Graham Corporation DEF 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment
No. )
Filed by the Registrant þ
Filed by a Party other than the
Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to Section
240.14a-12 |
GRAHAM CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1)
and 0-11. |
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(1) |
Title of each class of securities to which transaction applies: |
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(2) |
Aggregate number of securities to which transaction applies: |
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(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): |
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(4) |
Proposed maximum aggregate value of transaction: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing. |
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(1) |
Amount Previously Paid: |
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Form, Schedule or Registration Statement No.: |
TABLE OF CONTENTS
GRAHAM
CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 31, 2008
The 2008 annual meeting of stockholders of Graham Corporation
(the Company) will be held on Thursday,
July 31, 2008, at 11:00 a.m., Eastern Time, at the
Hampton Inn, 4360 Commerce Drive, Batavia, New York 14020, for
the following purposes, which are more fully described in the
accompanying proxy statement:
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(1)
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To elect as Directors the two nominees named in the attached
proxy statement.
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(2)
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To approve the amendment to the Companys Amended
Certificate of Incorporation to increase the number of
authorized shares of common stock from 6,000,000 to 25,500,000
and to increase the number of total authorized shares from
6,500,000 to 26,000,000.
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(3)
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To ratify the selection of Deloitte & Touche LLP as
the Companys independent registered public accounting firm
for the fiscal year ending March 31, 2009.
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(4)
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To transact such other business as may properly come before the
annual meeting or any adjournment of the annual meeting.
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The Board of Directors has fixed the close of business on
June 6, 2008 as the record date for determining the
stockholders who are entitled to receive notice of and to vote
at the annual meeting as well as at any adjournments of the
annual meeting.
BY ORDER OF THE BOARD OF DIRECTORS
James R. Lines
President and Chief Executive Officer
Dated: June 17, 2008
GRAHAM
CORPORATION
20 Florence Avenue
Batavia, New York 14020
PROXY
STATEMENT
We are furnishing this proxy statement to our stockholders in
connection with the solicitation by our Board of Directors of
proxies for use at the annual meeting of stockholders for our
fiscal year ended March 31, 2008, referred to in this proxy
statement as fiscal year 2008, as well as for use at
any adjournment of the annual meeting. This proxy statement and
the accompanying form of proxy are being first mailed to our
stockholders on or about June 17, 2008.
Location
of Annual Meeting
The annual meeting will be held on Thursday, July 31, 2008,
at 11:00 a.m., Eastern Time, at the Hampton Inn, 4360
Commerce Drive, Batavia, New York 14020.
Record
Date and Shares Outstanding
Owners of record of shares of our common stock having a par
value of $0.10, referred to in this proxy statement as
common stock, at the close of business on
June 6, 2008, the record date for the annual meeting, are
entitled to notice of and to vote at the annual meeting. As of
the record date, there were 5,039,790 shares of our common
stock issued and 5,038,973 shares of our common stock
outstanding.
Share amounts and exercise prices throughout this proxy
statement have been adjusted to reflect a
5-for-4
stock split in the nature of a stock dividend that was paid on
January 3, 2008.
Proxy
Cards and Voting
Each owner of record of our common stock on June 6, 2008 is
entitled to one vote for each share of common stock so held.
If we receive the enclosed proxy, properly executed and dated,
in time to be voted at the annual meeting, the Board of
Directors will vote the shares represented by it in accordance
with the instructions marked on the proxy. An executed proxy
without instructions marked on it will be voted:
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FOR each of the nominees for election as Director;
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FOR the approval of an amendment to our Amended
Certificate of Incorporation to increase the number of
authorized shares of our common stock from 6,000,000 to
25,500,000 and to increase the number of total authorized shares
from 6,500,000 to 26,000,000; and
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FOR the ratification of the selection of
Deloitte & Touche LLP as our independent registered
public accounting firm for our fiscal year ending March 31,
2009.
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The shares may also be voted by the named proxies for such other
business as may properly come before the annual meeting or at
any adjournment or postponement of the annual meeting.
Quorum
A quorum is required for our stockholders to conduct business at
the annual meeting. Pursuant to our by-laws, the holders of
record of a majority of the shares of our common stock present
in person or by proxy and entitled to vote at the annual meeting
will constitute a quorum.
1
Vote
Required
The table below shows the vote required to approve each of the
proposals described in this proxy statement, assuming the
presence of a quorum, in person or by proxy, at the annual
meeting.
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Proposal Number
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Proposal Description
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Vote Required
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One
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Election of two Directors
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Plurality of the votes duly cast
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Two
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Approval of an amendment to our Amended Certificate of
Incorporation to increase the number of authorized shares of our
common stock from 6,000,000 to 25,500,000 and to increase the
number of total authorized shares from 6,500,000 to 26,000,000
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Majority of the votes duly cast
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Three
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Ratification of the selection of Deloitte & Touche LLP as
our independent registered public accounting firm for the fiscal
year ending March 31, 2009
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Majority of the votes duly
cast(1)
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The selection of Deloitte & Touche LLP is being
presented to our stockholders for ratification. The Audit
Committee will consider the outcome of this vote in its future
discussions regarding the selection of our independent
registered public accounting firm. |
Effect of
Abstentions
Shares that abstain from voting on one or more proposals to be
acted on at the annual meeting are considered to be present for
the purpose of determining whether a quorum exists and are
entitled to vote on all proposals properly brought before the
annual meeting.
Abstentions will have no effect on the election of directors;
however, abstentions will have the effect of voting against the
proposals to approve an amendment to our Amended Certificate of
Incorporation to increase the number of authorized shares of our
common stock from 6,000,000 to 25,500,000 and to increase the
number of total authorized shares from 6,500,000 to 26,000,000
and to ratify the selection of Deloitte & Touche LLP
as our independent registered public accounting firm for our
fiscal year ending March 31, 2009, referred to in this
proxy statement as fiscal year 2009. Abstentions
will have the effect of voting against Proposal Two and
Proposal Three because abstentions are deemed to be present
and entitled to vote, but do not count toward the affirmative
vote required to approve the two proposals.
Effect of
Broker Non-Votes
Under the rules governing brokers who have record ownership of
shares that they hold in street name for their
clients (who are the beneficial owners of such shares), brokers
have the discretion to vote such shares on routine matters, such
as director elections and the ratification of the selection of
independent registered public accounting firms, but not on
non-routine matters. Broker non-votes generally occur when
shares held by a broker nominee for a beneficial owner are not
voted with respect to a non-routine proposal because the broker
nominee has not received voting instructions from the beneficial
owner and lacks discretionary authority to vote the shares.
Broker non-votes are counted for the purpose of determining the
presence or absence of a quorum, but are not counted for the
purpose of determining the number of shares entitled to vote on
non-routine matters.
Because the proposals to be acted upon at the annual meeting are
all routine matters, broker non-votes will not affect their
outcome.
Revocability
of Proxies
Your presence at the annual meeting will not automatically
revoke your proxy. However, you can revoke your proxy at any
time before it is voted at the annual meeting by:
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delivering a written notice of revocation to our Corporate
Secretary;
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delivering a duly executed proxy bearing a later date to our
Corporate Secretary; or
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attending the annual meeting and filing a written notice of
revocation with our Corporate Secretary.
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Notices of revocation and revised proxies should be sent to our
Corporate Secretary at the following address: Graham
Corporation, Attention: Corporate Secretary, 20 Florence Avenue,
Batavia, New York 14020.
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Please note, however, that if your shares are held of record by
a broker, bank or other nominee, and you wish to vote at the
annual meeting, you must bring to the annual meeting a letter
from the broker, bank or other nominee confirming both
(1) your beneficial ownership of the shares, and
(2) that the broker, bank or other nominee is not voting
the shares at the annual meeting.
Solicitation
of Proxies
This proxy solicitation is made by the Board of Directors on our
behalf, and we will bear the cost of soliciting proxies. In
addition to solicitation by mail, our Directors, officers and
employees may solicit proxies personally or by telephone or
other telecommunication. We will not compensate our Directors,
officers or employees for making proxy solicitations on our
behalf. We will provide persons holding shares in their name or
in the name of nominees, which in either case are beneficially
owned by others, proxy materials for delivery to those
beneficial owners and we will reimburse the record owners for
their expenses in doing so.
Principal
Executive Offices
Our principal executive offices are located at 20 Florence
Avenue, Batavia, New York 14020. Our telephone number is
585-343-2216.
Annual
Report to Stockholders and Annual Report on
Form 10-K
We have enclosed with this proxy statement our 2008 annual
report to stockholders and annual report on
Form 10-K
for fiscal year 2008, as filed with the Securities and Exchange
Commission. These reports include our audited financial
statements, along with other information about us, which we
encourage you to read.
To obtain an additional copy of our 2008 annual report to
stockholders and annual report on
Form 10-K
without charge, please address your request to Graham
Corporation, Attention: Annual Report Request, 20 Florence
Avenue, Batavia, New York 14020, or telephone us at
585-343-2216.
You can also obtain a copy of our annual report on
Form 10-K
and the other periodic filings that we make with the Securities
and Exchange Commission from the Securities and Exchange
Commissions EDGAR database located at www.sec.gov.
3
PROPOSAL ONE:
ELECTION OF DIRECTORS
Our Board of Directors currently consists of seven members. Our
by-laws provide for a classified Board of Directors consisting
of three classes of Directors, with each class serving a
staggered three-year term. As a result, only a portion of our
Board of Directors is elected each year.
The term of three of our seven Directors, Gerard T.
Mazurkiewicz, Cornelius S. Van Rees and H. Russel Lemcke will
expire at the annual meeting. Mr. Mazurkiewicz was
appointed to the Board of Directors on August 15, 2007 to
serve for a term expiring at the annual meeting. Mr. Lemcke
has informed us that he will be retiring from the Board after
the annual meeting and as such he will not stand for election as
a Director at the annual meeting. Mr. Lemckes
decision not to seek election as a Director at the annual
meeting was not a result of any disagreement.
The Nominating Committee has nominated Mr. Mazurkiewicz and
Mr. Van Rees for election as Directors. If elected, both
Mr. Mazurkiewicz and Mr. Van Rees will hold office for
a three-year term expiring in 2011 or until his successor is
duly elected and qualified. If Mr. Mazurkiewicz and
Mr. Van Rees are elected as Directors at the annual
meeting, then the Board of Directors will consist of six members.
The Board of Directors unanimously recommends a vote FOR
the election of Mr. Mazurkiewicz and Mr. Van Rees
as Directors for a three-year term expiring in 2011. Unless
authority to vote for one or more of the Director nominees is
specifically withheld, proxies will be voted FOR the
election of the nominees.
The Board of Directors does not contemplate that any of the
nominees will be unable to serve as a Director, but if that
contingency should occur before the proxies are voted, the
persons named in the enclosed proxy reserve the right to vote
for such substitute nominees as they, in their discretion,
determine.
Our by-laws require mandatory retirement at age 75 for
Directors who become members of the Board of Directors for the
first time after October 30, 2002. No retirements pursuant
to this provision occurred during fiscal year 2008.
The table below sets forth information concerning each Director
nominee.
Nominees
Proposed for Election as Directors
for a Three-Year Term Expiring in 2011
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Name and Background
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Director Since
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Gerard T. Mazurkiewicz, age 61, has been a Tax
Partner with Dopkins & Company, LLP, a regional
accounting firm located in Buffalo, New York, since 2004. Prior
to his tenure at Dopkins & Company,
Mr. Mazurkiewicz spent over 32 years with KPMG, LLP,
and was the Partner in Change of KPMGs upstate New
York/Albany tax practice, prior to his retirement in 2002.
Mr. Mazurkiewicz was a member of the Board of Directors of
Great Lakes Bancorp, Inc., a bank holding company, until Great
Lakes Bancorp, Inc. was merged into First Niagara Financial
Group in February 2008. Mr. Mazurkiewicz also serves as a member
of the Board of Directors of Trebor, Inc., a privately held
distributor of tissue, pulp, paper and container board.
Mr. Mazurkiewicz received his B.S. in Business
Administration from the State University of New York at Buffalo
School of Management, where he currently serves on the Advisory
Board for the center for Entrepreneurial Leadership. He is a
member of the American Institute of Certified Public Accountants
and the Buffalo Chapter of the Society of Certified Public
Accountants. Mr. Mazurkiewicz was recommended to the
Nominating Committee by a non-management Director.
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2007
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Cornelius S. Van Rees, age 79, was a partner in the
New York City law firm of Thacher Proffitt & Wood
until his retirement in 1994. Mr. Van Rees received his law
degree in 1954 from Columbia University. Mr. Van Rees also
serves as our Corporate Secretary.
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1969
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4
The table below sets forth information concerning each Director
whose term in office does not expire at the 2008 annual meeting.
Directors
Whose Terms Do Not Expire
at the Annual Meeting
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Name and Background
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Director Since
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Term Expires
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Helen H. Berkeley, age 79, is a private investor.
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1998
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2009
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Jerald D. Bidlack, age 72, has served since 1992 as
President of Griffin Automation, Inc., a manufacturer of special
automation machinery and systems located in West Seneca, New
York. Mr. Bidlack also serves as a trustee of Keuka
College, located in Penn Yan, New York. Mr. Bidlack has
served as the Chairman of our Board of Directors since 1998.
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1985
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2010
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James R. Lines, age 47, became our President and
Chief Executive Officer in January 2008. Prior to that,
Mr. Lines served as our President and Chief Operating
Officer since June 2006. Mr. Lines has served our company
in various capacities since 1984. Mr. Lines has held the
positions of Vice President and General Manager, Vice President
of Engineering, and Vice President of Sales and Marketing. Prior
to his senior management positions, he was an application
engineer, sales engineer and product supervisor. Mr. Lines
holds a B.S. in Aerospace Engineering from the State University
of New York at Buffalo.
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2006
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2009
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James J. Malvaso, age 58, has since 1997 served as
the President and Chief Executive Officer of The Raymond
Corporation, which is a manufacturer of electric lift trucks
located in Greene, New York. Previously, from 1993 to 1996,
Mr. Malvaso served as Chief Operating Officer and Vice
President-Operations of Raymond. Mr. Malvaso also serves as
a trustee of Lemoyne College, located in Syracuse, New York.
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2003
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2010
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5
PROPOSAL TWO:
AMENDMENT TO OUR AMENDED CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF OUR COMMON
STOCK
Proposed
Amendment
Our Board of Directors has approved and declared it advisable
and in the best interests of our stockholders to amend our
Amended Certificate of Incorporation to increase the number of
authorized shares of our common stock from 6,000,000 to
25,500,000 and to increase the number of total authorized shares
from 6,500,000 to 26,000,000. The number of shares of authorized
preferred stock would remain at 500,000.
Article FOURTH of the Amended Certificate of Incorporation
is proposed to be amended and restated in its entirety. The
article currently provides that:
The total number of shares of all classes of stock which
the corporation shall have authority to issue is
6,500,000 shares, of which 500,000 shares shall be
shares of Preferred Stock having a par value of $1.00 each
(hereafter called Preferred Stock) and 6,000,000 shares
shall be shares of Common Stock having a par value of $0.10 each
(hereinafter called Common Stock).
As amended, Article FOURTH of the Amended Certificate of
Incorporation is proposed to read in its entirety as follows:
The total number of shares of all classes of stock which
the corporation shall have authority to issue is
26,000,000 shares, of which 500,000 shares shall be
shares of Preferred Stock having a par value of $1.00 each
(hereafter called Preferred Stock) and 25,500,000 shares
shall be shares of Common Stock having a par value of $0.10 each
(hereinafter called Common Stock).
Reasons
for Amendment
Currently, we are authorized to issue 6,000,000 shares of
common stock. As of June 6, 2008, 5,039,790 shares of
our common stock were issued and 5,038,973 shares of our common
stock were outstanding, 817 shares of our common stock were
held in treasury and 423,073 shares of common stock were
subject to outstanding grants or remained available for future
grants under our stock-based incentive compensation plans. The
Board of Directors believes it is desirable to have a sufficient
number of shares of common stock available, as occasion may
arise, for possible future stock dividends or splits, future
acquisition transactions, stock issuances in connection with
stock-based compensation arrangements and other proper corporate
purposes. It is also beneficial to have a sufficient number of
shares of common stock available to avoid repeated separate
amendments to our Amended Certificate of Incorporation and the
delay and expense of holding special meetings of stockholders
that may be necessary to approve such amendments. Other than as
permitted or required under our stock-based incentive
compensation plan and under outstanding options, the Board of
Directors has no agreements or commitments to issue additional
common stock for any purpose.
Effects
of the Amendment; Potential Dilution and Anti-Takeover
Effects
Our stockholders do not have pre-emptive rights with respect to
the new issuances of our common stock. Under Delaware law, our
Board of Directors may authorize the issuance of authorized, but
unissued shares, without any further action or approval of our
stockholders. If our Board of Directors elects to authorize the
issuance of new shares, then such issuances could have the
effect of increasing the public float, and therefore the
liquidity of the shares of common stock for all holders.
Additional issuances of shares of common stock could also have a
dilutive effect on our earnings per share, our book value per
share and the voting power and proportionate stock holdings of
our current stockholders, depending upon the particular
circumstances of such issuance.
In addition, the availability of additional shares of common
stock could render more difficult or discourage a possible
takeover attempt. For example, additional shares of common stock
could be issued and sold to purchasers who oppose a takeover bid
that our Board of Directors believes is not in the best interest
of our stockholders. Similarly, additional shares of common
stock could be issued to increase the aggregate number of
outstanding shares of common stock and thereby dilute the
aggregate voting power of parties attempting to obtain control
of our company.
