may be submitted to a vote of the holders of the Common Stock. At the meeting of stockholders called for such purpose, every holder of Common Stock shall be entitled to one vote in person or by proxy for each share of Common Stock standing in his name on the books of the Corporation, notwithstanding that each share of Series B Common Stock otherwise would be entitled to that number of votes per share then assigned to the Series B Common Stock. Approval of such conversion shall require approval by the affirmative vote of a majority of the votes entitled to be cast by the holders of the Series A Common Stock and Series B Common Stock, voting together as a single class, and neither series of Common Stock shall be entitled to a separate class or series vote. Such conversion shall be effective on the date on which such approval is given at a meeting of stockholders called for such purpose.
Banc of America Securities LLC
October 28, 2008
The Special Committee of the Board of Directors
The Board of Directors
Mueller Water Products, Inc.
1200 Abernathy Road, N.E. Suite 1200
Atlanta, GA 30328
Members of the Special Committee of the Board of Directors and the Board of Directors:
We understand that Mueller Water Products, Inc. (“Mueller”) proposesby offering an incentive opportunity to submitcertain officers, key executives, and other employees. Certain bonus awards under the Plan are intended to its stockholdersqualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended.
II. | Definitions |
As used in this Plan, the terms below shall have the following meanings ascribed to them:
A. | “Administrator” shall mean the Committee, with respect to the Covered Participants and with respect to all other employees, the Chief Executive Officer or his designee. |
B. | “Base Pay” shall mean base salary as of the beginning day of the Fiscal Year, before taxes, Social Security and other deductions. |
C. | “Board of Directors” shall mean the Board of Directors of the Company. |
D. | “Code” shall mean the Internal Revenue Code of 1986, as amended. |
E. | “Committee” shall mean a committee of two or more members consisting solely of members of the Compensation and Human Resources Committee of the Board, or in the absence of such a Committee, the Board, who qualify as “outside directors” under Section 162(m) of the Code. |
F. | “Company” shall mean Mueller Water Products, Inc., including its subsidiaries and affiliates. |
G. | “Covered Participant” means a Participant who is a “covered employee,” as defined in Section 162(m) of the Code and the regulations or other guidance promulgated by the Internal Revenue Service under Section 162(m) of the Code, or any successor statute, and such other key executives as the Committee shall determine. |
H. | “Disability” shall mean a permanent disability which would entitle the employee to benefits under the Company’s long-term disability plan. |
I. | “Fiscal Year” shall mean the Company’s then current fiscal year, which currently commences on October 1 and ends on September 30. |
J. | “Participant” shall mean any employee who has been selected to participate in the Plan for the Performance Period. |
K. | “Performance-Based Compensation” shall mean compensation that qualifies for the “qualified performance-based compensation exception” under Section 162(m) of the Code, or any successor provisions. |
L. | “Performance Goal” shall mean such goals as are identified as such in Section V of this Plan. |
M. | “Performance Period” shall mean the Company’s Fiscal Year, or such shorter period as determined by the Committee. |
III. | Administration |
The Plan shall be administered by the Committee, no member of which serving shall be eligible to receive an award under the Plan. The Committee shall have the authority to amend, modify and interpret the Plan and to make all determinations relating to the Plan as it may deem necessary or advisable for approvalthe administration of the Plan. Decisions of the Committee on all matters relating to the Plan shall be binding and conclusive on all parties, including the Company and the Participants. The Chief Executive Officer may administer the Plan for employees who are not Covered Participants.
IV. | Participation |
The Committee shall determine the Covered Participants eligible to participate in the Plan for each Performance Period. The Chief Executive Officer shall determine the eligibility of other employees in the Plan for each Performance Period.
V. | Operation of the Plan |
A. | Establishment of Performance Goals |
No later than ninety (90) days after the start of the Fiscal Year (or such shorter period as shall be required by the Code in the event a resolution pursuant to Article IV, Section 4.3(f)(vi) of its Restated Certificate of Incorporation (the “Restated Certificate of Incorporation.” and such resolution,Performance Period is shorter than a Fiscal Year) the “Resolution”) to effect a recapitalization (the “Recapitalization”) pursuant to whichAdministrator shall establish in writing certain performance goals for each outstanding share of Series B common stock, par value $0.01 per share, of Mueller (the “Series B Common Stock”)Participant. Each Participant will be converted into one (the “Exchange Ratio”) shareassigned performance goals that are selected from the performance measures listed below. Performance goals may be based on a combination of Series A common stock, par value $0.01 per share,individual performance objectives and/or financial and operational objectives, except that performance goals upon which the payment or vesting of Mueller (the “Series A Common Stock”).
You have requested our opiniona bonus award to a Covered Participant that is intended to qualify as Performance-Based Compensation shall be limited to the fairness, fromfinancial and operational performance goals in V.B.
In the event that a financial pointParticipant’s position is substantially tied to one or more business segments, subsidiaries or divisions of view,the Company, then the performance goals may relate, in whole or in part, to the holdersperformance of Series A Common Stock andsuch segments, subsidiaries or divisions rather than to the holders of Series B Common StockCompany as a whole.
B. | Financial and Operational Performance Goals |
Any one or more of the Exchange Ratio providedfollowing performance measures may be used by the Administrator as a performance goal for inall or part of a bonus award, based on the Recapitalization.relative or
In connection with this opinion, we have, among other things:
absolute attainment of specified levels of one or any combination of the performance measures:
(a) | Net sales or growth in net sales, |
(b) | Earnings, as determined by GAAP or before or after discontinued operations, interest, taxes, or depreciation and/or amortization (“EBITDA”), |
(c) | Earnings per share (including diluted earnings per share), |
(d) | Net income, |
(e) | Operating income before or after discontinued operations and/or taxes, |
(f) | Cash flow (including free cash flow) or cash position, |
(g) | Gross or operating margin, |
(h) | Stock price appreciation, |
(i) |
Banc of America Securities LLC, member NYSE/FINRA/SIP C, is a subsidiary of Bank of America Corporation
Banc of America Securities LLC, NY1-100-20-01
One Bryant Park, New York, NY 10036
The Special Committee of the Board of Directors
The Board of Directors
Mueller Water Products, Inc.
The selected levels may be absolute in their terms or measured against or in relationship to net sales or other companies comparably, similarly or otherwise situated. Wherever feasible, the Administrator will establish target, threshold (as hereinafter defined) and maximum objectives for each performance goal.
C. | Individual Performance Goals |
The Administrator may establish individual performance goals for all Participants. All such goals shall be set with target, minimum (or threshold) and maximum objectives for each performance goal.
D. | General Matters |
As to each performance goal, the relevant measurement of performance shall be computed in accordance with generally accepted accounting principles, if applicable, except that at the time the Committee establishes the relevant performance goal, the Committee may specify that any performance goal shall be adjusted to include or exclude, as applicable, any one or more of
i. | Extraordinary, unusual or non-recurring items, |
ii. | Gains or losses on dispositions or the effect of discontinued operations, or mergers or acquisitions, |
iii. | The cumulative effects of changes in accounting principles or changes in laws or regulations affecting GAAP results (including tax laws and |
iv. | The writedown of assets, |
v. | Charges for reorganization and |
vi. | Material litigation, claims, judgments or settlements, and |
vii. | Cash pension funding in excess of predetermined levels. |
In arriving at our opinion, we have assumed and relied upon, without independent verification, the accuracy and completenesscase of a bonus award to a Covered Participant that is intended to qualify as Performance-Based Compensation, a performance goal must be objective, such that a third party having knowledge of the financial and other information and data publicly available or provided to or otherwise reviewed by or discussedrelevant facts could determine whether the goal is met. All adjustments exercised under this Section V shall be made in a manner that complies with us and have relied upon the assurancesSection 162(m) of the managementCode and applicable regulations such that an otherwise available exemption of Muellerthe award under Section 162(m) of the Code will not be lost. In making any determination under this paragraph, the Committee shall be entitled to rely on the advice of counsel.
E. | Assignment of Bonus Award |
No later than ninety (90) days after the start of the Fiscal Year (or such shorter period as shall be required by the Code in the event a Performance Period is shorter than a Fiscal Year), the Administrator shall assign in writing each Participant with a target bonus. The Administrator shall determine the relative percentage weight to be assigned to the achievement of each financial, operational or individual performance goal by the Participant. Each Participant shall then be notified of his/her respective performance goals and the percentage assigned to each such performance goal.
F. | Means of Earning Bonus |
If the Participant achieves the target assigned to a performance goal, the Participant will receive the bonus award assigned to the target. If the Participant achieves the lowest assigned target (the “threshold”) assigned to any performance goal, the Participant will be entitled to the minimum bonus award assigned to the performance goal. For performance less than the target but greater than the threshold, the Participant will receive a bonus award that they areis proportionately graded, as determined by the Administrator. If the Participant receives less than the threshold assigned to any performance goal, the Participant will not awarereceive any bonus award under this Plan.
If the Participant achieves more than 100% of the target assigned to a performance goal, then the Participant will be eligible to receive an additional bonus up to a total of 200% of the percentage weight allocated to such bonus goal, up to 200% of a Participant’s target bonus percentage on a graduated or other basis, as determined by the Administrator.
Notwithstanding the foregoing, all bonus awards approved by the Committee with respect to Covered Participants will be subject to the negative discretion of the Committee, or adjustment by the Committee to reflect the relative performance of the Participant against a performance goal.
