Table of Contents
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
o Preliminary Proxy Statement | ||
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | ||
þ Definitive Proxy Statement | ||
o Definitive Additional Materials | ||
o Soliciting Material Pursuant to §240.14a-12 |
BRUSH ENGINEERED MATERIALS INC.
Payment of Filing Fee (Check the appropriate box):
þ | No fee required. |
o | 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 transaction applies: |
(2) | Aggregate number of securities to which transaction applies: |
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
(4) | Proposed maximum aggregate value of transaction: |
(5) | Total fee paid: |
o | Fee paid previously with preliminary materials. |
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: |
(2) | Form, Schedule or Registration Statement No.: |
(3) | Filing Party: |
(4) | Date Filed: |
Table of Contents
(1) | To elect three directors, each to serve for a term of three years and until a successor is elected and qualified; | |
(2) | To approve the Brush Engineered Materials Inc. 2006 Stock Incentive Plan; | |
(3) | To approve the Brush Engineered Materials Inc. 2006 Non-employee Director Equity Plan; | |
(4) | To ratify and approve the selection of Ernst & Young LLP as independent registered public accounting firm for Brush Engineered Materials Inc. for the year 2006; and | |
(5) | To transact any other business that may properly come before the meeting. |
Michael C. Hasychak | |
Secretary |
Table of Contents
1
Table of Contents
Directors Whose Terms End in 2009 | Current Employment | |
Richard J. Hipple Age — 53 | President and Chief Operating Officer, Brush Engineered Materials Inc. | |
Mr. Hipple joined Brush Wellman, the Company’s largest wholly owned subsidiary, in July 2001 and served as its Vice President of Strip Products from July 2001 until May 2002, at which time he was appointed to President of Alloy Products. In May of 2005, Mr. Hipple was named President and Chief Operating Officer of Brush Engineered Materials Inc. Prior to joining Brush, Mr. Hipple was President of LTV Steel Company, a business unit of the LTV Corporation. Prior to running LTV’s steel business, Mr. Hipple held numerous leadership positions in Engineering, Operations, Strategic Planning, Sales and Marketing and Procurement since 1975 at LTV. | ||
William B. Lawrence Director since 2003 Member — Audit Committee and Organization and Compensation Committee | Former Executive Vice President, General Counsel & Secretary, TRW, Inc. (Advanced Technology Products and Services) | |
Age — 61 | ||
Prior to the sale of TRW, Inc. to Northrop Grumman Corporation in December 2002, Mr. Lawrence served as TRW’s Executive Vice President, General Counsel and Secretary since 1997 and held various other executive positions at TRW since 1976. Mr. Lawrence also serves on the Board of Directors of Ferro Corporation. | ||
William P. Madar Director since 1988 Member — Governance Committee and Organization and Compensation Committee | Retired Chairman of the Board and Former Chief Executive Officer Nordson Corporation (Industrial Application Equipment Manufacturer) | |
Age — 66 | ||
Mr. Madar retired as Chairman of the Board of Nordson Corporation effective March 2004. He had been Chairman since 1997. Prior to that time, he served as Vice Chairman of Nordson Corporation from August 1996 until October 1997 and as Chief Executive Officer from February 1986 until October 1997. From February 1986 until August 1996, he also served as its President. He is a director of Nordson Corporation and Lubrizol Corporation. | ||
2
Table of Contents
Directors Whose Terms End in 2007 | Current Employment | |
Joseph P. Keithley Director since 1997 Member — Governance Committee, Organization and Compensation Committee and Retirement Plan Review Committee | Chairman, Chief Executive Officer and President, Keithley Instruments, Inc. (Electronic Test and Measurement Products) | |
Age — 57 | ||
Mr. Keithley has been Chairman of the Board of Keithley Instruments, Inc. since 1991. He has served as Chief Executive Officer of Keithley Instruments, Inc. since November 1993 and as its President since May 1994. He is a director of Keithley Instruments, Inc. and Nordson Corporation. | ||
William R. Robertson Director since 1997 Member — Audit Committee, Organization and Compensation Committee and Retirement Plan Review Committee | Consulting Partner, Kirtland Capital Partners (Private Equity Investments) | |
Age — 64 | ||
Mr. Robertson has been a Consulting Partner of Kirtland Capital Partners since August 2005, prior to that time he was Managing Partner of Kirtland Capital Partners since September 1997. He was President and a director of National City Corporation from October 1995 until July 1997. He also served as Deputy Chairman and a director of National City Corporation from August 1988 until October 1995. Mr. Robertson is a member of the Board of Managers of the Prentiss Foundation and a member of and Vice President of the Board of Trustees of the Cleveland Museum of Art. | ||
John Sherwin, Jr. Director since 1981 (Lead Director 2005) Member — Audit Committee, Organization and Compensation Committee and Retirement Plan Review Committee | President, Mid-Continent Ventures, Inc. (Venture Capital Company) | |
Age — 67 | ||
Mr. Sherwin has been President of Mid-Continent Ventures, Inc. during the past five years. Mr. Sherwin is a director of John Carroll University and an advisor to Shorebank Cleveland, a trustee of The Cleveland Clinic Foundation and Chairman of the Cleveland Foundation. | ||
3
Table of Contents
Directors Whose Terms End in 2008 | Current Employment | |
Albert C. Bersticker Director since 1993 Member — Governance Committee and Organization and Compensation Committee | Retired Chairman and Chief Executive Officer, Ferro Corporation (Paint, varnishes, lacquers, enamels and allied products) | |
Age — 71 | ||
Mr. Bersticker had served as Non-executive Chairman of Oglebay Norton Company from May 2003 until January 2005. Mr. Bersticker was Chairman of Ferro Corporation from February 1996 and retired in 1999. He served as Chief Executive Officer of Ferro Corporation from 1991 until January of 1999 and as its President from 1988 until February 1996. He also had served as Secretary, Treasurer and a member of the Board of Directors of St. John’s Medical Center in Jackson, Wyoming until January 2005 | ||
William G. Pryor Director since 2003 Member — Governance Committee, Organization and Compensation Committee, and Retirement Plan Review Committee | Retired President, Van Dorn Demag Corporation (Plastic Injection Molding Equipment) | |
Age — 66 | ||
Mr. Pryor was President of Van Dorn Demag Corporation from 1993 and retired in 2002. He had also served as President and Chief Executive Officer of Van Dorn Corporation, predecessor to Van Dorn Demag Corporation. Mr. Pryor served on the Board of Directors of Oglebay Norton Company from 1997 until January 2005. | ||
N. Mohan Reddy, Ph.D. Director since 2000 Member — Audit Committee and Organization and Compensation Committee | Professor The Weatherhead School of Management, Case Western Reserve University | |
Age — 52 | ||
Dr. Reddy has been a professor at the Weatherhead School of Management, Case Western Reserve University for the past five years. Dr. Reddy is a director of Keithley Instruments, Inc. Dr. Reddy also serves as consultant to firms in the electronic and semiconductor industries, primarily in the areas of product and market development. | ||
4
Table of Contents
Board Independence |
• | The director is, or has been within the last three years, an employee of the Company, or an immediate family member is, or has been within the last three years, an executive officer, of the Company; | |
• | The director has received, or has an immediate family member who has received, during any12-month period within the last three years, more than $100,000 in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service); | |
• | (a) The director or an immediate family member is a current partner of a firm that is the Company’s internal or external auditor; (b) the director is a current employee of such a firm; (c) the director has an immediate family member who is a current employee of such a firm and who participates in the firm’s audit, assurance or tax compliance (but not tax planning) practice; or (d) the director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the Company’s audit within that time; | |
• | The director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of the Company’s present executive officers at the same time serves or served on that company’s compensation committee; or | |
• | The director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1,000,000, or two percent of such other company’s consolidated gross revenues. |
5
Table of Contents
Charitable Contributions |
Non-management Directors |
• | chair the executive sessions of the independent directors at each regularly scheduled meeting; | |
• | make recommendations to the Board Chairman regarding the timing and structuring of Board meetings; | |
• | make recommendations to the Board Chairman concerning the agenda for Board meetings, including allocation of time as well as subject matter; | |
• | advise the Board Chairman as to the quality, quantity and timeliness of the flow of information from management to the Board; | |
• | serve as the independent point of contact for shareholders wishing to communicate with the Board other than through management; | |
• | along with the Chairman of the Governance Committee, interview all Board candidates, and provide the Governance Committee with recommendations on each candidate; | |
• | maintain close contact with the Chairman of each standing committee and assist in ensuring communications between each committee and the Board; | |
• | lead the CEO evaluation process; | |
• | be the ombudsman for the CEO to provide two-way communication with the Board. |
Board Communication |
Audit Committee |
• | the integrity of our financial statements and our financial reporting process; | |
• | compliance with ethics policies and legal and other regulatory requirements; |
6
Table of Contents
• | our independent registered public accounting firm’s qualifications and independence; | |
• | our systems of internal accounting and financial controls; and | |
• | the performance of our independent registered public accounting firm and of our internal audit functions. |
Audit Committee Expert, Financial Literacy and Independence |
Governance Committee |
• | evaluation of candidates for board membership, including any nominations of qualified candidates submitted in writing by shareholders to our Secretary; | |
• | making recommendations to the full Board of Directors regarding directors’ compensation; | |
• | making recommendations to the full Board of Directors regarding governance matters; and | |
• | overseeing the evaluation of the Board and management of the Company. |
Nomination of Director Candidates |
7
Table of Contents
Organization and Compensation Committee |
• | reviewing executive compensation; | |
• | taking action where appropriate or making recommendations to the full Board of Directors with respect to executive compensation; | |
• | recommending the adoption of executive benefit plans; | |
• | granting stock options and other awards; and | |
• | reviewing and recommending actions to the full Board of Directors on matters relating to management succession, retention and development and changes in organization structure. |
Retirement Plan Review Committee |
• | reviewing defined benefit pension plans as to current and future costs, funded position, and actuarial and accounting assumptions used in determining benefit obligations; | |
• | establishing and reviewing policies and strategies for the investment of defined benefit pension plan assets; and | |
• | reviewing investment options offered under employee savings plans and the performance of those investment options. |
Board Attendance |
Cash Compensation |
Deferral of Compensation |
8
Table of Contents
Equity Compensation |
9
Table of Contents
Number of | Percent | |||||||
Shares | of Class | |||||||
Non-Officer Directors | ||||||||
Albert C. Bersticker | 35,281( | 1)(2) | * | |||||
Joseph P. Keithley | 24,903( | 1)(2) | * | |||||
William B. Lawrence | 10,000( | 1)(2) | * | |||||
William P. Madar | 37,189( | 1)(2) | * | |||||
William G. Pryor | 10,000( | 1)(2) | * | |||||
N. Mohan Reddy | 33,027( | 1)(2) | * | |||||
William R. Robertson | 33,706( | 1)(2)(3) | * | |||||
John Sherwin, Jr. | 29,406( | 1)(2)(4) | * | |||||
Named Executive Officers | ||||||||
Gordon D. Harnett | 366,962( | 1) | 1.8 | % | ||||
Richard J. Hipple | 36,900( | 1) | * | |||||
John D. Grampa | 93,884( | 1) | * | |||||
Daniel A. Skoch | 112,995( | 1) | * | |||||
All directors and executive officers as a group (including the Named Executive Officers) (12 persons) | 824,253( | 5) | 4.1 | % | ||||
Other Persons | ||||||||
Tontine Partners, LP 55 Railroad Ave., 3rd Floor Greenwich, CT | 1,897,000( | 6) | 9.5 | % | ||||
Dimensional Fund Advisors 1299 Ocean Avenue Santa Monica, California | 1,618,311( | 7) | 8.1 | % | ||||
Wellington Management Company, LLP 75 State Street, 19th Floor Boston, MA | 1,195,800( | 8) | 6.0 | % | ||||
Wells Capital Management Inc. 5335 Meadows Road, Suite 290 Portland, OR | 1,177,112( | 9) | 5.9 | % |
* | Less than 1% of common stock. | |
(1) | Includes shares covered by outstanding options exercisable within 60 days as follows: Mr. Harnett 332,500; Mr. Hipple 36,900; Mr. Grampa 87,000 and Mr. Skoch 108,000; 9,000 for each of Messrs. Lawrence and Pryor; 10,000 for each of Messrs. Bersticker, Madar and Sherwin and 15,000 for each of Messrs. Keithley, Reddy and Robertson. Also includes 2,000 restricted shares each granted to Mr. Grampa and Mr. Skoch in 2004 pursuant to the 1995 Stock Incentive Plan, as amended, which are subject to forfeiture if Mr. Grampa and Mr. Skoch are not continuously employed in their current capacities for a period of three years ending on February 3, 2007 and December 7, 2007, respectively. | |
(2) | Includes deferred shares under the 1992 and 2005 Deferred Compensation Plan for Non-Employee Directors and the 1997 Stock Incentive Plan for Non-Employee Directors as follows: Mr. Bersticker 11,153; Mr. Keithley 9,903; Mr. Lawrence 1,000; Mr. Madar 25,989; Mr. Pryor 1,000; Mr. Reddy 18,027; Mr. Robertson 8,206 and Mr. Sherwin 7,101. | |