6
Vote
Required for Approval of Amendment
Approval of the amendment to our Amended Certificate of
Incorporation requires the affirmative vote of a majority of the
votes duly cast at the annual meeting.
If approved by our stockholders, the amendment to our Amended
Certificate of Incorporation will become effective upon the
filing of a Certificate of Amendment, substantially in the form
of Appendix A attached to this proxy statement, with
the Delaware Secretary of State. We currently plan to submit the
Certificate of Amendment to the Delaware Secretary of State for
filing as soon as practicable after receiving the required
approval of our stockholders at the annual meeting.
Recommendation
The Board of Directors unanimously recommends a vote FOR
the proposal to approve the amendment to our Amended Certificate
of Incorporation to increase the number of authorized shares of
our common stock from 6,000,000 to 25,500,000 and to increase
the number of total authorized shares from 6,500,000 to
26,000,000. Unless otherwise instructed in the proxy, the
persons named in the enclosed proxy will vote the proxies
FOR this proposal.
7
PROPOSAL THREE:
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Audit Committee of the Board of Directors has selected
Deloitte & Touche LLP, referred to in this proxy
statement as Deloitte & Touche, as our
independent registered public accounting firm for fiscal year
2009. This selection will be presented to our stockholders for
ratification at the annual meeting. The Audit Committee will
consider the outcome of this vote in its future discussions
regarding the selection of our independent registered public
accounting firm.
The Board of Directors unanimously recommends a vote FOR
the proposal to ratify the selection of Deloitte &
Touche to serve as our independent registered public accounting
firm for fiscal year 2009. Unless otherwise instructed in the
proxy, the persons named in the enclosed proxy will vote the
proxies FOR this proposal.
We have been advised by Deloitte & Touche that it will
have a representative present at the annual meeting and that
such representative will be available to respond to appropriate
questions. Such representative will be given an opportunity to
make a statement if he or she so desires.
Fees Paid
to Deloitte & Touche LLP
We paid the following fees to Deloitte & Touche for
fiscal year 2008 and for the fiscal year ended March 31,
2007, referred to in this proxy statement as fiscal year
2007:
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Fiscal Year
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Fiscal Year
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2008
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2007
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Audit fees
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$
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265,000
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$
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161,000
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Audit-related fees
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51,857
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26,505
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Tax fees
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261,722
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196,994
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All other fees
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$
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578,579
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$
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384,499
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Audit fees for each of fiscal year 2008 and fiscal year 2007
included fees associated with audits of our financial statements
and reviews of financial statements included in our quarterly
reports on
Form 10-Q.
Audit-related fees for fiscal year 2008 included fees for the
review of our response to a Securities and Exchange Commission
comment letter, issuance of a consent for a registration
statement on
Form S-8,
training of audit committee members and out-of-pocket expenses
billed. Audit related fees for fiscal year 2007 included fees
associated with assistance with internal control over financial
reporting and out-of-pocket expenses billed.
Tax fees for each of fiscal year 2008 and fiscal year 2007
primarily included tax compliance and tax planning services, as
well as out-of-pocket expenses billed. In fiscal year 2007, tax
consulting fees were paid for a research and development tax
credit project.
The Audit Committee has determined that the provision of
permitted non-audit services described above has not compromised
the independence of Deloitte & Touche.
The Audit Committee has adopted procedures for pre-approving all
audit and permitted non-audit services provided by our
independent registered public accounting firm. The Audit
Committee annually pre-approves a list of specific services and
categories of services, subject to a specified cost level. Part
of this approval process includes making a determination as to
whether non-audit services are consistent with the Securities
and Exchange Commissions rules on auditor independence.
The Audit Committee has delegated pre-approval authority to the
Chairman of the Audit Committee, subject to reporting any such
approvals at the next Audit Committee meeting.
The Audit Committee monitors the services rendered and actual
fees paid to our independent registered public accounting firm
quarterly, to ensure that such services are within the scope of
approval. All audit and permitted non-audit services for which
Deloitte and Touche was engaged were pre-approved by the
Chairman of the Audit Committee.
8
REPORT OF
THE AUDIT COMMITTEE
The Audit Committee is currently comprised of Directors
Mazurkiewicz (Chairman), Bidlack, Lemcke and Malvaso, each of
whom the Board of Directors has affirmatively determined is
independent pursuant to the listing standards of the American
Stock Exchange and applicable Securities and Exchange Commission
rules. The duties and responsibilities of the Audit Committee
are set forth in the Audit Committees charter, as amended
and restated by the Board of Directors on January 27, 2006.
The Audit Committee oversees the companys financial
reporting process on behalf of the Board of Directors, and has
other duties and functions as described in its charter.
Management has the primary responsibility for the companys
financial statements and the reporting process. The
companys independent registered public accounting firm,
Deloitte & Touche LLP, is responsible for auditing the
companys financial statements and expressing an opinion as
to their conformity with accounting principles generally
accepted in the United States.
The Audit Committee has:
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reviewed and discussed the companys audited financial
statements for the fiscal year ended March 31, 2008 with
management and the independent registered public accounting firm;
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discussed with the companys independent registered public
accounting firm the matters required to be discussed by
Statement on Auditing Standards No. 61, as amended (AICPA,
Professional Standards, Vol. 1, AU section 380), as adopted
by the Public Company Accounting Oversight Board in
Rule 3200T; and
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received and discussed the written disclosures and the letter
from the companys independent registered public accounting
firm required by Independence Standards Board Standard
No. 1 (Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees), as adopted by
the Public Company Accounting Oversight Board in
Rule 3600T, and has discussed with the companys
independent registered public accounting firm its independence.
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When evaluating Deloitte & Touches independence,
the Audit Committee discussed with Deloitte & Touche
any relationships that may impact such firms objectivity
and independence. The Audit Committee has also considered
whether the provision of non-audit services by
Deloitte & Touche is compatible with maintaining such
firms independence, and has satisfied itself with respect
to Deloitte & Touches independence from the
company and its management.
The Audit Committee discussed with the company personnel
responsible for the internal audit function and the
companys independent registered public accounting firm the
overall scope and plans for their respective audits. The Audit
Committee meets with the company personnel responsible for the
internal audit function and our independent registered public
accounting firm, with and without management present, to discuss
the results of their examinations, the evaluations of the
companys internal controls, and the overall quality of the
companys financial reporting.
Based on the reviews and discussions referred to above, the
Audit Committee recommended to the Board of Directors (and the
Board has approved) that the audited financial statements be
included in the companys annual report on
Form 10-K
for the year ended March 31, 2008 for filing with the
Securities and Exchange Commission. The Audit Committee has also
selected the companys independent registered public
accounting firm for the fiscal year ending March 31, 2009
and has submitted such selection for ratification by the
stockholders at the companys annual meeting.
Audit Committee:
Gerard T. Mazurkiewicz, Chairman
Jerald D. Bidlack
H. Russel Lemcke
James J. Malvaso
9
CORPORATE
GOVERNANCE
Board
Meetings and Committees of the Board
The Board of Directors has an Audit Committee, a Compensation
Committee, a Nominating Committee, and an Employee Benefits
Committee. The function, composition, and number of meetings of
each of these committees are described below. The current
charter of each board committee is available on our website at
www.graham-mfg.com under the heading Corporate
Governance. The information contained on our website is
not a part of this proxy statement.
The Board of Directors has affirmatively determined that
Directors Berkeley, Bidlack, Lemcke, Malvaso, Mazurkiewicz and
Van Rees, are each independent within the meaning of the
American Stock Exchanges director independence standards.
Audit
Committee
We have a separately-designated standing Audit Committee
established in accordance with section 3(a)(58)(A) of the
Exchange Act of 1934. The current members of the Audit Committee
are Directors Mazurkiewicz (Chairman), Bidlack, Lemcke and
Malvaso. The Board of Directors has affirmatively determined
that each member of the Audit Committee satisfies the
independence standards applicable to audit committee members
specified in Section 803 of the listing standards of the
American Stock Exchange and applicable Securities and Exchange
Commission rules. The Board of Directors has also determined
that the Audit Committee has at least one audit committee
financial expert in accordance with applicable Securities
and Exchange Commission rules. Mr. Mazurkiewicz, based upon
his professional work experience as referenced in his biography
on page 4, has been designated by the Audit Committee as
its audit committee financial expert.
The Audit Committee reviews with Deloitte & Touche
LLP, our independent registered public accounting firm, our
financial statements and internal control over financial
reporting, Deloitte & Touches auditing
procedures and fees, and the possible effects of professional
services upon the independence of Deloitte & Touche.
The Audit Committee works closely with the Board of Directors,
our executive management team, and our independent registered
public accounting firm to assist the Board in overseeing our
accounting and financial reporting processes and financial
statement audits. In furtherance of these responsibilities, the
Audit Committee is charged with assisting the Board of Directors
in its oversight of:
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the integrity of our financial statements and internal controls;
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our compliance with legal and regulatory requirements;
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the qualifications and independence of our independent
registered public accounting firm;
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the performance of our independent registered public accounting
firm; and
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the planning for and performance of our internal audit function.
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The Audit Committee is also responsible for preparing the Audit
Committees report set forth in this proxy statement that
the Securities and Exchange Commissions rules require be
included in our annual proxy statement, and performing such
other tasks that are consistent with the Audit Committees
charter.
The Audit Committee held five meetings during fiscal year 2008.
The Audit Committees report relating to fiscal year 2008
begins on page 9.
Compensation
Committee
The members of the Compensation Committee are Directors Malvaso
(Chairman), Berkeley, Bidlack, Lemcke and Van Rees. The Board of
Directors has affirmatively determined that each member of the
Compensation Committee satisfies the independence standards
specified in Section 803 of the listing standards of the
American Stock Exchange.
The Compensation Committee reviews and determines annually
salaries, incentive cash awards and other forms of compensation
paid to our executive officers and management, approves
recipients of awards of stock options and restricted stock and
establishes the number of shares and other terms applicable to
such awards. The Compensation Committee also construes the
provisions of and generally administers the Amended and Restated
2000 Graham Corporation Incentive Plan to Increase Shareholder
Value, referred to in this proxy statement as the
Incentive Plan.
10
The Compensation Committee also determines the compensation paid
to our Board of Directors, including fees paid for meeting
attendance and equity-based awards. More information about the
compensation of our directors is set forth under the heading
Director Compensation Programs on page 33.
In addition, the Compensation Committee is responsible for
reviewing and discussing with management the Compensation
Discussion and Analysis that Securities and Exchange Commission
rules require be included in our annual proxy statement,
preparing the committees report that Securities and
Exchange Commission rules require be included in our annual
proxy statement, and performing such other tasks that are
consistent with its charter. The Compensation Committees
report relating to fiscal year 2008 appears on page 19 of
this proxy statement.
The Compensation Committee is not authorized to delegate its
authority or responsibility to another person or subcommittee.
The Compensation Committee held three meetings during fiscal
year 2008.
For more information on the role of the Compensation Committee
in determining executive compensation, see Compensation
Discussion and Analysis beginning on page 13.
Nominating
Committee
The members of the Nominating Committee are Directors Van Rees
(Chairman), Bidlack and Malvaso. The Board of Directors has
affirmatively determined that each member of the Nominating
Committee satisfies the independence standards specified in
Section 803 of the listing standards of the American Stock
Exchange.
The Nominating Committee evaluates, interviews and nominates
candidates for election to the Board of Directors.
The Nominating Committee held two meeting during fiscal year
2008.
When identifying nominees for Director, the Nominating Committee
solicits suggestions from incumbent Directors, management,
stockholders and others. In identifying and evaluating nominees,
the Nominating Committee seeks candidates possessing the highest
standards of personal and professional ethics and integrity;
practical wisdom, independent thinking, maturity and the ability
to exercise sound business judgment; skills, experience and
demonstrated abilities that help meet the current needs of the
Board of Directors; and a firm commitment to the interests of
our stockholders.
In addition, the Nominating Committee takes into consideration
such other factors as it deems appropriate. These factors may
include knowledge of our industry and markets, experience with
businesses and other organizations of comparable size, the
interplay of the nominees experience with the experience
of other members of the Board of Directors, and the extent to
which the candidate would be a desirable addition to the Board
of Directors and any of its committees. The Nominating Committee
may consider, among other factors, experience or expertise in
the heat-transfer industry, global business, science and
technology, competitive positioning, corporate governance,
finance or economics, and public affairs.
Pursuant to our by-laws, stockholders of record entitled to vote
in the election of Directors at any annual meeting may recommend
individuals for consideration by the Nominating Committee as
potential nominees by submitting written recommendations to our
Corporate Secretary so that they are delivered or received no
later than (i) 60 days in advance of the annual
meeting, if the annual meeting is to be held within 30 days
preceding the anniversary of the previous years annual
meeting, or (ii) 90 days in advance of the annual
meeting, if the annual meeting is to be held on or after the
anniversary of the previous years annual meeting. For an
annual meeting held at a time other than within these time
periods, or for a special meeting of stockholders for the
election of Directors, nominations must be submitted no later
than the close of business on the 10th day following the
date on which notice of such meeting is first given to
stockholders.
Stockholder recommendations must contain: (i) each
nominees name, age, business and residence addresses;
(ii) the nominees principal occupation or employment;
(iii) the nominees written consent to serve as a
Director, if elected; and (iv) such other information
regarding the nominee as would be required to be included in a
proxy statement filed pursuant to applicable rules of the
Securities and Exchange Commission.
In addition, any stockholder submitting a recommendation must
provide his or her own name and address as they appear on our
books and records, as well as the class and number of our shares
owned of record and the dates he or she acquired such shares.
The stockholder also must describe all arrangements or
understandings between the stockholder and the nominee and any
other person or persons (naming such person or persons) pursuant
to which the nominations are made by the stockholder.
Furthermore, the stockholder must (i) identify any person
employed,
11
retained, or to be compensated by the stockholder submitting the
nomination or by the person nominated, or any person acting on
his or her behalf, to make solicitations or recommendations to
stockholders for the purpose of assisting in the election of
such nominee, and (ii) briefly describe the terms of such
employment, retainer or arrangement for compensation.
The Nominating Committee will evaluate nominees proposed by
stockholders using the same criteria, and in the same manner, as
described above for other nominees.
Employee
Benefits Committee
The members of the Employee Benefits Committee are Directors Van
Rees (Chairman), Berkeley and Bidlack.
The Employee Benefits Committee serves as the plan administrator
of our employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1974, as amended, including
our Retirement Income Plan, Incentive Savings Plan, Medical
Plan, Life Insurance Plan, Long-Term Disability Plan, Employee
Stock Ownership Plan and any other employee benefit plan we
maintain for which a named fiduciary is designated. The Employee
Benefits Committee oversees the operation, administration,
investments and compliance of each of these plans.
The Employee Benefits Committee held one meeting during fiscal
year 2008.
Meeting
Attendance
During fiscal year 2008, the Board of Directors held a total of
seven meetings. Each Director attended at least 75% of the
aggregate of (i) the total number of meetings of the Board
of Directors and (ii) the total number of meetings of all
committees of the Board of Directors on which he or she served
(during the periods that he or she served).
Company policy requires that each Director attend our annual
meeting of stockholders or provide the Chairman of the Board
with advance notice of the reason for not attending. All of our
Directors attended our 2007 annual meeting of stockholders.
Communications
from Stockholders
Stockholders may send communications to the Board of Directors,
or to individual Directors, to the attention of: Cornelius S.
Van Rees, Corporate Secretary, Graham Corporation, 20 Florence
Avenue, Batavia, New York 14020. The Corporate Secretary will
convey all such communications to the Board, or if addressed to
an individual member of the Board, to that Director.
EXECUTIVE
OFFICERS
As of March 31, 2008, we were served by the following
executive officers, who were elected by our Board of Directors:
James R. Lines, age 47, became our President and
Chief Executive Officer in January 2008. Mr. Lines has
served our company in various capacities since 1984.
Mr. Lines biography is set forth on page 5.
J. Ronald Hansen, age 61, has been our Vice
President-Finance and Administration and Chief Financial Officer
since joining us in 1993.
Alan E. Smith, age 41, was appointed our Vice
President of Operations in July 2007. Previously, from 2005
until July 2007, Mr. Smith served as Director of Operations
for Lydell, Inc., a designer and manufacturer of specialty
engineering products. Prior to that, he had been with us for
fourteen years, progressing from Project Engineer to Engineering
Manager.
COMPENSATION
OF NAMED EXECUTIVE OFFICERS AND DIRECTORS
Throughout this proxy statement, the persons who served during
fiscal year 2008 as our principal executive officer (James R.
Lines) and principal financial officer (J. Ronald Hansen), as
well as Alan E. Smith our Vice-President of Operations, are
referred to as our named executive officers.
12
Compensation
Discussion and Analysis
Principles
and Objectives
In establishing executive compensation, the guiding principles
and objectives of the Compensation Committee are as follows:
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To provide a reasonable level of compensation sufficient to
attract and retain executive personnel best suited by training,
ability, and other relevant criteria for the companys
management requirements;
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To balance base compensation (non-contingent) and incentive
compensation (contingent upon performance) for the purpose of
motivating executive personnel; and
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To determine the extent and method of aligning the financial
interest of the companys executive personnel with the
interest of its stockholders in the appreciation of their
investment.
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The Compensation Committee considers various measures of company
and industry performance when determining named executive
officer compensation, including revenue, net income, earnings
per share, total market value, average working capital, and
total stockholder return. As described further below, the
Compensation Committee also compares our executive compensation
programs with the programs of other comparably sized companies
both in our industry and in our geographic region.