G. | Maximum Bonus Award |
Notwithstanding any calculation made above, the maximum amount of any facts or circumstancesbonus award that would make such information or data inaccurate or misleading in any material respect. We have not made or been provided with any independent evaluation or appraisala Participant may be awarded for a Fiscal Year shall be Four Million Dollars ($4,000,000).
VI. | Determination and Payment of Bonus Award |
As soon as practicable after the receipt of audited financial statements for the Fiscal Year (or the receipt of the assets or liabilities (contingent or otherwise) of Mueller, nor have we made any physical inspectionrelevant financial information in the event a Performance Period is shorter than a Fiscal Year), the Administrator shall determine and certify in writing the amount of the properties or assetsbonus awards for each Participant based on the extent to which such Participant has attained the applicable performance goals.
With respect to Covered Participants, the Committee may, in its sole discretion, decrease the actual amount of Mueller. We havethe bonus awarded to a Covered Participant from the amount calculated, but the Committee may not evaluatedincrease the solvencyactual amount. In exercising its discretion, the Committee may take into account the attainment of Mueller under any state or federal laws relating to bankruptcy, insolvency or similar matters. We have assumed, at your direction,individual goals, as well as other factors that the final Resolution submittedCommittee deems appropriate.
After the Administrator’s certification, the bonus awards shall be paid to Mueller’s stockholders for approval will not differthe Participants in any material respect fromcash, less applicable taxes.
VII. | Miscellaneous |
A. | Time of Payment; Retirement, Death, Disability, Change in Control, or Other Termination |
Any payments which may be made to a Participant under the terms and conditions describedof this provision shall be made at the same time as payments are made to us by the management of Mueller as of October 28, 2008, and that the Recapitalization will be consummatedother Participants in accordance with the provisions of Article IV, Section 4.3(f)(vi)VI hereof. A Participant shall not be entitled to receive a bonus award unless actively employed by the Company or one of its subsidiaries on the day the bonus award is scheduled to be paid as provided above. The Administrator may make exceptions to the requirement set forth in the preceding sentence in the case of retirement, death, or disability as determined in its sole discretion at the time of the Restated CertificateParticipant’s termination of Incorporation. Weemployment.
Additionally, the Committee shall have also assumed,sole discretion to determine payments up to the pre-approved target levels for the Performance Period in the event of a change of more than 50% of the ownership or control of the Company, or a change of more than 50% of the directors of the Company in a single year.
Payments made hereunder shall be made by the 15th day of the third month following the end of any Performance Period or at your direction,a time that is permissible under Section 409A of the Code, unless determined otherwise by the Committee for any Participant, provided that no such determination shall be made in such a manner as to cause any payment under this Plan to fail to comply with the “short-term deferred exception” under Section 409A of the Code and the regulations promulgated thereunder.
B. | Tax Withholding |
The Company shall deduct from all awards any federal, state, or local taxes required by law to be withheld with respect thereto.
C. | Claim to Awards and Employee Rights |
No employee or other person shall have any right to be granted an award under the Plan. Neither this Plan nor any action taken hereunder shall be construed as giving any employee any right to be retained by the Company, nor shall any action taken hereunder be construed as entitling the Company to the services of any Participant for any period of time. All payments shall be made from the general funds of the Company or its applicable subsidiary and nothing contained in this Plan or any action taken pursuant to its provisions shall create or be construed to create a trust or fiduciary relationship of any kind between the Company and any Participant, beneficiary, legal representative of other person.
D. | Nontransferability |
A person’s rights and interests under this Plan, including amounts payable, may not be assigned, pledged, or transferred, except as required by law.
E. | Applicable Law |
This Plan shall be construed and governed in accordance with the laws of the State of Delaware. This Plan is not intended to be subject to the Employee Retirement Security Income Act of 1974, as amended.
F. | Stockholder Approval |
The Plan is subject to approval by vote of the stockholders of the Company at the next annual or special meeting of stockholders following adoption by the Board or the Committee. Any amendments hereto requiring stockholder approval are subject to approval by vote of the stockholders of the Company at the next annual or special meeting of stockholders following adoption of the amendment by the Board or the Committee.
G. | Amendment, Modification and Termination |
Subject to the terms of the Plan, the Committee may at any time and from time to time, alter, amend, suspend, or terminate the Plan in whole or in part; provided that unless the Committee specifically provides otherwise, any revision or amendment that would cause the Plan to fail to comply with any requirement of applicable law, regulation, or rule if such amendment were not approved by the stockholders of the Company shall not be effective unless and until stockholder approval is obtained.
H. | Section 409A |
To the extent a bonus award would be subject to the requirements of Code Section 409A and the regulations thereunder, the Plan shall be construed and administered so that the Recapitalization will not affect the treatment underbonus award complies with Code Section 355 of the Internal Revenue Code of the distribution, effected December 14, 2006, by Walter Industries, Inc. (“Walter Industries”) of all of its shares in Mueller, which distribution was made pro rata409A.
I. | Clawback Policy |
(a) In addition to holders of Walter Industries capital stock (the “Spin-Off”), and that the Recapitalization will otherwise qualify as a tax-free exchange and recapitalization for United States federal income tax purposes. We note that we are not legal or tax experts and have relied upon, without assuming any responsibility for independent verification or liability therefor, the assessment of Mueller’s legal and tax advisors with respectother remedies available to the legal and tax matters related toCompany, if the Recapitalization.
We express no viewBoard or opinion as to any terms or other aspects of the Recapitalization (other than the Exchange Ratio to the extent expressly specified herein), including, without limitation, the form or structure of the Recapitalization. Our opinion is limited to the fairness, from a financial point of view, of the Exchange Ratio to the holders of Series A Common Stock and the holders of Series B Common Stock, and no opinion or view is expressed with respect to the relative fairness of the Exchange Ratio to the holders of Series A Common Stock as compared to the holders of Series B Common Stock, or with respect to the fairness of the amount, nature or any other aspect of the compensation to any of the officers, directors or employees of Mueller, or class of such persons, relative to the Exchange Ratio. Furthermore, no opinion or view is expressed as to the relative merits of the Recapitalization
The Special Committee of the Board determines that any bonus award or other payment made to any person under this program resulted from (1) illegal conduct by that person or another person acting in concert with such person, (2) a material violation of Directors
any Company policy or (3) financial impropriety by such person that results in (a) a restatement of the financial statements of the Company for any period within the last three years, or (b) a material breach of Company policy or laws or regulations that could result in a termination for cause (whether or not the person’s employment is terminated), then the Company may recover from such person such portion of the bonus award or other payment as it considers appropriate under the circumstances. The Board of Directors
Mueller Water Products, Inc.
in comparisonhas the sole discretion to other strategies or transactions that mightmake any and all determinations under this policy, but such authority may be available to Mueller or in which Mueller might engage or asdelegated to the underlying business decisionCommittee.
(b) The Company shall have the right to offset future compensation to any person – including at its sole discretion compensation in the form of Mueller to proceed withstock awards or effect the Recapitalization. We are not expressing any opinion as to what the value of Series A Common Stock actually will be when issued or the prices at which Series A Common Stock or Series B Common Stock will trade at any time. In addition, we express no opinion or recommendation as to how any stockholder should vote or act in connection with the Recapitalization.
We have acted as financial advisor to the Special Committeeproceeds of the Boardsale of Directors of Mueller (the “Special Committee”) in connectionCompany securities – to recover any amounts that may be recovered by the Company or any subsidiary hereunder, provided that such right may be deferred and limited as necessary to comply with the Recapitalization and will receive a fee for our services, payable upon the rendering of this opinion. In addition, Mueller has agreed to reimburse our expenses and indemnify us against certain liabilities arising out of our engagement.
We and our affiliates comprise a full service securities firm and commercial bank engaged in securities trading and brokerage activities and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and financial advisory services and other commercial services and products to a wide range of corporations and individuals. In the ordinary course of our businesses, we and our affiliates may actively trade the debt, equity or other securities or financial instruments (including bank loans or other obligations) of Mueller and certain of its affiliates for our own account or for the accounts of customers, and accordingly, we or our affiliates may at any time hold long or short positions in such securities or financial instruments.
We and our affiliates in the past have provided, currently are providing, and in the future may provide investment banking, commercial banking and other financial services to Mueller and have received or in the future may receive compensation for the rendering of these services, including (i) having acted or acting as administrative agent and joint lead arranger for, and lender under, certain credit facilities of Mueller, (ii) having acted as dealer manager for a debt tender offer and consent solicitation of Mueller, (iii) having acted as lead manager for a debt offering of Mueller, (iv) having acted as co-manager for the initial public offering of Mueller, and (v) having provided or providing certain interest rate swap, commodity swap, treasury and trade services for Mueller. In addition, Banc of America Specialist Inc., an affiliate of ours, acts as a specialist for Mueller’s Series A Common Stock and Series B Common Stock on the New York Stock Exchange. BAS also acted as financial advisor to Walter Industries in connection with the Spin-Off of Mueller.
It is understood that this letter is for the benefit and useSection 409A of the Special Committee and the Board of Directors of Mueller in connection with and for purposes of their evaluation of the Recapitalization.Code.
Our opinion is necessarily based on financial, economic, monetary, market and other conditions and circumstances as in effect on, and the information made available to us as of,
The Special Committee of the Board of Directors
The Board of Directors
Mueller Water Products, Inc.
the date hereof. It should be understood that subsequent developments may affect this opinion, and we do not have any obligation to update, revise, or reaffirm this opinion. The issuance of this opinion was approved by our Fairness Opinion Review Committee.
Based upon and subject to the foregoing, including the various assumptions and limitations set forth herein, we are of the opinion on the date hereof that the Exchange Ratio provided for in the Recapitalization is fair, from a financial point of view, to the holders of Series A Common Stock and the holders of Series B Common Stock.
