Schedule 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ___)
Filed by the 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 §240.14a-12 |
Consolidated Graphics, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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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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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
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Date Filed: |
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ConsolidatedGraphics
June 30, 2009
Dear Shareholder:
You are cordially invited to attend the 2009 Annual Meeting of Shareholders (the Annual
Meeting) to be held at the Hilton Americas-Houston Hotel, 1600 Lamar, Houston, Texas 77010, on
Thursday, August 6, 2009, at 5:00 p.m., Central Daylight Time. For those of you who cannot be
present at this Annual Meeting, we urge that you participate by indicating your choices on the
enclosed proxy card and completing and returning it at your earliest convenience. If you sign and
return your proxy card without specifying your choices, it will be understood that you wish to have
your shares voted in accordance with the Board of Directors recommendations.
This booklet includes the Notice of Annual Meeting of Shareholders and the Proxy Statement,
which contains details of the business to be conducted at the Annual Meeting. The Companys Annual
Report to Shareholders, which is not part of the Proxy Statement, is also enclosed and provides
additional information regarding the financial results of the Company for the fiscal year ended
March 31, 2009.
It is important that your shares are represented at the meeting, whether or not you are able
to attend personally. Accordingly, please sign, date and mail promptly the enclosed proxy card in
the envelope provided.
On behalf of the Board of Directors, thank you for your cooperation and continued support.
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/s/ Joe R. Davis
Joe R. Davis Chairman of the Board and
Chief Executive Officer
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Consolidated Graphics, Inc.
5858 Westheimer, Suite 200
Houston, Texas 77057
(713) 787-0977 |
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TABLE OF CONTENTS
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VOTING THE PROXY CARD
Please complete, sign, date and return the accompanying proxy card promptly in the enclosed
addressed envelope. Postage need not be affixed to the envelope if mailed in the United States.
The immediate return of your proxy card will be of great assistance in preparing for the
Annual Meeting and is therefore urgently requested, even if you plan to attend the Annual Meeting
in person. If you attend the Annual Meeting and make arrangements to vote in person, your proxy
card will not be used.
IF YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON
The Annual Meeting will be held at 5:00 p.m., Central Daylight Time, on Thursday, August 6,
2009, at the Hilton Americas-Houston Hotel, 1600 Lamar, Houston, Texas 77010. Signs will direct
you to the conference room where the Annual Meeting will be held.
If your shares are not registered in your own name and you plan to attend the Annual Meeting
and vote your shares in person, you should contact your broker or agent in whose name your shares
are registered to obtain a brokers proxy and bring it to the Annual Meeting in order to vote.
ConsolidatedGraphics
Consolidated Graphics, Inc.
5858 Westheimer, Suite 200
Houston, Texas 77057
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Thursday, August 6, 2009
5:00 p.m. Central Daylight Time
To the Shareholders:
The 2009 Annual Meeting of Shareholders (the Annual Meeting) of Consolidated Graphics, Inc.
(the Company) will be held at the Hilton Americas-Houston Hotel, 1600 Lamar, Houston, Texas
77010, on Thursday, August 6, 2009, at 5:00 p.m., Central Daylight Time, for the following
purposes:
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To elect two Class I directors to serve on the Companys Board of Directors for
terms of three years and until their successors are duly elected and qualified or until
the earlier of their resignation or removal (Proposal 1). |
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To approve an amendment to the Consolidated Graphics, Inc. Amended and Restated
Long-Term Incentive Plan (Proposal 2). |
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To transact such other business as may properly come before the meeting or any
adjournment(s) or postponement(s) thereof. |
Only shareholders of record as of the close of business on June 17, 2009, the record date, are
entitled to receive notice of, and to vote at, the Annual Meeting and any adjournment(s) or
postponement(s) thereof. A list of such shareholders shall be open to the examination of any
shareholder of record during normal business hours, for a period of ten days prior to the meeting,
at the principal executive offices of the Company, located at 5858 Westheimer, Suite 200, Houston,
Texas 77057, and shall also be open to examination at the Annual Meeting and any adjournment(s) or
postponement(s) thereof.
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By Order of the Board of Directors |
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/s/ Jon C. Biro
Jon C. Biro
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Secretary |
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Houston, Texas
June 30, 2009
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE ANNUAL MEETING REGARDLESS OF THE NUMBER OF
SHARES YOU HOLD. PLEASE COMPLETE, SIGN AND MAIL THE ENCLOSED PROXY CARD IN THE ACCOMPANYING
ENVELOPE EVEN IF YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING. RETURNING THE PROXY CARD WILL NOT
LIMIT YOUR RIGHT TO VOTE IN PERSON OR TO ATTEND THE ANNUAL MEETING, BUT WILL ENSURE YOUR
REPRESENTATION IF YOU CANNOT ATTEND. IF YOU HAVE SHARES IN MORE THAN ONE NAME, OR IF YOUR STOCK IS
REGISTERED IN MORE THAN ONE WAY, YOU MAY RECEIVE MORE THAN ONE COPY OF THE PROXY MATERIAL. IF SO,
SIGN AND RETURN EACH OF THE PROXY CARDS YOU RECEIVE SO THAT ALL OF YOUR SHARES MAY BE VOTED. YOU
MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO ITS USE.
IMPORTANT NOTICE REGARDING INTERNET AVAILABILITY OF PROXY MATERIALS FOR THE
SHAREHOLDERS MEETING TO BE HELD AUGUST 6, 2009
Our proxy materials relating to this Annual Meeting (notice of meeting, proxy statement, proxy
card and annual report to shareholders), as well as any additional soliciting materials, will also
be available on our website at www.cgx.com. For directions to the Hilton Americas-Houston Hotel,
1600 Lamar, Houston, Texas 77010, please call 713-739-8000.
1
ConsolidatedGraphics
Consolidated Graphics, Inc.
5858 Westheimer, Suite 200
Houston, Texas 77057
PROXY STATEMENT
INTRODUCTION
The accompanying proxy is solicited by and on behalf of the Board of Directors (the Board)
of Consolidated Graphics, Inc., a Texas corporation (the Company), for use only at the 2009
Annual Meeting of Shareholders (the Annual Meeting) to be held at the Hilton Americas-Houston
Hotel, 1600 Lamar, Houston, Texas 77010, on Thursday, August 6, 2009, at 5:00 p.m., Central
Daylight Time, and at any adjournment(s) or postponement(s) thereof. The approximate date on which
this Proxy Statement and accompanying proxy will first be made available or sent to shareholders is
June 30, 2009.
Each proxy executed and returned by a shareholder may be revoked at any time before it is
voted at the Annual Meeting by filing a written instrument revoking it with the Secretary at the
Companys executive offices, by execution and return of a later-dated proxy, or by appearing at the
Annual Meeting and making arrangements to vote in person. The executive offices of the Company are
located at 5858 Westheimer, Suite 200, Houston, Texas 77057.
ACTION TO BE TAKEN UNDER PROXY
Proxies in the accompanying form will be voted in accordance with the specifications made
thereon and, where no specifications are given, such proxies will be voted (i) FOR the election of
the two nominees named herein to serve as Class I directors and if one or more of such nominees
should become unavailable for election for any reason, then FOR the election of any substitute
nominee(s) that the Board may propose and (ii) FOR the adoption of an amendment to the Consolidated
Graphics, Inc. Amended and Restated Long-Term Incentive Plan (the Incentive Plan).
Management of the Company did not receive any shareholder proposals for inclusion in this
Proxy Statement by the date prescribed therefor and is not aware of any other matters to be
presented for action at the Annual Meeting. If, however, any other matters properly come before
the Annual Meeting, it is intended that the persons named in the accompanying proxy will vote at
their discretion pursuant to the proxy in accordance with their best judgment on such matters.