Our executive compensation program is designed to reward our
executive officers for company and individual performance that
creates both current and long-term stockholder value. We
describe the company and individual performance measures that
the Compensation Committee takes into account in determining
cash and equity incentive awards for our named executive
officers under the headings Annual Cash Incentive
Compensation on page 15 and Long-Term Equity
Incentive Compensation on page 16.
Role of
the Compensation Committee
Our Compensation Committee designs and implements compensation
programs that further the intent and purpose of our fundamental
compensation principles and objectives. Our Compensation
Committee is responsible for setting appropriate compensation
levels for our named executive officers, and determining base
salary, incentive cash awards and equity-based awards for each
of our named executive officers.
Our Compensation Committee is currently comprised of five
members of our board of directors, each of whom is independent
under the independence standards of the American Stock Exchange.
The current members of the Compensation Committee are Directors
Malvaso (Chairman), Berkeley, Bidlack, Lemcke and Van Rees. The
chairman of the Compensation Committee is responsible for
setting the agenda for each committee meeting and for ensuring
that meetings are conducted in an efficient manner.
The Compensation Committee annually conducts a performance
evaluation of its operation and function and recommends any
proposed changes to our Board of Directors for approval.
The duties and responsibilities of the Compensation Committee
are set forth in its charter, as adopted by our board of
directors on March 27, 2006. The charter of the
Compensation Committee is available on our website at
www.graham-mfg.com under the heading Corporate
Governance. We have included additional information about
the Compensation Committee under the heading Compensation
Committee on page 10.
Components
of Compensation
The total compensation package for our named executive officers
consists of the following components:
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annual base salary;
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annual cash incentive compensation based on operating and
individual performance;
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long-term equity incentive compensation through the granting of
stock options and restricted stock;
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perquisites and other personal benefits; and
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retirement benefits.
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Our compensation program is comprised of short-term compensation
in the form of salary and annual cash incentive compensation,
and long-term compensation in the form of stock options and
restricted stock. We believe providing combined grants of stock
options and restricted stock effectively focuses the named
executives on delivering long-term value to our stockholders. We
do not have a specific policy for the allocation of compensation
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between short-term and long-term compensation or cash and equity
compensation, as the allocation of these items is primarily
driven by market compensation information and company
performance.
We generally do not consider gains realized from prior
compensation, such as stock option exercises and restricted
stock vesting, in setting other elements of compensation. We
believe that reducing or limiting current stock option grants or
restricted stock awards because of prior gains realized by an
executive officer would unfairly penalize the officer for high
past performance and reduce the motivation for continued high
achievement. Similarly, our severance and
change-in-control
arrangements, which we discuss in detail under the heading
Potential Payments upon Termination or Change in
Control on page 27, do not affect our decision
regarding other elements of compensation. Those arrangements
serve specific purposes that are unrelated to the determination
of a named executive officers compensation for a specific
year.
Our Amended and Restated 2000 Graham Corporation Incentive Plan
to Increase Shareholder Value (referred to in this proxy
statement as the Incentive Plan), which was approved
by our stockholders at the 2006 annual meeting, is a
comprehensive executive compensation plan that provides for the
grant of stock options, restricted stock, and other
stock-related awards, as well as other awards that may be
settled in cash or other property. All equity awards under the
Incentive Plan are made at the market price of our common stock
at the time of the award. As of March 31, 2008, all of our
named executive officers then employed by us participated in the
Incentive Plan.
Utilization
of Outside Consultants by the Compensation Committee
Our Compensation Committee also periodically retains an
independent compensation consulting firm to assist the
Compensation Committee in its evaluation of our executive
compensation programs, its considerations regarding compensation
alternatives and in its determination of the compensation of our
named executive officers.
Our Compensation Committee has previously engaged the Hay Group,
a global management consulting firm, to act as its compensation
consultant. In the course of its engagement, the Hay Group
provided to the Compensation Committee market data regarding
executive compensation pay packages, reviewed the elements of
our existing compensation programs and advised the Compensation
Committee on existing and proposed compensation alternatives.
During fiscal year 2008, the Compensation Committee did not
utilize the services of the Hay Group or any other compensation
consultant.
Role of
Named Executive Officers in Compensation Decisions
Our principal executive officer annually reviews the performance
of the other named executive officers and presents the
performance information to the Compensation Committee. The
Compensation Committee annually reviews the performance of our
principal executive officer. The Committee considers such
performance information in determining each element of
compensation for the named executive officers.
On an annual basis our principal executive officer approves and
recommends to the Compensation Committee the individual
objectives for our other named executive officers in connection
with the cash incentive awards under the Graham Annual Executive
Cash Bonus Program. The Chairman of our Board of Directors
approves individual objectives for our principal executive
officer. See Annual Cash Incentive Compensation on
page 15 for more information about this program.
In addition, our principal executive officer makes
recommendations to the Compensation Committee with respect to
the salary, cash incentive and equity-based compensation paid to
the other named executive officers. The Compensation Committee
uses its discretion to determine whether to accept, reject or
modify any adjustments to awards that may be recommended by our
principal executive officer.
Use of
Benchmarking
In making compensation decisions, the Compensation Committee
compares our executive compensation programs with the programs
of comparably sized companies both in our industry and our
geographic region and examines national and regional
compensation trends. The Compensation Committee does not use a
formal peer group.
The Compensation Committee has historically set annual base
salaries for our named executive officers to be approximately at
the median for similarly situated executive officers of
companies in our industry and geographic region. The
Compensation Committee has historically set non-cash
compensation, in the form of stock options, below that offered
by comparably sized companies in our geographic region.
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Certain
Tax and Accounting Implications
We periodically review accounting and tax laws, rules and
regulations that may apply to our compensation programs.
However, tax and accounting considerations have not
significantly impacted the compensation programs that we offer
to our named executive officers.
The Impact of Deductibility of
Compensation. As part of its role, the
Compensation Committee reviews and considers the deductibility
of executive compensation under Section 162(m) of the
Internal Revenue Code, which provides that we may not deduct
compensation of more than $1,000,000 that is paid to certain
individuals. The Compensation Committee reserves the ability to
approve compensation that will not meet these requirements in
order to ensure competitive levels of total compensation for its
executive officers.
Accounting for Stock-Based Compensation. We
account for stock-based employee compensation at fair value of
the awards on the grant date and recognize the related cost in
our statements of operations and retained earnings in accordance
with SFAS No. 123(R), Share-Based Payment,
which we adopted effective April 1, 2006 utilizing the
modified prospective method. These stock-based payments include
awards made under our Amended and Restated 2000 Incentive Plan
to Increase Shareholder Value and our Outside Directors
Long-Term Incentive Plan.
Annual
Base Salaries
The Compensation Committee reviews base salaries for each named
executive officer at least annually. For fiscal year 2008, the
Compensation Committee set the base salaries for executive
officers based on company and individual performance for the
previous year, internal relativity and market conditions
(including the Compensation Committees understanding of
the base salaries received by similarly situated executive
officers at comparably sized companies in our industry and
geographic region, as described under Use of
Benchmarking on page 14).
In July 2007, Alan E. Smith joined us as our Vice President of
Operations. His base salary was determined based on market
conditions and our negotiations with Mr. Smith.
On January 28, 2008, James R. Lines was appointed to be our
President and Chief Executive Officer. At the time of his
appointment, the Compensation Committee, based on the above
factors, approved an increase in Mr. Liness base
salary that constituted an increase of 16.9% from his previous
base salary.
In March 2008, based on the above factors, the Compensation
Committee approved an increase in the base salary for fiscal
year 2009 for J. Ronald Hansen and Alan E. Smith that
constituted an increase of 3% from each such executive
officers previous base salary.
Base salaries paid to our named executive officers during fiscal
year 2008 are shown in the Salary column of the
Summary Compensation Table on page 20.
Annual
Cash Incentive Compensation
On March 27, 2006, the Compensation Committee adopted the
Graham Annual Executive Cash Bonus Program (referred to in this
proxy statement as the Cash Bonus Program) that was
effective for fiscal year 2008. The objective of the Cash Bonus
Program is to compensate our senior executive officers,
including our named executive officers, for above-average
performance through an annual cash incentive award related both
to company and individual performance, with 70% and 20% of such
award based on the attainment by the company of objectives based
on net income and average working capital, respectively, and 10%
based on the attainment by the senior executive officer of
individual objectives. The average working capital objective is
a percentage defined as gross inventory plus gross trade
accounts receivable minus trade payables divided by sales.
Company objectives for net income and average working capital
are typically set during our annual budgeting process and are
approved by our Board of Directors along with our annual budget
immediately prior to the beginning of the relevant fiscal year.
Individual objectives are set on or before the determination of
the annual budget. The Chairman of our Board of Directors
approves individual objectives for our principal executive
officer. The individual objectives for our other named executive
officers are approved by our principal executive officer and
recommended to the Compensation Committee.
During fiscal year 2008, the individual objectives for our named
executive officers were as follows: Mr. Lines
maintaining a world class operating environment, developing and
demonstrating leadership skills and achieving measurable
progress in our efforts to penetrate Asian markets, among other
things; Mr. Hansen implementation of a
performance appraisal system, achievement of objectives related
to the implementation of Sarbanes-Oxley reporting requirements
and achievement of information technology goals, among other
things; Mr. Smith
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achievement of measurable improvements in manufacturing costs,
processes and reporting accuracy, among other things.
For fiscal year 2008, target bonus levels were set at 100%
attainment of both company and individual objectives. Upon
meeting the target bonus level, Mr. Lines was eligible to
receive a cash bonus equal to 50% of his base salary, which was
increased to 60% when Mr. Lines was appointed our chief
executive officer, and our other named executive officers are
eligible to receive a cash bonus equal to 35% of their base
salary.
The Compensation Committee generally does not intend to pay any
financial bonus to the named executive officers for performance
of less than 70% of budget for net income or greater than 110%
of budget for average working capital percentage. For fiscal
year 2008, the financial bonus is capped at the attainment of
150% of the budget for the net income component and at the
attainment of 75% of the budget for the average working capital
percentage component. Individual objectives are not directly
tied to the financial performance objectives. As a result, a
participant may achieve up to 10% of the bonus even if we do not
reach the required targets for net income or average working
capital.
The Compensation Committee believes that company and individual
objectives are set at levels that are attainable. At its
March 1, 2007 meeting, the Compensation Committee set the
company objective for net income and average working capital
percentage for fiscal year 2008 at $4,105,000 and 12.7%,
respectively. For fiscal year 2008, net income equaled
$15,034,000 and the average working capital percentage equaled
10.3%. For fiscal year 2008, cash incentive compensation earned
under the Cash Bonus Program reached 142% of target bonus levels
for each of our named executive officers.
Under the Cash Bonus Program, special awards may be made to any
executive (including a named executive officer) who has made an
extraordinary contribution to the company during the fiscal
year. Such awards are generally recommended in writing by our
principal executive officer to the Chair of the Compensation
Committee and approved by the Compensation Committee before
grant. J. Ronald Hansen received a $5,000 special award during
fiscal year 2008 for the successful establishment and
maintenance of our internal controls over financial reporting.
Alan E. Smith received a $12,064 special award during fiscal
year 2008 for improvements made to our manufacturing process.
The Compensation Committee also has the discretion to include or
exclude extraordinary events that either positively or
negatively affect financial performance in the financial
calculations regarding the achievement of company objectives. No
such events were considered by the Compensation Committee during
fiscal year 2008.
At its May 2008 meeting, the Compensation Committee reviewed
each named executive officers achievement of company and
individual objectives during fiscal year 2008 and approved cash
incentive compensation under the Cash Bonus Program. The amount
of such cash awards earned by each named executive officer in
fiscal year 2008 is set forth in the Non-Equity Incentive
Plan Compensation column of the Summary Compensation Table
on page 20.
Long-Term
Equity Incentive Compensation
On March 27, 2006, the Compensation Committee adopted the
Annual Stock-Based Incentive Award Plan for Senior Executives
(referred to in this proxy statement as the Stock Bonus
Plan) to be effective beginning in fiscal year 2007. The
purpose of the Stock Bonus Plan is to motivate our named
executive officers to increase stockholder value by providing
them with long-term stock-based awards for above-average company
performance.
The named executive officers currently employed by us are all
eligible to participate in the Stock Bonus Plan. Awards under
the Stock Bonus Plan consist of nonqualified stock options and
shares of restricted stock that will be subject to forfeiture in
accordance with a vesting schedule. Stock options and restricted
stock are issued under our Incentive Plan. Stock options and
restricted stock, if granted, are approved by the Compensation
Committee on an annual basis at a meeting after the fiscal year
end.
Long-term incentive opportunities are intended to be competitive
with the long-term incentive opportunities offered at other
comparably sized companies in our geographic region. Therefore,
we do not generally consider the amount of outstanding equity
awards currently held by a named executive officer when making
awards of stock options and restricted stock.
Options. We utilize stock options as an
element of compensation because we believe that stock options
motivate our named executives to increase stockowner value. We
believe that stock options motivate our named executive officers
to increase stockholder value because the options only have
value to the extent the price of our common stock on the date of
exercise exceeds the stock price on the grant date, and thus
compensation is realized only if the stock price increases over
the term of the award. Stock options awarded under the Stock
Bonus Plan have
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an exercise price equal to the fair market value of a share of
our common stock on the date of grant, a term of ten years and
vest 25% per year over four years beginning on the first
anniversary of the date of grant. The number of options awarded
to a named executive officer is subject to the discretion of our
Compensation Committee, but is generally determined by
multiplying such officers base salary in effect for the
relevant fiscal year by 20%, and then dividing the product by
the value of such option (determined using the Black-Scholes
valuation method).
On May 29, 2008, the Compensation Committee approved the
grant of the following amount of options to the following named
executive officers: James R. Lines: 1,266, J. Ronald Hansen: 948
and Alan E. Smith: 557. Each stock option has an exercise price
of $61.75 per share.
Restricted Stock. We utilize restricted stock
as an element of compensation because we believe that restricted
stock helps us reward and retain our named executive officers by
conditioning the grant of restricted stock upon the satisfaction
of certain company objectives and by offering our named
executive officers the opportunity to receive shares of our
common stock on the date the restricted stock vest so long as
they continue to be employed by the company. The number of
shares of restricted stock to be awarded to our named executive
officers under the Stock Bonus Plan is determined based on net
income and working capital matrixes. Seventy-five percent of a
named executive officers restricted stock award is based
on the companys attainment of a net income target and 25%
is based on the companys attainment of a working capital
target for the fiscal year. Attainment of 100% of both targets
would result in a restricted stock award valued at 15% of such
officers base salary. This target value may decrease to
zero or increase to up to 150% of such target value based on our
attainment of lower or higher percentages of the respective net
income and working capital target amounts.
The net income portion of the restricted stock award is
determined by multiplying the named executive officers
base salary in effect for the fiscal year by 11.25%, further
multiplied by the net income factor for the fiscal year, which
is then divided by the closing price of a share of our common
stock on the last trading day prior to the date of grant,
rounded to the nearest whole number. For fiscal year 2008, the
net income factor was 1.5.
The working capital portion of the restricted stock award is
determined by multiplying the named executive officers
base salary in effect for the fiscal year by 3.75%, further
multiplied by the by the working capital factor for the fiscal
year, which is then divided by the closing price of a share of
our common stock on the last trading day prior to the date of
grant, rounded to the nearest whole number. For fiscal year
2008, the working capital factor was 1.36.
Shares of restricted stock awarded under the Stock Bonus Plan
are valued at the fair market value of our common stock on the
date of grant and vest as follows: (i) 10% on the first
anniversary of the date of grant; (ii) 20% on the second
anniversary of the date of grant; (iii) 30% on the third
anniversary of the date of grant; and (iv) the final 40% on
the fourth anniversary of the date of grant.
On May 29, 2008, the Compensation Committee approved the
grants of the following amounts of restricted stock to the
following named executive officers: James Lines: 832, J. Ronald
Hansen: 623 and Alan E. Smith: 366.
Perquisites
and Other Personal Benefits
We provide perquisites to our named executive officers to
provide health and welfare benefits as available to all
employees. Additional perquisites and benefits are designed to
attract, retain and reward named executive officers by providing
an overall benefit package similar to those received by
similarly situated executive officers at comparably sized
companies in our industry and geographic region.
During fiscal year 2008, we made contributions to the 401(k)
accounts of each of our named executive officers pursuant to our
Incentive Savings Plan, and paid premiums for life insurance
policies for the benefit of each of our named executive
officers. In addition, Mr. Lines, Mr. Hansen and
Mr. Smith participate in our short-term disability program
that is available to our managers and executive officers. We
also make available to our named executive officers health
insurance and long-term disability programs that are available
to our salaried employees generally.
As part of our employment agreement with Mr. Smith, we
agreed to reimburse him for the expenses he incurred in
relocating to Western New York. We also reimbursed
Mr. Smith, as we do all of our professional engineers, for
his professional engineering license fee.
We chose this year to purchase unused vacation days of our named
executive officers that were in excess of five weeks of
accumulated vacation. Under this program, Mr. Hansen was
reimbursed for one week of unused vacation.
17
Retirement
Benefits
We provide retirement benefits to our named executive officers
to provide welfare benefits as available to all employees.
Additional retirement benefits are designed to attract, retain
and reward named executive officers by providing an overall
benefit package similar to those received by similarly situated
executive officers at comparably sized companies in our industry
and geographic region.