(3) | Includes 500 shares owned by Mr. Robertson’s wife of which Mr. Robertson disclaims beneficial ownership. | |
(4) | Includes 1,429 shares owned by Mr. Sherwin’s children of which Mr. Sherwin disclaims beneficial ownership. |
10
Table of Contents
(5) | Includes 657,400 shares subject to outstanding options held by officers and directors and exercisable within 60 days. | |
(6) | According to a Schedule 13G filed with the Securities and Exchange Commission on February 3, 2006, as of December 31, 2005, Jeffrey Gendell had shared voting and shared dispositive power with respect to 1,897,000 shares. | |
(7) | Dimensional Fund Advisors, an investment adviser in accordance with Section 240.13d-1(b)(1)(ii)(E), reported on a Schedule 13G filed with the Securities and Exchange Commission on February 6, 2006, that as of December 31, 2005, it had sole voting and dispositive voting power with respect to 1,618,311 shares. Dimensional possesses voting and dispositive power by virtue of its role as investment adviser to four investment companies registered under the Investment Company Act of 1940 and as investment manager for commingled group trusts and separate accounts. The shares over which Dimensional exercises voting and dispositive power are owned by the four investment companies and other group trusts and separate accounts and Dimensional disclaims ownership of these shares. | |
(8) | Wellington Capital Management, an investment adviser in accordance with Section 240.13d-1(b)(1)(ii)(E), reported on a Schedule 13G filed with the Securities and Exchange Commission on February 14, 2006, that as of December 31, 2005, it had shared voting and shared dispositive voting power with respect to 1,195,800 shares. | |
(9) | Wells Capital Management Incorporated, an investment adviser in accordance with Section 240.13d-1 (b)(1)(ii)(E), reported on a Schedule 13G filed with the Securities and Exchange Commission on March 6, 2006, that as of December 31, 2005, it had sole voting and dispositive voting power with respect to 1,177,112 shares. |
11
Table of Contents
Annual Compensation(1) | Long-term | ||||||||||||||||||||||||||||||||||||||||||||
Compensation Awards | |||||||||||||||||||||||||||||||||||||||||||||
Bonus ($) | Restricted | Securities | |||||||||||||||||||||||||||||||||||||||||||
Stock | Underlying | LTIP | All Other | ||||||||||||||||||||||||||||||||||||||||||
Salary | Annual | Special | Total | Awards | Options | Payouts | Compensation | ||||||||||||||||||||||||||||||||||||||
Name and Principal Position | Year | ($)(2) | Incentive(3) | Award(4) | Bonus | ($)(5) | (#) | ($)(6) | ($)(2)(7)(8) | ||||||||||||||||||||||||||||||||||||
+ | = | ||||||||||||||||||||||||||||||||||||||||||||
Gordon D. Harnett | 2005 | 623,694 | — | 597,425 | 597,425 | — | 55,000 | — | 89,928 | ||||||||||||||||||||||||||||||||||||
Chairman of the Board | 2004 | 608,244 | 738,524 | (2) | 597,425 | 1,335,949 | — | 35,000 | 658,125 | 35,767 | |||||||||||||||||||||||||||||||||||
and Chief Executive | 2003 | 590,400 | 313,440 | (2) | 597,425 | 910,865 | — | 28,500 | 601,088 | 9,558 | |||||||||||||||||||||||||||||||||||
Officer | |||||||||||||||||||||||||||||||||||||||||||||
Richard J. Hipple | 2005 | 295,842 | — | — | — | — | 18,000 | — | 23,299 | ||||||||||||||||||||||||||||||||||||
President and Chief | 2004 | 239,135 | 190,766 | — | 190,766 | — | 9,000 | 80,040 | 16,000 | ||||||||||||||||||||||||||||||||||||
Operating Officer | 2003 | 232,123 | 59,573 | — | 59,573 | — | 8,000 | 62,790 | 12,000 | ||||||||||||||||||||||||||||||||||||
John D. Grampa | 2005 | 279,067 | — | 38,311 | 38,311 | — | 15,000 | — | 27,196 | ||||||||||||||||||||||||||||||||||||
Vice President Finance | 2004 | 249,542 | 237,476 | 41,195 | 278,671 | 34,150 | 15,000 | 180,000 | 12,120 | ||||||||||||||||||||||||||||||||||||
and Chief Financial | 2003 | 242,215 | 93,447 | — | 93,447 | — | 15,000 | 164,400 | 1,065 | ||||||||||||||||||||||||||||||||||||
Officer | |||||||||||||||||||||||||||||||||||||||||||||
Daniel A. Skoch | 2005 | 279,806 | — | 79,544 | 79,544 | — | 15,000 | — | 38,312 | ||||||||||||||||||||||||||||||||||||
Senior Vice President | 2004 | 268,260 | 255,293 | (2) | 85,531 | 340,824 | 36,860 | 15,000 | 193,500 | 21,107 | |||||||||||||||||||||||||||||||||||
Administration | 2003 | 260,383 | 100,455 | (2) | 85,531 | 185,986 | — | 15,000 | 176,760 | 4,370 |
(1) | The column entitled “Other Annual Compensation” to this table has been omitted because no compensation was reportable thereunder. |
(2) | Salary for 2005 includes compensation the executive elected to replace with mutual funds under the Company’s Executive Deferred Compensation Plan II (EDCP II) as follows: Mr. Harnett $143,448; Mr. Hipple $0; Mr. Grampa $0 and Mr. Skoch $0. |
(3) | The annual performance compensation plan provides for single-sum cash payments that are based on achieving pre-established financial objectives and other qualitative performance factors. See Compensation Committee Report on Executive Compensation on page 14 under the category of “Annual Performance Compensation.” |
(4) | In 2002, we discontinued the Supplemental Retirement Benefit Plan for Mr. Harnett and Mr. Skoch and in 2004 for Mr. Grampa in exchange for amounts paid in settlement of our obligation. In 2005, in lieu of a supplemental plan and in order to retain a competitive position in the marketplace, the Committee exercised its discretion to authorize a special award included under the Special Award column for the Bonus category for 2005 for Mr. Harnett of $597,425, Mr. Skoch $79,544 and Mr. Grampa $38,311. See Compensation Committee Report on Executive Compensation on page 15 under the category of “Special Award.” |
(5) | 2,000 shares of special restricted stock were awarded to Mr. Grampa on February 2, 2004 and 2,000 shares were awarded to Mr. Skoch on December 7, 2004. Shares are subject to forfeiture if these executives are not continuously employed in their current capacities for a three-year period from the date of grant. |
(6) | Payout in 2004 was a cash award based on a two-year performance period measured by improvement in the corporation’s operating profit from January 1, 2003 through December 31, 2004. See Compensation Committee Report on Executive Compensation on page 15 under the category of “Long-Term Incentives.” |
(7) | In accordance with the transition rules under Internal Revenue Code Section 409A, options to purchase property other than Brush Engineered Materials’ securities that did not become exercisable prior to 2005 under the Brush Engineered Materials Inc. Key Employee Share Option Plan (the “KESOP”) and corresponding deferrals under the KESOP were cancelled. Each participant who had such KESOP options and deferrals cancelled received payment in the amount of the cancelled deferrals. The amounts received are as follows: Mr. Harnett $23,018 and Mr. Skoch $10,154. |
(8) | Except as noted in (2) and (7), amounts in All Other Compensation consist of Company matching contributions to the Brush Engineered Materials Inc. Savings and Investment Plan. |
12
Table of Contents
Number of | Number of Securities | Value of Unexercised | ||||||||||||||
Shares | Underlying Unexercised | In-the-Money Options | ||||||||||||||
Acquired | Value | Options at December 31, 2005 | at December 31, 2005, | |||||||||||||
Name | on Exercise | Realized | Exercisable/Unexercisable | Exercisable/Unexercisable | ||||||||||||
Gordon D. Harnett | — | — | 332,500/0 | $ | 470,995/0 | |||||||||||
Richard J. Hipple | — | — | 34,600/3,900 | $ | 74,580/35,745 | |||||||||||
John D. Grampa | — | — | 87,000/0 | $ | 218,760/0 | |||||||||||
Daniel A. Skoch | — | — | 108,000/0 | $ | 222,995/0 |
Individual Grants | Potential Realizable | |||||||||||||||||||||||
Value at Assumed | ||||||||||||||||||||||||
Number of | % of Total | Annual Rates of Stock | ||||||||||||||||||||||
Securities | Options | Exercise | Price Appreciation for | |||||||||||||||||||||
Underlying | Granted to | or Base | Option Term | |||||||||||||||||||||
Options | Employees in | Price | Expiration | |||||||||||||||||||||
Name | Granted | Fiscal Year | ($/Sh) | Date | 5% ($) | 10% ($) | ||||||||||||||||||
Gordon D. Harnett | 55,000 | 34.77 | $ | 17.68 | 2/8/2015 | $ | 611,537 | $ | 1,549,755 | |||||||||||||||
Richard J. Hipple | 10,000 | 6.32 | $ | 17.68 | 2/8/2015 | $ | 111,189 | $ | 281,774 | |||||||||||||||
8,000 | 5.06 | $ | 14.10 | 4/29/2015 | $ | 70,939 | $ | 179,774 | ||||||||||||||||
John D. Grampa | 15,000 | 9.48 | $ | 17.68 | 2/8/2015 | $ | 166,783 | $ | 422,661 | |||||||||||||||
Daniel A. Skoch | 15,000 | 9.48 | $ | 17.68 | 2/8/2015 | $ | 166,783 | $ | 422,661 |
Number of Securities | ||||||||||||
Weighted-Average | Remaining Available for | |||||||||||
Number of Securities to be | Exercise | Future Issuance Under | ||||||||||
Issued Upon Exercise of | Price of Outstanding | Equity Compensation Plans | ||||||||||
Outstanding Options, | Options, Warrants and | (Excluding Securities | ||||||||||
Warrants and Rights | Rights | Reflected in Column (a)) | ||||||||||
Plan Category | (a) | (b) | (c) | |||||||||
Equity Compensation Plans Approved by Security Holders | 1,508,260 | $ | 16.24 | 95,460 | ||||||||
Equity compensation Plans Not Approved by Security Holders | 0 | 0 | 0 | |||||||||
Total | 1,508,260 | $ | 16.24 | 95,460 | ||||||||
13
Table of Contents
14
Table of Contents
• | the calculation used for estimating an equivalent to the pension plan uses the same benefit formula as for any other salaried employee and included only income above the statutory compensation limit, taking into account in the case of the Chief Executive Officer all prior service for which credit would |
15
Table of Contents
have been recognized under the former supplemental plan. Prior service for the Chief Executive Officer consists of service with the Company and 14 years of service with his former employer as agreed upon at his time of hire by the Company; | ||
• | the payment is fully taxable as ordinary income to the recipient; | |
• | no part of the special award is for deferred compensation; | |
• | there are no guarantees on the assumed rate of returns to the individual once the special award has been paid; and | |
• | the Company no longer accrues a future benefit on its balance sheet as it had under its prior Supplemental Retirement Plan. |
John Sherwin, Jr. (Chairman) Albert C. Bersticker Joseph P. Keithley | William B. Lawrence William P. Madar William G. Pryor | N. Mohan Reddy, Ph.D. William R. Robertson |
16
Table of Contents
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/DEF 14A/0000950152-06-002191/l17627al1762703.gif)
2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |||||||||||||||||||
Brush Engineered Materials | $ | 100 | $ | 73 | $ | 28 | $ | 79 | $ | 95 | $ | 82 | ||||||||||||
S&P Small-cap 600 | $ | 100 | $ | 107 | $ | 91 | $ | 126 | $ | 155 | $ | 167 | ||||||||||||
Russell 2000 | $ | 100 | $ | 102 | $ | 81 | $ | 120 | $ | 142 | $ | 148 |
(1) | Assumes that the value of our common stock and each index was $100 on December 31, 2000 and that all applicable dividends were reinvested. |
17
Table of Contents
Years of Service from June 1, 2005 to Age 65 | ||||||||||||||||
Annual Pay | 5 Years | 10 Years | 15 Years | |||||||||||||
$ | 210,000 | $ | 10,500 | $ | 21,000 | $ | 31,500 | |||||||||
220,000 | 11,000 | 22,000 | 33,000 |
Years of Service at Age 65 | |||||||||||||
Annual Pay | |||||||||||||
at Age 65 | 10 Years | 20 Years | 30 Years | ||||||||||
$210,000 | |||||||||||||
Prior Formula(1) | $ | 26,676 | $ | 53,352 | $ | 80,028 | |||||||
New Formula | 21,000 | 42,000 | 63,000 | ||||||||||
$220,000 | |||||||||||||
Prior Formula(1) | $ | 28,105 | $ | 56,209 | $ | 84,314 | |||||||
New Formula | 22,000 | 44,000 | 66,000 |
(1) | Amounts shown assume an annual Social Security benefit of $23,268. |
18
Table of Contents
19
Table of Contents
William R. Robertson (Chairman) | |
William B. Lawrence | |
N. Mohan Reddy, Ph.D. | |
John Sherwin, Jr. |
20
Table of Contents
• | Plan Limits.Total awards under the 2006 Plan are limited to 1,250,000 common shares without par value of Brush Engineered Materials. No more than 850,000 may be issued in the form of awards other than stock options or SARs (after taking into account forfeitures, expirations and cancellations). The aggregate number of restricted stock units or other awards under the 2006 Plan that specify Management Objectives (as described below), performance restricted shares or performance shares that may be granted to any one participant in a calendar year is limited to 50,000. No participant will receive performance units in any calendar year having a value in excess of $1,000,000. The 2006 Plan also limits the aggregate number of stock options and SARs that may be granted to any one participant in a calendar year to 100,000. | |
• | No Liberal Recycling Provisions.The 2006 Plan provides that, except for awards settled in cash, only common shares covered by awards that expire or are forfeited will again be available for issuance under the 2006 Plan. The following shares will not be added back to the aggregate plan limit: (1) common shares tendered in payment of the option price; (2) common shares withheld by Brush |
21
Table of Contents
Engineered Materials to satisfy the tax withholding obligation; and (3) common shares that are repurchased by Brush Engineered Materials with option right proceeds. Further, all common shares covered by a SAR, to the extent that it is exercised and settled in shares, whether or not all shares covered by the award are actually issued to the participant upon exercise of the right, shall be considered issued or transferred pursuant to the 2006 Plan. | ||
• | Minimum Vesting Periods.The 2006 Plan provides for the following minimum vesting periods, which may be subject to acceleration in the event of the retirement, death or disability of the participant or a change of control of Brush Engineered Materials or similar transaction or event, that: |
• | Restricted shares and restricted stock units may not become unrestricted by the passage of time before the third anniversary of the date of grant; | |