Very truly yours,
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Location for the 2010 Annual Meeting of Stockholders
Four Seasons Hotel, AtlantaMueller Water Products, Inc.
Wednesday,Thursday, January 28, 20092010 at 10:00 A.M., local time
75 Fourteenth Street,Crowne Plaza Hotel
Atlanta Perimeter at Ravinia
4355 Ashford Dunwoody Road, Atlanta, Georgia 3030930346
Telephone: (404) 881-9898
Directions to the Four Seasons Hotel, Atlanta(770) 395-7700
From Georgia 400 traveling northbound or southbound:
— | Take Georgia 400 |
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— | Follow |
— | Turn left on Ashford Dunwoody Road and cross bridge. The hotel will be on your immediate right. |
From Interstate 20 traveling eastbound or westbound:
— | Follow Interstate 20 into |
— | Follow Interstate 85 north to exit 87 – Georgia 400 northbound |
— | Follow directions |
From Interstate 75 / Interstate 85 traveling northbound:
— | Follow Interstate |
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From Interstate 75 traveling southbound:
— | Follow Interstate 75 south to exit |
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From Interstate 85 traveling southbound:
| Follow Interstate |
— | Turn left on |
From Interstate 85 traveling southbound:
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— | Follow Interstate 285 north to exit 29 – Ashford Dunwoody Road. |
— | Turn left on Ashford Dunwoody Road and cross the bridge. The hotel will be |
Please note that attendance at the meeting will be limited to stockholders of Mueller Water Products, Inc. as of the record date (or their authorized representatives). You will be required to provide the admission ticket that is detachable from your proxy card or provide other evidence of ownership. If your shares are held by a bank or broker, please bring to the meeting your bank or broker statement evidencing your beneficial ownership of Mueller Water Products stock to gain admission to the
meeting.
APPENDIX C
MUELLER WATER PRODUCTS, INC.
Amended and Restated 2006 Stock Incentive Plan
Approved by the Board of Directors on November 30, 2007
Approved by the Stockholders on January 30, 2008
Termination Date: May 23, 2016
I. PURPOSE.
1.1. The purpose of this Plan is to aid the Company and its Affiliates in recruiting and retaining key Employees (including officers), Directors, and Consultants of outstanding ability and to motivate such persons to exert their best efforts on behalf of the Company and its Affiliates by providing incentives through the granting of Stock Awards. The Company expects that it will benefit from the added interest which such key Employees, Directors and Consultants will have in the welfare of the Company as a result of their proprietary interest in the Company’s success.
II. DEFINITIONS.
2.1. “Affiliate” means, with respect to the Company, any entity directly or indirectly controlling, controlled by, or under common control with, the Company or any other entity designated by the Board in which the Company or any Affiliate has an interest.
2.2. “Applicable Law” means the legal requirements relating to the administration of an equity compensation plan under applicable U.S. federal and state corporate and securities laws, the Code, any stock exchange rules or regulations, and the applicable laws of any other country or jurisdiction, as such laws, rules, regulations and requirements shall be in place from time to time.
2.3. “Beneficial Owner” means the definition given in Rule 13d-3 promulgated under the Exchange Act.
2.4. “Board” means the board of directors of the Company.
2.5. “Cause” means any of the following: (1) the Participant’s theft, dishonesty, or falsification of any documents or records related to the Company or any of its Affiliates; (2) the Participant’s improper use or disclosure of the Company’s or any of its Affiliate’s confidential or proprietary information; (3) any action by the Participant which has a material detrimental effect on the reputation or business of the Company or any of its Affiliates; (4) the Participant’s failure or inability to perform any reasonable assigned duties, if such failure or inability is reasonably capable of cure, after being provided with a reasonable opportunity to cure, such failure or inability; (5) any material breach by the Participant of any employment or service agreement between the Participant and the Company or any of its Affiliates or applicable policy of the Company or any of its Affiliates, which breach is not cured pursuant to the terms of such agreement; or (6) the Participant’s
indictment or plea of guilty or nolo contendere with respect to any criminal act which impairs the Participant’s ability to perform his or her duties with the Company or any of its Affiliates. Notwithstanding the foregoing, the definition of “Cause” in an individual written agreement between the Company or any of its Affiliates and the Participant shall supersede the foregoing definition with respect to Stock Awards subject to such individual agreement to the extent expressly provided for in such individual written agreement (it being understood, however, that if no definition of the term “Cause” is set forth in such an individual written agreement, the foregoing definition shall apply).
2.6. “Change of Control” means , unless otherwise provided in a Stock Award Agreement, the occurrence of any of the following events:
(i) The sale, exchange, lease or other disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company to a person or group of related persons, as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act;
(ii) A merger or consolidation or similar transaction involving the Company if the stockholders of the Common Stock of the Company immediately prior to such transaction do not own a majority of the outstanding common stock of the surviving company or its parent immediately after the transaction in substantially the same proportions relative to each other as immediately prior to such transaction;
(iii) Any person or group becomes the Beneficial Owner, directly or indirectly, of more than 50% of the total voting power of the voting stock of the Company, including by way of merger, consolidation or otherwise (for the purposes of this clause (iii), a member of a group will not be considered to be the Beneficial Owner of the securities owned by other members of the group other than in response to a contested proxy or other control battle); or
(iv) During any period of two (2) consecutive years, individuals who at the beginning of such period constituted the Board (together with any new Directors whose election by such Board or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the Directors of the Company then still in office, who were either Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board then in office.
2.7. “Code” means the Internal Revenue Code of 1986, as amended from time to time.
2.8. “Committee” means the Board, or a committee of one or more members of the Board (or other individuals who are not members of the Board to the extent allowed by law) duly appointed by the Board in accordance with the Plan and Applicable Law. At any time that no such committee has been appointed, the Board shall constitute the “Committee” hereunder.
2.9. “Common Stock” means the Series A common stock of the Company, par value $0.01 per Share.
2.10. “Company” means Mueller Water Products, Inc., a Delaware corporation.
2.11. “Consultant” means any person (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) who is a member of the board of directors of an Affiliate. For purposes of determining eligibility to participate in the Plan, the term Consultant shall be clarified pursuant to the provisions of Section 5.4.
2.12. “Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director, or Consultant, as applicable, is not interrupted or terminated. Unless otherwise expressly provided in the Stock Award, the Participant’s Continuous Service shall be deemed to have terminated when the Participant “separates from service” within the meaning of Code Section 409A.
2.13. “Covered Employee” means a “covered employee” as determined for purposes of Section 162(m) of the Code.
2.14. “Director” means a member of the Board of Directors of the Company.
2.15. “Disability” (a) means with respect to all Incentive Stock Options, the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code, (b) for all other purposes, has the meaning under Section 409A(a)(2)(C)(i) of the Code, that is, the Participant (a) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months or (b) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death, or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Participant’s employer.
2.16. “Employee” means any person employed by the Company or an Affiliate. Compensation by the Company or an Affiliate solely for services as a Director or as a Consultant shall not be sufficient to constitute “employment” by the Company or an Affiliate.
2.17. “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.
2.18. “Fair Market Value” means, as of any date, the value of the Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value
of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no such sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the date of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; or
(iii) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board.
(iv) Notwithstanding the foregoing, to the extent required to comply with Section 409A of the Code in order to avoid the imposition of penalties or interest in respect thereof, the value of the Common Stock shall be determined in a manner consistent with Section 409A (and the regulations and guidance promulgated thereunder).
2.19. “Full-Value Stock Award” shall mean any of a Restricted Stock Bonus, Restricted Stock Units, Phantom Stock Units, Performance Share Bonus, or Performance Share Units.
2.20. “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.
2.21. “Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.
2.22. “Option” means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan.
2.23. “Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.
2.24. “Participant” means an Employee, Director or Consultant to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.
2.25. “Performance Share Bonus” means a grant of shares of the Company’s Common Stock not requiring a Participant to pay any amount of monetary consideration (other than par value to the extent required by Applicable Law), and subject to the provisions of Section 8.2 of the Plan.
2.26. “Performance Share Unit” means the right to receive the value of one (1) share of the Company’s Common Stock at the time the Performance Share Unit vests, with the further right to elect to defer receipt of that value otherwise deliverable upon the vesting of an award of Performance Share Units to the extent permitted in the Participant’s agreement. These Performance Share Units are subject to the provisions of Section 8.2 of the Plan.
2.27. “Phantom Stock Unit” means the right to receive the value of one (1) share of the Company’s Common Stock, subject to the provisions of Section 8.2 of the Plan.
2.28. “Plan” means this Mueller Water Products, Inc. 2006 Stock Incentive Plan, as amended and in effect from time to time.
2.29. “Restricted Stock Bonus” means a grant of shares of the Company’s Common Stock not requiring a Participant to pay any amount of monetary consideration (other than par value to the extent required by Applicable Law), and subject to the provisions of Section 8.2 of the Plan.
2.30. “Restricted Stock Purchase Right” means the right to acquire shares of the Company’s Common Stock upon the payment of the agreed-upon monetary consideration, subject to the provisions of Section 8.2 of the Plan.
2.31. “Restricted Stock Unit” means the right to receive the value of one (1) share of the Company’s Common Stock at the time the Restricted Stock Unit vests, with the further right to elect to defer receipt of that value otherwise deliverable upon the vesting of an award of restricted stock to the extent permitted in the Participant’s agreement. These Restricted Stock Units are subject to the provisions of Section 8.2 of the Plan.