James R. Lines, J. Ronald Hansen and Mr. Smith are eligible
to participate in our Retirement Income Plan, which is a defined
benefit pension plan for the benefit of our domestic employees
hired prior to January 1, 2003. Benefits are based on the
employees years of service and average annual base salary
for the five highest consecutive calendar years of compensation
in the ten-year period preceding retirement.
We also make available to James R. Lines, J. Ronald Hansen and
Mr. Smith our Supplemental Executive Retirement Plan, which
is intended to provide eligible participants and their surviving
spouses and beneficiaries with the amount of employer-provided
retirement benefits that the Retirement Income Plan would
provide but for the limitation on compensation that may be
recognized under tax-qualified plans imposed by
section 401(a)(17) of the Internal Revenue Code and the
limitations on benefits imposed by sections 415(b) and
(e) of the Internal Revenue Code.
We also maintain the Incentive Savings Plan, which is a 401(k)
plan that provides for both employer and employee contributions.
We have provided more information about these retirement plans
and the benefits payable to our named executive officers under
such plans, under the heading Pension Benefits at
March 31, 2008 on page 25.
Employment
Agreements and Payments upon Termination or Change of
Control
We have entered into employment agreements with James R. Lines,
J. Ronald Hansen and Alan E. Smith. The decisions to enter into
employment agreements and the terms of those agreements were
based on our need to motivate and retain talent for our
long-term growth. The material terms of the employment
agreements with the named executive officers are described under
the heading Employment Agreements beginning on
page 22.
We have agreed to provide payments to each of our named
executive officers in the event of a termination of employment
as a result of normal and early retirement, voluntary
termination and termination for cause, involuntary termination,
death and disability. Mr. Lines and Mr. Hansen will
also receive payments in the event of termination following a
change in control. These arrangements are designed to promote
stability and continuity of our named executive officers.
Information on these arrangements for the named executive
officers is provided under the heading Potential Payments
upon Termination or Change of Control on page 27.
Stock
Ownership Objectives
In order to more closely align the interests of our senior
executive officers (which include our named executive officers)
with the best interests of our stockholders, on March 27,
2006 the Compensation Committee established minimum stock
ownership objectives that require our named executive officers
to work towards acquiring and maintaining specific levels of
equity ownership interests in our common stock within specified
time frames.
The stock ownership objectives for our named executive officers
as established by the Compensation Committee are shown below,
and are based on each named executive officers position.
|
|
|
Principal executive officer
|
|
Common stock with a value equal to at least 1.25 times his
annual base salary.
|
Other named executive officers
|
|
Common stock with a value equal to at least 1.00 times his
annual base salary.
|
Our named executive officers must be in compliance with stock
ownership guidelines within five years from the date the
guidelines were adopted. Individuals who become senior executive
officers must comply with the ownership guidelines within five
years of becoming subject to such guidelines. The stock
ownership guidelines also require our named executive officers
to retain 65% of the net shares they realize (after tax) when a
restricted stock award vests or a stock option is exercised
until such persons are in compliance with the guidelines.
The Compensation Committee monitors the progress made by our
named executive officers in achieving their stock ownership
objectives and, if circumstances warrant, may modify the
objectives
and/or time
frames for one or more of the named executive officers. In the
event that a named executive officer does not meet his ownership
18
guidelines, this fact may be taken into consideration by the
Compensation Committee when evaluating such executives
overall performance.
Compensation
Committee
Report1
The Compensation Committee, which is comprised entirely of
independent directors, has reviewed and discussed with
management the Compensation Discussion and Analysis included in
this proxy statement in accordance with Item 402(b) of
Regulation S-K,
as promulgated by the Securities and Exchange Commission. Based
on such review and discussion, the Committee recommended to the
Board of Directors that the Compensation Discussion and Analysis
be included in the companys Annual Report on
Form 10-K
for the fiscal year ended March 31, 2008 and this proxy
statement.
Compensation Committee:
James J. Malvaso, Chairman
Helen H. Berkeley
Jerald D. Bidlack
H. Russel Lemcke
Cornelius S. Van Rees
1 The
material in this report is not soliciting material,
is not deemed to be filed with the Securities and Exchange
Commission and is not incorporated by reference in any of our
filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before
or after the date hereof and irrespective of any general
incorporation language in any such filings.
19
2008
Summary Compensation Table
The following table shows information regarding the compensation
of our President and Chief Executive Officer (our principal
executive officer), our Vice President-Finance and
Administration and Chief Financial Officer (our principal
financial officer) and our other executive officer for services
rendered to us in all capacities for fiscal years 2008 and 2007.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
Compensation
|
|
All Other
|
|
|
|
|
Fiscal
|
|
Salary(1)
|
|
Bonus(2)
|
|
Awards(3)(4)
|
|
Awards(5)(6)
|
|
Compensation(2)(7)
|
|
Earnings(8)
|
|
Compensation(9)
|
|
Total
|
Name and Principal Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
|
James R. Lines,
|
|
|
2008
|
|
|
$
|
233,739
|
|
|
$
|
|
|
|
$
|
1,577
|
|
|
$
|
27,959
|
|
|
$
|
172,574
|
|
|
$
|
28,763
|
|
|
$
|
8,929
|
|
|
$
|
473,541
|
|
President and Chief Executive Officer (principal executive
officer)
|
|
|
2007
|
|
|
|
202,639
|
|
|
|
|
|
|
|
|
|
|
|
15,573
|
|
|
|
63,188
|
|
|
|
10,062
|
|
|
|
6,267
|
|
|
|
297,729
|
|
J. Ronald Hansen,
|
|
|
2008
|
|
|
|
175,056
|
|
|
|
|
|
|
|
15,870
|
|
|
|
20,643
|
|
|
|
92,125
|
|
|
|
44,734
|
|
|
|
11,775
|
|
|
|
360,203
|
|
Vice President Finance and Administration and Chief
Financial Officer (principal financial officer)
|
|
|
2007
|
|
|
|
169,957
|
|
|
|
|
|
|
|
|
|
|
|
11,563
|
|
|
|
40,450
|
|
|
|
24,315
|
|
|
|
5,879
|
|
|
|
252,164
|
|
Alan E.
Smith(10)
|
|
|
2008
|
|
|
|
102,840
|
|
|
|
|
|
|
|
|
|
|
|
4,160
|
|
|
|
63,248
|
|
|
|
|
|
|
|
63,813
|
|
|
|
234,061
|
|
Vice President of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts shown include cash compensation earned and paid, and
cash compensation deferred at the election of each named
executive officer under our 401(k) plan that we refer to as our
Incentive Savings Plan. |
|
(2) |
|
Amounts earned under our Cash Bonus Program are reported in the
Non-Equity Incentive Plan Compensation column. For
more information regarding these cash awards, see Annual
Cash Incentive Compensation in Compensation Discussion and
Analysis on page 15. |
|
(3) |
|
Restricted stock awards are issued under our Incentive Plan. The
dollar values of restricted stock awards shown in this column
are equal to the compensation cost recognized during fiscal year
2008 for financial statement purposes in accordance with
Statement of Financial Accounting Standards No. 123
(revised), Share-Based Payment (referred to in this proxy
statement as SFAS No. 123R), except no
estimates for forfeitures have been included. This valuation
method values restricted stock granted during fiscal year 2008
and previous years. A discussion of the assumptions used in
calculating the compensation cost is set forth in Note 10 (Stock
Compensation Plans) to the Consolidated Financial Statements in
our annual report on
Form 10-K
for the fiscal year ended March 31, 2008. The amounts shown
in these columns reflect our accounting expense for these awards
and do not correspond to the actual value that will be
recognized by the named executive officer. |
|
(4) |
|
Information regarding the shares of restricted stock granted to
our named executive officers in fiscal year 2008 is shown in the
2008 Grant of Plan-Based Awards Table on page 21. The 2008
Grant of Plan-Based Awards Table also shows the aggregate grant
date fair value of the shares of restricted stock granted during
fiscal 2008 as determined in accordance with
SFAS No. 123R. |
|
(5) |
|
Stock option awards are issued under our Incentive Plan. The
dollar values of stock option awards shown in this column are
equal to the compensation cost recognized during fiscal year
2008 for financial statement purposes in accordance with
SFAS No. 123R, except no estimates for forfeitures
have been included. This valuation method values stock options
granted during fiscal year 2008 and previous years. A discussion
of the assumptions used in calculating the compensation cost is
set forth in Note 10 (Stock Compensation Plans) to the
Consolidated Financial Statements in our annual report on
Form 10-K
for the fiscal year ended March 31, 2008. The amounts shown
in these columns reflect our accounting expense for these awards
and do not correspond to the actual value that will be
recognized by the named executive officer. |
|
(6) |
|
Information regarding the stock options granted to our named
executive officers in fiscal year 2008 is shown in the 2008
Grants of Plan-Based Awards Table on page 21. The 2008
Grants of Plan-Based Awards Table also shows the aggregate grant
date fair value of the stock options granted during fiscal year
2008 as determined in accordance with SFAS No. 123R. |
20
|
|
|
(7) |
|
The amounts in this column reflect the cash payment made to the
named executive under the Cash Bonus Program for the fiscal
year. Awards under the Cash Bonus Program are made by the Board
in a meeting shortly after the end of the fiscal year. |
|
(8) |
|
The amounts shown reflect the changes in the actuarial present
values under our Retirement Income Plan and our Supplemental
Executive Retirement Plan. See Pension Benefits at
March 31, 2008 on page 25 for more information
on our Retirement Income Plan and our Supplemental Executive
Retirement Plan. |
|
(9) |
|
All Other Compensation consists of the following |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment in
|
|
Engineering
|
|
|
|
|
|
|
|
|
|
|
|
|
Lieu of
|
|
License
|
|
Relocation
|
|
|
|
|
|
|
Insurance
|
|
401(k) Plan
|
|
Vacation
|
|
Fee
|
|
Expense
|
|
Total
|
Named Executive Officer
|
|
Year
|
|
($)
|
|
Contributions ($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
|
James R. Lines
|
|
|
2008
|
|
|
|
4,429
|
|
|
|
4,500
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
8,929
|
|
|
|
|
2007
|
|
|
|
4,321
|
|
|
|
3,768
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
8,089
|
|
J. Ronald Hansen
|
|
|
2008
|
|
|
|
3,908
|
|
|
|
4,500
|
|
|
|
3,367
|
|
|
|
0
|
|
|
|
0
|
|
|
|
11,775
|
|
|
|
|
2007
|
|
|
|
3,864
|
|
|
|
3,423
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
7,287
|
|
Alan E. Smith
|
|
|
2008
|
|
|
|
843
|
|
|
|
763
|
|
|
|
0
|
|
|
|
714
|
|
|
|
61,493
|
|
|
|
63,813
|
|
|
|
|
(10) |
|
In July 2007, Alan E. Smith joined us as our Vice President of
Operations. |
2008
Grants of Plan-Based Awards
The following table shows information regarding the grants of
annual incentive cash compensation, stock options and restricted
stock during fiscal year 2008 to our named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards:
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts
|
|
Estimated Future Payouts
|
|
Number of
|
|
Exercise or
|
|
Grant Date
|
|
|
|
|
|
|
Under Non-Equity Incentive
|
|
Under Equity Incentive
|
|
Securities
|
|
Base Price
|
|
Fair Value
|
|
|
|
|
|
|
Plan Awards
|
|
Plan Awards
|
|
Underlying
|
|
of Option
|
|
of Stock
|
|
|
Type of
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Options(3)
|
|
Award
|
|
and Option
|
Name
|
|
Award
|
|
Date
|
|
($)
|
|
($)(1)
|
|
($)
|
|
($)
|
|
($)(2)
|
|
($)(2)
|
|
(#)
|
|
($/Sh)
|
|
Awards(4)
|
|
|
James R. Lines
|
|
Cash Bonus
|
|
|
|
|
|
|
|
|
|
|
121,360
|
|
|
|
175,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
5/31/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,596
|
|
|
|
13.80
|
|
|
|
38,733
|
|
|
|
Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,061
|
|
|
|
52,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Ronald Hansen
|
|
Cash Bonus
|
|
|
|
|
|
|
|
|
|
|
61,270
|
|
|
|
88,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
5/31/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,532
|
|
|
|
13.80
|
|
|
|
32,487
|
|
|
|
Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,258
|
|
|
|
39,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan E. Smith
|
|
Cash Bonus
|
|
|
|
|
|
|
|
|
|
|
44,478
|
|
|
|
64,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
7/26/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
21.68
|
|
|
|
24,960
|
|
|
|
Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,426
|
|
|
|
23,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts shown in this column reflect the incentive cash
compensation amounts that potentially could have been earned
during fiscal year 2008 based upon the achievement of company
and individual performance goals under our Cash Bonus Program.
The amounts of actual cash awards earned in fiscal year 2008 by
our named executive officers under our Cash Bonus Program were
determined in May 2008. Such amounts are set forth in the
Non-Equity Incentive Compensation column in the
Summary Compensation Table on page 20. For more information
regarding annual incentive cash compensation under our Cash
Bonus Program, see Annual Incentive Cash
Compensation in Compensation Discussion and Analysis on
page 15. |
|
(2) |
|
Our restrictive stock awards are denominated in dollars, but
payable in stock. We determine the number of shares of
restricted stock to grant by dividing the dollar value of the
award by the closing price of a share of our common stock on the
date of grant. For more information regarding restricted stock
awards under our Stock Bonus Plan, see Restricted
Stock in Compensation Discussion and Analysis on
page 17. |
|
(3) |
|
These stock options were awarded pursuant to our Stock Bonus
Plan, and issued under our Incentive Plan. |
|
(4) |
|
The dollar values of stock options disclosed in this column are
equal to the aggregate grant date fair value computed in
accordance with SFAS No. 123R, except no estimates for
forfeitures were included. A discussion of the assumptions used
to calculate the grant date fair values is set forth in
Note 10 (Stock Compensation Plans) to the Consolidated
Financial Statements in our annual report on
Form 10-K
for the fiscal year ended March 31, 2008. |
21
Annual
Base Salaries as a Percent of Total Compensation
Annual base salaries paid to our named executive officers for
fiscal year 2008 are shown in the Summary Compensation Table on
page 20.
For fiscal year 2008, the base salary paid to each of our named
executive officers constituted the following percentage of each
executives total compensation: Mr. Lines
49%; Mr. Hansen 49%; and
Mr. Smith 44%.
Annual
Cash Incentive Compensation
The non-equity incentive plan compensation set forth in the
tables above reflects annual cash incentive compensation under
our Cash Bonus Plan. Annual cash incentive compensation is
earned based upon the achievement of company and individual
goals, with 70% and 20% of such bonus based on the attainment by
the company of objectives based on net income and average
working capital, respectively, and 10% based on the attainment
by the senior executive officer of individual objectives. Annual
cash compensation is payable as a percentage of salary. For
fiscal year 2008, target bonus levels were set at 100%
attainment of both company and individual objectives. Upon
meeting the target bonus level, Mr. Lines is eligible to
receive a cash bonus equal to 60% of his base salary and our
other named executive officers are eligible to receive a cash
bonus equal to 35% of their base salary.
Stock
Options
We award stock options pursuant to our Stock Bonus Plan, and
such awards are issued under our Incentive Plan. Pursuant to
such plans, options have an exercise price equal to the fair
market value of a share of our common stock on the date of
grant, vest 25% per year over four years beginning on the first
anniversary of the date of grant, and have a term of ten years.
The number of options awarded to a named executive officer is
determined by multiplying such officers base salary in
effect for the relevant fiscal year by 20%, and then dividing
the product by the value of such option (determined using the
Black-Scholes valuation method). Pursuant to our employment
agreements with Mr. Lines and Mr. Hansen, upon the
occurrence of any event deemed a termination under
such agreements after a change in control of the company, all
unvested stock options held by Mr. Lines or Mr. Hansen
would accelerate and become immediately exercisable in full.
Pursuant to our Stock Bonus Plan, upon the retirement, or
retirement eligibility, of one of our named executive officers,
all unvested stock options held by such named executive officer
will accelerate and become immediately exercisable in full.
Restricted
Stock
We award restricted stock pursuant to our Stock Bonus Plan, and
such awards are issued under our Incentive Plan. Pursuant to
such plans, our restricted stock vests 10% on the first
anniversary of the date of grant; 20% on the second anniversary
of the date of grant; 30% on the third anniversary of the date
of grant; and the final 40% on the fourth anniversary of the
date of grant. Seventy-five percent of a named executive
officers restricted stock award is based on the
companys attainment of a net income target and 25% is
based on the companys attainment of a working capital
target for the fiscal year. Attainment of 100% of both targets
would result in a restricted stock award valued at 15% of such
officers base salary. This target may decrease to zero or
increase to up to 150% of such target value based on our
attainment of lower or higher percentages of the respective net
income and working capital target amounts. Pursuant to our
employment agreement with Mr. Lines, upon the occurrence of
any event deemed a termination under such agreement
after a change in control of the company, all unvested shares of
restricted stock held by Mr. Lines will accelerate and
become immediately vested in full. Pursuant to our Stock Bonus
Plan, upon the retirement, or retirement eligibility, of one of
our named executive officers, all unvested shares of restricted
stock held by such named executive officer will accelerate and
become immediately vested in full.
Employment
Agreements
During 2008 we were a party to employment agreements with each
of our named executive officers. The following is a summary of
the key terms of our employment agreements with our President
and Chief Executive Officer and our other named executive
officers.
James R. Lines. On July 27, 2006, we
entered into an employment agreement with Mr. Lines. The
employment agreement supercedes all prior employment agreements
that we had with Mr. Lines.
The agreement, which has an effective date of August 1,
2006, provides that Mr. Lines will receive an annual
minimum base salary as well as other customary benefits.