• | Restricted stock units that vest upon the achievement of Management Objectives cannot vest sooner than one year from the date of grant; and | |
• | The period of time within which Management Objectives (as described below) relating to performance restricted shares, performance shares and performance units must be achieved will be a minimum of one year. |
• | No Repricing.Brush Engineered Materials has never repriced underwater stock options, and option repricing is prohibited without shareholder approval under the 2006 Plan. | |
• | Other Features. |
• | The 2006 Plan also provides that no stock options or SARs will be granted with an exercise or base price less than the fair market value of Brush Engineered Materials’ common shares on the date of grant. | |
• | The 2006 Plan is designed to allow awards made under the 2006 Plan to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code. |
• | upon the exercise of option rights or SARs; | |
• | as restricted performance shares or restricted shares and released from substantial risk of forfeiture thereof; | |
• | in payment of restricted stock units; | |
• | in payment of performance shares or performance units that have been earned, or; | |
• | in payment of dividend equivalents paid with respect to awards made under the 2006 Plan |
• | shares tendered in payment of the exercise price of an option right shall not be added to the aggregate plan limit described above; |
22
Table of Contents
• | shares withheld by Brush Engineered Materials to satisfy the tax withholding obligation shall not be added to the aggregate plan limit described above; | |
• | shares that are repurchased by Brush Engineered Materials with option right proceeds shall not be added to the aggregate plan limit described above; and | |
• | all shares covered by a SAR, to the extent that it is exercised and settled in shares, whether or not all shares covered by the award are actually issued to the participant upon exercise of the right, shall be considered issued or transferred pursuant to the 2006 Plan. |
23
Table of Contents
• | in cash; | |
• | by the transfer to Brush Engineered Materials of nonforfeitable, unrestricted common shares owned by the optionee having a value at the time of exercise equal to the option price; | |
• | by such other method as may be approved by the Organization and Compensation Committee; or | |
• | any combination of the foregoing. |
24
Table of Contents
25
Table of Contents
26
Table of Contents
• | Profits(e.g., operating income, EBIT, EBT, net income, earnings per share, residual or economic earnings — these profitability metrics could be measured before special items and/or subject to GAAP definition); | |
• | Cash Flow(e.g., EBITDA, operating cash flow, total cash flow, free cash flow, residual cash flow or cash flow return on investment); | |
• | Returns(e.g., profits or cash flow returns on: assets, invested capital, net capital employed, and equity); | |
• | Working Capital(e.g., working capital divided by sales, days’ sales outstanding, days’ sales inventory, and days’ sales in payables, or any combination thereof); | |
• | Profit Margins(e.g., profits divided by revenues, gross margins and material margins divided by revenues, and variable margin divided by sales); | |
• | Liquidity Measures(e.g., debt-to-capital, debt-to-EBITDA, total debt ratio, EBITDA multiple); | |
• | Sales Growth, Cost Initiative and Stock Price Metrics(e.g., revenues, revenue growth, new product sales growth, growth in value added sales, stock price appreciation, total return to shareholders, sales and administrative costs divided by sales, sales per employee); and | |
• | Strategic Initiative Key Deliverable Metricsconsisting of one or more of the following: product development, strategic partnering, research and development, market penetration, geographic business expansion goals, cost targets, customer satisfaction, employee satisfaction, management of employment practices and employee benefits, supervision of litigation and information technology, increase in yield and productivity and goals relating to acquisitions or divestitures of subsidiaries, affiliates and joint ventures. |
27
Table of Contents
28
Table of Contents
Tax Consequences to Participants |
29
Table of Contents
• | no income will be recognized by an optionee at the time a non-qualified option right is granted; | |
• | at the time of exercise of a non-qualified option right, ordinary income will be recognized by the optionee in an amount equal to the difference between the option price paid for the shares and the fair market value of the shares, if unrestricted, on the date of exercise; and | |
• | at the time of sale of shares acquired pursuant to the exercise of a non-qualified option right, appreciation (or depreciation) in value of the shares after the date of exercise will be treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held. |
30
Table of Contents
Tax Consequences to Brush Engineered Materials or Subsidiary |
Performance | |||||||||||||||||
Restricted Shares | Performance Shares(3) | ||||||||||||||||
Name and Position | Shares(2) | Value ($) | Shares(2) | Value ($) | |||||||||||||
Gordon D. Harnett | 0 | 0 | 0 | 0 | |||||||||||||
Chairman of the Board, President and | |||||||||||||||||
Chief Executive Officer(1) | |||||||||||||||||
Richard J. Hipple | 29,121 | $ | 500,000 | 14,560 | $ | 250,000 | |||||||||||
President and | |||||||||||||||||
Chief Operation Officer | |||||||||||||||||
John D. Grampa | 10,127 | $ | 173,880 | 5,063 | $ | 86,940 | |||||||||||
Vice President Finance and | |||||||||||||||||
Chief Financial Officer | |||||||||||||||||
Daniel A. Skoch | 10,127 | $ | 173,880 | 5,063 | $ | 86,940 | |||||||||||
Senior Vice President | |||||||||||||||||
Administration | |||||||||||||||||
Executive Officer Group | 49,375 | $ | 847,760 | 24,686 | $ | 423,880 | |||||||||||
Non-Executive Director Group | 0 | 0 | 0 | 0 | |||||||||||||
Non-Executive Officer Employee Group | 72,347 | $ | 1,242,203 | 36,174 | $ | 621,102 |
(1) | Mr. Harnett will retire effective at the annual meeting of shareholders on May 2, 2006. |
(2) | The dollar values shown are based on the average of the high and low stock price on February 7, 2006. |
(3) | Each Performance Share is the equivalent of one common share, which will be paid out in cash. |
31
Table of Contents
32
Table of Contents
(1) | On the business day following the day a participant is first elected or appointed to the Board of Directors, such participant will be granted Common Shares equal to $100,000 divided by the fair market value of a Common Share on the day the participant is elected or appointed to the Board; and | |
(2) | On the business day following the annual meeting of shareholders beginning with the 2006 annual meeting, each participant will be granted the number of restricted stock units equal to $45,000 divided by the fair market value of a common share on the day of the annual meeting. Such restricted stock units will be paid-out in common shares at the end of a one-year restriction period unless the participant elects to be paid in deferred stock units. Pro-rata payment will be made in the event a participant terminates service prior to the end of the one-year restriction period. |
33
Table of Contents
• | if, upon the participant’s termination of service as a director, the value of the participant’s account is less than $10,000, the amount of such participant’s account will be immediately paid to the participant in cash or common shares; | |
• | if a change in control of Brush Engineered Materials occurs, the amount of each participant’s account will immediately be paid to the participant in full; and | |
• | in the event of an unforeseeable emergency, as defined in Section 409A of the Internal Revenue Code of 1986, that is caused by an event beyond the control of the participant and that would result in severe financial hardship to the individual if acceleration were not permitted, the Governance Committee will accelerate the payment to the participant of the participant’s account, but only up to the amount necessary to meet the emergency. |
34
Table of Contents
Tax Consequences to Participants |
• | no income will be recognized by an optionee at the time a non-qualified option right is granted; | |
• | at the time of exercise of a non-qualified option right, ordinary income will be recognized by the optionee in an amount equal to the difference between the option price paid for the shares and the fair market value of the shares, if unrestricted, on the date of exercise; and |
35
Table of Contents
• | at the time of sale of shares acquired pursuant to the exercise of a non-qualified option right, appreciation (or depreciation) in value of the shares after the date of exercise will be treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held. |
Stock Awards |
Deferred Stock Units |
Tax Consequences to Brush Engineered Materials or Subsidiary |
36
Table of Contents
Restricted Stock | |||||||||
Units | |||||||||
Name and Position | Number | Value ($) | |||||||
Gordon D. Harnett | 0 | 0 | |||||||
Chairman of the Board, President | |||||||||
and Chief Executive Officer | |||||||||
Richard J. Hipple | 0 | 0 | |||||||
President and Chief | |||||||||
Operation Officer | |||||||||
John D. Grampa | 0 | 0 | |||||||
Vice President Finance and | |||||||||
Chief Financial Officer | |||||||||
Daniel A. Skoch | 0 | 0 | |||||||
Senior Vice President | |||||||||
Administration | |||||||||
Executive Officer Group | 0 | 0 | |||||||
Non-Executive Director Group* | 20,967 | 360,000 | |||||||
Non-Executive Officer Employee Group | 0 | 0 |
* | This reflects the annual grant for 2006 of $45,000 worth of restricted stock units for each of the eight non-employee directors. The number of restricted stock units assumes a price of $17.17; i.e., the average of the high and low stock price on March 7, 2006. |
37
Table of Contents
Preapproval Policy for External Auditing Services |
External Audit Fees |
2005 | 2004 | |||||||
Audit Fees | $ | 1,509,500 | $ | 1,256,400 | ||||
Audit-Related Fees | 183,500 | 89,550 | ||||||
Tax Fees | 231,500 | 103,200 | ||||||
All Other Fees | 0 | 0 | ||||||
Total | $ | 1,924,500 | $ | 1,449,150 | ||||
38
Table of Contents
By order of the Board of Directors, Brush Engineered Materials Inc. Michael C. Hasychak | |
Secretary |
39
Table of Contents
1) Each Audit Committee member must meet the independence criteria of (a) the rules of the New York Stock Exchange, Inc., as such requirements are interpreted by the Board in its business judgment and (b) Section 301 of the Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by the Securities and Exchange Commission (“SEC”). | |
2) Each Audit Committee member must be financially literate or become financially literate within a reasonable period of time after his or her appointment to the Audit Committee. Additionally, at least one member of the Audit Committee is to have accounting or related financial management expertise sufficient to meet the criteria of a financial expert within the meaning of Section 407 of the Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by the SEC. The Board shall determine, in its business judgment, whether a member is financially literate and whether at least one member has the requisite accounting or financial expertise and meets the financial expert criteria. The designation or identification of a person as an “audit committee financial expert” shall not (a) impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit Committee and Board in the absence of such designation or identification, or (b) affect the duties, obligations or liability of any other member of the Audit Committee or Board. | |
3) Each Audit Committee member is to receive as compensation from the Company only those forms of compensation as are not prohibited by Section 301 of the Sarbanes-Oxley Act of 2002 and the rules and listing requirements promulgated thereunder by the SEC and the NYSE. Permitted compensation includes (a) director’s fees (which includes all forms of compensation paid to directors of the Company for service as a director or member of a Board Committee) and/or (b) fixed amounts of compensation under a retirement plan (including pension payments or other deferred compensation) for prior service with the Company provided that such compensation is not contingent in any way on continued service. | |
4) If an Audit Committee member simultaneously serves on the audit committee of more than three companies that are required to file reports pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended, (including the Company), the Board must determine that such simultaneous service would not impair the ability of such member to effectively serve on the Audit Committee. The Company will be required to disclose any such determination in its annual proxy statement. |
A-1
Table of Contents
1) Retain the Independent Auditors: The Audit Committee has the sole authority to (a) retain and terminate the Company’s independent auditors, subject to shareholder approval, (b) approve all audit engagement fees, terms and services, and (c) approve any non-audit engagements with the Company’s independent auditors. The Audit Committee is to exercise this authority in a manner consistent with Sections 201, 202 and 301 of the Sarbanes-Oxley Act of 2002 and the rules and listing standards promulgated thereunder by the SEC and NYSE. The Audit Committee may delegate the authority to grant any pre-approvals required by such sections to one or more members of the Audit Committee as it designates, subject to the delegated member or members reporting any such pre-approvals to the Audit Committee at its next scheduled meeting. | |
2) Review and discuss the Auditors’ Quality Control: The Audit Committee is to, at least annually, obtain and review and discuss a report by the independent auditors describing (a) the audit firm’s internal quality control procedures, (b) any material issues raised by the most recent internal quality control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and (c) any steps taken to deal with any such issues. | |