RECORD DATE AND VOTING PROCEDURES
The Board has fixed the close of business on June 17, 2009 as the record date for the
determination of shareholders entitled to receive notice of, and to vote at, the Annual Meeting and
any adjournment(s) or postponement(s) thereof. The issued and outstanding shares of Common Stock
of the Company as of the close of business on June 17, 2009, consisted of 11,162,667 shares, each
of which is entitled to one vote on each matter to be voted on at the Annual Meeting. Under the
Companys Second Amended and Restated By-laws (the By-laws) and in accordance with the Texas
Business Corporation Act, the holders of a majority of the total issued and outstanding shares of
Common Stock, present in person or represented by proxy and entitled to vote thereat, will
constitute a quorum for the transaction of business at the Annual Meeting. The persons whom we
appoint to act as inspectors of election will determine whether a quorum exists.
If a quorum is not present at the Annual Meeting or if there are insufficient votes at the
time of the Annual Meeting to approve any of the foregoing proposals, the Annual Meeting may be
adjourned or postponed until such time and place as is determined by a vote of the holders of a
majority of the shares of Common Stock represented in person or by proxy and entitled to vote at
the Annual Meeting to permit further solicitation of proxies by the Company. Proxies
given pursuant to this current solicitation and not subsequently revoked will be voted at any
later continuance of the Annual Meeting in the manner set forth above.
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The Restated Articles of Incorporation of the Company, as amended to date (the Articles of
Incorporation), do not permit cumulative voting. The affirmative vote of a majority of the shares
of Common Stock, represented in person or by proxy and entitled to vote thereat, at a meeting at
which a quorum is present is required for the election of directors and the approval of the
proposed amendment to the Incentive Plan. Shares that are entitled to be voted by a shareholder
who is present, in person or by proxy, at the Annual Meeting but who abstains from voting or
withholds a vote (collectively, abstentions), will be treated as shares that are present and
entitled to vote for purposes of determining the presence of a quorum. Broker nonvotes are also
treated as shares that are present for purposes of determining the presence of a quorum. A broker
nonvote occurs when a broker is present at the meeting or returns a proxy but does not have
discretionary voting power to vote on a specific matter (such as non-routine proposals) and has not
received timely voting instructions from the beneficial owner with respect to such matter. A
broker has discretionary voting power (including the power to abstain) under the current rules of
the exchange on which the Companys shares are traded, The New York Stock Exchange, Inc. (NYSE),
on the non-contested election of directors.
In determining the results of voting at the Annual Meeting on the election of directors and
the proposed amendment to the Incentive Plan, abstentions will have the same effect as a vote
against the nominated directors and against the proposed amendment to the Incentive Plan because
approval of each matter under consideration requires an affirmative vote of the majority of the
shares of Common Stock present, in person or by proxy, and entitled to vote on each such matter at
the Annual Meeting. In the event of a broker nonvoter with respect to the proposed amendment to
the Incentive Plan, the corresponding shares of Common Stock shall be excluded from both the
tabulation of affirmative votes for the proposed amendment to the Incentive Plan and the tabulation
of the total number of shares of Common Stock which cast a vote on such matter. For the reasons
discussed above, broker nonvotes are not applicable to the election of directors relating to this
solicitation of proxies.
PROPOSAL 1 FOR THE ELECTION OF CLASS I DIRECTORS
Pursuant to the Companys By-laws, the Board is currently comprised of six directors and is
divided into three classes, with each class serving a three-year term. At each annual meeting of
shareholders, one class of directors is elected for a full term of three years to succeed that
class of directors whose terms are expiring. The Board currently consists of Larry J. Alexander,
Brady F. Carruth, Gary L. Forbes, James H. Limmer, Hugh N. West, M.D. and Joe R. Davis, with
Messrs. Alexander and Carruth constituting the Class I directors, Messrs. Forbes and Limmer
constituting the Class II directors and Mr. Davis and Dr. West constituting the Class III
directors. The term of the Class I directors expires at the Annual Meeting. The terms of the
other two classes of directors expire at the 2010 (Class II directors) and 2011 (Class III
directors) annual meetings of shareholders.
Unless contrary instructions are set forth in the proxy card, it is intended that the
individual named in the proxy will vote all shares of Common Stock represented by the proxy for the
election of the nominees listed below as the Class I directors, each of whom is presently a member
of the Board. The two Class I directors elected at the Annual Meeting will each serve for a term
expiring on the date of the annual meeting of shareholders in 2012 and until his successor has been
elected and qualified or until his earlier resignation or removal. The affirmative vote of a
majority of the shares of Common Stock, represented in person or by proxy and entitled to vote at a
meeting at which a quorum is present, is required to elect directors.
The Board has appointed a Nominating and Governance Committee and delegated to it the
responsibility for evaluating candidates and recommending nominees for election to the Companys
Board of Directors. The Nominating and Governance Committee determined in its business judgment
that the election of Mr. Alexander and Mr. Carruth as the Class I directors of the Company is in
the best interest of the Company and its shareholders. The Board subsequently affirmed the
recommendation of the Nominating and Governance Committee. THE BOARD THEREFORE RECOMMENDS A VOTE
FOR EACH OF THE DIRECTOR NOMINEES, AND PROXIES THAT ARE RETURNED BUT NOT MARKED TO THE CONTRARY
WILL BE SO VOTED.
A shareholder may, in the manner set forth in the enclosed proxy card, instruct the proxy
holder not to vote that shareholders shares for one or more of the named nominees. Each of the
nominees for election as Class I directors is currently serving as a director on the Board and has
indicated his willingness to serve in such capacity, if elected, but should the candidacy of Mr.
Alexander and/or Mr. Carruth for any reason be withdrawn or either nominee becomes unavailable for
election, the Nominating and Governance Committee may recommend a replacement nominee and, if such
nominee is affirmed by the Board, the individual acting under the duly executed proxies will
vote for the election of the replacement nominee. Management is currently unaware of any
circumstances likely to render either nominee unavailable for election.
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The following sets forth information concerning each of the nominees for election to the Board
and each continuing member of the Board, including their name, age, principal occupation or
employment for at least the past five years and the period for which such person has served as a
director of the Company.
Nominees for Election as Class I Directors
The following information is furnished regarding the Class I nominees who, if elected, will
serve on the Board until the 2012 annual meeting of shareholders and until their respective
successors are elected and qualified or until the earlier of their resignation or removal.
Larry J. Alexander retired from the San Antonio Spurs Professional Basketball Team in
May 1996, where he had been the Vice President Administration and Communications since
August 1994. Prior to joining the Spurs, he spent 27 years with Southwestern Bell Corporation (now
AT&T, Inc.), a telecommunications company, where he had various responsibilities in advertising and
corporate communications, most recently as Senior Vice President External Affairs. Mr. Alexander
has been a director of the Company since May 1995 and serves on the Audit Committee. Mr. Alexander
is 67 years of age.
Brady F. Carruth has been President of Gulf Coast Capital Corporation, a commercial
landscaping business, since 1987 and President and Chief Executive Officer of Saratoga Financial
Group, an insurance holding company, since 2001. Mr. Carruth has been a director of the Company
since 1985 and serves on the Compensation Committee and the Nominating and Governance Committee.
Mr. Carruth is 51 years of age.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RE-ELECTION OF MR. ALEXANDER AND MR.
CARRUTH AS CLASS I DIRECTORS OF THE COMPANY.
Continuing Class II Directors
The following information is furnished with respect to the Class II directors, who will
continue to serve on the Board until the 2010 annual meeting of shareholders and until their
respective successors are elected and qualified or until the earlier of their resignation or
removal.