Mr. Lines is also eligible under the agreement to receive
discretionary bonuses. The agreement automatically renews such
that it always has a one-year term remaining, unless
Mr. Lines or we elect not to extend the term further, in
which case the term will end on the first anniversary of the
date
22
on which notice of such election not to extend is given. If not
terminated sooner, the agreement will end on the last day of the
month in which Mr. Lines turns 65.
Pursuant to our employment agreement with Mr. Lines, if he
resigns for reasons other than a material breach of the
agreement by us, departs from our employment without the
approval of our Board of Directors, or is discharged for cause,
he will be subject to an
18-month
covenant not to compete with us, not to interfere in certain of
our business relationships, and not to disclose to anyone our
confidential information.
Our employment agreements with Mr. Lines also provide for
us to make certain payments to him in the event we terminate his
employment without cause or upon the occurrence of certain
events relating to a change in control of the company, as
described under the headings Involuntary Termination
and Change in Control on page 28.
J. Ronald Hansen. We are a party to an
employment agreement with Mr. Hansen, our Vice
President-Finance and Administration and Chief Financial
Officer, which we entered into in May 1993 and amended in
September 1996. The agreement provides that Mr. Hansen will
receive a minimum annual base salary and customary benefits.
Mr. Hansen is also eligible under the agreement to receive
discretionary bonuses. The agreement automatically renews such
that it always has a one-year term remaining, unless
Mr. Hansen or we elect not to extend the term further, in
which case the term will end on the first anniversary of the
date on which notice of such election not to extend is given. If
not terminated sooner, the agreement will end on the last day of
the month in which Mr. Hansen turns 65.
Pursuant to our employment agreement with Mr. Hansen, if he
resigns for reasons other than a material breach of the
agreement by us, departs from our employment without the
approval of our Board of Directors, or is discharged for cause,
he will be subject to a
12-month
covenant not to compete with us, not to interfere in certain of
our business relationships, and not to disclose to anyone
confidential information of the company.
Our employment agreements with Mr. Hansen also provide for
us to make certain payments to him in the event we terminate his
employment without cause or upon the occurrence of certain
events relating to a change in control of the company, as
described under the headings Involuntary Termination
and Change in Control on page 28.
Alan E. Smith. On July 30, 2007, we
entered into an employment agreement with Mr. Smith. The
agreement provides that Mr. Smith will receive an annual
minimum base salary as well as other customary benefits.
Mr. Smith will also be reimbursed by us for expenses he
incurs in connection with his relocation to Western New York.
The agreement automatically renews such that it always has a
one-year term remaining, unless Mr. Smith or we elect not
to extend the term further, in which case the term will end on
the first anniversary of the date on which notice of such
election not to extend is given. If not terminated sooner, the
agreement will end on the last day of the month in which
Mr. Smith turns 65.
Pursuant to our employment agreement with Mr. Smith, if his
employment with us is terminated for any reason, he will be
subject to an
18-month
covenant not to compete with us, not to interfere in certain of
our business relationships, and not to disclose to anyone our
confidential information.
Our employment agreements with Mr. Smith also provide for
us to make certain payments to such individual in the event we
terminate his employment without cause as described under the
heading Involuntary Termination on page 28.
Salary Adjustments. During its review of base
salaries for executive officers, the Compensation Committee
adjusted upward each named executive officers base salary
for fiscal year 2008, as described under the heading
Annual Base Salary on page . The
current annual base salaries for Mr. Lines, Mr. Hansen
and Mr. Smith are $265,000, $180,307 and $157,075,
respectively.
Additional
Information
We have provided additional information regarding the
compensation we pay to our named executive officers in
Compensation Discussion and Analysis beginning on page 13,
and encourage you to read the above tables and their footnotes
in conjunction with such information.
23
Outstanding
Equity Awards at March 31, 2008
The following table shows information regarding the number of
unexercised stock options held by our named executive officers
as of March 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
Number of
|
|
|
|
|
|
|
|
Plan Awards: Market
|
|
|
Securities
|
|
|
|
|
|
Equity Incentive Plan
|
|
or Payout Value of
|
|
|
Underlying
|
|
|
|
|
|
Awards: Number of
|
|
Unearned Shares,
|
|
|
Unexercised
|
|
Option
|
|
|
|
Unearned Shares, Units or
|
|
Units or Other
|
|
|
Options
|
|
Exercise
|
|
Option
|
|
Other Rights That Have
|
|
Rights That Have
|
|
|
(#)
|
|
Price
|
|
Expiration
|
|
Not Vested
|
|
Not Vested
|
Name
|
|
Unexercisable
|
|
($)
|
|
Date
|
|
(#)
|
|
($)
|
|
|
James R. Lines
|
|
5,625(1)
|
|
|
15.95
|
|
|
|
6/1/2016
|
|
|
|
|
|
|
|
|
|
|
|
2,812(2)
|
|
|
13.68
|
|
|
|
7/27/2016
|
|
|
|
|
|
|
|
|
|
|
|
6,596(3)
|
|
|
13.80
|
|
|
|
5/31/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,370(5
|
)
|
|
|
48,786
|
|
J. Ronald Hansen
|
|
5,625(1)
|
|
|
15.95
|
|
|
|
6/1/2016
|
|
|
|
|
|
|
|
|
|
|
|
5,532(3)
|
|
|
13.80
|
|
|
|
5/31/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
561(5
|
)
|
|
|
19,977
|
|
Alan E. Smith
|
|
2,500(4)
|
|
|
21.68
|
|
|
|
7/26/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This grant of options vests in four equal installments on
June 1, 2007, June 1, 2008, June 1, 2009 and
June 1, 2010. |
|
(2) |
|
This grant of options vests in four equal installments on
July 27, 2007, July 27, 2008, July 27, 2009 and
July 27, 2010. |
|
(3) |
|
This grant of options vests in four equal installments on
May 31, 2008, May 31, 2009, May 31, 2010 and
May 31, 2011. |
|
(4) |
|
This grant of options vests in four equal installments on
July 26, 2008, July 26, 2009, July 26, 2010 and
July 26, 2011. |
|
(5) |
|
This grant of restricted stock vest 10% on May 31, 2008,
20% on May 31, 2009, 30% on May 31, 2010 and 40% on
May 31, 2011. |
2008
Option Exercises and Stock Vested
The following table shows information regarding the number and
value realized of stock options exercised during fiscal year
2008 for each of our named executive officers.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Shares
|
|
Value
|
|
|
|
Value
|
|
|
Acquired on
|
|
Realized on
|
|
Number of Shares
|
|
Realized on
|
|
|
Exercise
|
|
Exercise(1)
|
|
Acquired on Vesting
|
|
Vesting
|
Name
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
|
|
James R. Lines
|
|
|
10,313
|
|
|
|
377,497
|
|
|
|
|
|
|
|
|
|
J. Ronald Hansen
|
|
|
9,375
|
|
|
|
321,965
|
|
|
|
589
|
|
|
|
14,778
|
|
Alan E. Smith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The value realized on the exercise of stock options is based on
the difference between the exercise price and the market price
of our common stock on the date of exercise, multiplied by the
number of shares acquired. |
24
Pension
Benefits at March 31, 2008
The following table shows information as of March 31, 2008
regarding our Retirement Income Plan and our Supplemental
Executive Retirement Plan.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present Value
|
|
Payments
|
|
|
|
|
Number of Years
|
|
of Accumulated
|
|
During Last
|
|
|
|
|
Credited
|
|
Benefit(1)
|
|
Fiscal Year
|
Name
|
|
Plan Name
|
|
Service (#)
|
|
($)
|
|
($)
|
|
|
James R. Lines
|
|
Retirement Income Plan
|
|
|
24
|
|
|
|
197,222
|
|
|
|
|
|
|
|
Supplemental Executive Retirement Plan
|
|
|
|
|
|
|
295
|
|
|
|
|
|
J. Ronald Hansen
|
|
Retirement Income Plan
|
|
|
15
|
|
|
|
274,145
|
|
|
|
|
|
|
|
Supplemental Executive Retirement Plan
|
|
|
|
|
|
|
0
|
|
|
|
|
|
Alan E. Smith
|
|
Retirement Income Plan
|
|
|
15
|
|
|
|
43,120
|
|
|
|
|
|
|
|
Supplemental Executive Retirement Plan
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
(1) |
|
The present value of accumulated benefits indicated in the table
were calculated using a 6.48% discount rate and the RP2000
Mortality Table for males and an age 63 retirement age,
which are the same assumptions used for financial reporting
purposes. The amounts indicated represent liabilities funded by
the trust fund. Part of the accrued benefit will be provided by
John Hancock Insurance Company, through an annuity purchased in
1986. |
Retirement
Income Plan
Our Retirement Income Plan is a defined benefit pension plan for
the benefit of our domestic employees hired prior to
January 1, 2003. The purpose of the Retirement Income Plan
is to supplement Social Security benefits and to provide a
reliable source of regular income for participants or their
survivors after retirement by the participant. During fiscal
year 2008, each of our named executive officers was eligible to
participate in the Retirement Income Plan.
Normal retirement under the Retirement Income Plan is the later
of a participants 65th birthday, or the
5th anniversary of the date on which he or she became a
participant. Early retirement under the Retirement Income Plan
is available for a participant who is at least 55 years old
and has completed fifteen years or more of creditable service.
The Retirement Income Plan also provides for a disability
retirement allowance in the event of disability.
The Retirement Income Plan also provides for the payment of a
retirement benefit in the event that a participants
employment was terminated when the participant was not eligible
for normal, early or disability retirement. Eligibility for such
vested retirement requires the completion of five
years of service with the company. A participant who is entitled
to a vested retirement allowance when his or her employment
terminates will ordinarily begin receiving payments after
reaching normal retirement age. If the participant has completed
at least fifteen years of creditable service, he or she may
elect to begin receiving payments on the first day of the month
after he or she reaches age 55 and up to the first month
after he or she reaches normal retirement age. The amount of a
participants monthly vested retirement payments will vary
depending on age, period of service and years of creditable
service.
Benefits under the Retirement Income Plan are based on the
employees years of service and average annual base salary
for the five highest consecutive calendar years of compensation
in the ten-year period preceding retirement. Benefits under the
Retirement Income Plan are reduced to take into account a
participants social security benefits paid for by us.
The approximate years of creditable service as of March 31,
2008 of each of the named executive officers eligible to
participate in the Retirement Income Plan are as follows:
15 years for Mr. Hansen; 24 years for
Mr. Lines; and 14 years for Mr. Smith. We do not
normally grant additional years of service credit.
Mr. Hansen is eligible to receive early retirement benefits
under the Retirement Income Plan.
The form and amount of the payments made under the Retirement
Income Plan depends upon the marital status when payment begins
and the form of payment selected. The normal form of benefit for
a married participant is a 50% joint and survivor annuity, which
provides a retirement allowance in the form of reduced monthly
payments that will continue for the rest of the
participants life. If the participant is survived by the
person who was the participants spouse when payments
began, such spouse will receive survivor benefits equal to 50%
of the amount of the payments made to the participant during his
or her lifetime. His or her spouse will be paid survivor
benefits for his or her remaining lifetime. With the
spouses consent, a participant may elect to receive
benefits in the form of a single
25
life annuity, 100% joint and survivor annuity, a 10, 15, or
20 year certain annuity or a life annuity with a 10, 15, or
20 year guarantee.
Supplemental
Executive Retirement Plan
In addition to the Retirement Income Plan, we maintain a
Supplemental Executive Retirement Plan, referred to as the
Supplemental Plan, that is a deferred compensation
plan and is intended to provide eligible participants and their
surviving spouses and beneficiaries with the amount of
employer-provided retirement benefits that the Retirement Income
Plan would provide but for the limitation on compensation that
may be recognized under tax-qualified plans imposed by
section 401(a)(17) of the Internal Revenue Code and the
limitations on benefits imposed by sections 415(b) and
(e) of the Internal Revenue Code.
A participant who has completed a period of service of at least
five years under the Retirement Income Plan and whose benefits
are limited by the above-referenced provisions of the Internal
Revenue Code, are entitled to receive a monthly benefit from the
Supplemental Plan. All of our named executive officers as of the
date of this proxy statement are eligible to participate in the
Supplemental Plan, but Mr. Lines is the only named
executive officer that currently has an accrued benefit under
the Supplemental Plan.
The monthly benefit under the Supplemental Plan is determined by
dividing the retirement benefits that would have been payable to
or with respect to the plan participant had the limitations
imposed by the Internal Revenue Code not been applicable, by the
retirement benefits payable to or with respect to the
participant under the Retirement Income Plan.
A participants retirement benefits under the Supplemental
Plan will be paid to or with respect to the participant in the
same form and at the same time as the participants
retirement benefits under the Retirement Income Plan. The
benefits under the Supplemental Plan will cease upon cessation
of benefits to the participant or his beneficiary under the
Retirement Income Plan.
In the event of a change in control of our company,
each participant in the Supplemental Plan would become 100%
vested in his benefits. We have described the events that would
constitute a change in control for the purposes of
the Supplemental Plan under the heading Potential Payments
Upon Termination or Change in Control, which begins on
page 27.
Incentive
Savings Plan
All of the named executive officers currently employed by us are
also eligible to participate in our Incentive Savings Plan (our
401(k) savings plan), which is available to all of our
employees. Pursuant to the Incentive Savings Plan, we match
funds deferred at the election of participants, up to a certain
percentage, and we make profit sharing contributions to the
accounts of participants.
With respect to the profit sharing contributions, eligible
employees with at least one hour of service during the relevant
plan year who are employed by us at the end of such year receive
a contribution in an amount equal to 3.25% of eligible
compensation received during such year, which contribution is
paid on the first $210,000 of compensation. The amounts
allocated to participants under the contribution plan vest after
five years of employment.
26
Potential
Payments upon Termination or Change in Control
The following information and table set forth the amount of
payments to each of our named executives in the event of a
termination of employment as a result of normal and early
retirement, voluntary termination and termination for cause,
involuntary termination, death, disability and termination
following a change in control.
Assumptions
and General Principles
The following assumptions and general principles apply with
respect to the following table and any termination of employment
of a named executive officer.
|
|
|
|
|
The amounts shown in the table assume that each named executive
was terminated on March 31, 2008. Accordingly, the table
reflects amounts earned as of March 31, 2008 and includes
estimates of amounts that would be paid to the named executive
upon the occurrence of a termination. The actual amounts to be
paid to a named executive can only be determined at the time of
the termination.
|
|
|
|
Unless otherwise noted, the fair market values of stock-based
compensation were calculated using the closing price of our
common stock on the American Stock Exchange on March 31,
2008.
|
|
|
|
A named executive is entitled to receive certain amounts earned
during his term of employment regardless of the manner in which
the named executives employment is terminated. These
amounts include base salary, unused vacation pay and annual cash
incentive compensation. These amounts are not shown in the
table, except for potential prorated annual cash incentive
compensation.
|
|
|
|
A named executive officer may exercise any stock options that
are exercisable prior to the date of termination and will be
entitled to receive unrestricted shares of common stock with
respect to any restricted stock awards for which the vesting
period has expired prior to the date of termination. Any
payments related to these stock options and restricted stock
awards are not included in the table because they are not
severance payments.
|
|
|
|
A named executive officer will be entitled to receive all
amounts accrued and vested under our retirement and savings
programs, including our Incentive Plan and any pension plans in
which the named executive officer participates. These amounts
are not included in the table because they are not severance
payments. Information about the pension benefits payable to each
of our named executive officers as of March 31, 2008 is set
forth under the heading Pension Benefits at March 31,
2008 on page 25.
|
Normal
and Early Retirement
A named executive officer is eligible to elect normal retirement
at age 65 and early retirement at
age 55-64
with at least five and fifteen years, respectively, of
creditable service to the company, as discussed under the
heading Pension Benefits at March 31, 2008 on
page 25.
As of March 31, 2008, none of the named executive officers
employed by us were eligible for normal retirement, and only
Mr. Hansen was eligible for early retirement.
Pursuant to our Stock Bonus Plan, upon the retirement, or
retirement eligibility, of a named executive officers, all
unvested shares of restricted stock and stock options held by
such named executive officer will accelerate and become
immediately vested and exercisable in full.
Voluntary
Termination and Termination for Cause
Pursuant to the employment agreements that we have with
Mr. Lines, Mr. Hansen and Mr. Smith upon
termination for cause, we would pay all legal fees and other
expenses incurred by such executive officer if he in good faith
contests the termination. The executive officer would be
required to reimburse us for all such costs if a court of final
adjudication were to determine that the executive did not act in
good faith in bringing such challenge.
A named executive officer is not entitled to receive any
severance payments or other benefits upon his voluntary decision
to terminate his employment with us prior to being eligible for
retirement or upon termination for cause.
27
Involuntary
Termination
Our employment agreements with Mr. Hansen and
Mr. Lines each also provide that, upon termination without
cause, or if the executive officer resigns because of our
material breach of his employment agreement, we will have the
following obligations:
|
|
|
|
|
pay to the executive officer compensation due him through the
date of termination, including any accrued bonus;
|
|
|
|
pay to the executive officer a lump sum payment equal to twelve
months base salary for Mr. Hansen and, for Mr. Lines, the
continuation of his base salary for nine months and a lump sum
payment equal to nine months base salary;
|
|
|
|
provide the executive officer with continuing health care
coverage for a period of thirty-six months and eighteen months
for Mr. Hansen and Mr. Lines, respectively, following
the effective date of termination of employment; and
|
|
|
|
pay for certain outplacement services for the executive officer.
|
Pursuant to our employment agreement with Mr. Lines, our
obligation to make payments upon any termination without cause
or his resignation because of a material breach of the agreement
by us is conditioned on his execution of an enforceable release
of all claims against us and his compliance with all provisions
of the employment agreement.