3) Review and discuss the Independence of the Auditors: In connection with the retention of the Company’s independent auditors, the Audit Committee is to at least annually review and discuss the information provided by management and the auditors relating to the independence of the audit firm, including, among other things, information related to the non-audit services provided and expected to be provided by the auditors. The Audit Committee is responsible for (a) ensuring that the independent auditors submit at least annually to the Audit Committee a formal written statement delineating all relationships between the auditors and the Company, (b) actively engaging in a dialogue with the auditors with respect to any disclosed relationship or services that may impact the objectivity and independence of the auditors and (c) taking appropriate action in response to the auditors’ report to satisfy itself of the auditors’ independence. In connection with the Audit Committee’s evaluation of the auditors’ independence, the Audit Committee is to also review and evaluate the lead partner of the independent auditors and take such steps as may be required by law with respect to the regular rotation of the lead audit partner and the reviewing audit partner of the independent auditors, and consider whether or not there should be rotation of the independent audit firm itself. | |
4) Set Hiring Policies: The Audit Committee is to set clear hiring policies for employees or former employees of the independent auditors, which include the restrictions set forth in Section 206 of the Sarbanes-Oxley Act of 2002. | |
5) Review and Discuss the Audit Plan: The Audit Committee is to review and discuss with the independent auditors the plans for, and the scope of, the annual audit and other examinations, including the adequacy of staffing and compensation. | |
6) Review and Discuss Conduct of the Audit: The Audit Committee is to review and discuss with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit, as well as any audit problems or difficulties and |
A-2
Table of Contents
management’s response, including (a) any restriction on audit scope or on access to requested information, (b) any disagreements with management and (c) significant issues discussed with the independent auditors’ national office. The Audit Committee is to decide all unresolved disagreements between management and the independent auditors regarding financial reporting. | |
7) Review and Discuss Financial Statements and Disclosures: The Audit Committee is to review and discuss with appropriate officers of the Company and the independent auditors the annual audited and quarterly financial statements of the Company, including (a) the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and (b) the disclosures regarding internal controls and other matters required to be reported to the Audit Committee by Section 302 and 404 of the Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by the SEC. | |
8) Review and Discuss the Content of Financial Press Releases: The Audit Committee is to review and discuss the content of all financial press releases (including any use of “pro forma” or “adjusted” non-GAAP information), as well as financial information and earnings guidance provided to analysts and rating agencies (which review may occur after issuance and may be done generally as a review of the types of information to be disclosed and the form of presentation to be made). | |
9) Review and Discuss Internal Audit Plans: The Audit Committee is to review and discuss with the Director of Internal Auditing and appropriate members of the staff of the internal auditing department the plans for and the scope of their ongoing audit activities, including adequacy of staffing and compensation. The Audit Committee is to review and approve management’s appointment, termination or replacement of the Chief Internal Auditor. | |
10) Review and Discuss Internal Audit Reports: The Audit Committee is to review and discuss with the Chief Internal Auditor and appropriate members of the staff of the internal auditing department the annual report of the audit activities, examinations and results thereof of the internal auditing department. | |
11) Review and Discuss the Systems of Internal Accounting Controls: The Audit Committee is to review and discuss with the independent auditors, the Chief Internal Auditor, the General Counsel, as appropriate, and, if and to the extent deemed appropriate by the Audit Committee, members of their respective staffs the adequacy of the Company’s internal accounting controls, the Company’s financial, auditing and accounting organizations and personnel, and the Company’s policies and compliance procedures with respect to business practices which shall include the disclosures regarding internal controls and matters required to be reported to the Audit Committee by Section 302 and 404 of the Sarbanes-Oxley Act of 2002 and any rules promulgated thereunder by the SEC. | |
12) Review and Discuss the Audit Results: The Audit Committee is to review and discuss with the independent auditors (a) the report of their annual audit, or proposed report of their annual audit, (b) the accompanying management letter, if any, (c) the reports of their reviews of the Company’s interim financial statements conducted in accordance with Statement on Auditing Standards No. 71, and (d) the reports of the results of such other examinations outside of the course of the independent auditors’ normal audit procedures that the independent auditors may from time to time undertake. The foregoing is to include the reports required by Section 204 of the Sarbanes-Oxley Act of 2002 and the rules and listing standards promulgated thereunder by the SEC and NYSE, and, as appropriate, (a) a review of major issues regarding (i) accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles and (ii) the adequacy of the Company’s internal controls and any special audit steps adopted in light of material control deficiencies, (b) a review of analyses prepared by management and/or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements and (c) a review of the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Company. |
A-3
Table of Contents
13) Obtain Assurances under Section 10A(b) of the Exchange Act: The Audit Committee is to obtain assurance from the independent auditors that in the course of conducting the audit there have been no acts detected or that have otherwise come to the attention of the audit firm that require disclosure to the Audit Committee under Section 10A(b) of the Exchange Act. | |
14) Discuss Risk Management Policies: The Audit Committee is to discuss policies with respect to risk assessment and risk management to assess and manage the Company’s exposure to risk. The Audit Committee should discuss the Company’s major financial risk exposures and the steps management has taken to monitor and control these exposures. The Audit Committee should periodically review the Company’s contingency plans for protection of vital information and business conduct in the event of an operations interruption. | |
15) Obtain Reports Regarding Conformity With the Company’s Code of Conduct Policy: The Audit Committee is to periodically obtain reports from management and the Company’s Chief Internal Auditor that the Company and its subsidiary/foreign affiliated entities are in conformity with the Company’s Code of Conduct Policy. The Audit Committee should advise the Board with respect to the Company’s policies and procedures regarding compliance with the Company’s Code of Conduct Policy. | |
16) Obtain Reports Regarding Conformity With Legal Requirements: The Audit Committee is to periodically obtain reports from management and the Company’s Chief Internal Auditor that the Company and its subsidiary/foreign affiliated entities are in conformity with applicable legal requirements. Similar information should be obtained from the Company’s independent auditors, as appropriate, based on known events and/or issues. The Audit Committee should advise the Board with respect to the Company’s policies and procedures regarding compliance with applicable laws and regulations. | |
17) Establish Procedures for Complaints Regarding Financial Statements or Accounting Policies: The Audit Committee is to establish procedures for (a) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters; and (b) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters as required by Section 301 of the Sarbanes-Oxley Act of 2002 and the rules and listing standards promulgated thereunder by the SEC and NYSE. The Audit Committee is to discuss with management and the independent auditor any correspondence with regulators or governmental agencies regarding complaints or concerns of the Company’s financial statements, accounting policies or business practices. | |
18) Discuss With General Counsel Matters Regarding Financial Statements or Compliance Policies: Annually, and to the extent deemed required, the Audit Committee should discuss with the Company’s General Counsel legal matters that may have a material impact on the financial statements or the Company’s compliance policies. The Audit Committee is to receive reports from the Company’s counsel of evidence of any material violation of securities laws or breaches of fiduciary duties. | |
19) Review and Discuss Other Matters: The Audit Committee should review and discuss such other matters that relate to the accounting, auditing and financial reporting practices and procedures of the Company as the Audit Committee may, in its own discretion, deem desirable in connection with the review functions described above. | |
20) Make Board Reports: The Audit Committee should report its activities regularly to the Board in such manner and at such times as the Audit Committee and the Board deem appropriate, but in no event less than once a year. This report is to include the Audit Committee’s conclusions with respect to its evaluation of the independent auditors. | |
21) Maintain Flexibility: The Audit Committee, in carrying out its responsibilities, policies and procedures should remain flexible, in order to best react to changing conditions and circumstances. The Audit Committee should take appropriate actions to set the overall corporate “tone” for quality financial reporting, sound business risk practices, and ethical behavior. |
A-4
Table of Contents
A-5
Table of Contents
Table of Contents
Page | ||||||||
1. | Purpose | B-1 | ||||||
2. | Definitions | B-1 | ||||||
3. | Shares Subject to this Plan | B-4 | ||||||
4. | Performance Restricted Shares | B-5 | ||||||
5. | Performance Shares and Performance Units | B-5 | ||||||
6. | Restricted Shares | B-6 | ||||||
7. | Option Rights | B-7 | ||||||
8. | Appreciation Rights | B-8 | ||||||
9. | Restricted Stock Units | B-9 | ||||||
10. | Administration of the Plan | B-10 | ||||||
11. | Adjustments | B-10 | ||||||
12. | Detrimental Activity | B-11 | ||||||
13. | Participation by Employees of Designated Subsidiaries | B-11 | ||||||
14. | Non-U.S. Employees | B-11 | ||||||
15. | Transferability | B-12 | ||||||
16. | Withholding Taxes | B-12 | ||||||
17. | Compliance with Section 409A of the Code | B-12 | ||||||
18. | Effective Date | B-13 | ||||||
19. | Amendments | B-13 | ||||||
20. | Termination of the Plan | B-14 | ||||||
21. | Governing Law | B-14 | ||||||
22. | Miscellaneous Provisions | B-14 |
i
Table of Contents
Table of Contents
(i) Profits(e.g., operating income, EBIT, EBT, net income, earnings per share, residual or economic earnings — these profitability metrics could be measured before special items and/or subject to GAAP definition); | |
(ii) Cash Flow(e.g., EBITDA, operating cash flow, total cash flow, free cash flow, residual cash flow or cash flow return on investment); | |
(iii) Returns(e.g., profits or cash flow returns on: assets, invested capital, net capital employed, and equity); | |
(iv) Working Capital(e.g., working capital divided by sales, days’ sales outstanding, days’ sales inventory, and days’ sales in payables, or any combination thereof); | |
(v) Profit Margins(e.g., profits divided by revenues, gross margins and material margins divided by revenues, and variable margin divided by sales); | |
(vi) Liquidity Measures(e.g.,debt-to-capital,debt-to-EBITDA, total debt ratio, EBITDA multiple); | |
(vii) Sales Growth, Cost Initiative and Stock Price Metrics(e.g., revenues, revenue growth, new product sales growth, growth in value added sales, stock price appreciation, total return to shareholders, sales and administrative costs divided by sales, sales per employee); and | |
(viii) Strategic Initiative Key Deliverable Metricsconsisting of one or more of the following: product development, strategic partnering, research and development, market penetration, geographic business expansion goals, cost targets, customer satisfaction, employee satisfaction, management of employment practices and employee benefits, supervision of litigation and information technology, increase in yield and productivity and goals relating to acquisitions or divestitures of subsidiaries, affiliates and joint ventures. |
B-2
Table of Contents
B-3
Table of Contents
(a) Maximum Shares Available Under Plan. |
(i) Subject to adjustment as provided in Section 11 of this Plan, the number of Common Shares that may be issued or transferred (A) upon the exercise of Option Rights or Appreciation Rights, (B) as Restricted Shares or Performance Restricted Shares and released from substantial risks of forfeiture thereof, (C) in payment of Restricted Stock Units, (D) in payment of Performance Shares or Performance Units that have been earned, or (E) in payment of dividend equivalents paid with respect to awards made under this Plan will not exceed in the aggregate 1,250,000 Common Shares, plus any Common Shares relating to awards that expire or are forfeited or are cancelled under this Plan. Such shares may be shares of original issuance or treasury shares or a combination of the foregoing. | |