Gary L. Forbes has been a Senior Vice President of Equus Total Return, Inc., a publicly traded
investment company, since 1991. Mr. Forbes serves on the board of directors of NCI Building
Systems, Inc., a publicly traded manufacturer of prefabricated metal buildings. Mr. Forbes is a
certified public accountant and has been a director of the Company since 1993. He serves on the
Audit Committee and the Executive Committee and is 65 years of age.
James H. Limmer retired from the law firm of Tekell, Book, Matthews & Limmer, L.L.P., in
Houston, Texas, in July 2007, where he practiced for 34 years. Tekell, Book, Matthews & Limmer,
L.L.P. specializes in all phases of personal injury and property damage defense. Mr. Limmer has
been a director of the Company since 1985 and serves on the Compensation Committee and the
Nominating and Governance Committee. Mr. Limmer is 67 years of age.
Continuing Class III Directors
The following information is furnished with respect to the Class III directors, who will
continue to serve on the Board until the 2011 annual meeting of shareholders and until their
respective successors are elected and qualified or until the earlier of their resignation or
removal.
Joe R. Davis has been the Chief Executive Officer and Chairman of the Board of Directors of
the Company since it was founded in 1985 and also served as President of the Company from its
inception until July 25, 2000. Mr. Davis serves on the Executive Committee. Mr. Davis is 66 years
of age.
Hugh N. West, M.D., was in private practice in Houston, Texas in the field of diagnostic
radiology until his retirement in 1996. Dr. West has been a director of the Company since 1985 and
serves on the Compensation Committee and the Nominating and Governance Committee. Dr. West is 63
years of age.
4
PROPOSAL 2 TO APPROVE AN AMENDMENT TO THE CONSOLIDATED GRAPHICS, INC.
AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN
The Board and the shareholders of the Company have approved the Incentive Plan. Pursuant to
the Incentive Plan, employees of the Company and non-employee directors are eligible to receive
awards consisting of stock options, stock appreciation rights
(SARs), restricted or nonrestricted
stock or stock units, cash or any combination of the foregoing. To date, long-term incentive
compensation has been awarded in the form of stock options, restricted stock units (RSUs) and
cash. Stock options granted pursuant to the Incentive Plan may either be incentive stock options
within the meaning and subject to the provisions of Section 422 of the Internal Revenue Code of
1986, as amended (the Code), or nonqualified stock options. An aggregate of 2,223,420 shares of
Common Stock were reserved for issuance pursuant to the Incentive Plan as of March 31, 2009. Of
these reserved shares, option awards covering 1,799,776 shares (with a weighted average exercise
price of $37.85) and restricted stock unit awards covering 29,375 shares were outstanding,
resulting in 394,269 shares being available for future awards at March 31, 2009. As of June 17,
2009, there were approximately 5,879 employees (including executive officers) who were eligible to
participate in the Incentive Plan.
As discussed below, the Board has approved a proposed amendment to the Incentive Plan to
increase the limit on the number of awards that may be granted in the form of SARs or stock awards,
including RSUs, from 62,500 to 112,500 (an increase of 50,000 SARs or stock awards available for
grant) underlying shares of Common Stock issuable pursuant to such awards. The Company has
previously issued an aggregate of 62,500 RSUs, and therefore there are no awards currently
available for issuance as SARs or stock awards. The proposed amendment will not, however, increase
the maximum number of shares available for issuance under the Incentive Plan.
This proposed amendment is subject to approval by the shareholders of the Company. A summary
description of the material terms of the Incentive Plan is also set forth below. A copy of the
Incentive Plan, as amended by the proposed plan amendment, is attached to this Proxy Statement as
Appendix A, and incorporated herein by reference. The summary description of the Incentive
Plan and the proposed amendment below are qualified in their entirety by reference to the full text
of the Incentive Plan, as amended by such proposed amendment.
Proposed Plan Amendment
On June 29, 2009, the Board approved a proposed amendment to the Incentive Plan to increase
the limit on the number of awards that may be granted in the form of SARs or stock awards,
including RSUs, from 62,500 to 112,500 (an increase of 50,000 SARs or stock awards available for
grant) underlying shares of Common Stock issuable pursuant to such awards (the Plan Amendment).
The Plan Amendment will not increase the maximum number of shares available for issuance under the
Incentive Plan. The Plan Amendment is subject to the approval by the shareholders of the Company.
If the Plan Amendment is not approved by the shareholders, then the current cap on the issuance of
SARs and stock awards of 62,500 will remain in place and the Company will not be able to grant
those types of awards under the Incentive Plan in the future.
We believe that alignment of the interests of shareholders and our employees, officers and
directors is best advanced through the issuance of equity incentives as a portion of their total
compensation. In this way, we reinforce the link between our shareholders and our employees,
officers and directors focus on personal responsibility, creativity and shareholder returns. We
also believe that delivering a portion of their total compensation in the form of long-term equity
incentive compensation helps encourage a long-term commitment to the Company and its future growth.
Equity compensation also strengthens our ability to attract, motivate and retain employees and
non-employee directors with appropriate experience and abilities.
On July 19, 2007, our Incentive Plan was amended by the Board to, among other things, limit
the amount of full-value awards, such as stock awards, including RSUs, that could be issued under
the Incentive Plan to 62,500 shares. Based on the fair market value of our shares of Common Stock
at that time, the Board believed that such cap would be sufficient to satisfy the Companys
obligations under the then existing compensation arrangement with our Chief Executive Officer.
However, the recent declines in the Companys stock price caused a greater number of RSUs to be
issued to our Chief Executive Officer in April 2009 than had been anticipated in 2007, exhausting
the availability of such awards under the Incentive Plan. In addition, the Compensation Committee
granted Mr. Davis an additional 35,000 stock
options to cover the shortfall between the value of the 25,000 RSUs granted to Mr. Davis in
April 2009 and the 39,308 RSUs that he was entitled to receive under his employment agreement. The
Company is obligated to issue a certain number of RSUs to Mr. Davis in April 2010 based on a
formula tied to the stock price of our shares of Common Stock at a future date, which would be the
greater of 12,500 RSUs or that number of RSUs equal to $500,000 divided by the closing price per
share of the Companys stock price on the last trading day prior to April 1, 2010 (see Executive
Compensation Overall Compensation Philosophy and Policies, Employment Agreement With Joe R.
Davis). Unless we can increase the cap on full-value awards to 112,500, the Company may
resort to issuing stock options or cash to Mr. Davis in lieu of RSUs. The approval of the First
Amendment will more than likely enable the Company to satisfy our obligation to issue RSUs to Mr.
Davis in April 2010 as required under his employment agreement.
5
The Board believes that the proposed Plan Amendment is in the best interest of the Company and
its shareholders. THE BOARD THEREFORE RECOMMENDS A VOTE FOR THE PROPOSED PLAN AMENDMENT, AND
PROXIES THAT ARE RETURNED BUT NOT MARKED TO THE CONTRARY WILL BE SO VOTED. The affirmative vote of
the holders of a majority of the outstanding shares of Common Stock present, in person or by proxy,
and entitled to vote at the Annual Meeting is required to approve the proposed Plan Amendment.
Any person who is an employee or non-employee director of the Company and its subsidiaries is
eligible to be considered for awards (including SARs and stock awards, such as RSUs) under the
Incentive Plan, except that non-employee directors are not eligible to receive incentive stock
options, and therefore the executive officers and directors have a direct interest in the increase
proposed by the First Amendment since they are participants in the Incentive Plan. The amount of
future awards (including SARs and stock awards, such as RSUs) to be granted under the Incentive
Plan to current or future directors, officers or employees has not yet been decided and cannot be
determined at this time, except as referenced above with respect to our Chief Executive Officers
employment agreement. Except as set forth in our- compensation agreements, actual awards under the
Incentive Plan will typically depend upon a number of factors, including an individuals potential
contribution to the Companys business, the Companys compensation practices at the time, retention
issues and the Companys stock price. We believe that, had the proposed Plan Amendment been in
effect during fiscal 2009, the amount of awards granted under the Plan would not have been
materially different.