2.32. “Retirement” means the voluntary termination of a Participant’s Continuous Service at such time that the Participant’s age and years of service equal or exceed 70, but only after the Participant’s 60th birthday.
2.33. “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule l6b-3, as in effect from time to time.
2.34. “Securities Act” means the Securities Act of 1933, as amended from time to time.
2.35. “Stock Appreciation Right” means the right to receive an amount equal to the Fair Market Value of one (1) share of the Company’s Common Stock on the day the Stock Appreciation Right is redeemed, reduced by the deemed exercise price or base price of such right, subject to the provisions of Section 8.1 of the Plan.
2.36. “Stock Award” means any award of an Option, Restricted Stock Bonus, Restricted Stock Purchase Right, Stock Appreciation Right, Phantom Stock Unit, Restricted Stock Unit, Performance Share Bonus, Performance Share Unit, or other stock-based award.
2.37. “Stock Award Agreement” means a written agreement between the Company and a holder of a Stock Award setting forth the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan.
2.38. “Subsidiary” means a subsidiary corporation, as defined in Section 424(f) of the Code.
2.39. “Ten Percent Shareholder” means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of its parent or subsidiary corporation.
III. ADMINISTRATION.
3.1.Administration. The Plan shall be administered by a Committee consisting of two or more directors, each of whom shall be a “non-employee director” within the meaning of Rule 16b-3 and an “outside director” within the meaning of Section 162(m) of the Code, unless otherwise determined by the Board. The Committee shall administer the Plan and shall have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; what type or combination of types of Stock Awards shall be granted; the terms and conditions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive cash and/or Common Stock pursuant to a Stock Award; the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person; and whether a Stock Award will be adjusted to account for dividends paid with respect to the Company’s Common Stock (subject to the requirements of Code Section 409A).
(ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for the administration of the Plan. The Committee, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan and the terms of the Stock Award fully effective (but only to the extent consistent with the requirements of Code Section 409A, where applicable).
(iii) To amend the Plan or a Stock Award as provided in the Plan.
(iv) Generally, to exercise such powers and to perform such acts as the Committee deems necessary, desirable, convenient or expedient to promote the best interests of the Company consistent with the provisions of the Plan (subject to the requirements of Code Section 409A, where applicable).
(v) To adopt sub-plans and/or special provisions applicable to Stock Awards regulated by the laws of a jurisdiction other than and outside of the United States. Except with respect to Section 4 of the Plan and such other sections as required by Applicable Law, the sub-plans and/or special provisions may take precedence over other provisions of the Plan to the extent expressly set forth in the terms of such sub-plans and/or special provisions.
(vi) To authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of a Stock Award previously granted by the Committee.
(vii) To impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by a Participant or other subsequent transfers by the Participant of any shares of Common Stock issued as a result of or under a Stock Award, including, without limitation, (A) restrictions under an insider trading policy and (B) restrictions as to the use of a specified brokerage firm for such resales or other transfers.
(viii) To provide, either at the time a Stock Award is granted or by subsequent action, that a Stock Award shall contain as a term thereof, a right, either in tandem with the other rights under the Stock Award or as an alternative thereto, of the Participant to receive, without payment to the Company, a number of shares of Common Stock, cash or a combination thereof, the amount of which is determined by reference to the value of the Stock Award.
(ix) To assume, or provide for the issuance of substitute Stock Awards that will substantially preserve the otherwise applicable terms of, stock options and other stock-based awards previously granted by an Affiliate to an award holder who is or becomes eligible to participate in the Plan, as determined by the Committee in its sole discretion; provided, however, that any such assumption or substitution shall comply with Applicable Law, including but not limited to Sections 409A and 424 of the Code, and any such substitute Stock Awards may be granted at a price below Fair Market Value only to the extent that such grants would otherwise comply with the terms of this Plan, including but not limited to Section 10.10 hereof.
3.2.Delegation by the Committee. In no way limiting any other provision of the Plan, the Committee may delegate its duties and powers hereunder in whole or in part to any subcommittee thereof consisting solely of at least two individuals who are intended to qualify as “Non-Employee Directors” within the meaning of Rule 16b-3 under the Exchange Act and “outside directors” within the meaning of Section 162(m) of the Code.
3.3.Stock Pool. The Committee may, by resolution, authorize the Chief Executive Officer or another director to grant a Stock Award, to the extent permitted by Delaware law, to any Employee who is not a Covered Employee or expected to become a Covered Employee or is not a named executive officer, in accordance with the limitations established by the Committee including the maximum number of shares of Common Stock
subject to all such Stock Awards made in a fiscal year of the Company, the maximum Shares subject to all Stock Awards made to any one person at any one time, the requirement that no Stock Award be made at less than Fair Market Value, and subject to any other restrictions required by law. Any Stock Awards made pursuant to this delegation shall be reported periodically to the Committee.
3.4.Effect of the Committee’s Decision. All determinations, interpretations and constructions made by the Committee or its duly authorized sub-committee(s) in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons.
IV. SHARES SUBJECT TO THE PLAN.
4.1.Share Reserve. Subject to the provisions of Section 11 of the Plan relating to adjustments upon changes in Common Stock, the maximum aggregate number of shares of Common Stock that may be issued pursuant to Stock Awards shall not exceed 8,000,000 shares of Common Stock (“Share Reserve”), provided that each share of Common Stock issued pursuant to an Option or Restricted Stock Purchase Right shall reduce the Share Reserve by one (1) share and each share of Common Stock subject to the redeemed portion of a Stock Appreciation Right (whether the distribution upon redemption is made in cash, stock or a combination of the two) shall reduce the Share Reserve by one (1) share. Each share of Common Stock issued pursuant to a Full-Value Stock Award shall reduce the Share Reserve by one (1) share. To the extent that a distribution pursuant to a Stock Award is made in cash, the Share Reserve shall be reduced by the number of shares of Common Stock subject to the redeemed or exercised portion of the Stock Award. Notwithstanding any other provision of the Plan to the contrary, the maximum aggregate number of shares of Common Stock that may be issued under the Plan pursuant to Incentive Stock Options is 1,250,000 shares of Common Stock (“ISO Limit”), subject to the adjustments provided for in Section 11 of the Plan.
4.2.Reversion of Shares to the Share Reserve. If any Stock Award granted under this Plan shall for any reason (i) expire, be cancelled or otherwise terminate, in whole or in part, without having been exercised or redeemed in full, (ii) be reacquired by the Company prior to vesting, or (iii) be repurchased at cost by the Company prior to vesting, the shares of Common Stock not acquired under such Stock Award shall revert or be added to the Share Reserve and become available for issuance under the Plan; provided, however, that such shares of Common Stock shall not be available for issuance pursuant to the exercise of Incentive Stock Options.
4.3.Source of Shares. The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares (whether purchased on the market or otherwise reacquired).
V. ELIGIBILITY.
5.1.Eligibility for Specific Stock Awards. Incentive Stock Options may be granted only to Employees. Stock Awards other than Incentive Stock Options may be granted to Employees, Directors, and Consultants. Nonstatutory Stock Options and Stock Appreciation Rights may be granted only with respect to “service recipient stock” as such term is used in Code Section 409A.
5.2.Ten Percent Stockholders. A Ten Percent Shareholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant, except as provided in Section 3.1(ix) above.
5.3.Annual Limitation. Subject to the provisions of Section 11 of the Plan relating to adjustments upon changes in the shares of Common Stock, no Employee shall be eligible to be granted Options and other Stock Awards covering more than 1,000,000 shares of Common Stock (with respect to Stock Awards payable in shares) or with a value in excess of $5,000,000 (with respect to Stock Awards payable in cash) during any fiscal year; provided that in connection with his or her initial service, an Employee may be granted Options and other Stock Awards covering not more than an additional 300,000 shares of Common Stock (with respect to Stock Awards payable in shares) or with a value in excess of $5,000,000 (with respect to Stock Awards payable in cash), which shall not count against the limit set forth in the preceding sentence.
5.4.Consultants. A Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act (“Form S-8”) is not available to register either the offer or the sale of the Company’s securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (1) that such grant (A) shall be registered in another manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or (B) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (2) that such grant complies with the securities laws of all other relevant jurisdictions.
VI. OPTION PROVISIONS.
6.1.Form of Options. Each Option shall be in such form and shall contain such terms and conditions as the Committee shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased upon exercise of each type of Option. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:
6.2.Term. In the absence of a provision to the contrary in the individual Optionholder’s Stock Award Agreement, and subject to the provisions of Section 5.2 of the Plan regarding grants of Incentive Stock Options to Ten Percent Stockholders, the term of the Option shall be ten (10) years from the date it was granted.
6.3.Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), or such other limit as may be set by Applicable Law, the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options.
6.4.Exercise Price of an Incentive Stock Option. The exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted (or less than one hundred and ten percent (110%) in the case of a Ten Percent Shareholder), except as provided in Section 3.1(ix) above.
6.5.Exercise Price of a Nonstatutory Stock Option. The exercise price of each Nonstatutory Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted, except as provided in Section 3.1(ix) above.
6.6.Consideration.
(i) The purchase price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (a) in cash or by check at the time the Option is exercised or (b) at the discretion of the Committee (in the case of Incentive Stock Options, at the time of the grant of the Option): (1) by delivery to the Company of other shares of Common Stock (subject to such requirements as may be imposed by the Committee), (2) if there is a public market for the Common Stock at such time, and to the extent permitted by Applicable Law, pursuant to a “same day sale” program that results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds, (3) reduction of the Company’s liability to the Optionholder, (4) by any other form of consideration permitted by law, but in no event shall a promissory note or other form of deferred payment constitute a permissible form of consideration for an Option granted under the Plan, or (5) by some combination of the foregoing. In each such case, the combination of any cash and property used to pay the purchase price shall have a Fair Market Value on the exercise date equal to the applicable exercise price.