(ii) Common Shares covered by an award granted under this Plan shall not be counted as used unless and until they are actually issued and delivered to a Participant. Without limiting the generality of the foregoing, upon payment in cash of the benefit provided by any award granted under this Plan, any Common Shares that were covered by that award will be available for issue or transfer hereunder. Notwithstanding anything to the contrary contained herein: (A) Common Shares tendered in payment of the Option Price of a Option Right shall not be added to the aggregate plan limit described above; (B) Common Shares withheld by the Corporation to satisfy the tax withholding obligation shall not be added to the aggregate plan limit described above; (C) Common Shares that are repurchased by the Corporation with Option Right proceeds shall not be added to the aggregate plan limit described above; and (D) all Common Shares covered by an Appreciation Right, to the extent that it is exercised and settled in Common Shares, whether or not all Common Shares covered by the award are actually issued to the Participant upon exercise of the right, shall be considered issued or transferred pursuant to this Plan. |
(b) Life-of-Plan Limits. Notwithstanding anything in this Section 3, or elsewhere in this Plan, to the contrary and subject to adjustment pursuant to Section 10 of this Plan: |
(i) The aggregate number of Common Shares actually issued or transferred by the Corporation upon the exercise of Incentive Stock Options shall not exceed 1,250,000. | |
(ii) The aggregate number of Common Shares issued as or in payment of, as the case may be, Performance Restricted Shares, Performance Shares, Performance Units, Restricted Shares (and released from substantial risk of forfeiture) or Restricted Stock Units shall not in the aggregate exceed 850,000. |
(c) Individual Participant Limits. Notwithstanding anything in this Section 3, or elsewhere in this Plan, to the contrary and subject to adjustment pursuant to Section 10 of this Plan: |
(i) No Participant shall be granted, Restricted Stock Units that specify Management Objectives, Performance Restricted Shares, Performance Shares, in the aggregate, for more than 50,000 Common Shares during any calendar year. | |
(ii) Notwithstanding any other provision of this Plan to the contrary, in no event shall any Participant in any calendar year receive an award of Performance Units having an aggregate maximum value as of their respective Dates of Grant in excess of $1,000,000. | |
(iii) No Participant shall be granted Option Rights or Appreciation Rights, in the aggregate, for more than 100,000 Common Shares during any calendar year. |
(d) Exclusion from Certain Restrictions. Notwithstanding anything in this Plan to the contrary, up to 5% of the maximum number of Common Shares provided for in Section 3(a)(i) above may be used for awards granted under Sections 4 through 10 of this Plan that do not comply with the three-year requirements set forth in Sections 6(c) and 9(c) of this Plan and the one-year requirements of Sections 4(b), 5(b) and 9(b) of this Plan. |
B-4
Table of Contents
(a) Each grant shall constitute an immediate transfer of the ownership of Common Shares to the Participant in consideration of the performance of services, entitling such Participant to dividend, voting and other ownership rights, subject to the substantial risk of forfeiture and restrictions on transfer hereinafter referred to. | |
(b) Any grant of Performance Restricted Shares shall specify Management Objectives which, if achieved, will result in termination or early termination of the restrictions applicable to such Shares and each grant shall specify in respect of the specified Management Objectives, a minimum acceptable level of achievement and shall set forth a formula for determining the number of Performance Restricted Shares on which restrictions will terminate if performance is at or above the minimum level, but falls short of full achievement of the specified Management Objectives;provided, however,that no such termination shall occur less than one year after the Date of Grant, except in the event of retirement, death or disability of the Participant or a Change in Control of the Corporation or similar transaction or event. | |
(c) Each grant may be made without payment of additional consideration from the Participant. | |
(d) Each grant shall provide that the Performance Restricted Shares covered thereby shall be subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Code for a period to be determined by the Committee on the Date of Grant, and any grant may provide for the earlier termination of such period in the event of retirement, death or disability of the Participant or a Change in Control of the Corporation or other similar transaction or event. | |
(e) Each grant shall provide that, during the period for which such substantial risk of forfeiture is to continue, the transferability of the Performance Restricted Shares shall be prohibited or restricted in the manner and to the extent prescribed by the Committee on the Date of Grant. Such restrictions may include without limitation rights of repurchase or first refusal in the Corporation or provisions subjecting the Performance Restricted Shares to a continuing substantial risk of forfeiture in the hands of any transferee. | |
(f) Any grant may require that any or all dividends or other, distributions paid on the Performance Restricted Shares during the period of such restrictions be automatically sequestered. Such distribution may be reinvested on an immediate or deferred basis in additional Common Shares, which may be subject to the same restrictions as the underlying award or such other restrictions as the Committee may determine. | |
(g) Each grant of Performance Restricted Shares shall be evidenced by an Evidence of Award, which shall contain such terms and provisions as the Committee may determine consistent with this Plan. Unless otherwise directed by the Committee, all certificates representing Performance Restricted Shares, together with a stock power that shall be endorsed in blank by the Participant with respect to the Performance Restricted Shares, shall be held in custody by the Corporation until all restrictions thereon lapse. |
(a) Each grant shall specify the number of Performance Shares or Performance Units to which it pertains, which may be subject to adjustment to reflect changes in compensation or other factors,provided, however, that no such adjustment will be made in the case of a Covered Employee where such |
B-5
Table of Contents
action would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code. | |
(b) The Performance Period with respect to each Performance Share or Performance Unit will be such period of time (not less than one year), commencing with the Date of Grant as shall be determined by the Committee on the Date of Grant and may be subject to earlier termination or other modification in the event of retirement, death or disability of the Participant or a Change in Control of the Corporation or similar transaction or event. | |
(c) Each grant shall specify the Management Objectives that are to be achieved by the Participant and each grant shall specify in respect of the specified Management Objectives a minimum acceptable level of achievement below which no payment will be made and shall set forth a formula for determining the amount of any payment to be made if performance is at or above the minimum acceptable level, but falls short of full achievement of the specified Management Objective. The grant of Performance Shares or Performance Units shall specify that, before the Performance Shares or Performance Units will be earned and paid, the Committee must certify that the Management Objectives have been satisfied. | |
(d) Each grant shall specify the time and manner of payment of Performance Shares or Performance Units that shall have been earned, and any grant may specify that any such amount may be paid by the Corporation in cash, Common Shares or any combination thereof and may either grant to the Participant or reserve to the Committee the right to elect among those alternatives. | |
(e) Any grant of Performance Shares may specify that the amount payable with respect thereto may not exceed a maximum specified by the Committee at the Date of Grant. Any grant of Performance Units may specify that the amount payable or the number of Common Shares issued with respect thereto may not exceed maximums specified by the Committee at the Date of Grant. | |
(f) The Committee may at the Date of Grant of Performance Shares, provide for the payment of dividend equivalents to the holder thereof on either a current, deferred or contingent basis, either in cash or in additional Common Shares. | |
(g) Each grant of Performance Shares or Performance Units shall be evidenced by an Evidence of Award, which shall contain such terms and provisions as the Committee may determine consistent with this Plan. |
(a) Each grant shall, constitute an immediate transfer of the ownership of Common Shares to the Participant in consideration of the performance of services entitling such Participant to dividend, voting and other ownership rights, subject to the substantial risk of forfeiture and restrictions on transfer hereinafter referred to. | |
(b) Each grant or sale may be made without payment of additional consideration or in consideration of a payment by such Participant that is less than the Market Value per Share at the Date of Grant. | |
(c) Each grant or sale shall provide that the Restricted Shares covered thereby shall be subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Code for a period of at least three years to be determined by the Committee on the Date of Grant, and any grant may provide for the earlier termination of such period in the event of retirement, death or disability of the Participant or a Change in Control of the Corporation or similar transaction or event. | |
(d) Each grant or sale shall provide that, during the period for which such substantial risk of forfeiture is to continue, the transferability of the Restricted Shares shall be prohibited or restricted in the manner and to the extent prescribed by the Committee on the Date of Grant. Such restrictions may include, without limitation, rights of repurchase or first refusal in the Corporation or provisions |
B-6
Table of Contents
subjecting the Restricted Shares to a continuing substantial risk of forfeiture in the hands of any transferee. | |
(e) Any grant or sale may require that any or all dividends or other distributions paid on the Restricted Shares during the period of such restrictions be automatically sequestered. Such distribution may be reinvested on an immediate or deferred basis in additional, Common Shares, which may be subject to the same restrictions as the underlying award or such other restrictions as the Committee may determine. | |
(f) Each grant of Restricted Shares shall be evidenced by an Evidence of Award, which shall contain such terms and provisions as the Committee may determine consistent with this Plan. Unless otherwise directed by the Committee, all certificates representing Restricted Shares, together with a stock power that shall be endorsed in blank by the Participant with respect to the Restricted Shares, shall be held in custody by the Corporation until all restrictions thereon lapse. |
(a) Each grant of Option Rights shall specify the number of Common Shares to which it pertains. | |
(b) Each grant shall specify an Option Price per Common Share, which shall be equal to or greater than the Market Value per Share on the Date of Grant. | |
(c) Each grant shall specify the form of consideration to be paid in satisfaction of the Option Price and the manner of payment of such consideration, which may include (i) cash in the form of currency or check or other cash equivalent acceptable to the Corporation, (ii) nonforfeitable, unrestricted Common Shares, which are already owned by the Optionee and having a value at the time of exercise that is equal to the Option Price, (iii) any other legal consideration that the Committee may deem appropriate, including without limitation any form of consideration authorized under Section 7(d) below, on such basis as the Committee may determine in accordance with this Plan and (iv) any combination of the foregoing. | |
(d) Any grant of a Nonqualified Option may provide that payment of the Option Price may also be made in whole or in part in the form of Restricted Shares or other Common Shares that are subject to risk of forfeiture or restrictions on transfer. Unless otherwise determined by the Committee on or after the Date of Grant, whenever any Option Price is paid in whole or in part by means of any of the forms of consideration specified in this Section 7(d), the Common Shares received by the Optionee upon the exercise of the Nonqualified Option shall be subject to the same, risks of forfeiture or restrictions on transfer as those that applied, to the consideration surrendered by the Optionee; provided, however, that such risks of forfeiture and restrictions on transfer shall, apply only to the same number of Common Shares received by the Optionee as applied to the forfeitable or restricted Common Shares surrendered by the Optionee. | |
(e) To the extent permitted by law, any grant may provide for deferred payment of the Option Price from the proceeds of sale through a broker of some or, all of the Common Shares to which the exercise relates. | |
(f) Successive grants may be made to the same Optionee regardless of whether any Option Rights previously granted to the Optionee remain unexercised. | |
(g) Each grant shall specify the period or periods of continuous employment of the Optionee by the Corporation or any Subsidiary that are necessary before the Option Rights or installments thereof shall become exercisable, and any grant may provide for the earlier exercise of the Option Rights in the event of retirement, death or disability of the Participant or a Change in Control of the Corporation or similar transaction or event. |
B-7
Table of Contents
(h) Any grant of Option Rights may specify Management Objectives which, if achieved, will result in exercisability of such rights. | |
(i) Option Rights granted under this Plan may be (i) options that are intended to qualify under particular provisions of the Code, including without limitation Incentive Stock Options, (ii) options that are not intended to so qualify or (iii) combinations of the foregoing. Incentive Stock Options may be granted only to Participants who, on the date of the grant, are officers or other key employees of the Corporation or any Subsidiary who must meet the definition of “employees” under Section 3401(c) of the Code. | |