The following Plan Benefits table sets forth the benefits and amounts that were received by or
allocated to each of the persons or groups indicated below during fiscal 2009 under the Incentive
Plan:
PLAN BENEFITS
Amended and Restated Long-Term Incentive Plan
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Restricted Stock |
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Stock Option |
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Restricted |
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Units Fair |
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Name and Position |
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Stock Options |
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Grant Price(1) |
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Stock Units |
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Value(2) |
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2009 |
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2009 |
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2009 |
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2009 |
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Joe R. Davis, Chairman of the
Board and Chief Executive
Officer |
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450,000 |
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$ |
56.82 |
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12,500 |
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$ |
709,125 |
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Jon C. Biro,
Executive Vice
President, Chief Financial and
Accounting Officer, and
Secretary |
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25,000 |
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$ |
17.16 |
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Executive Group(3) |
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475,000 |
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$ |
54.73 |
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12,500 |
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$ |
709,125 |
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Non-Executive Directors Group |
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62,500 |
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$ |
59.40 |
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Non-Executive
Employee Group |
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180,000 |
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$ |
18.37 |
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(1) |
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Represents the weighted average per share grant price. |
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(2) |
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Represents the fair value per share on the grant date. |
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(3) |
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Consists of the two named executive officers disclosed above. |
6
Summary Description of Incentive Plan
The Compensation Committee administers the Incentive Plan and, subject to the provisions
thereof, is authorized by the Board to (i) determine the type or types of awards made to each
participant and the terms, conditions and limitations applicable to each award, such as exercise
price, vesting period, forfeiture provisions, expiration date and other material conditions,
(ii) interpret the Incentive Plan, (iii) grant waivers of restrictions thereunder and (iv) adopt
such rules and regulations as it may deem necessary or appropriate in keeping with the objectives
of the Incentive Plan; however, the provisions of Section 422 of the Code govern the issuance of
incentive stock options and may not be overridden by the actions of the Compensation Committee. It
is intended that awards granted under the Incentive Plan be exempt from taxation under Section 409A
of the Code, unless otherwise determined by the Compensation Committee at the time of grant.
Options are rights to purchase a specified number of shares of Common Stock with cash or other
shares of Common Stock owned by the optionee or both. Options are exercisable at such time and
upon such terms as are determined by the Compensation Committee and, in the case of incentive stock
options, in accordance with the provisions of Section 422 of the Code. Options shall not have an
exercise price less than 100% of the fair market value of a share of Common stock on the date of
grant, nor shall an option be exercisable later than the day before the expiration of ten years
from the date of grant. Incentive stock options may be granted to any employee of the Company or
its subsidiaries, but not to a non-employee director. SARs are rights to receive, without payment
to the Company, cash or shares of Common Stock or both in lieu of the purchase of shares of Common
Stock under the related stock options to which the SARs are attached. The strike price of a SAR
shall not be less than 100% of the fair market value per share of Common Stock on the date of
grant. A restricted stock award is an award of shares of Common Stock that may be subject to a
restriction against transfer during a period set by the Compensation Committee or subject to
forfeiture provisions. During such period, the participant generally has the right to vote and
receive dividends on the shares covered by the restricted stock awards. A restricted stock unit
award is an award of the right to receive shares of Common Stock in the future, provided that the
participants right to payment under the award agreement shall remain subject to a substantial
risk of forfeiture within the meaning of Section 409A of the Code. Until exercised, participants
who have been granted restricted stock unit awards generally do not have the right to vote or
receive dividends on the shares covered by the award. If the Plan Amendment is approved, the
maximum amount of SARS and stock awards, including RSUs, that may be issued under the Incentive
Plan will be 112,500.
Awards under the Incentive Plan are subject to adjustment in the event of a stock dividend,
stock split, recapitalization or combination of the Common Stock. In the event of certain mergers,
consolidations, plans of exchange or other reorganizations of the Company, outstanding awards under
the Incentive Plan are subject to adjustment to reflect the terms of such transaction.
Awards under the Incentive Plan are not transferable except by will or by the laws of descent
and distribution or pursuant to a qualified domestic relations order. The Incentive Plan allows
for the satisfaction of a participants tax withholding in respect of an award by the withholding
of cash or shares of Common Stock issuable pursuant to the award or the delivery by the participant
of previously owned shares of Common Stock, in either case valued at the fair market value thereof.
The Incentive Plan may be amended by the Board, except that no amendment may be made without
shareholder approval to the extent such approval is then required pursuant to Rule 16b-3 of the
Securities Exchange Act of 1934 (the Exchange Act) , in order to preserve the applicability of
any exemption provided by such rule to any award then outstanding (unless the holder of such award
consents) or to the extent shareholder approval is otherwise required, and no amendment that
adversely affects any right of a participant with respect to any award previously granted may be
made without the consent of the participant.
Certain Federal Tax Consequences
The following is a general summary as of the date of this Proxy Statement of the United States
federal income tax consequences associated with the grant of awards under the Incentive Plan. The
federal tax laws may change and the federal, state and local tax consequences for any participant
will depend upon his or her individual circumstances. Also, this information may not be applicable
to employees of foreign subsidiaries or to participants who are not residents of the United States.
Participants have been and are encouraged to seek the advice of a qualified tax advisor regarding
the tax consequences of participation in the Incentive Plan.
7
Nonqualified
Stock Options
A participant receiving a nonqualified stock option that has been issued with an exercise
price not less than the fair market value of the Companys Common Stock on the grant date will not
recognize income and the Company will not be allowed a deduction at the time such an option is
granted. When a participant exercises a nonqualified stock option, the difference between the
option price and any higher market value of the stock on the date of exercise will be ordinary
income to the participant and will be claimed as a deduction for federal income tax purposes by the
Company. When a participant disposes of shares acquired by the exercise of the option, any amount
received in excess of the fair market value of the shares on the date of exercise will be treated
as short-term or long-term capital gain, depending upon whether the participant held the shares for
more than one year following the exercise of the option. If the amount received is less than the
fair market value of the shares on the date of exercise, the loss will be treated as short-term or
long-term capital loss, depending upon whether the participant held the shares for more than one
year following the exercise of the option.
Incentive
Stock Options
Incentive stock options granted under the Incentive Plan are intended to meet the definitional
requirements of Section 422 of the Code for incentive stock options. A participant receiving a
grant of incentive stock options will not recognize income and the Company will not be allowed a
deduction at the time such an option is granted. When a participant exercises an incentive stock
option while employed by the Company or its subsidiary or within the three-month (one year for
disability) period after termination of employment, no ordinary income will be recognized by the
participant at that time (and no deduction will be allowed to the Company) but the excess of the
fair market value of the shares acquired by such exercise over the option price will be taken into
account in determining the participants alternative minimum taxable income for purposes of the
federal alternative minimum tax applicable to individuals. If the shares acquired upon exercise
are not disposed of until more than two years after the date of grant and one year after the date
of transfer of the shares to the participant (statutory holding periods), the excess of the sale
proceeds over the aggregate option price of such shares will be long-term capital gain, and the
Company will not be entitled to any federal income tax deduction. Except in the event of death, if
the shares are disposed of prior to the expiration of the statutory holding periods (a
Disqualifying Disposition), the excess of the fair market value of such shares at the time of
exercise over the aggregate option price (but not more than the gain on the disposition if the
disposition is a transaction on which a loss, if sustained, would be recognized) will be ordinary
income at the time of such Disqualifying Disposition (and the Company will be entitled to a federal
tax deduction in a like amount), and the balance of the gain, if any, will be capital gain
(short-term or long-term depending upon whether the participant held the shares for more than one
year following the exercise of the option). To the extent that the aggregate fair market value of
stock (determined on the date of grant) with respect to which incentive options become exercisable
for the first time during any calendar year exceeds $100,000, such excess options will be treated
as nonqualified options.