(ii) Unless otherwise specifically provided in the Stock Award Agreement, the purchase price of Common Stock acquired pursuant to a Stock Award that is paid by delivery to the Company of other Common Stock, which Common Stock was acquired, directly or indirectly from the Company, shall be paid only by shares of the Common
Stock that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a supplemental charge to earnings for financial accounting purposes).
(iii) Whenever a Participant is permitted to pay the exercise price of a Stock Award and/or taxes relating to the exercise of a Stock Award by delivering Common Stock, the Participant may, subject to procedures satisfactory to the Committee, satisfy such delivery requirements by presenting proof of beneficial ownership of such Common Stock, in which case the Company shall treat the Stock Award as exercised or redeemed without further payment and shall withhold such number of shares of Common Stock from the Common Stock acquired under the Stock Award. When necessary to avoid a supplemental charge to earnings for financial accounting purposes, any such withholding for tax purposes shall be made at the statutory minimum rate of withholding.
6.7.Transferability of an Incentive Stock Option. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder.
6.8.Transferability of a Nonstatutory Stock Option. Except as otherwise provided in the Stock Award Agreement, a Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may transfer a Nonstatutory Stock Option to a trust established solely for the benefit of one or more family members (as defined in the General Instructions to Form S-8 promulgated under the Securities Act of 1933, or a successor to such instructions or such form) of the Optionholder; provided that the Participant may not receive any consideration for the transfer. All terms and conditions applicable to the Nonstatutory Stock Option, including without limitation provisions relating to the termination of the Participant’s Continuous Service, and the effect thereof, shall continue to apply following a transfer made in accordance with this Section 6.8. Subsequent transfers of a Nonstatutory Stock Option transferred by a Participant in accordance with this Section 6.8 shall be prohibited, except by will or by the laws of descent and distribution; provided that a transferee, where applicable under the terms of the transfer from the Participant, shall have the right previously held by the Participant to designate a Beneficiary.
6.9.Vesting Generally. Options granted under the Plan shall be exercisable at such times and upon such terms and conditions as may be determined by the Committee. The vesting provisions of individual Options may vary. The provisions of this Section 6.9 are subject to any Option provisions governing the minimum number of shares of Common Stock as to which an Option may be exercised.
6.10.Termination of Unvested Options. Any Option or portion thereof that is not vested at the time of termination of Continuous Service shall lapse and terminate, and shall not be exercisable by the Optionee or any other person, unless otherwise provided for in the Stock Award Agreement.
6.11.Termination of Continuous Service. In the event an Optionholder’s Continuous Service terminates (other than upon the Optionholder’s death, Disability or Retirement or termination for Cause), the Option shall remain exercisable for three (3) months following the date of termination (to the extent that the Option was exercisable at that time), or such other period specified in the Stock Award Agreement. In no event may the Option be exercised after the expiration of the term of the Option as set forth in the Stock Award Agreement. If the Optionholder does not exercise his or her Option within the specified time, the Option shall terminate.
6.12.Extension of Termination Date. An Optionholder’s Stock Award Agreement may also provide that if the exercise of the Option following the termination of the Optionholder’s Continuous Service (other than upon the Optionholder’s death or termination for Cause) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act or other applicable securities law, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the Stock Award Agreement or (ii) the expiration of a period of three (3) months after the termination of the Optionholder’s Continuous Service during which the exercise of the Option would not be in violation of such registration requirements or other applicable securities law. The provisions of this Section 6.12 notwithstanding, in the event that a sale of the shares of Common Stock received upon exercise of his or her Option would subject the Optionholder to liability under Section 16(b) of the Exchange Act, then the Option will terminate on the earlier of (1) the fifteenth (15th) day after the last date upon which such sale would result in liability, or (2) two hundred ten (210) days following the date of termination of the Optionholder’s employment or other service to the Company (and in no event later than the expiration of the term of the Option).
6.13.Disability or Retirement of Optionholder. In the event an Optionholder’s Continuous Service terminates upon the Optionholder’s Disability or Retirement, the Option shall remain exercisable for two (2) years following the date of termination (to the extent that the Option was exercisable at that time), or such other period specified in the Stock Award Agreement. In no event may the Option be exercised after than the expiration of the term of the Option as set forth in the Stock Award Agreement. If the Optionholder does not exercise his or her Option within the specified time, the Option shall terminate.
6.14.Death of Optionholder. In the event (i) an Optionholder’s Continuous Service terminates as a result of the Optionholder’s death or (ii) the Optionholder dies after the termination of his or her Continuous Service but within the post-termination exercise period applicable to the Option, then, except as otherwise provided in the Stock Award Agreement, the Option shall remain exercisable for two (2) years following the date of death (to the extent that the Option was exercisable at that time). In no event may the Option be exercised after the expiration of the term of the Option as set forth in the Stock Award Agreement. If the Option is not exercised by the person entitled to do so within the specified time, the Option shall terminate.
6.15.Termination for Cause. Unless otherwise provided in the applicable Stock Award Agreement, the Option shall cease to be exercisable as to all unexercised shares of
Common Stock (including any vested shares) immediately upon the termination of the Optionholder’s Continuous Service for Cause.
6.16.Early Exercise Generally Not Permitted. The Company may grant Options which permit the Optionholder to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the vesting of the Option. If a Stock Award Agreement does permit such early exercise, any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Committee determines to be appropriate.
6.17.No Repricing of Options. The Committee shall have no authority to make any adjustment or amendment (except as provided in Section 3.1(ix) or Article XI of this Plan), and no such adjustment or amendment shall be made, that reduces or would have the effect of reducing the exercise price of an Option previously granted under the Plan, whether through amendment, cancellation or replacement grants, or other means, unless the Company’s stockholders shall have approved such adjustment or amendment.
VII. NON-DISCRETIONARY STOCK AWARDS FOR ELIGIBLE DIRECTORS.
7.1.Stock Awards for Eligible Directors. In addition to any other Stock Awards that Directors may be granted on a discretionary basis under the Plan, each Director of the Company who is not an Employee of the Company or any Affiliate (each, an “Eligible Director”) shall be automatically granted, without the necessity of action by the Committee, the following Stock Awards:
(i)Initial Grant. On the date that a Director commences service on the Board and satisfies the definition of an Eligible Director, an initial grant of a Stock Award (the “Initial Grant”) shall automatically be made to that Eligible Director. The type of Stock Award, the number of shares subject to this Initial Grant and other terms governing this Initial Grant shall be as determined by the Committee in its sole discretion. If the Committee does not establish the terms and conditions of the Initial Grant for a given newly-elected Eligible Director prior to the date of grant, then the Stock Award shall be of the same type, and for the same number of shares, as the Initial Grant made to the immediately preceding newly-elected Eligible Director. If at the time a Director first commences service on the Board, the Director does not satisfy the definition of an Eligible Director, such Director shall not be entitled to an Initial Grant at any time, even if such Director subsequently becomes an Eligible Director.
(ii)Annual Grant. An annual Stock Award grant (the “Annual Grant”) shall automatically be made to each Director who (1) is re-elected to the Board, (2) is an Eligible Director on the relevant grant date, and (3) has served as a Director for a period of at least six (6) months on the relevant grant date. The type of Stock Award, the number of shares subject to the Annual Grant and other terms governing the Annual Grant shall be as determined by the Committee in its sole discretion. If the Committee does not establish the terms and conditions of the Annual Grant prior to the date of grant, then the Annual Grant shall be of the same type, and for the same number of shares of
Common Stock, as the Annual Grants made for the immediately preceding year. The date of grant of an Annual Grant is the date on which the Director is re-elected to serve on the Board.
(iii)Vesting. Notwithstanding the foregoing, if the vesting of the Stock Award is based solely on the Director’s Continuous Service, the Stock Award will not fully vest in less than three (3) years.
(iv)Vesting on Retirement. All Initial Grants and Annual Grants held by an Eligible Director shall become fully vested and exercisable upon the termination of the Eligible Director’s Continuous Service by reason of Retirement, unless otherwise expressly set forth in the applicable Stock Award Agreement(s).
VIII. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
8.1.Stock Appreciation Rights. Each award of Stock Appreciation Rights (“SARs”) granted under the Plan shall be subject to such terms and conditions as the Committee shall deem appropriate. The terms and conditions of SAR agreements need not be identical, but each SAR agreement shall include the substance of each of the applicable provisions of this Section 8.1. The two types of SARs that are authorized for issuance under this Plan are:
(i)Stand-Alone SARs. The following terms and conditions shall govern the grant and redeemability of stand-alone SARs:
(A) The stand-alone SAR shall cover a specified number of underlying shares of Common Stock and shall be redeemable upon such terms and conditions as the Committee may establish. Upon redemption of the stand-alone SAR, the holder shall be entitled to receive a distribution from the Company in an amount equal to the excess of (i) the aggregate Fair Market Value (on the redemption date) of the shares of Common Stock underlying the redeemed right over (ii) the aggregate base price in effect for those shares.
(B) The number of shares of Common Stock underlying each stand-alone SAR and the base price in effect for those shares shall be determined by the Committee in its sole discretion at the time the stand-alone SAR is granted. In no event, however, may the base price per share be less than one hundred percent (100%) of the Fair Market Value per underlying share of Common Stock on the grant date.