Our employment agreement with Mr. Smith provides that, upon
termination without cause, or if Mr. Smith resigns because
of our material breach of his employment agreement, we will pay
to Mr. Smith compensation due him through the date of
termination, including any accrued bonus; and that we will pay
to him, in regular monthly payments, his salary for twelve
months following the effective date of the termination of his
employment.
Death or
Disability
Mr. Lines and Mr. Hansen participate in our life
insurance plan, whereby the beneficiary of a named executive
officer would be entitled to a death benefit equal to three
times such named executive officers base salary.
In addition, we pay the premiums for life insurance policies for
Mr. Lines and Mr. Hansen, whereby in the event of the
death of either such executive officer, his beneficiary would be
entitled to the payment of a death benefit equal to $1,700,000
and $1,000,000, respectively. We also provide Mr. Smith
with $2,500 annually for the purpose of procuring a term life
insurance policy.
Mr. Lines, Mr. Hansen and Mr. Smith also
participate in our short-term disability program that is
available to our managers and executive officers. Pursuant to
such program, each such named executive officer would be
entitled to payments equal to his full base salary for six
months following such disability. Mr. Lines,
Mr. Hansen and Mr. Smith also participate in our
long-term disability plan that is available to all of our
salaried employees.
Change In
Control
Our employment agreements with Mr. Lines and
Mr. Hansen also require us to make payments to them upon
the occurrence of certain events that would be deemed an event
of termination after a change in control of the
company.
James R. Lines. Our employment agreement with
Mr. Lines provides that, upon the occurrence of a
triggering event that would be deemed an event of termination
within three years after a change in control of the company,
Mr. Lines would be entitled to certain payments, including,
among other things, a lump sum payment equal to one dollar less
than three times his annualized tax-includable compensation
(including bonus) for the five most recent taxable years ending
before the date of such change in control.
In addition, all unvested stock options or shares of restricted
stock held by Mr. Lines would accelerate and become
immediately exercisable in full, and we would be required to pay
to Mr. Lines within six months of the triggering event a
lump sum payment in an amount equal to the excess, if any, of:
(i) the present value of the aggregate benefits to which he
would be entitled under any and all qualified and non-qualified
defined benefit pension plans maintained by us as if he were one
hundred percent vested under such plans, over (ii) the
present value of the benefits to which he is actually entitled
under such defined benefit pension plans as of the date of his
termination. Mr. Liness employment agreement contains
certain limitations for these payments that relate to our
ability to deduct such payments for federal income tax purposes.
28
Pursuant to our employment agreement with Mr. Lines, our
obligation to make payments upon termination following a change
in control is conditioned on his execution of an enforceable
release of all claims and his compliance with all provisions of
the employment agreement.
For the purposes of the termination benefits payable to
Mr. Lines, a change in control would include the following
events:
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|
|
if any person, party or group (other than the company, any
subsidiary of the company or any employee benefit plan sponsored
by the company or any subsidiary), directly or indirectly,
becomes the beneficial owner of twenty-five percent or more of
the combined voting power of the outstanding securities of the
company ordinarily having the right to vote at the election of
directors;
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|
|
|
a change in the composition of our Board of Directors such that
members of our Board as of August 2006 cease to constitute at
least a majority of our Board (unless the election or nomination
of any new directors was approved by a vote of at least
three-quarters of the directors comprising the Board of
Directors as of August 2006);
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|
|
|
the closing of a reorganization, merger or consolidation of the
company, other than one with respect to which all or
substantially all of those persons who were the beneficial
owners immediately prior to such event, of outstanding
securities of the company ordinarily having the right to vote in
the election of directors own, immediately after such
transaction, more than three-quarters of the outstanding
securities of the resulting corporation ordinarily having the
right to vote in the election of directors;
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|
the closing of a sale or other disposition of all or
substantially all of the assets of the company, other than to a
subsidiary of the company; or
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|
|
the complete liquidation and dissolution of the company.
|
The triggering events that would be deemed events of termination
include, among others, termination of Mr. Lines for any
reason other than death, disability or cause, or resignation of
Mr. Lines under the following circumstances:
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|
|
a change in the nature or scope of his authority from that prior
to the change in control;
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|
|
|
a reduction of his total compensation from that prior to the
change in control;
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|
|
a failure by the company to make any increase in compensation to
which Mr. Lines may be entitled under his employment
agreement, or action by the company to decrease his base salary;
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|
a change requiring Mr. Lines to perform services other than
in Batavia, New York or in any location more than thirty miles
distant from Rochester, New York, except for certain required
travel on the companys business;
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|
without his express written consent, the assignment to
Mr. Lines of any duties inconsistent with his positions,
duties, responsibilities and status with the company immediately
prior to the change in control;
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|
a failure by the company to continue in effect any bonus plans
or other benefit or compensation plan in which Mr. Lines
was participating at the time of the change in control or the
taking of any action by the company which would adversely affect
his participation in or materially reduce his benefits under
such plans; or
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|
prior to a change in control of the company, the failure by the
company to obtain the assumption of the agreement to perform his
employment agreement by any successor company.
|
In addition, in the event of a change in control, if the company
fails to increase the base salary for Mr. Lines by a
specified amount or if his base salary is decreased, then he
would be entitled to terminate his employment agreement and we
would be obligated to pay to him the same payments to which he
would be entitled upon the occurrence of an event of termination
in connection with a change in control.
J. Ronald Hansen. Our Senior Executive
Severance Agreement with Mr. Hansen (referred to as the
Severance Agreement) provides for us to make
payments to Mr. Hansen upon the occurrence of certain
events that would be deemed events of termination under the
Severance Agreement (i) within three years after a change
in control of the company, (ii) during any period when the
company has or should have knowledge that any person has taken,
or plans to take, steps reasonably calculated to effect a change
in control, (iii) following the commencement of any
discussions that ultimately result in the occurrence of a change
in control or (iv) if undertaken at the instance or upon
the suggestion of any participant in a prospective change in
control or any agent or other person acting on behalf of or in
conjunction with any such participant in a prospective change in
control.
29
Such payments would include a lump sum payment equal to one
dollar less than three times Mr. Hansens annualized
tax-includable compensation (including bonus) for the five most
recent taxable years ending before the date of such change in
control. At Mr. Hansens election, he may receive such
payment in the form of consecutive monthly cash payments in an
aggregate amount equal to the present value of the lump sum
payment on the date of termination.
In addition, all unvested stock options held by Mr. Hansen
would accelerate and become immediately exercisable in full, and
we would be required to pay to Mr. Hansen within six months
of the occurrence of the event of termination a lump sum payment
in an amount equal to the excess, if any, of: (i) the
present value of the aggregate benefits to which he would be
entitled under any and all qualified and non-qualified defined
benefit pension plans maintained by us as if he were 100% vested
under such plans, over (ii) the present value of the
benefits to which he is actually entitled under such defined
benefit pension plans as of the date of his termination.
If, following a change in control, for any taxable year
Mr. Hansen is liable for the payment of an excise tax with
respect to any payment of money or property made by us or other
related parties to him or for his benefit, we will be
responsible to pay to Mr. Hansen a portion of such excise
tax.
The triggering events that would be deemed events of termination
include, among others, termination of Mr. Hansen for any
reason other than death, disability or cause, or resignation of
Mr. Hansen under the following circumstances:
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|
a change in the nature or scope of his authority from that prior
to the change in control;
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|
|
a reduction of his total compensation from that prior to the
change in control;
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|
a failure by the company to make any increase in compensation to
which Mr. Hansen may be entitled under his employment
agreement, or action by the company to decrease his base salary;
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|
a change requiring Mr. Hansen to perform services other
than in Batavia, New York or in any location more than thirty
miles distant from Rochester, New York, except for certain
required travel on the companys business;
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|
|
without his express written consent, the assignment to
Mr. Hansen of any duties inconsistent with his positions,
duties, responsibilities and status with the company immediately
prior to the change in control; or
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|
a failure by the company to continue in effect any bonus plans
or other benefit or compensation plan in which Mr. Hansen
was participating at the time of the change in control or the
taking of any action by the company which would adversely affect
his participation in or materially reduce his benefits under
such plans.
|
For the purposes of the Severance Agreement, the following
events would constitute a change in control:
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|
|
a change in the composition of our Board of Directors as a
result of, or in connection with, any cash tender or exchange
offer, consolidation, merger or other business combination, sale
of assets or contested election, or any combination of such
transactions, such that the persons who were Directors of the
company before the transaction ceased to constitute a majority
of our Board of Directors or the Board of Directors of any
successor corporation;
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if any person, party or group (other than the company, any
subsidiary of the company or any employee benefit plan sponsored
by the company or any subsidiary), directly or indirectly,
becomes the beneficial owner of twenty-five percent or more of
the combined voting power of the outstanding securities of the
company ordinarily having the right to vote at the election of
directors by any person; or
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|
|
a change of control of the company that would be required to be
reported in the proxy statement for the annual meeting of
stockholders or on a Current Report on
Form 8-K
under the Securities Exchange Act of 1934.
|
In addition, pursuant to our employment agreement with
Mr. Hansen, failure by us to increase
Mr. Hansens base salary by a specified amount, or any
decrease in his base salary, would trigger his right to receive
the payments to which he would be entitled upon termination
without cause in connection with any of the following events:
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|
the acquisition by any person or entity of twenty percent or
more of the outstanding equity stock of the company who was not
an owner of twenty percent of the equity stock of the company
prior to May 13, 1993; or
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|
the acquisition by any person or entity of twenty percent or
more of the assets of the company who was not an owner of twenty
percent of the assets of the company prior to May 13, 1993.
|
30
Pursuant to Mr. Hansens employment agreement, in the
event that he is party to any other contract providing for
termination upon service to the company, any compensation or
other benefits provided to him under such other contract shall
be applied to offset our obligation to pay him a lump sum equal
to twelve months salary (such as upon termination without
cause). As a result, our obligation to make such lump sum
payment would be offset by any obligation of ours to make
payments to Mr. Hansen that may be triggered upon his
termination in connection with a change in control under the
Severance Agreement.
We are also responsible under the Severance Agreement to
indemnify Mr. Hansen for all reasonable attorneys
fees and other expenses incurred in connection with enforcement
or interpretation of the Severance Agreement, notwithstanding
any judgment adverse to Mr. Hansen resulting from any
litigation or arbitration commenced by Mr. Hansen in
connection with the agreement, provided that he acted in good
faith in commencing such proceeding. We have also agreed to pay
prejudgment interest on any monetary judgment or award obtained
by Mr. Hansen in connection with the Severance Agreement.
Mr. Smith. Under Mr. Smiths
employment agreement, he will not be entitled to any payments by
us upon the occurrence of a change in control. Rather, upon the
occurrence of a change in control, Mr. Smith must continue
to provide us with the services contemplated by the employment
agreement until three months after a change in control has
occurred. For the purposes of the employment agreement, the
following events would constitute a change in control:
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the acquisition by any person or entity of twenty-five percent
or more of the outstanding equity stock of the company who was
not an owner of twenty percent of the equity stock of the
company;
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a change in the composition of our Board of Directors such that
members of our Board as of August 2007 cease to constitute at
least a majority of our Board (unless the election or nomination
of any new directors was approved by a vote of at least
three-quarters of the directors comprising the Board of
Directors as of August 2007);
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the closing of a reorganization, merger or consolidation of the
company, other than one with respect to which all or
substantially all of those persons who were the beneficial
owners immediately prior to such event, of outstanding
securities of the company ordinarily having the right to vote in
the election of directors own, immediately after such
transaction, more than three-quarters of the outstanding
securities of the resulting corporation ordinarily having the
right to vote in the election of directors;
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the closing of a sale or other disposition of all or
substantially all of the assets of the company, other than to a
subsidiary of the company; or
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|
the complete liquidation and dissolution of the company.
|
General. In the event of any sale, merger or
any form of business combination affecting us, our employment
agreements with Mr. Lines and Mr. Hansen require us to
obtain the express written assumption of the agreement by the
acquiring or surviving entity, and failure to do so would
entitle the executive officer to all payments and other benefits
to be provided by us in the event of termination without cause.
Our Severance Agreement with Mr. Hansen also provides that
our failure to obtain the agreement of any successor company to
assume the Severance Agreement prior to the effectiveness of
such succession would constitute a breach of the Severance
Agreement and would entitle Mr. Hansen to compensation in
the same amount and on the same terms as he would be entitled in
the event of a termination after a change in control.
In addition, pursuant to the Supplemental Plan, in the event of
a change of control, each participant in our
Supplemental Plan, which currently includes Mr. Lines,
Mr. Hansen and Mr. Smith, would become one hundred
percent vested in his benefits.
31
ESTIMATED
PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
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|
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|
Event
|
|
James R. Lines
|
|
|
J. Ronald Hansen
|
|
|
Alan E. Smith
|
|
|
|
|
Normal and Early Retirement
|
|
|
|
|
|
|
|
|
|
|
|
|
Prorated annual cash incentive compensation
|
|
$
|
172,574
|
|
|
$
|
92,125
|
|
|
$
|
63,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
172,574
|
|
|
$
|
92,125
|
|
|
|
63,248
|
|
Voluntary Termination and Termination for Cause
|
|
|
|
|
|
|
|
|
|
|
|
|
Prorated annual cash incentive compensation
|
|
$
|
172,574
|
|
|
$
|
92,125
|
|
|
$
|
63,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
172,574
|
|
|
$
|
92,125
|
|
|
$
|
63,248
|
|
Involuntary Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
Prorated annual cash incentive compensation
|
|
$
|
172,574
|
|
|
$
|
92,125
|
|
|
$
|
63,248
|
|
Continued salary
|
|
|
198,750
|
|
|
|
|
|
|
|
|
|
Cash severance payment
|
|
|
198,750
|
|
|
|
175,056
|
|
|
|
152,500
|
|
Healthcare coverage
|
|
|
14,802
|
|
|
|
19,647
|
|
|
|
|
|
Outplacement
services(1)
|
|
|
40,000
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
624,876
|
|
|
$
|
326,828
|
|
|
$
|
215,748
|
|
Death
|
|
|
|
|
|
|
|
|
|
|
|
|
Prorated annual cash incentive compensation
|
|
$
|
172,574
|
|
|
$
|
92,125
|
|
|
$
|
63,248
|
|
Life insurance proceeds
|
|
|
2,495,000
|
|
|
|
1,525,167
|
|
|
|
457,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,667,574
|
|
|
$
|
1,617,292
|
|
|
$
|
520,748
|
|
Disability
|
|
|
|
|
|
|
|
|
|
|
|
|
Prorated annual cash incentive compensation
|
|
$
|
172,574
|
|
|
$
|
92,125
|
|
|
$
|
63,248
|
|
Short-term disability payments
|
|
|
132,500
|
|
|
|
87,528
|
|
|
|
76,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
305,074
|
|
|
$
|
179,653
|
|
|
$
|
139,498
|
|
Change in Control with Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
Prorated annual cash incentive compensation
|
|
$
|
172,574
|
|
|
$
|
92,125
|
|
|
$
|
63,248
|
|
Accelerated stock options
|
|
|
316,102
|
|
|
|
231,229
|
|
|
|
|
|
Cash severance payment
|
|
|
934,015
|
|
|
|
780,025
|
|
|
|
|
|
Healthcare coverage
|
|
|
|
|
|
|
19,647
|
|
|
|
|
|
Outplacement services
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
Pension enhancement
|
|
|
|
|
|
|
|
|
|
|
|
|
Excise tax
|
|
|
|
|
|
|
461,931
|
|
|
|
|
|
SERP vesting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,422,691(2
|
)
|
|
$
|
1,624,957
|
|
|
$
|
63,248
|
|
|
|
|
(1) |
|
Pursuant to our employment agreement with Mr. Lines,
reimbursement of outplacement services is limited to a total
amount of $40,000. Mr. Hansens employment agreements
does not contain a monetary limitation with respect to
reimbursement for outplacement services. We have assumed for the
purposes of this table that such payments will similarly be
limited to an aggregate of $40,000. |
|
(2) |
|
Such amount takes into account limitations imposed by our
employment agreement with Mr. Lines, whereby certain
amounts otherwise payable to Mr. Lines upon termination
following a change in control may be reduced in connection with
limitations on deductibility by the company for federal income
tax purposes imposed by Section 280G of the Internal
Revenue Code. |
32
Director
Compensation Programs
The Compensation Committee annually reviews and approves
compensation for independent directors. Mr. Lines, our
President and Chief Executive Officer, is not an independent
director under applicable American Stock Exchange and Securities
and Exchange Commission rules and, therefore, he does not
receive any additional compensation for services as a director.
We use a combination of cash and equity-based compensation to
attract and retain our independent directors. As described
below, director compensation consists of an annual cash
retainer; an additional annual cash retainer for chairs of the
Board of Directors and each committee of the Board; committee
meeting fees; share equivalent units; and stock options. We also
reimburse our directors for reasonable expenses incurred in
connection with their attendance at board and committee
meetings. We do not provide retirement benefits to our
independent directors.
Cash
Compensation
Each of our non-employee Directors receives an annual fee of
$15,000 for service on the Board of Directors. Additionally,
each non-employee Director receives a fee of $1,000 for each
Board or committee meeting attended, except that if such meeting
is held by telephone conference call or by unanimous written
consent, the fee is reduced to $500. If the Board of Directors
and/or one
or more committees meet on the same day, a full meeting fee is
paid for one meeting and one-half of the meeting fee is paid for
each additional meeting attended that day.