Payment
Using Shares
If a participant pays the exercise price of a nonqualified or incentive stock option with
previously-owned shares of the Companys Common Stock and the transaction is not a Disqualifying
Disposition, the shares received equal to the number of shares surrendered are treated as having
been received in a tax-free exchange. The shares received in excess of the number surrendered will
not be taxable if an incentive stock option is being exercised, but will be taxable as ordinary
income to the extent of their fair market value if a nonqualified stock option is being exercised.
The participant does not recognize income and the Company receives no deduction as a result of the
tax-free portion of the exchange transaction. If the use of previously acquired incentive stock
option shares to pay the exercise price of another incentive stock option constitutes a
Disqualifying Disposition, the tax results are as described in the preceding paragraph. The income
treatment will apply to the shares disposed of, but will not affect the favorable tax treatment of
the shares received.
8
Stock
Appreciation Rights, Restricted Shares and Restricted Stock Units
Unless a participant makes the election described below with respect to restricted shares
granted under the Incentive Plan, a participant receiving a grant of such an incentive award will
not recognize income and the Company will not be allowed a deduction at the time such award is
granted. While an award remains unvested or otherwise subject to a substantial risk of forfeiture,
a participant will recognize compensation income equal to the amount of any dividends received and
the Company will be allowed a deduction in a like amount. When an award vests or otherwise ceases
to be subject to a substantial risk of forfeiture, the excess of the fair market value of the award
on the date of vesting or the cessation of the substantial risk of forfeiture over the amount paid,
if any, by the participant for the award will be ordinary income to the participant and will be
claimed as a deduction for federal income tax purposes by the Company. Upon disposition of the
shares received, the gain or loss recognized by the participant will be treated as capital gain or
loss, and
the capital gain or loss will be short-term or long-term depending upon whether the
participant held the shares for more than one year following the vesting or cessation of the
substantial risk of forfeiture. However, by filing a Section 83(b) election with the Internal
Revenue Service within 30 days after the date of grant of a restricted shares award, a
participants ordinary income and commencement of holding period and the deduction will be
determined as of the date of grant. In such a case, the amount of ordinary income recognized by
such a participant and deductible by the Company will be equal to the excess of the fair market
value of the award as of the date of grant over the amount paid, if any, by the participant for the
award. If such election is made and a participant thereafter forfeits his or her award, no refund
or deduction will be allowed for the amount previously included in such participants income.
Deductibility
of Executive Compensation
In order for applicable amounts described above to be deductible by the Company (or a
subsidiary of the Company), such amounts must constitute reasonable compensation for services
rendered or to be rendered and must be ordinary and necessary business expenses. The ability of
the Company (or a subsidiary of the Company) to obtain a deduction for future payments under the
Incentive Plan could also be limited by the golden parachute payment rules of section 280G of the
Code, which prevent the deductibility of certain excess parachute payments made in connection with
a change in control of a corporation. Finally, the ability of the Company (or a subsidiary of the
Company) to obtain a deduction for amounts paid under the Incentive Plan could be limited by
section 162(m) of the Code, which limits the deductibility, for federal income tax purposes, of
certain types of compensation paid to certain executive officers of the Company to $1,000,000 with
respect to any such officer during any taxable year of the Company.
Taxation
of Nonqualified Deferred Compensation
Certain of the benefits under the Incentive Plan may constitute nonqualified deferred
compensation within the meaning of Section 409A of the Code governing nonqualified deferred
compensation plans. Failure to comply with the requirements of the provisions of Section 409A
regarding participant elections and the timing of payment distributions could result in the
affected participants being required to recognize ordinary income for federal tax purposes earlier
than expected, and to be subject to substantial penalties.
ERISA
The Company believes that the Incentive Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA). The Incentive Plan is not qualified under
Section 401(a) of the Code.
9
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
To the Companys knowledge, the following table sets forth as of the close of business on June
17, 2009, information with respect to the shares of Common Stock beneficially owned by (i) the
named executive officers of the Company, (ii) each of the directors and director nominees of the
Company, (iii) all persons known to the Company to be the beneficial owners of 5% or more thereof
and (iv) all named executive officers and directors as a group. To the Companys knowledge, all
persons listed have sole voting and investment power with respect to the shares beneficially owned
by them, unless otherwise indicated.
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Amount of |
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Beneficial Ownership (1) |
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Number of |
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Percentage of |
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Name of Beneficial Owner |
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Shares (2) |
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Class (3) |
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Joe R.
Davis (4) |
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1,681,217 |
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13.8 |
% |
FMR LLC (5) |
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1,112,960 |
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10.0 |
% |
Bank of America Group (6) |
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895,949 |
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8.0 |
% |
Barclays Group (7) |
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739,607 |
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6.6 |
% |
Brady F. Carruth (8) |
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55,360 |
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* |
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Gary L. Forbes |
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47,500 |
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* |
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James H. Limmer (8) |
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37,500 |
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* |
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Hugh N. West, M.D. |
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37,500 |
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* |
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Larry J. Alexander |
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16,089 |
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* |
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Jon C. Biro |
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22,100 |
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* |
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All directors and named executive officers as a group (7 persons) |
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1,897,266 |
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15.6 |
% |
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* |
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Indicates beneficial ownership of less than 1% of the total outstanding shares of Common
Stock. |
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(1) |
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In accordance with Securities and Exchange Commission (SEC) regulations, shares are deemed
to be beneficially owned by a person if such person directly or indirectly has or shares the
power to vote or dispose of the shares, regardless of whether such person has any economic
interest in the shares. In addition, a person is deemed to own beneficially any shares of
which such person has the right to acquire beneficial ownership within 60 days, including upon
exercise of a stock option. |
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(2) |
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The shares beneficially owned include options to purchase shares of Common Stock exercisable
within 60 days of June 17, 2009, as follows: Mr. Davis-940,000 shares, Mr. Carruth-2,500
shares, Mr. Forbes-27,500 shares, Mr. Limmer-2,500 shares, Dr. West-7,500 shares,
Mr. Alexander-12,500 shares, and Mr. Biro-10,000 shares. See 2009 Outstanding Equity Awards
at Fiscal Year End in this proxy statement for details of the stock options held by our
executive officers (many of which have exercise prices below the current trading price of our
Common Stock). |
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(3) |
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The percentage of Common Stock owned by each person has been calculated using the 11,162,667
shares outstanding as of the close of business on June 17, 2009, plus any shares issuable upon
exercise of options owned by such person or group that are exercisable within 60 days of such
date and deemed to be outstanding pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act
of 1934, as amended (the Exchange Act). All percentages have been rounded up to the nearest
tenth of a percent. |
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(4) |
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The address of Mr. Davis is 5858 Westheimer, Suite 200, Houston, Texas 77057. |
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(5) |
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The Company obtained a copy of a Schedule 13G filed with the SEC on February 17, 2009 by FMR
LLC, 82 Devonshire Street, Boston, Massachusetts 02109, reflecting beneficial ownership of
1,112,960 shares of Common Stock in the aggregate as of December 31, 2008. The Schedule 13G
indicates that FMR LLC had sole voting power with respect to 11,160 shares and sole
dispositive power with respect to 1,112,960 shares. The filing also reflects that Fidelity
Management & Research Company (Fidelity), 82 Devonshire Street, Boston, Massachusetts 02109,
a wholly-owned subsidiary of FMR LLC, is the beneficial owner of 1,104,460 shares as a result
of acting as investment adviser to various investment companies. Ownership of one investment
company, Fidelity Value Fund, amounted to 7.257% of the Companys outstanding shares. Edward
C. Johnson 3d and FMR LLC, through its control of Fidelity and the funds, each has sole power
to dispose of the 1,104,460 shares owned by the funds. Neither FMR LLC nor Edward C. Johnson
3d, Chairman of FMR LLC, has the sole power to vote or direct the voting of the shares owned
directly by the Fidelity funds, which power resides with the funds Boards of Trustees.