(C) The distribution with respect to any redeemed stand-alone SAR may be made in shares of Common Stock valued at Fair Market Value on the redemption date, in cash, or partly in shares and partly in cash, as the Committee shall in its sole discretion deem appropriate.
(ii)Stapled SARs. The following terms and conditions shall govern the grant and redemption of stapled SARs:
(A) Stapled SARs may only be granted concurrently with an Option to acquire the same number of shares of Common Stock as the number of such shares underlying the stapled SARs.
(B) Stapled SARs shall be redeemable upon such terms and conditions as the Committee may establish and shall grant a holder the right to elect among (i) the exercise of the concurrently granted Option for shares of Common Stock, whereupon the number of shares of Common Stock subject to the stapled SARs shall be reduced by an equivalent number, (ii) the redemption of such stapled SARs in exchange for a distribution from the Company in an amount equal to the excess of the Fair Market Value (on the redemption date) of the number of vested shares which the holder redeems over the aggregate base price for such vested shares, whereupon the number of shares of Common Stock subject to the concurrently granted Option shall be reduced by any equivalent number, or (iii) a combination of (i) and (ii).
(C) The distribution to which the holder of stapled SARs shall become entitled upon the redemption of stapled SARs may be made in shares of Common Stock valued at Fair Market Value on the redemption date, in cash, or partly in shares and partly in cash, as the Committee shall in its sole discretion deem appropriate.
(iii)Limitations. The total number of shares of Common Stock subject to a SAR may, but need not, vest in period installments that may, but need not, be equal. The Committee shall determine the criteria under which shares of Common Stock under the SAR may vest. If the Stock Award Agreement does not provide for transferability, then the shares subject to the SAR shall not be transferable except by will or by the laws of descent and distribution.
(iv)No Repricing of Stock Appreciation Rights. The Committee shall have no authority to make any adjustment or amendment (except as provided in Section 3.1(ix) or Article XI of this Plan), and no such adjustment or amendment shall be made, that reduces or would have the effect of reducing the base price of a Stock Appreciation Right previously granted under the Plan, whether through amendment, cancellation or replacement grants, or other means, unless the Company’s stockholders shall have approved such adjustment or amendment.
8.2.Other Stock-Based Awards. The Committee, in its sole discretion, may grant or sell an award of a Restricted Stock Bonus, Restricted Stock Purchase Right, Phantom Stock Unit, Restricted Stock Unit, Performance Share Bonus, Performance Share Unit, or other stock-based award that is valued in whole or in part by reference to, or is otherwise based on, the Fair Market Value of the Company’s Common Stock (each, an “Other Stock-Based Award”). Each Other Stock-Based Award shall be subject to a Stock Award Agreement which shall contain such terms and conditions as the Committee shall
deem appropriate, including any provisions for the deferral of the receipt of any shares of Common Stock, cash or property otherwise distributable to the Participant in respect of the Stock Award. The terms and conditions of Other Stock-Based Awards may change from time to time, and the terms and conditions of separate Other Stock-Based Awards need not be identical, but each Other Stock-Based Award shall be subject to the following provisions (either through incorporation of provisions hereof by reference in the applicable Stock Award Agreement or otherwise):
(i)Purchase Price. Other Stock-Based Awards may be granted in consideration for past services actually rendered to the Company or an Affiliate. The purchase price (if any) under each Other Stock-Based Award shall be such amount as the Committee shall determine and designate in the applicable Stock Award Agreement. To the extent required by Applicable Law, the purchase price shall not be less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Other Stock-Based Award on the date such award is made or at the time the purchase is consummated, as applicable.
(ii)Consideration.
(A) The purchase price (if any) of Common Stock acquired pursuant to Other Stock-Based Awards shall be paid either: (1) in cash or by check, or (2) as determined by the Committee (and to the extent required by Applicable Law, at the time of the grant): (v) by delivery to the Company of other shares of Common Stock (subject to such requirements as may be imposed by the Committee), (w) if there is a public market for the Common Stock at such time, and to the extent permitted by Applicable Law, pursuant to a “same day sale” program that results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds, (x) reduction of the Company’s liability to the Participant, (y) by any other form of consideration permitted by law, but in no event shall a promissory note or other form of deferred payment constitute a permissible form of consideration, or (z) by some combination of the foregoing.
(B) Unless otherwise specifically provided in the Stock Award Agreement, the purchase price of Common Stock acquired pursuant to any Other Stock-Based Award that is paid by delivery to the Company of other Common Stock, which Common Stock was acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a supplemental charge to earnings for financial accounting purposes). To the extent required by Applicable Law, the Participant shall pay the Common Stock’s “par value” solely in cash or by check.
(C) Whenever a Participant is permitted to pay the exercise price of any Other Stock-Based Award and/or taxes relating to the exercise thereof by delivering Common Stock, the Participant may, subject to procedures satisfactory
to the Committee, satisfy such delivery requirements by presenting proof of beneficial ownership of such Common Stock, in which case the Company shall treat the Other Stock-Based Award as exercised or redeemed without further payment and shall withhold such number of shares of Common Stock from the Common Stock acquired under the Other Stock-Based Award. When necessary to avoid a supplemental charge to earnings for financial accounting purposes, any such withholding for tax purposes shall be made at the statutory minimum rate of withholding.
(iii)Vesting. The total number of shares of Common Stock subject to each Other Stock-Based Award may, but need not, vest and/or become redeemable in periodic installments that may, but need not, be equal. The Committee shall determine the criteria under which shares of Common Stock under the each Other Stock-Based Award may vest. The criteria may or may not include performance criteria or Continuous Service. Shares of Common Stock acquired under each Other Stock-Based Award may, but need not, be subject to a share repurchase right or similar forfeiture feature in favor of the Company in accordance with a vesting schedule to be determined by the Committee.
(iv)Distributions. The distribution with respect to any Other Stock-Based Award may be made in shares of Common Stock valued at Fair Market Value on the redemption or exercise date, in cash, or partly in shares and partly in cash, as the Committee shall in its sole discretion deem appropriate.
(v)Termination of Participant’s Continuous Service. In the event a Participant’s Continuous Service terminates, the Company may repurchase or reacquire, and/or the Participant shall forfeit (as applicable), any or all of the shares of Common Stock held by the Participant that have not vested as of the date of termination on such terms and conditions as set forth in the Stock Award Agreement.
(vi)Transferability. Rights to acquire shares of Common Stock under Other Stock-Based Award shall be transferable by the Participant only upon such terms and conditions as are set forth in the applicable Stock Award Agreement, as the Committee shall determine in its discretion. If the Stock Award Agreement does not provide for transferability, then the shares subject to Other Stock-Based Award shall not be transferable except by will or by the laws of descent and distribution. Notwithstanding the foregoing, the Participant may transfer an Other Stock-Based Award to a trust established solely for the benefit of one or more family members (as defined in the General Instructions to Form S-8 promulgated under the Securities Act of 1933, or a successor to such instructions or such form) of the Participant; provided that the Participant may not receive any consideration for the transfer. All terms and conditions applicable to the Other Stock-Based Award, including without limitation provisions relating to the termination of the Participant’s Continuous Service, and the effect thereof, shall continue to apply following a transfer made in accordance with this Section 8.2(vi). Subsequent transfers of an Other Stock-Based Award transferred by a Participant in accordance with this Section 8.2(vi) shall be prohibited, except by will or by the laws of descent and distribution; provided that a transferee, where applicable under the terms of
the transfer from the Participant, shall have the right previously held by the Participant to designate a Beneficiary.
IX. ISSUANCE OF SHARES.
9.1.Availability of Shares. During the terms of the outstanding Stock Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Stock Awards.
9.2.Securities Law Compliance. The grant of Stock Awards and the issuance of Common Stock pursuant to Stock Awards shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to securities. The Company shall use commercially reasonable efforts to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise, redemption or satisfaction of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act or under any foreign law of similar effect the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after commercially reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock related to such Stock Awards unless and until such authority is obtained.
9.3.Proceeds. Proceeds from the sale of Common Stock pursuant to Stock Awards shall constitute general funds of the Company.
X. MISCELLANEOUS.
10.1.Vesting Generally. If the vesting of a Stock Award is based solely on the Participant’s Continuous Service, the Stock Award will not fully vest in less than three (3) years and if the vesting of a Stock Award is based on the achievement of performance criteria, the Stock Award will not fully vest in less than one (1) year.
10.2.Acceleration of Exercisability and Vesting. The Committee shall have the power to accelerate exercisability and/or vesting of any Stock Award only in the case of death, disability, retirement or Change of Control. Subject to the prior sentence, the Committee shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest.
10.3.Clawback. The Company may provide in any Stock Award Agreement that, upon the Committee’s discovery of facts that would be grounds for a termination for Cause of a Participant’s Continuous Service, and regardless of whether such discovery is made prior to or following a termination of Continuous Service for any reason, the
Committee may (in its sole discretion, but acting in good faith) direct that the Company recover all or a portion of the Stock Award, including any shares of Common Stock then held by the Participant as well as any gain recognized by the Participant upon any sale of the shares of Common Stock issued pursuant to the Stock Award. In no event shall the amount to be recovered by the Company be less than any amount required to be repaid or recovered as a matter of law. The Committee shall determine whether the Company shall effect any such recovery or repayment (i) by seeking recovery or repayment from the Participant, (ii) by reducing (subject to Applicable Law and the terms and conditions of the applicable plan, program or arrangement) the amount that would otherwise be payable to the Participant under any compensatory plan, program, agreement or arrangement maintained by the Company or any of its Affiliates, (iii) by withholding payment of future compensation (including the payment of any discretionary bonus amount) or grants of compensatory awards that would otherwise have been made in accordance with the otherwise applicable compensation practices of the Company or any Affiliate, or (iv) by any combination of the foregoing.