The Chairman of the Board of Directors and each of our Directors
serving as chairman of committees of the Board of Directors
receive additional fees for such service. For fiscal year 2008,
the Chairman of the Board of Directors received an additional
annual fee of $15,000, the Chairman of the Audit Committee
received an additional annual fee of $6,000, the Chairman of the
Compensation Committee received an additional annual fee of
$5,000, and the Chairman of the Employee Benefits Committee and
the Chairman of the Nominating Committee each received an
additional annual fee of $3,000.
Equity
Compensation
Share Equivalent Units. Non-employee Directors
participate in the Outside Directors Long-Term Incentive
Plan, or LTIP. The LTIP credits each of our
non-employee Directors with Share Equivalent Units, or
SEUs for five fiscal years during the term of such
Directors service, subject to our attainment of certain
performance objectives. Upon termination of a non-employee
Directors service, but not before, the Director may redeem
each SEU for one share of our common stock or, alternatively and
subject to our discretion, for the cash equivalent at the
closing price of the stock on the American Stock Exchange on the
date of termination of service, subject to certain limitations
which are discussed further below.
Under the LTIP, SEUs are credited to each non-employee
Directors account for each of the first five fiscal years
(plus the transition period, for directors in office when we
changed our fiscal year end in 1997) during such
directors term in which we produce consolidated net income
in an amount at least equal to the consolidated net income
specified in our budget for each such fiscal year. Such
determinations are made annually. Each SEU is valued at the
market value of one share of our common stock on the valuation
date, which is the last day of trading of the first quarter
following the end of a fiscal year for which SEUs are to be
credited. The number of SEUs to be credited is determined by
dividing the value of one SEU into 10,000.
In the event that we elect under the LTIP to redeem a
Directors SEUs for cash representing a commensurate number
of our shares of our common stock, the cash value will be
determined by multiplying the number of SEUs held by such
Director on the date of his or her termination from service
multiplied by the closing price of our stock on the date of such
termination. However, the cash value of each SEU may not exceed
the greater of $6.40 per share or the price on the valuation
date when initially credited to such Directors account.
In the event that we elect to redeem a Directors SEUs for
a commensurate number of shares of our common stock, the number
of shares we pay to such Director shall be determined as follows:
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|
|
if the fair market value is at or below the valuation date
price, each SEU will be redeemed for one share of common stock;
|
|
|
|
if the fair market value is greater than the valuation date
price but less than $6.40 per share, each SEU will be redeemed
for one share of our common stock;
|
|
|
|
if the fair market value is greater than $6.40 per share and the
valuation date price was less than or equal to $6.40 per share,
the number of shares constituting the redemption price of a
Directors SEUs will be
|
33
|
|
|
|
|
determined by multiplying the number of SEUs times $6.40 and
dividing the product by the fair market value; and
|
|
|
|
|
|
if the fair market value is greater than the valuation date
price and the valuation date price was greater than $6.40 per
share, the number of shares constituting the redemption price of
a Directors SEUs will be determined by multiplying the
number of SEUs times the valuation date price and dividing the
product by the fair market value.
|
Outstanding SEUs accrue dividends at the rate of $.03 per
quarter in accordance with our regular dividend policy and are
reflected in each Directors account after the end of each
fiscal year.
Options. Our non-employee Directors are also
eligible to participate in the Incentive Plan, pursuant to which
they may be granted options to purchase shares of our common
stock. On May 31, 2007 each of our non-employee Directors
was granted an option to purchase 2,500 shares of our
common stock at its closing price on the American Stock Exchange
on the date of grant ($13.80). In addition, on May 29, 2008
each of our non-employee Directors was granted an option to
purchase 462 shares of our common stock at its closing
price on the American Stock Exchange on the date of grant
($61.75). Each such stock option vests 25% per year over four
years and expires ten years from the date of grant. The number
of stock options awarded to our non-employee Directors, in
aggregate, was equal to the number of stock options awarded to
our executive officers. See Long-Term Equity Incentive
Compensation on page 16 for more information regarding
stock options awarded to our executive officers.
Stock
Ownership Objectives
In order to more closely align the interests of our directors
with the best interests of our stockholders, on March 27,
2006, the Compensation Committee established minimum stock
ownership objectives that require our directors to work towards
acquiring and maintaining specific levels of equity ownership
interests in our common stock within specified time frames.
Pursuant to our stock ownership objectives, our directors are
required to own not less than 4,000 shares of our common
stock. Our directors must be in compliance with the stock
ownership guidelines within five years from the date the
guidelines were adopted. Individuals who become directors must
comply with the ownership guidelines within five years of
becoming subject to such guidelines.
The Compensation Committee monitors the progress made by our
directors in achieving their stock ownership objectives and, in
its discretion, may modify the objectives
and/or time
frames for some or all of the directors.
34
2008 Director
Summary Compensation Table
The following table shows information regarding the compensation
of our directors for fiscal year 2008.
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Fees Earned
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or Paid
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|
Option
|
|
All Other
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|
in Cash
|
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Stock
|
|
Awards(1)(2)
|
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Compensation(3)
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Total
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Name
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($)
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Awards ($)(1)
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($)
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($)
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($)
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Helen H. Berkeley
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23,000
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10,000
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7,683
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638
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41,321
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Jerald D. Bidlack
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44,000
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7,683
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988
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52,671
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William C.
Denninger(4)
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16,000
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4,624
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20,624
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H. Russel
Lemcke(5)
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30,500
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7,683
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988
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39,171
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James R.
Lines(6)
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James J. Malvaso
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30,250
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10,000
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7,683
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67
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48,000
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Gerard T.
Mazurkiewicz(7)
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26,000
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10,000
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4,478
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40,478
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Cornelius S. Van Rees
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30,750
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7,683
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988
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39,421
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(1) |
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The table below presents the aggregate number of outstanding
SEUs and the aggregate number of outstanding stock option awards
for each of our independent directors as of March 31, 2008. |
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Stock
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SEUs
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Options
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Helen H. Berkeley
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6,378
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24,375
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Jerald D. Bidlack
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9,876
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15,000
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William C. Denninger
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H. Russel Lemcke
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9,876
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4,375
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James J. Malvaso
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671
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10,000
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Gerard T. Mazurkiewicz
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2,500
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Cornelius S. Van Rees
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9,876
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25,625
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(2) |
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These stock option awards were granted under our Incentive Plan.
The dollar values of the stock options shown in this column were
calculated in accordance with SFAS No. 123R on the
same basis as disclosed in footnote 5 to the Summary
Compensation Table on page 20. During fiscal year 2008,
each independent director was granted an option to purchase
2,500 shares of our common stock. The grant date fair value
computed in accordance with SFAS No. 123R for each
such award, except for Mr. Mazurkiewiczs award, was
$5.87. The grant date fair value computed in accordance with
SFAS No. 123R for Mr. Mazurkiewiczs award
was $11.46. Mr. Mazurkiewicz received his award upon his
appointment to the Board in August 2007. |
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(3) |
|
These amounts include dividends earned on outstanding SEUs
pursuant to our regular dividend policy during fiscal year 2008. |
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(4) |
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On September 6, 2007, William C. Denninger resigned as a
Director to pursue other opportunities. |
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(5) |
|
Mr. Lemcke is retiring from the Board after the annual
meeting and, as such, he is not standing for election as a
Director at the annual meeting. |
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(6) |
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Mr. Lines serves as our President and Chief Executive
Officer and is not an independent director under applicable
American Stock Exchange and Securities and Exchange Commission
rules. Therefore, Mr. Lines does not receive the
compensation described under Cash Compensation or
Equity Compensation on page 33. All
compensation earned by Mr. Lines in fiscal year 2008 is
shown in the Summary Compensation Table on page 20 and the
2008 Grants of Plan-Based Awards Table on page 21. |
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(7) |
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Mr. Mazurkiewicz was appointed to the Board of Directors on
August 15, 2007. |
Compensation
Committee Interlocks and Insider Participation
The members of our Compensation Committee during fiscal year
2008 were Directors Malvaso (Chairman), Berkeley, Bidlack,
Lemcke and Van Rees. Director Van Rees is our Corporate
Secretary but receives no compensation for his service in such
capacity. Mr. Van Rees participated in the Board of
Directors deliberations regarding compensation of all of
our compensated officers.
35
During fiscal year 2008, no member of our Compensation
Committee, except for Mr. Van Rees: (1) was an officer
or employee of ours or any of our subsidiaries; (2) was
formerly an officer of ours or any of our subsidiaries; or
(3) had any relationship requiring disclosure in this proxy
statement pursuant to Securities and Exchange Commission rules.
In addition, no executive officer served: (1) as a member
of the compensation committee (or other board committee
performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of another entity, one
of whose executive officers served on our Compensation
Committee; (2) as a director of another entity, one of
whose executive officers served on our Compensation Committee;
or (3) as a member of the compensation committee (or other
board committee performing equivalent functions or, in the
absence of any such committee, the entire board of directors) of
another entity, one of whose executive officers served on our
board of directors.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Long-Term
Stock Ownership Plan
At our annual meeting for our fiscal year ended March 31,
2000, our stockholders approved the Long-Term Stock Ownership
Plan of Graham Corporation (referred to as the Stock
Ownership Plan). The purpose of the Stock Ownership Plan
was to provide an additional incentive to achieve corporate
objectives, to attract and retain officers and directors of
outstanding competence and to encourage officers and directors
to broaden their equity ownership in the company. In connection
with the Stock Ownership Plan, certain of our named executive
officers and Directors purchased shares of our common stock
pursuant to loans from us. As a result, certain of our Directors
and executive officers were indebted to us for a balance due on
the purchase of shares of our common stock at the closing price
on the American Stock Exchange on the date of purchase, which
was April 5, 2001.
The largest aggregate amount of indebtedness to us by each
participating executive officer since the beginning of our last
fiscal year was $6,561 for Mr. Hansen. Mr. Hanson
satisfied his indebtedness to us during fiscal 2008. The largest
aggregate amount of indebtedness outstanding during fiscal year
2008 was $23,228 for Mr. Van Rees, who satisfied his
indebtedness to us during fiscal year 2008.
As of June 1, 2008, none of our executive officers or
Directors are indebted to us.
Each subscription agreement states that eighteen months after
purchasing the shares of common stock, a participant is entitled
to sell up to 50% of his shares and that the participant agrees
to hold the remainder of his shares until such time as he
terminates employment with us or his service as a Director ends.
The terms of each note required the participant to repay the
balance of the note in thirty-two equal consecutive quarterly
installments beginning on June 30, 2002.
The loans were interest-free during a participants
employment or service as Director. Interest on each note was
imputed as income to each participant at the applicable federal
rate established by the Internal Revenue Service. Shares remain
in our custody until a participants note is paid in full,
unless the participant sells his shares (when and to the extent
permitted). Each note provided that until it is paid in full,
any shares sold will be sold through a broker who will forward
any proceeds, less expenses, to us to pay off all or a portion
of such note. Each note also contained provisions that grant a
security interest to us in the purchased shares and any proceeds
from any subsequent sale of the purchased shares. If a
participant ceased to be an officer or Director any time after
eighteen months after purchase, the participant may sell all or
a portion of his shares.
The Sarbanes-Oxley Act that became law on July 30, 2002
prohibits any further loans under the Long-Term Stock Ownership
Plan. It also prohibits renewal, or any material modification of
the terms, of any of the loans outstanding under the plan.
Policies
and Procedures for Review, Approval or Ratification of Related
Person Transactions
Our Audit Committee reviews all relationships and transactions
in which the company and our directors and executive officers or
their immediate family members are participants in advance for
review and approval. All existing related party transactions are
reviewed at least annually by the Audit Committee. Any director
or officer with an interest in a related party transaction is
expected to recuse himself or herself from any consideration of
the matter.
36
Although the Audit Committee has not established a written
policy regarding the approval of related party transactions,
when evaluating these transactions, the Audit Committee
consider, among other factors:
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the nature of the related persons interest in the
transaction;
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the material terms of the transaction, including the amount and
type of transaction;
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the importance of the transaction to the related person and to
the company;
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whether the transaction would impair the judgment of a director
or executive officer to act in the best interest of the
company; and
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any other matters the committee deems appropriate.
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In addition, to the extent that the transaction involves an
independent director, consideration is also given, as
applicable, to the listing standards of the American Stock
Exchange and other relevant rules related to independence.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below shows certain information, as of June 6,
2008, regarding the only person known to us to be the beneficial
owner of more than five percent of the outstanding shares of our
common stock, with percentages based on 5,038,973 shares
issued and outstanding.
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Number of Shares
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Percent of Class
|
Name and Address of Beneficial
Owner
|
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Beneficially Owned
|
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Beneficially Owned
|
|
|
Renaissance Technologies
LLC(1)
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352,800
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7.0
|
%
|
800 Third Avenue
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New York, New York 10022
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(1) |
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This information as to the beneficial ownership of shares of our
common stock is based on the Schedule 13G dated
February 12, 2008 filed with the Securities and Exchange
Commission by Renaissance Technologies LLC
(Renaissance) and James H. Simons
(Simons), a control person of Renaissance.
Renaissance, and Simons as its control person, report sole
voting power with respect to 348,000 of such shares and sole
dispositive power with respect to all of such shares. Certain
funds and accounts managed by Renaissance have the right to
receive dividends and proceeds from the sale of our common stock
held by Renaissance. RIEF Trading LLC holds of record more than
five-percent of such shares. |
SECURITY
OWNERSHIP OF
MANAGEMENT(1)
The table below shows certain information regarding shares of
our common stock as of June 6, 2008 held by (1) each
of our directors; (2) each our of named executive officers,
as defined on page 12; and (3) all directors and
executive officers as a group.
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|
|
|
|
|
Number of Shares
|
|
Percent of Class
|
Name of Beneficial
Owner
|
|
Beneficially
Owned(2)
|
|
Beneficially
Owned(2)
|
|
|
Helen H.
Berkeley(3)
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|
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165,305(5
|
)
|
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3.3
|
%
|
Jerald D.
Bidlack(3)
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|
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35,500(6
|
)
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-
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J. Ronald
Hansen(4)
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22,756(7
|
)
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-
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|
H. Russel
Lemcke(3)
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|
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29,820(8
|
)
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-
|
|
James R.
Lines(3)(4)
|
|
|
12,448(9
|
)
|
|
|
-
|
|
James J.
Malvaso(3)
|
|
|
1,875
|
|
|
|
-
|
|
Gerard T.
Mazurkiewicz(3)
|
|
|
-
|
|
|
|
-
|
|
Alan E.
Smith(4)
|
|
|
991(10
|
)
|
|
|
-
|
|
Cornelius S. Van
Rees(3)
|
|
|
30,125(11
|
)
|
|
|
-
|
|
All directors and executive officers as a
group
(9 persons)(12)
|
|
|
298,820
|
|
|
|
5.9
|
%
|
|
|
|
(1) |
|
On March 27, 2006, we established stock ownership
guidelines for our executive officers and Directors in order to
further align their interests with those of our stockholders.
Under the stock ownership guidelines: (i) our principal
executive officer is required to own common stock in an amount
equal to 1.25 times his base salary; |
37
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|
(ii) our other executive officers are required to own
common stock in an amount equal to 1.00 times their respective
base salaries; and (iii) our Directors are required to own
not less than 4,000 shares of common stock. Our current
executive officers and Directors must be in compliance with the
stock ownership guidelines within five years from the date the
guidelines were adopted. Individuals who become executive
officers or Directors must comply with the ownership guidelines
within five years of becoming subject to such guidelines. The
stock ownership guidelines require our executive officers to
retain 65% of the net shares they realize (after tax) when a
restricted stock award vests or a stock option is exercised
until such persons are in compliance with the guidelines. |
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(2) |
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As reported by such persons as of June 6, 2008, with
percentages based on 5,038,973 shares issued and
outstanding except where the person has the right to receive
shares within the next 60 days (as indicated in the other
footnotes to this table), which increases the number of shares
owned by such person and the number of shares outstanding. Under
the rules of the Securities and Exchange Commission,
beneficial ownership is deemed to include shares for
which an individual, directly or indirectly, has or shares
voting or dispositive power, whether or not they are held for
the individuals benefit, and includes shares that may be
acquired within 60 days, including, but not limited to, the
right to acquire shares by the exercise of options. Shares that
may be acquired within 60 days are referred to in the
footnotes to this table as presently exercisable
options. Unless otherwise indicated in the other footnotes
to this table, each stockholder named in the table has sole
voting and investment power with respect to the all of the
shares shown as owned by the stockholder. We have omitted
percentages of less than 1% from the table. |
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(3) |
|
Director. |
|
(4) |
|
Executive officer. |
|
(5) |
|
The amount shown for Mrs. Berkeley includes presently
exercisable options to purchase 1,875 shares. |
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(6) |
|
The amount shown for Mr. Bidlack includes presently
exercisable options to purchase 9,375 shares, and
6,875 shares pledged as security in connection with a
margin loan. |
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(7) |
|
The amount shown for Mr. Hansen includes 956 shares of
restricted stock, and 1,800 shares held by the Employee
Stock Ownership Plan of Graham Corporation trustee and allocated
to Mr. Hansens account, as to which Mr. Hansen
has sole voting power but no dispositive power, except in
limited circumstances. |
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(8) |
|
The amount shown for Mr. Lemcke includes presently
exercisable options to purchase 1,250 shares |
|
(9) |
|
The amount shown for Mr. Lines includes presently
exercisable options to purchase 4,461 shares,
2,202 shares of restricted stock, and 2,785 shares
held by the Employee Stock Ownership Plan of Graham Corporation
trustee and allocated to Mr. Lines account, as to which
Mr. Lines has sole voting power but no dispositive power,
except in limited circumstances. |
|
(10) |
|
The amount shown for Mr. Smith includes 366 shares of
restricted stock and a presently exercisable option to purchase
625 shares. |
|
(11) |
|
The amount shown for Mr. Van Rees includes presently
exercisable options to purchase 17,500 shares. |
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(12) |
|
See footnotes 5 through 11 to this table. The amount shown
includes presently exercisable options to purchase
35,086 shares, 3,524 shares of restricted stock and
4,585 shares allocated to the executive officers under the
ESOP, as to which the executive officers may exercise voting
power, but not dispositive power, except in limited
circumstances. |
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires our Directors and officers to file with the
Securities and Exchange Commission reports of ownership and
changes in ownership of our common stock. Based solely on the
written representations of our Directors and officers and copies
of the reports that they have filed with the Securities and
Exchange Commission, we believe that during fiscal year 2008 all
of our Directors and officers timely complied with the filing
requirements of Section 16(a), except that each
non-management Director filed one late report disclosing one
transaction, Director Van Rees also filed one additional late
report disclosing one transaction and Messrs. Lines and
Hansen each filed one late report disclosing two transactions.