Pyramis Global Advisors Trust Company (PGATC), 53 State Street, Boston, Massachusetts,
02109, an indirect wholly-owned subsidiary of FMR LLC, is the beneficial owner of 8,500 shares
as a result of its serving as investment manager of institutional accounts owning such shares.
Edward C. Johnson 3d and FMR LLC, through its control of PGATC, each has sole dispositive
power over 8,500 shares and sole power to vote or to direct the voting of 8,500 shares of
Common Stock owned by the institutional accounts managed by PGATC as reported above. Members
of the family of Edward C. Johnson 3d, Chairman of FMR LLC, or trusts for their benefit, own
approximately 49% of the voting shares of FMR LLC. |
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(6) |
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The Company obtained a copy of a Schedule 13G/A filed with the SEC on February 12, 2009 by
Bank of America Corporation, NB Holdings Corporation, Bank of America, NA, BAC North America
Holding Company, BANA Holding Corporation, Columbia Management Group, LLC, Columbia Management
Advisors, LLC, and Banc of America Investment Advisors, Inc. (collectively, the Bank of
America Group) reflecting beneficial ownership of 895,949 shares of Common Stock in the
aggregate as of December 31, 2008. The Schedule 13G/A indicates that Bank of America
Corporation, NB Holdings Corporation, BAC North America Holding Company and BANA Holding
Corporation each had shared voting power with respect to 591,037 shares and shared dispositive
power with respect to 895,949 shares; Bank of America, NA had sole voting and dispositive
power with respect to 131 shares, shared voting power with respect to 590,906 shares and
shared dispositive power with respect to 895,818 shares; Columbia Management Group, LLC had
shared voting power with respect to 590,768 shares and shared dispositive power with respect
to 895,818 shares; Columbia Management Advisors, LLC had sole voting power with respect to
588,018 shares, shared voting power with respect to 2,750 shares, sole dispositive power with
respect to 886,658 shares, and shared dispositive power with respect to 9,160 shares; and Banc
of America
Investment Advisors, Inc. had shared voting power with respect to 138 shares. The address of
the Bank of America Group is 100 North Tryon Street, Floor 25, Bank of America Corporate Center,
Charlotte, NC 28255. |
10
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(7) |
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The Company obtained a copy of Schedule 13G filed with the SEC on February 5, 2009 by
Barclays Global Investors, NA., Barclays Global Investors, Ltd, and Barclays Global Fund
Advisors (collectively, the Barclays Group) reflecting beneficial ownership of 739,607
shares in the aggregate as of December 31, 2008. The Schedule 13G indicates that Barclays
Global Investors, NA. had sole voting power with respect to 236,806 shares and sole
dispositive power with respect to 287,340 shares; Barclays Global Investors, Ltd had sole
dispositive power with respect to 345 shares and sole dispositive power with respect to 7,409
shares; and Barclays Global Fund Advisors had sole voting power with respect to 317,962 shares
and sole dispositive power with respect to 444,858 shares. The address of Barclays Global
Investors, NA. and Barclays Global Fund Advisors is 400 Howard St., San Francisco, California
94105. The address of Barclays Global Investors, Ltd is Murray House, 1 Royal Mint Court,
London, EC3N 4HH. |
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(8) |
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Mr. Carruth has pledged 38,860 shares to a financial institution as collateral for a personal
line of credit. There are no outstanding balances on the line. Mr. Limmer has 35,000 shares
in a brokerage margin account that may at some future date be used as collateral under such
account. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Companys directors and executive officers and
persons who own more than 10% of a registered class of the Companys equity securities to file with
the SEC and the NYSE certain reports of ownership, changes in ownership and annual statements of
beneficial ownership of the Companys Common Stock. Executive officers, directors and greater than
10% shareholders are required by SEC regulations to furnish the Company with copies of all such
forms they file. Based solely on a review of the copies of such reports furnished to the Company
and/or written representations from certain reporting persons that no other reports were required
to be filed with the SEC by such persons, the Company believes that during the 2009 fiscal year all
of the Companys executive officers, directors and greater than 10% shareholders complied on a
timely basis with all applicable filing requirements under Section 16(a) of the Exchange Act,
except that Mr. Carruth, a director, did not timely file a Form 4 to report an acquisition of
shares of the Companys Common Stock on November 12, 2008.
CORPORATE GOVERNANCE INFORMATION
Board of Directors and Committees
As of the date of this Proxy Statement, the size of the Board of Directors was fixed at six
members, divided into three classes as described under the caption Election of Class I Directors
above. Our Board has a standing Executive Committee, Audit Committee, Compensation Committee and
Nominating and Governance Committee. The Board may also establish other committees from time to
time as necessary to facilitate the management of the business and affairs of the Company and to
comply with the NYSE corporate governance rules.
From time to time, the Board may rotate members of the Companys various committees. At a
Board meeting held on May 21, 2009, the Board rotated certain members between the Audit and
Compensation Committees. Specifically, Messrs. Limmer and Carruth were elected to the
Compensation Committee, and Mr. Alexander and Dr. West were elected to the Audit Committee. Mr.
Forbes remained on the Audit Committee.
The Companys Corporate Governance Guidelines (the Governance Guidelines), in compliance
with the NYSE corporate governance rules, provide that the Board shall be comprised of a majority
of non-management directors that meet the independence requirements of the NYSE. The Companys
non-management directors (Messrs. Alexander, Carruth, Forbes and Limmer and Dr. West) comprise a
majority of the Board and each is independent for purposes of Section 303A of the NYSE corporate
governance rules. The Board has affirmatively determined that the non-management directors had no
material business relationships with the Company and otherwise satisfied the criteria for
independence of the NYSE. The Boards determination was based primarily on the directors general
familiarity with each other and their backgrounds, the fact that no director previously reported a
change in circumstances that could affect his independence and a review and discussion of the
representations made by the directors in response to various questions regarding each of their (and
their familys) employment and compensation history, affiliations and business and other
relationships.
During the fiscal year ended March 31, 2009, the Board met five times and acted by unanimous
consent five times. Each of the directors attended all of the meetings of the Board and of each
committee on which he served. In addition, pursuant to the Governance Guidelines, directors are
expected to attend each annual meeting of shareholders. All of the directors attended the 2008
annual meeting of shareholders.
Pursuant to the Governance Guidelines and the NYSE corporate governance rules, our
non-management directors are required to meet in executive sessions held at least quarterly. The
presiding director (the Presiding
Director) of those sessions is elected by the non-management directors. The Presiding
Director is also the non-management Board member appointed to receive communications from
interested parties, including shareholders, as set forth in Communications with Directors below.
11
Executive Committee
The Executive Committee, currently consisting of Messrs. Davis and Forbes, is charged under
its written charter to review, develop and recommend Company strategies and policies to the Board
and approve certain acquisition transactions of the Company pursuant to authority delegated by the
Board. During the fiscal year ended March 31, 2009, the Executive Committee consisted of Messrs.