(j) The Committee may at the Date of Grant of any Option Rights (other than Incentive Stock Options), provide for the payment of dividend equivalents to the Optionee on either a current or deferred or contingent basis, either in cash or in additional Common Shares. | |
(k) The exercise of an Option Right will result in the cancellation on a share-for-share basis of any Tandem Appreciation Right authorized under Section 8 of this Plan. | |
(l) No Option Right granted pursuant to this Section 7 may be exercised more than 10 years from the Date of Grant. Subject to this limit, the Committee may cause Option Rights to continue to be exercisable after termination of employment of the Participant under circumstances specified by the Committee. | |
(m) The Committee reserves the discretion after the Date of Grant to provide for (i) the payment of a cash bonus at the time of exercise; (ii) the availability of a loan at exercise; or (iii) the right to tender in satisfaction of the Option Price nonforfeitable, unrestricted Common Shares, which are already owned by the Optionee and have a value at the time of exercise that is equal to the exercise price. | |
(n) The Committee may substitute, without receiving Participant permission, Appreciation Rights payable only in Common Shares (or Appreciation Rights payable in cash, Common Shares, or in any combination thereof as elected by the Committee) for outstanding Options;provided, however,that the terms of the substituted Appreciation Rights are substantially the same as the terms for the Options and the difference between the Market Value per Share of the underlying Common Shares and the Base Price of the Appreciation Rights is equivalent to the difference between the Market Value Share of the underlying Common Shares and the Option Price of the Options. If, in the opinion of the Corporation’s auditors, this provision creates adverse accounting consequences for the Corporation, it shall be considered null and void. | |
(o) Each grant of Option Rights shall be evidenced by an Evidence of Award, which shall contain such terms and provisions as the Committee may determine consistent with this Plan. |
(a) Any grant may specify that the amount payable upon the exercise of an Appreciation Right may be paid by the Corporation in cash, Common Shares or any combination thereof and may either grant to the Participant or reserve to the Committee the right to elect among those alternatives. | |
(b) Any grant may specify that the amount payable upon the exercise of an Appreciation Right shall not exceed a maximum specified by the Committee on the Date of Grant. | |
(c) Any grant may specify (i) a waiting period or periods before Appreciation Rights shall become exercisable and (ii) permissible dates or periods on or during which Appreciation Rights shall be exercisable. |
B-8
Table of Contents
(d) Any grant may specify that an Appreciation Right may be exercised only in the event of retirement, death or disability of the Participant or a Change in Control of the Corporation or similar transaction or event. | |
(e) Any grant of Appreciation Rights may specify Management Objectives that must be achieved as a condition of the exercise of such rights. | |
(f) Any grant may provide for the payment to the Participant of dividend equivalents thereon in cash or Common Shares on a current, deferred or contingent basis. | |
(g) Each grant shall be evidenced by an Evidence of Award, which shall describe the subject Appreciation Rights, identify any related Option Rights, state that the Appreciation Rights are subject to all of the terms and conditions of this Plan and contain such other terms and provisions as the Committee may determine consistent with this Plan. | |
(h) Regarding Tandem Appreciation Rights only: Each grant shall provide that a Tandem Appreciation Right may be exercised only (i) at a time when the related Option Right (or any similar right granted under any other plan of the Corporation) is also exercisable and the Spread is positive and (ii) by surrender of the related Option Right (or such other right) for cancellation. | |
(i) Regarding Free-standing Appreciation Rights only: |
(i) Each grant shall specify in respect of each Free-standing Appreciation Right a Base Price per Common Share, which shall be equal to or greater than the Market Value per Share on the Date of Grant; | |
(ii) Successive grants may be made to the same Participant regardless of whether any Free-standing Appreciation Rights previously granted to such Participant remain unexercised; | |
(iii) Each grant shall specify the period or periods of continuous employment of the Participant by the Corporation or any Subsidiary that are necessary before the Free-standing Appreciation Rights or installments thereof shall become exercisable, and any grant may provide for the earlier exercise of such rights in the event of retirement, death or disability of the Participant or a Change in Control of the Corporation or similar transaction or event; and | |
(iv) No Free-standing Appreciation Right granted under this Plan may be exercised more than 10 years from the Date of Grant. |
(a) Each grant or sale shall constitute the agreement by the Corporation to deliver Common Shares or cash to the Participant in the future in consideration of the performance of services, subject to the fulfillment during the Restriction Period of such conditions (which may include the achievement of Management Objectives) as the Committee may specify. | |
(b) If a grant of Restricted Stock Units specifies that the Restriction Period will terminate upon the achievement of Management Objectives, such Restriction Period may not terminate sooner than one year from the Date of Grant. Each grant may specify in respect of such Management Objectives a minimum acceptable level of achievement and may set forth a formula for determining the number of Restricted Stock Units which restriction will terminate if performance is at or above the minimum level, but falls short of full achievement of the specified Management Objectives. | |
(c) Each grant or sale may be made without additional consideration from the Participant or in consideration of a payment by the Participant that is less than the Market Value per Share on the Date of Grant. | |
(d) If the Restriction Period lapses only by the passage of time, each grant or sale shall provide that the Restricted Stock Units covered thereby shall be subject to a Restriction Period of at least three |
B-9
Table of Contents
years, which shall be fixed by the Committee on the Date of Grant, and any grant or sale may provide for the earlier termination of such period in the event of retirement, death or disability of the Participant or a Change in Control of the Corporation or similar transaction or event. | |
(e) During the Restriction Period, the Participant shall not have any right to transfer any rights under the subject award, shall not have any rights of ownership in the Restricted Stock Units and shall not have any right to vote such shares, but the Committee may on or after the Date of Grant authorize the payment of dividend equivalents on such Restricted Stock Units in cash or in additional Common Shares on a current, deferred or contingent basis. | |
(f) Each grant or sale will specify the time and manner of payment of Restricted Stock Units that have been earned. Any grant or sale may specify that the amount payable with respect thereto may be paid by the Corporation in cash, in Common Shares or in any combination thereof and may either grant to the Participant or retain in the Committee the right to elect among those alternatives. | |
(g) Each grant or sale shall be evidenced by an Evidence of Award, which shall contain such terms and provisions as the Committee may determine consistent with this Plan. |
(a) This Plan shall be administered by the Organization and Compensation Committee of the Board. A majority of the Committee shall constitute a quorum, and the acts of the members of the Committee who are present at any meeting thereof at which a quorum is present, or acts unanimously approved by the members of the Committee in writing, shall be the acts of the Committee. | |
(b) The interpretation and construction by the Committee of any provision of this Plan or any agreement, notification or document evidencing the grant of Option Rights, Restricted Shares, Performance Restricted Shares, Performance Shares or Performance Units, Appreciation Rights or Restricted Stock Units and any determination by the Committee pursuant to any provision of this Plan or any such agreement, notification or document, shall be final and conclusive. No member of the Committee shall be liable for any such action taken or determination made in good faith. | |
(c) The Committee may delegate to the appropriate officer or officers of the Corporation or any Subsidiary, part or all of its authority with respect to the administration of awards made by the Committee to individuals who are not officers or directors of the Corporation within the meaning of the Securities Exchange Act of 1934. | |
(d) To the extent permitted by Ohio law, the Committee may, from time to time, delegate to one or more officers of the Corporation the authority of the Committee to grant and determine the terms and conditions of awards granted under this Plan. In no event shall any such delegation of authority be permitted with respect to awards to any executive officer or any person subject to Section 162(m) of the Code. |
B-10
Table of Contents
(a) Forfeit any award granted under this Plan then held by the Participant; | |
(b) Return to the Corporation, in exchange for payment by the Corporation of any amount actually paid therefor by the Participant, all Common Shares that the Participant has not disposed of that were offered pursuant to this Plan within a specified period prior to the date of the commencement of such Detrimental Activity; and | |
(c) With respect to any Common Shares so acquired that the Participant has disposed of, pay to the Corporation in cash the difference between: |
(i) Any amount actually paid therefor by the Participant pursuant to this Plan, and | |
(ii) The Market Value per Share of the Common Shares on the date of such acquisition. |
B-11
Table of Contents
(a) To the extent applicable, it is intended that this Plan and any grants made hereunder comply with the provisions of Section 409A of the Code. This Plan and any grants made hereunder shall be administrated in a manner consistent with this intent, and any provision that would cause this Plan or any grant made hereunder to fail to satisfy Section 409A of the Code shall have no force and effect until amended to comply with Section 409A of the Code (which amendment may be retroactive to the extent permitted by Section 409A of the Code and may be made by the Corporation without the consent of Participants). Any reference in this Plan to Section 409A of the Code will also include any proposed, |
B-12
Table of Contents
temporary or final regulations, or any other guidance, promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service. | |
(b) In order to determine for purposes of Section 409A of the Code whether a Participant is employed by a member of the Corporation’s controlled group of corporations under Section 414(b) of the Code (or by a member of a group of trades or businesses under common control with the Corporation under Section 414(c) of the Code) and, therefore, whether the shares of Common Stock that are or have been purchased by or awarded under this 2006 Plan to the Participant are shares of “service recipient” stock within the meaning of Section 409A of the Code: |
(i) In applying Code Section 1563(a)(1), (2) and (3) for purposes of determining the Corporation’s controlled group under Section 414(b) of the Code, the language “at least 50 percent” is to be used instead of “at least 80 percent” each place it appears in Code Section 1563(a)(1), (2) and (3), and | |
(ii) In applying Treasury Regulation Section 1.414(c)-2 for purposes of determining trades or businesses under common control with the Corporation for purposes of Section 414(c) of the Code, the language “at least 50 percent” is to be used instead of “at least 80 percent” each place it appears in Treasury Regulation Section 1.414(c)-2. |
(a) The Committee may at any time and from time to time amend this Plan in whole or in part;provided, however, that if an amendment to this Plan (i) would materially increase the benefits accruing to participants under this Plan, (ii) would materially increase the number of securities which may be issued under this Plan, (iii) would materially modify the requirements for participation in this Plan or (iv) must otherwise be approved by the shareholders of the Corporation in order to comply with applicable law or the rules of the New York Stock Exchange or, if the Common Shares are not traded on the New York Stock Exchange, the principal national securities exchange upon which the Common Shares are traded or quoted, then, such amendment will be subject to shareholder approval and will not be effective unless and until such approval has been obtained. | |
(b) The Committee shall not, without the further approval of the shareholders of the Corporation, authorize the amendment of any outstanding Option Right to reduce the Option Price. Furthermore, no Option Right will be cancelled and replaced with awards having a lower Option Price without further approval of the shareholders of the Corporation. This Section 19(b) is intended to prohibit the repricing of “underwater” Option Rights and shall not be construed to prohibit the adjustments provided for in Section 11 of this Plan. | |