38
STOCKHOLDER
PROPOSALS FOR 2009 ANNUAL MEETING
Proposals Submitted
for Inclusion in Our Proxy Materials
In order for any stockholder proposal to be included in our
proxy statement to be issued in connection with our annual
meeting of stockholders for our fiscal year ending
March 31, 2009, we must receive the proposal no later than
February 13, 2009. If the proposal is in compliance with
all of the requirements set forth in
Rule 14a-8
under the Securities Exchange Act of 1934 and, if the proposal
pertains to the election of directors, the criteria described
under the heading Nominating Committee on
page 11, we will include the stockholder proposal in our
proxy statement and place it on the form of proxy issued for the
2009 annual meeting. Stockholder proposals submitted for
inclusion in our proxy materials should be mailed to the
following address: Graham Corporation, Attention: Corporate
Secretary, 20 Florence Avenue, Batavia, New York 14020.
Proposals Not
Submitted for Inclusion in Our Proxy Materials
Pursuant to our by-laws, stockholder proposals that are not
submitted for inclusion in our proxy materials pursuant to
Rule 14a-8
may be acted upon at the 2009 annual meeting only if written
notice of the proposal complying with the requirements set forth
in our by-laws is delivered to or received by our Corporate
Secretary not later than the following dates:
(i) 60 days in advance of the annual meeting, if such
meeting is to be held on a day which is within 30 days
preceding the anniversary of the previous years annual
meeting or (ii) 90 days in advance of the annual
meeting if such meeting is to be held on or after the
anniversary of the previous years annual meeting. If the
annual meeting is to be held at a time other than within such
periods, then stockholder notices and proposals must be
delivered to or received by our Corporate Secretary before the
close of business on the 10th day following the date on
which notice of the annual meeting is first given to
stockholders via press release or in a document that we publicly
file with the Securities and Exchange Commission.
Assuming that the 2009 annual meeting of stockholders is held on
July 31, 2009, stockholder proposals must be received by
May 2, 2009. Stockholder proposals that do not comply with
the foregoing requirements will be considered untimely and will
not be acted upon at the 2009 annual meeting. Stockholder
notices and proposals should be delivered to the following
address: Graham Corporation, Attention: Corporate Secretary, 20
Florence Avenue, Batavia, New York 14020.
OTHER
MATTERS
The Board of Directors does not know of any other matters that
may be presented for action at the 2008 annual meeting. Should
any other matters come before the annual meeting, however, the
persons named in the enclosed proxy will have discretionary
authority to vote all proxies with respect to such matters in
accordance with their judgment.
BY ORDER OF THE BOARD OF DIRECTORS
James R. Lines
President and Chief Executive Officer
Dated: June 17, 2008
39
Appendix A
CERTIFICATE
OF AMENDMENT
TO
THE CERTIFICATE OF INCORPORATION
OF
GRAHAM CORPORATION
Graham Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation,
at a meeting duly convened and held on May 29, 2008,
adopted a resolution proposing and declaring advisable the
following amendment to the Certificate of Incorporation of said
corporation:
RESOLVED, that the Certificate of Incorporation of Graham
Corporation be amended by restating the Fourth Article so that,
as amended, said Article shall read as follows:
The total number of shares of all classes of stock which
the corporation shall have authority to issue is
26,000,000 shares, of which 500,000 shares shall be
shares of Preferred Stock having a par value of $1.00 each
(hereafter called Preferred Stock) and 25,500,000 shares
shall be shares of Common Stock having a par value of $0.10 each
(hereinafter called Common Stock).
SECOND: That such amendment has been duly adopted by the
affirmative vote of the holders of a majority of the stock
entitled to vote at the annual meeting of stockholders in
accordance with the provisions of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, the above mentioned corporation has
caused this certificate to be signed by
James R. Lines, its President and Chief Executive
Officer,
this
day of August, 2008.
James R. Lines, President and
Chief Executive Officer
40
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THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR THE PROPOSALS LISTED BELOW.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. |
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Please Mark Here |
o |
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for Address Change
or Comments SEE REVERSE SIDE |
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WITHHOLD |
FOR ALL NOMINEES |
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FOR all |
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AUTHORITY |
EXCEPT |
1. |
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Election of Directors |
nominees |
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for all nominees |
(see instruction below) |
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01 |
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Gerard T. Mazurkiewicz to serve until 2011 |
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o |
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02 |
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Comelius S. Van Rees to serve until 2011
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Instruction: To withhold authority to vote for any individual nominee(s), mark For All Nominees Except and write
that nominees name in the space provided below.
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2. |
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Approval of the amendment to the Companys Amended Certificate of
Incorporation to increase the number of authorized shares of common stock from 6,000,000 to 25,500,000 and to increase the
number of total authorized shares from 6,500,000 to 26,000,000. |
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FOR o |
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AGAINST o |
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ABSTAIN o |
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3. |
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Ratification of the selection of Deloitte & Touche LLP
as the Companys independent registered public accounting firm for the fiscal year ending March 31, 2009. |
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FOR o |
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AGAINST o |
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ABSTAIN o |
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4. |
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In
their discretion, to vote upon all other matters as
may be properly brought before the meeting. |
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This Proxy, when properly executed, will be voted in the manner directed herein by the undersigned stockholder. If no
direction is made, this Proxy will be voted: (I) FOR the two director nominees; (II) FOR the amendment to the
Companys Amended Certificate of Incorporation to increase the number of authorized shares of common stock to 25,500,000 and
to increase the total authorized shares to 26,000,000; and (III) FOR the proposal to ratify the selection of Deloitte
& Touche LLP as the Companys independent registered public
accounting firm for the fiscal year ending March 31, 2009.
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To help our preparation for the meeting, please check here
if you plan to attend. |
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Please sign exactly as
name(s) appears on this
proxy and return it
promptly whether you plan to attend the meeting or
not. If you do attend, you
may, of course, vote in person. The space below may
be used for any questions
or comments you may have. |
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Choose MLinkSM for fast, easy and secure 24/7 online access to
your future proxy materials, investment plan statements, tax documents and more. Simply log on to Investor ServiceDirect® at
www.bnymellon.com/shareowner/isd where step-by-step instructions will prompt
you through enrollment. |
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PROXY 2008 |
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GRAHAM CORPORATION |
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY AND
EACH MATTER TO BE VOTED ON AT THE ANNUAL MEETING HAS BEEN PROPOSED BY THE BOARD OF DIRECTORS OF THE COMPANY |
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The undersigned hereby appoints Jerald D. Bidlack and James R. Lines, or either of them, each with power of substitution, as
proxies to attend the Annual Meeting of Stockholders of Graham Corporation to be held at the Hampton Inn, 4360 Commerce
Drive, Batavia, New York 14020, on July 31, 2008 at 11:00 a.m., Eastern Time, and any adjournment thereof, and to vote in
accordance with the following instructions the number of shares the undersigned would be entitled to vote if personally
present at such meeting:
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THE BOARD OF DIRECTORS
RECOMMENDS A VOTE: (I) FOR THE TWO DIRECTOR NOMINEES;
(II) FOR THE AMENDMENT TO THE COMPANYS AMENDED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK TO 25,500,000 AND TO INCREASE THE TOTAL AUTHORIZED SHARES TO 26,000,000; AND (III) FOR THE PROPOSAL TO RATIFY
THE SELECTION OF DELOITTE & TOUCHE LLP AS THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR
ENDING MARCH 31, 2009.
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Address
Change/Comments (Mark the corresponding box on the
reverse side) |
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You can now access your Graham Corporation account
online.
Access your Graham Corporation stockholder
account online via Investor ServiceDirect®
(ISD).
The transfer agent for Graham Corporation, now
makes it easy and convenient to get current information on your stockholder account.
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View account status
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View payment history for dividends |
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View certificate history
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Make address changes |
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View book-entry information
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Obtain a duplicate 1099 tax form |
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Establish/change your PIN |
Visit us on the web at
http://www.bnymellon.com/shareowner/isd
For Technical Assistance Call 1-877-978-7778 between 9am-7pm
Monday-Friday Eastern Time
****TRY IT OUT****
www.bnymellon.com/shareowner/isd
Investor
ServiceDirect®
Available 24 hours per day, 7 days per week
TOLL FREE NUMBER: 1-800-370-1163
Graham Corporation
Employee Benefits Committee
June 17, 2008
Dear Plan Accountholder:
The Employee Stock Ownership Plan of Graham Corporation (the ESOP) has a related trust (the ESOP
Trust) which owns common stock of Graham Corporation (Graham). GreatBanc Trust Company as
trustee of the ESOP is a stockholder of Graham and may vote on matters presented for stockholder
action at Grahams 2008 Annual Meeting of Stockholders scheduled to be held on July 31, 2008, or at
any adjournment of the meeting (2008 Annual Meeting).
The ESOP Trust provides that in casting its vote at the 2008 Annual Meeting, the ESOP trustee is to
follow directions given by Grahams Employee Benefits Committee (Committee). The Committee in
turn follows instructions provided by participants, former participants and beneficiaries of
deceased former participants with respect to the Graham common stock allocated to their accounts in
the ESOP as of June 6, 2008.
The records for the ESOP indicate that you are among the individuals who may give voting
instructions. You may give your instructions by completing and signing the enclosed Confidential
Voting Instruction Card (Instruction Card) and returning
it in the envelope provided to First Niagara Benefits Consulting, which maintains the records for this plan. The Instruction Card lets you give instructions
for each matter expected to be presented for stockholder action at the 2008 Annual Meeting. The
Committee expects First Niagara Benefits Consulting to tabulate the instructions given on a confidential basis and to
provide the Committee with only the final results of the tabulation. The final results will be
used in directing the ESOP trustee.
The voting of the common stock held by the ESOP Trust is subject to legal requirements under the
Employee Retirement Income Security Act of 1974, as amended. The Committee, in consultation with
its legal advisors, considers these requirements in establishing voting instruction procedures and
directing the ESOP trustee how to vote. The remainder of this letter describes the voting
procedures which the Committee expects to follow for the 2008 Annual Meeting.
How your voting instructions count depends on whether it was anticipated that the matter being
voted upon would be presented for stockholder action at the 2008 Annual Meeting; if you had an interest
in the ESOP Trust on the proper date; and how large your interest was, as follows:
Anticipated Proposals
If Graham Common Stock Was Allocated to Your Account Under the ESOP Trust as of June 6, 2008
In general, the ESOP trustee will be directed to vote the number of shares of Graham common stock
(if any) held by the ESOP Trust and allocated as of June 6, 2008 to your individual account under
-2-
the ESOP according to the instructions specified on the reverse side of the Instruction Card. The
Instruction Card shows the number of shares of Graham common stock allocated to your individual
account under the ESOP Trust as of June 6, 2008. If you do not file the Instruction Card by July
24, 2008, the ESOP trustee will be directed to vote the shares allocated to your account in
accordance with the percentage of shares voted FOR, AGAINST, ABSTAIN, or WITHHOLD, as the case may
be, with respect to shares allocated to the accounts of others in the ESOP.
Unanticipated Proposals
It is possible, although unlikely, that proposals other than those specified on the Instruction
Card will be presented for stockholder action at the 2008 Annual Meeting. If this should happen,
the ESOP trustee will be instructed to vote upon such matters in their discretion, or to cause such
matters to be voted upon in the discretion of the individuals named in any proxies executed by
them.
Your interest in the ESOP Trust offers you the opportunity to participate, as do Grahams
stockholders, in decisions that affect Grahams future, and we encourage you to take advantage of
such opportunity. To help you decide how to complete the Instruction Card, enclosed is a copy of
the Proxy Statement that is being furnished to all holders of Graham common stock in connection
with the 2008 Annual Meeting. Please complete, sign and return your Instruction Card today. Your
instructions are important regardless of the size of your interest in the ESOP Trust.
If you have questions regarding the terms of the ESOP, or how to complete the Instruction Card,
please call J. Ronald Hansen, Vice President-Finance & Administration at (585) 343-2216.
Sincerely,
EMPLOYEE BENEFITS COMMITTEE OF GRAHAM CORPORATION
Enclosures
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GRAHAM CORPORATION
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CONFIDENTIAL VOTING INSTRUCTION |
This Instruction is solicited by the Employee Benefits Committee
of Graham Corporation
as a named fiduciary for the
EMPLOYEE STOCK OWNERSHIP PLAN OF GRAHAM CORPORATION (Plan)
For the Annual Meeting of Stockholders to be held on July 31, 2008
The undersigned Participant, Former Participant or Beneficiary of a
deceased Former Participant in the Plan hereby
provides the voting instructions hereinafter specified to the
Employee Benefits Committee of Graham Corporation (the Committee), which instructions shall be taken into account in
directing the Trustee of the Plan to vote, in person, by limited or
general power of attorney, or by proxy, the shares and fractional shares of common stock (the Shares) of Graham Corporation (the
Corporation) which are held by the Trustee of the Plan, in its
capacity as Trustee, as of June 6, 2008 (the Record Date) at the
Annual Meeting of Stockholders of the Corporation (the Annual
Meeting) to be held at the Hampton Inn, 4360 Commerce Drive,
Batavia, New York 14020, on July 31, 2008 at 11:00 a.m., Eastern
Time, or at any adjournment thereof.
As to the nominees and proposals listed on the reverse side hereof
and as more particularly described in the accompanying letter from
the Committee dated June 13, 2008, the Committee will give voting
directions to the Trustee of the Plan. Such directions will
reflect the voting instructions filed by the Instructor on this
Confidential Voting Instruction, in the manner described in such
letter from the Committee.
As to other matters which may properly come before the Annual
Meeting, the Trustee will be instructed to vote upon such matters
in its discretion, or cause such matters to be voted upon in the
discretion of the individuals named in any proxies executed by it.
The instructions set forth on the reverse side hereof will be taken
into account as described above in directing the Trustee of the
Plan how to vote the Shares of the Corporation held by it as of the
Record Date in its capacity as Trustee, provided this card is
received by First Niagara Benefits Consulting by July 24, 2008.
Please mark, sign and date this voting instruction card on the
reverse side and return it in the enclosed envelope.
IF THIS VOTING INSTRUCTION IS SIGNED BUT NO DIRECTION IS GIVEN, THIS VOTING INSTRUCTION CARD WILL BE
DEEMED TO INSTRUCT VOTES FOR THE ELECTION OF THE DIRECTOR NOMINEES AND FOR PROPOSALS 2 AND 3.
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ESOP COMMON (as of 6/6/08)
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PLEASE MARK YOUR CHOICE LIKE THIS þ
IN BLUE OR BLACK INK. |
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The Board of Directors Recommends a Vote For the election of nominees and For proposals 2 and 3.
Each matter to be voted on at the 2008 Annual Meeting has been proposed by the Board of Directors of the Corporation. |
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1. |
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Election of Directors |
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2. |
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Approval of the amendment to the Corporations Amended Certificate of Incorporation to increase
the number of authorized shares of Common Stock from 6,000,000 to 25,500,000 and to increase the number of total authorized shares from 6,500,000 to 26,000,000. |
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For a three-year term |
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FOR |
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WITHHOLD |
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Gerard T. Mazurkiewicz
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o
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FOR
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AGAINST
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ABSTAIN* |
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Cornelius S. Van Rees
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o
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o
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o
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3. |
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Ratification of the selection of Deloitte & Touche LLP as the independent registered
public accounting firm for the fiscal year ending March 31, 2009. |
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4. |
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In their discretion, the proxies are authorized to vote upon such other business as may
properly come before the Annual Meeting or any adjournment thereof. |
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FOR
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AGAINST
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ABSTAIN* |
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o
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The undersigned hereby instructs the Committee to direct the Trustee of the Plan to vote in accordance with the voting instructions indicated above
and hereby acknowledges receipt of the letter from the Committee dated June 13, 2008, a Notice of Annual Meeting of Stockholders of Graham
Corporation and a Proxy Statement for the Annual Meeting.
Please sign exactly as your name appears on this instruction. Each owner of shares held jointly must sign this voting instruction. If signing as
attorney, executor, administrator, trustee or guardian, please include your full title. Corporate proxies must be signed by an authorized officer.
* For purposes of the unallocated Shares held by the Employee Stock Ownership Plan, abstention is equivalent to not voting.