10.4.Compliance of Performance Awards. Notwithstanding anything to the contrary herein, any Stock Award granted under this Plan may, but need not, be granted in a manner which may be deductible by the Company under Section 162(m) of the Code and, as applicable, compliant with the requirements of Section 409A of the Code (such awards, “Performance-Based Awards”). A Participant’s Performance-Based Award shall be determined based on the attainment of written performance goals approved by the Committee for a performance period established by the Committee, which goals are approved (i) while the outcome for that performance period is substantially uncertain and (ii) during such period of time as permitted by Applicable Law. The performance goals, which must be objective, shall be based upon one or more of the following criteria: (i) consolidated earnings before or after taxes (including earnings before one or more of the following: interest, taxes, depreciation and amortization); (ii) net income; (iii) operating income; (iv) earnings per share; (v) book value per share; (vi) return on stockholders’ equity; (vii) expense management; (viii) return on investment; (ix) improvements in capital structure; (x) profitability of an identifiable business unit or product; (xi) maintenance or improvement of profit margins; (xii) stock price; (xiii) market share; (xiv) revenues or sales; (xv) costs and/or cost reductions or savings; (xvi) cash flow; (xvii) working capital; (xviii) return on invested capital or assets; (xix) consummations of acquisitions or sales of certain Company assets, subsidiaries or other businesses; (xx) funds from operations and (xxi) pre-tax income . The foregoing criteria may relate to the Company, one or more of its Affiliates or one or more of its divisions or units, or any combination of the foregoing, and may be applied on an absolute basis and/or be relative to one or more peer group companies or indices, or any combination thereof, all as the Committee shall determine. In addition, to the degree consistent with Section 162(m) of the Code (or any successor section thereto) and/or Section 409A of the Code, the performance goals may be calculated without regard to extraordinary items. The Committee shall determine whether, with respect to a performance period, the applicable performance goals have been met with respect to a given Participant and, if they have, to so certify and ascertain the amount of the applicable Performance-Based Award. No Performance-Based Awards will be paid for such performance period until such certification
is made by the Committee. The amount of the Performance-Based Award actually paid to a given Participant may be less than the amount determined by the applicable performance goal formula, at the discretion of the Committee. The amount of the Performance-Based Award determined by the Committee for a performance period shall be paid to the Participant at such time as determined by the Committee in its sole discretion after the end of such performance period; provided, however, that a Participant may, if and to the extent permitted by the Committee and consistent with the provisions of Section 162(m) and/or Section 409A of the Code, elect to defer payment of a Performance-Based Award.
10.5.Stockholder Rights. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to a Stock Award except to the extent that the Company has issued the shares of Common Stock relating to such Stock Award or except as expressly provided in a Stock Award Agreement.
10.6.No Employment or Other Service Rights. Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company, and any applicable provisions of the corporate law of the state or other jurisdiction in which the Company is domiciled, as the case may be.
10.7.Investment Assurances. The Company may require a Participant, as a condition of exercising or redeeming a Stock Award or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participant’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of acquiring the Common Stock; (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant’s own account and not with any present intention of selling or otherwise distributing the Common Stock; and (iii) to give such other written assurances as the Company may determine are reasonable in order to comply with Applicable Law. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (1) the issuance of the shares of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws, and in either case otherwise complies with Applicable Law. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with Applicable Laws, including, but not limited to, legends restricting the transfer of the Common Stock.
10.8.Designation of a Beneficiary. The Committee may establish rules pertaining to the designation by the Participant of a beneficiary who is to receive any shares of Common Stock and/or any cash, or have the right to exercise or redeem that Participant’s Stock Award, in the event of such Participant’s death.
10.9.Withholding Obligations. To the extent provided by the terms of a Stock Award Agreement, the Participant may satisfy any federal, state, local, or foreign tax withholding obligation relating to the grant, exercise, acquisition or redemption of a Stock Award or the acquisition, vesting, distribution or transfer of Common Stock under a Stock Award by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Participant, provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law (where withholding in excess of the minimum amount will result in a supplemental charge to earnings for financial accounting purposes); or (iii) delivering to the Company owned and unencumbered shares of Common Stock; provided, however, that in the case of the tender of shares, that any such shares have been held by the Participant for not less than six (6) months (or such other period as established from time to time by the Committee in order to avoid a supplemental charge to earnings for financial accounting purposes).
10.10.Section 409A. Notwithstanding anything in the Plan to the contrary, it is the intent of the Company that the administration of the Plan, and the granting of all Stock Awards under this Plan, shall be done in accordance with Section 409A of the Code and the Department of Treasury regulations and other interpretive guidance issued thereunder, including any guidance or regulations that may be issued after the effective date of this Plan, and shall not cause the acceleration of, or the imposition of the additional, taxes provided for in Section 409A of the Code. Any Stock Award shall be granted, deferred, paid out or modified under this Plan in a manner that shall be intended to avoid resulting in the acceleration of taxation, or the imposition of penalty taxation, under Section 409A upon a Participant. In the event that it is reasonably determined by the Committee that any amounts payable in respect of any Stock Award under the Plan will be taxable to a Participant under Section 409A of the Code prior to the payment and/or delivery to such Participant of such amounts under the applicable Stock Award Agreement or will be subject to the acceleration of taxation or the imposition of penalty taxation under Section 409A of the Code, the Company may either (i) adopt such amendments to the Plan and related Stock Award, and appropriate policies and procedures, including amendments and policies with retroactive effect, that the Committee determines necessary or appropriate to preserve the intended tax treatment of the benefits provided by the Plan and Stock Awards hereunder, and/or (ii) take such other actions as the Committee determines necessary or appropriate to comply with the requirements of Section 409A of the Code. Notwithstanding anything to the contrary herein, if Participant is a “specified employee” under Section 409A of the Code, then any payment(s) to the Participant described herein upon his or her termination of continuous service that (A) constitute “deferred compensation” to a Participant under Section 409A; (B)
are not exempt from Section 409A and (C) are otherwise payable within 6 months after Participant’s termination of continuous service, shall instead be made on the date 6 months and 1 day after such termination of continuous service, and such payment(s) shall be increased by an amount equal to interest on such payment(s) at a rate of interest equal to the Federal Funds Rate in effect as of the date of termination of continuous service from the date on which such payment(s) would have been made in the absence of this provision and the payment date described in this sentence.
10.11.Market Standoff Provision. If required by the Company (or a representative of the underwriter(s)) in connection with the first underwritten registration of the offering of any equity securities of the Company under the Securities Act, for a specified period of time, the Participant shall not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of the Common Stock acquired by the Participant pursuant to a Stock Award, and shall execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop transfer instructions with respect to such shares until the end of such period.
10.12.De Minimis Cap. Notwithstanding any other provision of the Plan, the Committee may grant Stock Awards that do not conform to the requirements of the Plan so long as such Stock Awards do not exceed 10% of the shares authorized for issuance under the Plan.
XI. ADJUSTMENTS UPON CHANGES IN STOCK.
11.1.Capitalization Adjustments. In the event of any change in the Common Stock subject to the Plan or subject to or underlying any Stock Award, by reason of any stock dividend, stock split, reverse stock split, reorganization, recapitalization, merger, consolidation, spin-off, combination, exchange of shares of Common Stock or other corporate exchange, or any distribution or dividend to stockholders of Common Stock (whether paid in cash or otherwise) or any transaction similar to the foregoing, the Committee shall, without liability to any person, make such substitution or adjustment, if any, as it deems to be equitable to (i) the type, class(es) and maximum number of securities or other property subject to the Plan pursuant to the Share Reserve, the ISO Limit, and Section 5.3, (ii) the type, class(es) and number of securities subject to option grants to Eligible Directors under Section 7 of the Plan, (iii) the type, class(es) and number of securities or other property subject to, as well as the exercise price, base price, redemption price or purchase price applicable to, outstanding Stock Awards or (iv) any other affected terms of any outstanding Stock Awards. Any determination, substitution or adjustment made by the Committee under this Section 11.1, shall be final, binding and conclusive on all persons. The conversion of any convertible securities of the Company shall not be treated as a transaction that shall cause the Committee to make any determination, substitution or adjustment under this Section 11.1. Any actions taken under this Section 11.1 shall be made
in accordance with the applicable restrictions of Code Section 409A, including without limitation such restrictions with regard to the adjustment of stock options and stock appreciation rights that are considered exempt from Code Section 409A.