Davis and Forbes and it met one time.
Audit Committee
The Audit Committee currently consists of Messrs. Alexander and Forbes and Dr. West. The
Board has affirmatively determined that each such individual meets the independence and financial
literacy requirements of the applicable NYSE corporate governance rules and SEC rules and
regulations. The Board has also affirmatively determined that Mr. Forbes qualifies as the Audit
Committee financial expert as defined in Item 407(d)(5) of Regulation S-K of the Exchange Act.
In addition to certain duties that may be prescribed by the NYSE corporate governance rules
and SEC rules and regulations, the Audit Committee is charged under its written charter to, among
other things, assist the Board in its oversight of the integrity of the Companys financial
statements, the Companys compliance with legal and regulatory requirements (including the
reasonableness and adequacy of disclosure of related person transactions), the qualifications,
independence, selection, compensation and performance of the registered independent public
accounting firm engaged to conduct the external audit of the Company, and the performance of the
Companys internal audit function. The Audit Committee is also responsible for preparing an audit
committee report as required by the SEC for inclusion in this Proxy Statement. During the fiscal
year ended March 31, 2009 and prior to the rotation of its Committee members, the Audit Committee
consisted of Messrs. Carruth, Forbes and Limmer, and it met five times.
Compensation Committee
The Compensation Committee currently consists of Messrs. Carruth and Limmer, each of whom
have been affirmatively determined by our Board to meet the independence requirements of the NYSE
corporate governance rules. During the fiscal year ended March 31, 2009 and prior to the rotation
of its Committee members, the Compensation Committee consisted of Mr. Alexander and Dr. West, and
it met five times and acted by unanimous consent two times.
In addition to certain duties that may be prescribed by the NYSE corporate governance rules
and SEC rules and regulations, the Compensation Committee is charged under its written charter
with, among other things, overseeing the effectiveness of the Companys executive compensation
policies applicable to the compensation of our directors and executive officers. The Compensation
Committee also provides executive administration of the Companys Incentive Plan and 2008 Annual
Incentive Compensation Plan (the Annual Bonus Plan). The Compensation Committee has sole
authority to retain advisors, including compensation consultants, to assist the Committee with its
duties. The Compensation Committee is not authorized by its charter to delegate to anyone the
authority to establish any compensation policies or programs for elected officers, including our
executive officers, or directors. Our Chief Executive Officer has the authority to establish
compensation programs for non-executive officers and makes recommendations for the Compensation
Committees consideration each year with respect to the appropriate compensation to be paid to our
executive officers, including himself. The Compensation Committee is also responsible for
reviewing the Compensation Discussion and Analysis section of this Proxy Statement and issuing a
compensation committee report as required by the SEC for inclusion in this Proxy Statement. See
Executive Compensation - Compensation Discussion and Analysis below for additional information on
the Companys procedures for the consideration and determination of director and executive officer
compensation, as well as the use of compensation consultants in such process.
Compensation Committee Interlocks and Insider Participation
During the 2009 fiscal year, no member of the Compensation Committee was or formerly had been
an officer or employee of the Company or any of its affiliates. Also, during the 2009 fiscal year,
no executive officer of the Company served on the compensation committee or the board of directors
of any other entity which employed as an executive officer, or was otherwise affiliated with, one
of the members of the Companys Board or of its Compensation Committee. Throughout the 2009 fiscal
year, the Compensation Committee consisted of Mr. Alexander and Dr. West.
12
Nominating and Governance Committee
The Nominating and Governance Committee currently consists of Messrs. Carruth and Limmer and
Dr. West, each of whom have been affirmatively determined by our Board to meet the independence
requirements of the NYSE corporate governance rules. In addition to certain duties that may be
prescribed by the NYSE corporate governance rules and SEC rules and regulations, the Nominating and
Governance Committee is charged under its written charter with, among other things, assisting the
Board in identifying individuals qualified to become Board members, evaluating and recommending for
Board selection director nominees for election at each annual meeting of shareholders and generally
assisting with filling Board vacancies, reviewing committee structures and member composition. In
addition, the Nominating and Governance Committee is responsible for overseeing the process by
which significant shareholder relations matters are addressed, including prompt notice to the
Nominating and Governance Committee of the Companys receipt of any significant shareholder
communications or shareholder proposals, establishing procedures requiring the Committee to be
notified of potential violations and/or requests for waivers to the Companys Governance Guidelines
or Code of Ethics, including approval of related person transactions involving executive officers,
directors or their immediate family members, and recommending to the Board any changes deemed
necessary to the Companys insider trading policies, Governance Guidelines or Code of Ethics.
Throughout the 2009 fiscal year, the Nominating and Governance Committee consisted of Messrs.
Carruth and Limmer and Dr. West and it met one time.
Director Nomination Process
The Nominating and Governance Committee assists the Board by identifying, evaluating and
recommending for Board affirmation potential candidates for election to the Board of Directors at
each annual meeting of shareholders and, in accordance with our By-Laws, to fill vacancies on the
Board that may occur between such annual meetings.
Pursuant to its charter, in reviewing prospective director nominees, the Nominating and
Governance Committee considers the NYSE corporate governance rules and other factors such as
knowledge of the Company and the printing industry, business experience, and any prior service as a
Board member, with no one or more of these factors being deemed to be minimum criteria for
qualification or more important than any other factor that the Nominating and Governance Committee
may take into account in its discretion. The Nominating and Governance Committee considers
director nominees for the Board based on the recommendation of the Chairman of the Board and, if so
requested, by the Companys shareholders subject to and in the manner set forth below under
Shareholder Nominations for Directors. If necessary, the Nominating and Governance Committee may
independently seek candidates and has the authority to retain and compensate consulting firms in
connection with that search process. Director candidates identified by the Chairman of the Board,
the shareholders or the Nominating and Governance Committee itself will each be evaluated in the
same manner and on the same basis by the Nominating and Governance Committee.
For purposes of the election of Class I directors at the Annual Meeting, the Nominating and
Governance Committee reviewed the recommendation from Mr. Davis, the current Chairman of the Board,
that Messrs. Alexander and Carruth be considered for re-election as Class I directors. No
director candidates were submitted by shareholders for the Nominating and Governance Committees
consideration. Based on the Nominating and Governance Committees evaluation of the qualifications
of such nominees, taking into consideration the factors described above and relevant elements from
the Boards annual self-assessment, the Nominating and Governance Committee recommended to the
Board that Messrs. Alexander and Carruth be nominated for re-election to the Board, which the
Board subsequently affirmed.
Shareholder Nominations for Directors
Pursuant to our By-laws, shareholders of the Company may nominate director candidates for
election at the annual meeting of shareholders in accordance with the procedures set forth therein.
To be properly brought for consideration at the annual meeting of shareholders, in addition to
complying with the procedures in our By-laws, such nominations must comply with all of the
requirements described under the caption Shareholder Proposals below, and must be accompanied by
the following information:
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the name of the nominee and the address and principal occupation or employment
of such nominee; |
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description of all arrangements or understandings between the shareholder and
each nominee and any person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by the shareholder; |
13
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the written consent of each nominee to serve if so elected; |
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any other information related to such person that is required to be disclosed
in a proxy statement soliciting proxies for election of directors, or as otherwise
required pursuant to Regulation 14A under the Exchange Act; and |
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the name(s) and address(es) of the shareholder(s) making the nomination and the
number of shares of the Companys Common Stock which are owned beneficially by such
shareholder(s). |
The Nominating and Governance Committee will consider candidates for director nominees properly
submitted by shareholders of the Company in the same manner and on the same basis as other
recommended nominees, as discussed above under Director Nomination Process.