(c) If permitted by Section 409A of the Code and except in the case of a Covered Employee where such action would result in the loss of an otherwise available exemption under Section 162(m) of the Code, in case of termination of employment by reason of death, disability or normal or early retirement, or in the case of unforeseeable emergency or other special circumstances, of a Participant who holds an Option Right or Appreciation Right not immediately exercisable in full, or any Performance Restricted Shares, Restricted Shares as to which the substantial risk of forfeiture or the prohibition or restriction on transfer has not lapsed, or any Restricted Stock Units as to which the Restriction Period has not been completed, or any Performance Shares or Performance Units which have not been fully earned, or who holds Common Shares subject to any transfer restriction imposed pursuant to Section 15 of this Plan, the Committee may, in its sole discretion, accelerate the time at which such Option Right or Appreciation Right may be exercised or the time at which such substantial risk of forfeiture or prohibition or restriction on transfer will lapse or the time when such Restriction Period will end or the time at which such Performance Shares or Performance Units will be deemed to have been fully earned or the time when such transfer restriction will terminate or may waive any other limitation or requirement under any such award. |
B-13
Table of Contents
(d) Subject to Section 19(b) hereof, the Committee may amend the terms of any award theretofore granted under this Plan prospectively or retroactively and except in the case of a Covered Employee where such action would result in the loss of an otherwise available exemption under Section 162(m) of the Code, but subject to Section 11 above, no such amendment shall impair the rights of any Participant without his or her consent. The Committee may, in its discretion, terminate this Plan at any time. Termination of this Plan will not affect the rights of Participants or their successors under any awards outstanding hereunder and not exercised in full on the date of termination. |
(a) The Corporation shall not be required to issue any fractional Common Shares pursuant to this Plan. The Committee may provide for the elimination of fractions or for the settlement of fractions in cash. | |
(b) This Plan shall not confer upon any Participant any right with respect to continuance of employment or other service with the Corporation or any Subsidiary, nor shall it interfere in any way with any right the Corporation or any Subsidiary would otherwise have to terminate such Participant’s employment or other service at any time. | |
(c) To the extent that any provision of this Plan would prevent any Option Right that was intended to qualify as a Tax-qualified Option from qualifying as such, that provision shall be null and void with respect to such Option Right. Such provision, however, will remain in effect for other Option Rights and there will be no further effect on any provision of this Plan. | |
(d) No award under this Plan may be exercised by the holder thereof if such exercise, and the receipt of cash or stock thereunder, would be, in the opinion of counsel selected by the Committee, contrary to law or the regulations of any duly constituted authority having jurisdiction over this Plan. | |
(e) Leave of absence approved by a duly constituted officer of the Corporation or any of its Subsidiaries shall not be considered interruption or termination of service of any employee for any purposes of this Plan or awards granted hereunder, except that no awards may be granted to an employee while he or she is on a leave of absence. | |
(f) No Participant shall have any rights as a shareholder with respect to any shares subject to awards granted to him or her under this Plan prior to the date as of which he or she is actually recorded as the holder of such shares upon the stock records of the Corporation. | |
(g) The Committee may condition the grant of any award or combination of awards authorized under this Plan on the surrender or deferral by the Participant of his or her right to receive a cash bonus or other compensation otherwise payable by the Corporation or a Subsidiary to the Participant. | |
(h) If any provision of this Plan is or becomes invalid, illegal or unenforceable in any jurisdiction, or would disqualify this Plan or any award under any law deemed applicable by the Board, such provision shall be construed or deemed amended or limited in scope to conform to applicable laws or, in the discretion of the Board, it shall be stricken and the remainder of this Plan shall remain in full force and effect. |
B-14
Table of Contents
(a) This Plan will be administered by the Governance Committee of the Board (the “Committee”), which will have full power and authority, subject to the provisions of this Plan, to supervise administration and to interpret the provisions of this Plan and to authorize and supervise any grant of any award, any issuance or payment of Common Shares and any crediting or payment of Deferred Stock Units (as defined in Section 6 below). No Participant (as defined in Section 3 below) in this Director Plan will participate in the making of any decision with respect to any question relating to grants made or Common Shares issued under this Plan to that Participant only. | |
(b) The interpretation and construction by the Committee of any provision of this Plan or any agreement, notification or document evidencing the grant of Awards and any determination by the Committee pursuant to any provision of this Plan or any such agreement, notification or document, shall be final and conclusive. No member of the Committee shall be liable for any such action taken or determination made in good faith. |
(a) The Committee may grant to Participants under this Director Plan the following types of awards (each, an “Award”): stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units, other stock awards and deferred stock units, as described herein. | |
(b) Each Award granted under this Plan will be subject to such terms and conditions as shall be established by the Committee, and the Committee will determine the number of Common Shares underlying each Award. Notwithstanding the foregoing: |
(i) Stock Options. The exercise price of each option will be determined by the Committee but will not be less than 100% of the Fair Market Value of a Common Share on the date the option is granted. Each option will expire and will be exercisable at such time and subject to such terms and conditions as the Committee shall determine, provided that no option will be exercisable later than |
Table of Contents
the tenth anniversary of its grant. In no event will the Committee cancel any outstanding stock option for the purpose of reissuing the stock option to the Participant at a lower exercise price or reduce the exercise price of an outstanding stock option. | |
(ii) SARs. SARs may be granted in tandem with a stock option granted under this Director Plan or on a free-standing basis. The grant price of a tandem SAR will be equal to the exercise price of the related option and the grant price of a free-standing SAR will be at least equal to 100% of the Fair Market Value of a Common Share on the date of its grant. A SAR may be exercised upon such terms and conditions and for such term as the Committee in its sole discretion determines, provided that the term will not exceed the option term in the case of a tandem SAR or ten years in the case of a free-standing SAR. Payment for an SAR may be made in cash or stock, as determined by the Committee. | |
(iii) Restricted Stock and Restricted Stock Units. Restricted stock and restricted stock units may be subject to such restrictions and conditions as the Committee determines and all restrictions will expire at such times as the Committee shall specify. | |
(iv) Stock Awards. The Committee may award to Participants, on a quarterly or other basis, a specified number of Common Shares or a number of Common Shares equal to a dollar value as determined by the Committee from time to time. | |
(v) Deferred Stock Units. Each Participant may elect to have restricted stock units or other stock awards under this Director Plan paid in the form of deferred stock units (“Deferred Stock Units”) upon vesting or payment of such Award, which Deferred Stock Units will be credited to a book-keeping account in the name of the Participant in accordance with this Director Plan. |
(c) Unless otherwise determined by the Committee, the following Awards shall be made automatically: |
(i) On the business day following the day a Participant is first elected or appointed to the Board, such Participant shall be granted Common Shares equal to $100,000 divided by the Fair Market Value of a Common Share on the day the Participant is elected or appointed to the Board, which shall be unrestricted except as may otherwise be required by law. | |
(ii) On the business day following the annual meeting of shareholders beginning with the 2006 annual meeting, each Participant shall be granted the number of restricted stock units equal to $45,000 divided by the Fair Market Value of a Common Share on the day of the annual meeting. Such restricted stock units shall be paid-out in Common Shares at the end of a one-year restriction period unless the Participant elects to be paid in Deferred Stock Units. Notwithstanding the foregoing, if a Participant incurs a termination of service before the end of such one-year restriction period, such Participant shall be entitled to receive a pro-rata payment of Common Shares based on the number of full months of service since the date of grant. Such pro-rata payments, if any, that were deferred pursuant to elections made under Sections 7 and 8 shall remain subject to such elections. |
(a) Any Participant may elect to have all or any portion of the cash portion of his or her Director Compensation paid in Common Shares and may further elect to have all or any portion of any Director Compensation that the Participant has elected to receive in Common Shares and any Awards granted as Director Compensation paid in the form of Deferred Stock Units, which will be credited to the Participant’s account. For the portion of a Participant’s cash Director Compensation that he or she elects to receive in Common Shares, the number of Common Shares to be issued will equal the cash amount that would have been paid divided by the Fair Market Value of one Common Share on the first business day immediately preceding the date on which such cash amount would have been paid. Awards that are deferred pursuant to this Section 7(a) will be credited to the Deferred Stock Units account on a one for one basis. |
C-2
Table of Contents
(b) An election pursuant Sections 6(b)(v) and/or 7(a) must be made in writing and delivered to the Company prior to the first day of the calendar year for which the Director Compensation would be earned; provided that elections with respect to awards made under Section 6(c)(ii) on the first business day following the 2006 annual shareholders’ meeting must be made prior to the date of such meeting. To elect to defer Director Compensation earned during the first calendar year in which a director becomes eligible to participate in this Director Plan, the new director must make an election pursuant to Section 6(b)(v) and/or 7(a) within 30 days after becoming eligible to participate in this Director Plan and such election shall be effective only with regard to Director Compensation earned subsequent to the filing of the election. All elections to defer Director Compensation under the 2005 Director Plan that were made prior to the start of the 2006 calendar year shall be treated as elections to defer Director Compensation under this Director Plan for the 2006 calendar year. | |
(c) If a director does not file an election form by the specified date, he or she will receive any Director Compensation for the year that is payable in Common Shares on a current basis and will be deemed to have elected to receive the remainder of the Director Compensation in cash. |
(a) If a Participant elects to receive Deferred Stock Units, there will be credited to the Participant’s account as of the day such Director Compensation would have been paid, the number of Deferred Stock Units which is equal to the number of Common Shares that would otherwise have been delivered to the Participant pursuant to Section 6 and/or Section 7(a) on such date. The Deferred Stock Units credited to the Participant’s account (plus any additional shares credited pursuant to Section 8(c) below) will represent the number of Common Shares that the Company will issue to the Participant at the end of the deferral period. Unless otherwise provided herein or pursuant to the terms of any Award hereunder, all Deferred Stock Units awarded under this Director Plan will vest 100% upon the award of such Deferred Stock Units. | |
(b) The Deferred Stock Units will be subject to a deferral period beginning on the date of crediting to the Participant’s account and ending upon termination of service as a director or such other period as the Participant may have elected. The period of deferral will be for a minimum period of one year, except in the case where the Participant elects a deferral period determined by reference to his or her termination of service as a director. The Participant may elect payment in a lump sum or payment in equal installments over five or ten years. Elections with respect to the time and method (i.e., lump sum or installments) of payment must be made at the same time as the participant’s election to defer as described in Section 7(b). If the Participant does not specify a time for payment, the Participant will receive payment upon termination of service as a director and if no method of payment is specified by the Participant, he or she will receive payment in a lump sum. A Participant may change the time and method of payment he or she previously elected (or was deemed to elect) by filing a subsequent election with the Company at least twelve months before the date of the previously elected payment date or commencement date, and the newly elected payment date (or payment commencement date) must be at least five years after the previously elected payment date (or the previously elected payment commencement date);provided, however,that such modification will not be effective unless the Participant remains a Director for at least twelve months after the date on which such modification was made. During the deferral period, the Participant will have no right to transfer any rights under his or her Deferred Stock Units and will have no other rights of ownership therein. | |