11.2.Adjustments Upon a Change of Control. In the event of a Change of Control, then the Committee or the board of directors of any surviving entity or acquiring entity may provide or require that the surviving or acquiring entity shall: (1) assume or continue all or any part of the Stock Awards outstanding under the Plan or (2) substitute substantially equivalent stock awards (including an award to acquire substantially the same consideration paid to the stockholders in the transaction by which the Change of Control occurs) for those Stock Awards outstanding under the Plan. In the event any surviving entity or acquiring entity refuses to assume or continue outstanding Stock Awards or to substitute similar stock awards for those outstanding under the Plan, then with respect to Stock Awards held by Participants whose Continuous Service has not terminated, the Committee in its sole discretion and without liability to any person may: (1) provide for the payment of a cash amount in exchange for the cancellation of a Stock Award equal to the product of (x) the excess, if any, of the Fair Market Value per share of Common Stock at such time over the exercise or redemption price, if any, and (y) the total number of shares then subject to such Stock Award; (2) continue the Stock Awards upon such terms as the Committee determines in its sole discretion; (3) provide for the issuance of substitute awards that will substantially preserve the otherwise applicable terms of any affected Stock Awards (including any unrealized value immediately prior to the Change of Control) previously granted hereunder, as determined by the Committee in its sole discretion; or (4) notify Participants holding Stock Awards that they must exercise or redeem any portion of such Stock Award (including, at the discretion of the Committee, any unvested portion of such Stock Award) at or prior to the closing of the transaction by which the Change of Control occurs and that the Stock Awards shall terminate if not so exercised or redeemed at or prior to the closing of the transaction by which the Change of Control occurs. With respect to any other Stock Awards outstanding under the Plan, such Stock Awards shall terminate if not exercised or redeemed with respect to the vested portion of the Stock Award (and, at the discretion of the Committee, any unvested portion of such Stock Award) at or prior to the closing of the transaction by which the Change of Control occurs. In the event of the dissolution or liquidation of the Company, unless the Board determined otherwise, all outstanding Stock Awards will terminate immediately prior to the dissolution or liquidation of the Company. In all cases, the Committee shall not be obligated to treat all Stock Awards, even those that are of the same type, in the same manner. Any actions taken under this Section 11.2 shall be made in accordance with the applicable restrictions of Code Section 409A.
XII. AMENDMENT OR TERMINATION OF THE PLAN OR STOCK AWARDS.
12.1.Term and Termination of the Plan. The Committee may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of the earlier of the date that the Plan is approved by the stockholders of the Company or the date the Plan is adopted by the Board. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated.
12.2.Amendment of the Plan and Stock Awards. The Committee at any time, and from time to time, may amend the Plan, subject to the approval of the Company’s stockholders to the extent such approval is necessary under Applicable Law or is required by the terms of Section 6.17 or Section 8.1(iv) of the Plan. The Committee at any time, and from time to time, may amend the terms of one or more Stock Awards. It is expressly contemplated that the Committee may amend the Plan and Stock Awards in any respect the Committee deems necessary or advisable (i) to provide eligible Participants with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and deferred compensation and/or (ii) to bring the Plan and/or Stock Awards granted under the Plan into compliance with Applicable Law.
12.3.No Material Impairment of Rights. Notwithstanding anything to the contrary in the Plan, the amendment, suspension or termination of the Plan and the amendment of outstanding Stock Awards, shall not materially impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the Participant unless such amendment is necessary pursuant to Section 10.10 hereof, in which case the Participant will be deemed to have consented to the amendment by virtue of accepting the grant of the Stock Award.
XIII. EFFECTIVE DATE OF PLAN.
13.1.Effective Date. The Plan shall become effective as of the date the Board approves the Plan, or such later date as is designated by the Board (such date, as set forth on the first page of this Plan, the “Effective Date”), subject to the approval of the Plan by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted by the Board.
XIV. CHOICE OF LAW.
14.1.Choice of Law. The law of the State of Delaware shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state’s conflict of laws rules.
[Revised 02/06/08]
Mueller Water Products, Inc.water products, inc.
ATTN: INVESTOR RELATIONS 1200 ABERNATHY ROAD, N.E. SUITE 1200 ATLANTA, GA 30328
VOTE BY INTERNET - INTERNET—www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - PHONE—1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
COMMON SERIES A
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
MUELL1M18335-P87035 KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY
MUELLER WATER PRODUCTS, INC.
For Withhold For All All All Except
To withhold authority to vote for any individual
All All Except nominee(s), mark “For All Except” and write the
The Board of Directors recommends that you number(s) of the nominee(s) on the line below.
vote FOR the following:
Vote on Directors 0 0 0
Item 1. To elect ten members to the Board of
Directors to serve for the ensuing year.
Nominees:
01) Donald N. Boyce 06) Mark J. O’Brien
02) Howard L. Clark, Jr. 07) Bernard G. Rethore
03) Gregory E. Hyland 08) Neil A. Springer
04) Jerry W. Kolb 09) Lydia W. Thomas
05) Joseph B. Leonard 10) Michael T. Tokarz
Vote on Proposals For Against Abstain
The Board of Directors recommends you vote FOR the following proposal(s):
Item 2. To approve the conversion of all outstanding shares of Series B common stock into shares of Series A common stock;2010 Management Incentive Plan 0 0 0
Item 3. To approve the amendment to the Amended and Restated 2006 Stock Incentive Plan;
Item 4. To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for 0 0 0
fiscal 2009;2010; and
Item 5.4. To transact such other business as may properly come before the Annual Meeting and any adjournment thereof.
For Against Abstainaddress changes and/or comments, please check this box and 0
write them on the back where indicated.
Please indicate if you plan to attend the Annual Meeting. 0 0
Yes No
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, give full title as such. If signing on behalf of a corporation, sign the full corporate name by authorized officer. The signer hereby revokes all proxies heretofore given by the signer to vote at the 20092010 Annual Meeting of Stockholders of Mueller Water Products, Inc. and any adjournment or postponement thereof.
For address changes and/or comments, please check this box and write them on the back where indicated.
Please indicate if you plan to attend this meeting.
Yes No
Signature [PLEASE SIGN WITHIN BOX] Date
Signature (Joint Owners) Date
Mueller Water Products, Inc.water products, inc.
Annual Meeting of Stockholders
Admission Ticket COMMON SERIES A (Not
(Not Transferable)
January 28, 2009 2010
10:00 A.M.a.m.
Four SeasonsCrowne Plaza Hotel 75 Fourteenth Street, N.E.
Atlanta Perimeter at Ravinia
4355 Ashford Dunwoody Road, Atlanta, Georgia 30346
Please detach this admission ticket and bring it with you, along with photo identification, in order to gain admittance to the meeting. This ticket admits only the stockholder listed on the reverse side and is not transferable.
The doors will open at 9:30 a.m.;
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
M18336-P87035
Mueller Water Products, Inc.water products, inc.
Proxy Card for the Annual Meeting of Stockholders January 28, 2009
10:00 A.M.2010
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Gregory E. Hyland, Evan L. Hart and Robert Barker, and each of them, with full power of substitution in each, proxies to vote all the shares of Mueller Water Products, Inc. common stock which the undersigned may be entitled to vote at the Annual Meeting of Stockholders to be held on January 28, 2009,2010, and at any adjournments thereof, upon the matters stated on the reverse side, as specified and in their discretion upon such other business as may properly come before the meeting or any adjournment thereof.
This proxy, when properly executed, will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, the proxy will be voted FOR proposals 1, 2 3 and 4.3.
Address Changes/Comments:
(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
Mueller Water Products, Inc.
ATTN: INVESTOR RELATIONS
1200 ABERNATHY ROAD N.E.
SUITE 1200
ATLANTA, GA 30328
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
COMMON SERIES B
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
MUELL3
KEEP THIS PORTION FOR YOUR RECORDS
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
DETACH AND RETURN THIS PORTION ONLY
MUELLER WATER PRODUCTS, INC.
For All
Withhold All
For All
Except
To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.
Vote on Directors
Item 1. To elect ten members to the Board of Directors to serve for the ensuing year.
Nominees:
01) Donald N. Boyce
02) Howard L. Clark, Jr.
03) Gregory E. Hyland
04) Jerry W. Kolb
05) Joseph B. Leonard
06) Mark J. O’Brien
07) Bernard G. Rethore
08) Neil A. Springer
09) Lydia W. Thomas
10) Michael T. Tokarz
Vote on Proposals
For Against Abstain
Item 2. To approve the conversion of all outstanding shares of Series B common stock into shares of Series A common stock;
Item 3. To approve the amendment to the Amended and Restated 2006 Stock Incentive Plan;
Item 4. To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2009; and
Item 5. To transact such other business as may properly come before the Annual Meeting and any adjournment thereof.
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, give full title as such. If signing on behalf of a corporation, sign the full corporate name by authorized officer. The signer hereby revokes all proxies heretofore given by the signer to vote at the 2009 Annual Meeting of Stockholders of Mueller Water Products, Inc. and any adjournment or postponement thereof.
For address changes and/or comments, please check this box and write them on the back where indicated.
Please indicate if you plan to attend this meeting.
Yes No
Signature [PLEASE SIGN WITHIN BOX] Date
Signature (Joint Owners) Date
Mueller Water Products, Inc.
Annual Meeting of Stockholders
Admission Ticket COMMON SERIES B (Not Transferable)
January 28, 2009 10:00 A.M.
Four Seasons Hotel 75 Fourteenth Street, N.E.
Atlanta, Georgia
Please detach this admission ticket and bring it with you, along with photo identification, in order to gain admittance to the meeting. This ticket admits only the stockholder listed on the reverse side and is not transferable.
The doors will open at 9:30 a.m.;
MUELL4
Mueller Water Products, Inc.
Proxy Card for the Annual Meeting of Stockholders January 28, 2009
10:00 A.M.
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Gregory E. Hyland, Evan L. Hart and Robert Barker, and each of them, with full power of substitution in each, proxies to vote all the shares of Mueller Water Products, Inc. common stock which the undersigned may be entitled to vote at the Annual Meeting of Stockholders to be held on January 28, 2009, and at any adjournments thereof, upon the matters stated on the reverse side, as specified and, in their discretion, upon such other business as may properly come before the meeting or any adjournment thereof.
This proxy, when properly executed, will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, the proxy will be voted FOR proposals 1, 2, 3 and 4.
Address Changes/Comments:
(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)