(c) A Participant’s account will be credited as of the last day of each calendar quarter with that number of additional Deferred Stock Units equal to the amount of cash dividends paid by the Company during such quarter on the number of Common Shares equivalent to the number of Deferred Stock Units in the Participant’s account from time to time during such quarter divided by the Fair Market Value of one Common Share on the day immediately preceding the last business day of such calendar quarter. Such dividend equivalents, which will likewise be credited with dividend equivalents, will be deferred until the end of the deferral period for the Deferred Stock Units with respect to which the dividend equivalents were credited. |
C-3
Table of Contents
(d) Notwithstanding the foregoing provisions, (i) if, upon the Participant’s termination of service as a director, the value of the Participant’s account is less than $10,000 the amount of such Participant’s account will be immediately paid to the Participant in cash or Common Shares, (ii) if a Change in Control (as defined in Section 9(c) below) of the Company occurs, the amount of each Participant’s account will immediately be paid to the Participant in full and (iii) in the event of an unforeseeable emergency, as defined under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), that is caused by an event beyond the control of the Participant and that would result in severe financial hardship to the individual if acceleration were not permitted, the Committee will accelerate the payment to the Participant of the Participant’s account, but only up to the amount necessary to meet the emergency. | |
(e) To the extent a Participant is entitled to a lump sum payment following a Change in Control under Section 8(d) above and such Change in Control does not constitute a “change in the ownership or effective control” or a “change in the ownership of a substantial portion of the assets” of the Company within the meaning of Section 409A(a)(2)(A)(v) of the Code, then notwithstanding Section 8(d), payment will be made, to the extent necessary to comply with the provisions of Section 409A of the Code, to the Participant on the earliest of (i) the Participant’s termination of service with the Company (determined in accordance with Section 409A); (ii) the date payment otherwise would have been made in the absence of Section 8(d) (provided such date is a permissible distribution date under Section 409A), or (iii) the Participant’s death. |
(a) For purposes of this Director Plan, Common Shares means (i) Common Shares without par value of the Company and (ii) any security into which Common Shares may be converted by reason of any transaction or even of the type referred to in Section 11 of this Director Plan. | |
(b) For purposes of this Director Plan, the Fair Market Value means, as of any particular date, the fair market value of the Common Shares as determined by the Committee. | |
(c) For purposes of this Director Plan, Change in Control of the Company shall have the meaning determined by the Committee from time to time. | |
(d) Notwithstanding anything to the contrary contained in this Director Plan, it is a condition to the issuance of Common Shares or Deferred Stock Units that the transaction be registered under applicable securities laws and no Participant will be able to receive Common Shares or Deferred Stock Units in payment of all or part of his or her Director Compensation unless and until such registration has been effected. | |
(e) For purposes of this Director Plan, “termination of service” means a separation from service as defined under Section 409A of the Code. |
C-4
Table of Contents
(a) Except as provided in Section 13(c) below, no option right or SAR or other derivative security granted under this Director Plan may be transferred by a Participant except by will or the laws of descent and distribution. Except as otherwise determined by the Committee, option rights and SARs granted under this Director Plan may not be exercised during a Participant’s lifetime except by the Participant or, in the event of the Participant’s legal incapacity, by his guardian or legal representative acting in a fiduciary capacity on behalf of the Participant under state law and court supervision. | |
(b) The Committee may specify at the date of grant, that all or any part of the Common Shares that are (i) to be issued or transferred by the Company upon the exercise of option rights or upon the termination of the restriction period applicable to restricted stock units, or (ii) no longer subject to the substantial risk of forfeiture and restrictions on transfer applicable to restricted stock, shall be subject to further restrictions upon transfer. | |
(c) The Committee may determine that option rights and SARs may be transferable by a Participant, without payment of consideration therefor by the transferee, only to any one or more members of the Participant’s immediate family; provided, however, that (i) no such transfer shall be effective unless reasonable prior notice thereof is delivered to the Corporation and such transfer is thereafter effected in accordance with any terms and conditions that shall have been made applicable thereto by the Company or the Committee and (ii) any such transferee shall be subject to the same terms and conditions hereunder as the Participant. For the purposes of this Section 16(c), the term “immediate family” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,mother-in-law,father-in-law,son-in-law,daughter-in-law,brother-in-law, orsister-in-law, including adoptive relationships, any person sharing the Participant’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than fifty percent of the voting interests. |
(a) To the extent that the application of any formula described in this Director Plan does not result in a whole number of Common Shares, the result will be rounded upwards to the next whole number. | |
(b) The adoption and maintenance of this Director Plan will not be deemed to be a contract between the Company and the Participant to retain his or her position as a director of the Company. |
C-5
Table of Contents
C-6
Table of Contents
PROXY | PROXY |
BRUSH ENGINEERED MATERIALS INC.
Solicited on Behalf of the Board of Directors
The undersigned appoints Gordon D. Harnett, or if he is unable or unwilling to act, then Michael C. Hasychak, with full power of substitution, to vote and act for and in the name of the undersigned as fully as the undersigned could vote and act if personally present at the annual meeting of shareholders of Brush Engineered Materials Inc. to be held on May 2, 2006 and at any adjournment or postponement thereof:
The Board of Directors recommends a vote “FOR” all nominees in Proposal 1 and “FOR” Proposals 2, 3 and 4. |
The shares represented by this proxy will be voted as directed or, if directions are not indicated, will be voted “FOR” the election of directors in Proposal 1 and “FOR” Proposals 2, 3 and 4. In their discretion, the proxies are authorized to vote upon such other business that may properly come before the annual meeting of shareholders.
(Comments/Change of Address) | |
(If you have written in the above space, please mark the corresponding box on the reverse side.) |
Table of Contents
![LOGO](https://capedge.com/proxy/DEF 14A/0000950152-06-002191/l17627ablackbub.gif)
For | Withhold | For All | ||||||||||||||||||||||||
All | All | Except | For | Against | Abstain | |||||||||||||||||||||
1. Election of the following Directors: Richard J. Hipple William B. Lawrence William P. Madar | o | o | o | 2. Approve adoption of the Brush Engineered Materials Inc. 2006 Stock Incentive Plan. | o | o | o | |||||||||||||||||||
The Board of Directors unanimously recommends a vote FOR ALL the above nominees. | Comments/ Change of Address | o | 3. Approve adoption of the Brush Engineered Materials Inc. 2006 Non- employee Director Equity Plan. | o | o | o | ||||||||||||||||||||
Nominee Exception | 4. Confirming the appointment of Ernst & Young as independent registered public accounting firm of the Company. | o | o | o | ||||||||||||||||||||||
Date: ___________________________________ , 2006 | ||
Signature | ||
Signature | ||
Title | ||
NOTE: Please sign exactly as the name appears hereon. When signing as attorney, executor, administrator, trustee or guardian, please add your title as such. |
........................................................................................................................................................................................................................................................................
FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY BY MAIL
Table of Contents
CONFIDENTIAL VOTING INSTRUCTIONS
To Fidelity Management Trust Company, Trustee Under the Brush Engineered Materials Inc.
Pursuant to section 6.8 of the Brush Engineered Materials Inc. Savings and Investment Plan, the undersigned, as a participant in the Plan, hereby directs the Trustee to vote (in person or by proxy) all shares of Common Stock of Brush Engineered Materials Inc. credited to the undersigned’s PAYSOP Contribution Account under the Plan on the record date for the annual meeting of shareholders of Brush Engineered Materials Inc. to be held on May 2, 2006 and at any adjournment or postponement thereof, on the following matters as checked below.
The Board of Directors recommends a vote “FOR” all nominees in Proposal 1 and “FOR” Proposals 2, 3 and 4. |
This confidential voting instructions card will be seen only by authorized personnel of the Trustee. The shares represented by this card will be voted as directed, or if directions are not indicated but this card is executed and returned, will be voted “FOR” the election of directors in Proposal 1 and “FOR” Proposals 2, 3 and 4. In their discretion, the proxies are authorized to vote upon such other business that may properly come before the annual meeting of shareholders.
(Comments/Change of Address) | |
(If you have written in the above space, please mark the corresponding box on the reverse side.) |
Table of Contents
![LOGO](https://capedge.com/proxy/DEF 14A/0000950152-06-002191/l17627ablackbub.gif)
For | Withhold | For All | ||||||||||||||||||||||||
All | All | Except | For | Against | Abstain | |||||||||||||||||||||
1. Election of the following Directors: Richard J. Hipple William B. Lawrence William P. Madar | o | o | o | 2. Approve adoption of the Brush Engineered Materials Inc. 2006 Stock Incentive Plan. | o | o | o | |||||||||||||||||||
The Board of Directors unanimously recommends a vote FOR ALL the above nominees. | Comments/ Change of Address | o | 3. Approve adoption of the Brush Engineered Materials Inc. 2006 Non- employee Director Equity Plan. | o | o | o | ||||||||||||||||||||
Nominee Exception | 4. Confirming the appointment of Ernst & Young as independent registered public accounting firm of the Company. | o | o | o | ||||||||||||||||||||||
Date: ___________________________________ , 2006 | ||
Signature | ||
Signature | ||
Title | ||
NOTE: Please sign exactly as the name appears hereon. When signing as attorney, executor, administrator, trustee or guardian, please add your title as such. |
........................................................................................................................................................................................................................................................................
FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY BY MAIL
Table of Contents
CONFIDENTIAL VOTING INSTRUCTIONS
To Fidelity Management Trust Company, Trustee Under the Brush Engineered Materials Inc.
Pursuant to section 6.8 of the Brush Engineered Materials Inc. Savings and Investment Plan, the undersigned, as a participant in the Plan, hereby directs the Trustee to vote (in person or by proxy) all shares of Common Stock of Brush Engineered Materials Inc. credited to the undersigned’s account (other than shares credited under the PAYSOP Contribution Account) under the Plan on the record date for the annual meeting of shareholders of Brush Engineered Materials Inc. to be held on May 2, 2006 and at any adjournment or postponement thereof, on the following matters as checked below.
The Board of Directors recommends a vote “FOR” all nominees in Proposal 1 and “FOR” Proposals 2, 3 and 4. |
This confidential voting instructions card will be seen only by authorized personnel of the Trustee. The shares represented by this card will be voted as directed, or if directions are not indicated but this card is executed and returned, will be voted “FOR” the election of directors in Proposal 1 and “FOR” Proposals 2, 3 and 4. In their discretion, the proxies are authorized to vote upon such other business that may properly come before the annual meeting of shareholders.
(Comments/Change of Address) | |
(If you have written in the above space, please mark the corresponding box on the reverse side.) |
Table of Contents
![LOGO](https://capedge.com/proxy/DEF 14A/0000950152-06-002191/l17627ablackbub.gif)
For | Withhold | For All | ||||||||||||||||||||||||
All | All | Except | For | Against | Abstain | |||||||||||||||||||||
1. Election of the following Directors: Richard J. Hipple William B. Lawrence William P. Madar | o | o | o | 2. Approve adoption of the Brush Engineered Materials Inc. 2006 Stock Incentive Plan. | o | o | o | |||||||||||||||||||
The Board of Directors unanimously recommends a vote FOR ALL the above nominees. | Comments/ Change of Address | o | 3. Approve adoption of the Brush Engineered Materials Inc. 2006 Non- employee Director Equity Plan. | o | o | o | ||||||||||||||||||||
Nominee Exception | 4. Confirming the appointment of Ernst & Young as independent registered public accounting firm of the Company. | o | o | o | ||||||||||||||||||||||
Date: ___________________________________ , 2006 | ||
Signature | ||
Signature | ||
Title | ||
NOTE: Please sign exactly as the name appears hereon. When signing as attorney, executor, administrator, trustee or guardian, please add your title as such. |
........................................................................................................................................................................................................................................................................
FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY BY MAIL