Communications with Directors
Interested parties, including shareholders, wishing to communicate with the non-management
directors of the Board may contact the then Presiding Director in the manner set forth on our Web
site. Our Presiding Director presides at the regularly scheduled meetings of our non-management
directors and is authorized to act on behalf of such directors in accordance with our Governance
Guidelines. Currently, our Presiding Director is Gary L. Forbes, who may be contacted at P.O. Box
92496, Austin, Texas 78709.
Availability of Certain Committee Charters and Other Information
The charters for our Audit, Compensation, Nominating and Governance and Executive Committees,
as well as our Governance Guidelines and Code of Ethics, can all be accessed, free of charge, on
our Web site (www.cgx.com) under Investor Relations Governance. We will provide printed copies
of these materials to any shareholder upon request directed to Consolidated Graphics, Inc.,
Attn: Secretary, 5858 Westheimer, Suite 200, Houston, Texas 77057. We intend to disclose on our
Web site any changes to or waivers from the Code of Ethics that are also required under SEC rules
and regulations to be disclosed under Item 5.05 of Form 8-K. The information on our Web site is
not, and shall not be deemed to be, a part of this Proxy Statement or incorporated into any other
filings we make with the SEC.
We also make available on our Web site, free of charge, access to our Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those
reports, as well as other documents that we file with or furnish to the SEC pursuant to Sections
13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after such documents are so
filed with, or so furnished to, the SEC.
Director Compensation effective April 1, 2008 through February 28, 2009
We paid each of our non-employee directors the following fees:
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an annual retainer of $25,000, paid quarterly; |
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$1,000 for each Board meeting attended; |
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$1,000 to the chairperson of the Audit Committee for each Audit Committee
meeting attended, whether or not the meeting is held on the same day as a meeting of
the Board; |
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$500 to each other member of the Audit Committee for each Audit Committee
meeting attended, whether or not the meeting is held on the same day as a meeting of
the Board; and |
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$500 for each other Board committee meeting attended. |
Director Compensation effective March 1, 2009
Effective as of March 1, 2009, the non-employee directors voluntarily cut their cash
compensation for an undetermined length of time at their discretion. The fees payable to such
directors following such reductions are currently as follows:
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an annual retainer of $21,250, paid quarterly; |
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$850 for each Board meeting attended; |
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$850 to the chairperson of the Audit Committee for each Audit Committee meeting
attended, whether or not the meeting is held on the same day as a meeting of the Board; |
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$425 to each other member of the Audit Committee for each Audit Committee
meeting attended, whether or not the meeting is held on the same day as a meeting of
the Board; and |
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$425 for each other Board committee meeting attended. |
In May 2008, we granted option awards under the Incentive Plan for the purchase of 12,500
shares of the Companys Common Stock (at $59.40 per share, the fair market value of such shares on
the grant date) to each of our non-employee directors, with such options vesting ratably on each
anniversary of the grant date through the fifth anniversary thereof. We do not pay any additional
compensation to our employees for serving as directors, but we reimburse all directors for
out-of-pocket expenses they incur in connection with attending Board and Board committee meetings
or otherwise in their capacity as directors.
The table below summarizes the aggregate compensation paid to our non-employee directors
during the year ended March 31, 2009.
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2009 DIRECTOR COMPENSATION TABLE |
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Name(1) |
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Fees Paid in Cash |
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Stock Option Awards(2) |
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All Other Compensation |
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Total |
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Larry J. Alexander |
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$ |
24,500 |
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$ |
131,710 |
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$ |
156,210 |
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Brady F. Carruth |
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$ |
24,500 |
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$ |
131,710 |
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$ |
156,210 |
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Gary L. Forbes |
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$ |
27,250 |
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$ |
131,710 |
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$ |
158,960 |
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James H. Limmer |
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$ |
25,250 |
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$ |
131,710 |
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$ |
156,960 |
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Hugh N. West, M.D. |
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$ |
25,000 |
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$ |
131,710 |
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$ |
156,710 |
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(1) |
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Mr. Davis is not included in this table as he is an employee and is not entitled to receive
additional compensation for his services as a director, other than reimbursement of certain
out-of-pocket expenses. The compensation Mr. Davis received in fiscal 2009 is shown in the
2009 Summary Compensation Table. |
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(2) |
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Reflects the dollar amount recognized for financial statement reporting purposes for the
fiscal year ended March 31, 2009 in accordance with Statement of Financial Accounting
Standards No. 123(R), Share-Based Payment, (SFAS 123(R)) issued by the Financial Accounting
Standards Board. As of March 31, 2009, outstanding options to purchase shares of Common Stock
(and the related exercise price) held by our non-employee directors were as follows: Mr.
Alexander 10,000 shares at $19.67 and 12,500 shares at $59.40, Mr. Carruth 12,500 shares
at $59.40, Mr. Forbes 25,000 shares at $16.50 and 12,500 shares at $59.40, Mr. Limmer -
12,500 shares at $59.40, and Dr. West 5,000 shares at $16.50 and 12,500 shares at $59.40. |
EXECUTIVE OFFICERS
The names, ages, position and other information with respect to our named executive officers
are set forth below.
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Name |
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Age |
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Position |
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Joe R. Davis |
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66 |
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Chief Executive Officer |
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Jon C. Biro |
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43 |
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Executive Vice President, Chief Financial and |
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Accounting Officer, Treasurer and Secretary |
Joe R. Davis has been the Chief Executive Officer and Chairman of the Board of Directors since
the Company was founded in 1985. Please refer to the caption Proposal for Election of Class I
Directors Continuing Class III Directors above for additional information with respect to
Mr. Davis background and experience.
Jon C. Biro has been Executive Vice President, Chief Financial and Accounting Officer, and
Secretary of the Company since January 2008. Mr. Biro is a certified public accountant. Prior to
that time, Mr. Biro was employed as the Chief Financial Officer and Treasurer of ICO, Inc., a
publicly traded company, and was employed by a predecessor of
PricewaterhouseCoopers LLP. Mr. Biro serves on the board of directors and audit committee of
Aspect Medical Systems, Inc., a publicly traded anesthesia monitoring medical device manufacturer.
Mr. Biro is 43 years of age.
15
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This Compensation Discussion and Analysis addresses the following topics:
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the structure and responsibilities of the Compensation Committee of the Board; |
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the Compensation Committee process; |
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overall compensation philosophy and policies; |
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the components of our executive officer compensation program; and |
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compensation paid to our executive officers (as defined below) for fiscal year 2009. |
Structure and Responsibilities of the Compensation Committee
Compensation Committee Members and Independence
Throughout the 2009 fiscal year, the Compensation Committee consisted of Mr. Alexander and Dr.
West. However, Brady F. Carruth and James H. Limmer are the current members of the Compensation
Committee. Mr. Limmer, who has served on our Board of Directors for approximately 24 years, is the
current chairman of the Compensation Committee. Each member of the Compensation Committee is an
independent director and non-employee director in accordance with the rules of the SEC and the
listing standards of the NYSE, as applicable.
Responsibilities of Committee
There are three primary purposes of the Compensation Committee: (1) to discharge the Boards
responsibilities relating to compensation of our executive officers and directors; (2) to issue
annual reports of the Compensation Committee relating to our compensation discussion and analysis
for inclusion in the proxy statements for our annual meetings; and (3) to provide executive
administration of the Companys incentive compensation plans, including recommending to the Board
any necessary amendments to existing plans or adoption of new incentive compensation plans. The
Compensation Committee operates under a written charter adopted by the Board. A copy of the charter
is available at www.cgx.com under Investor Relations Corporate Governance. Pursuant to the
charter, the Compensation Committee has the resources necessary to discharge its duties and
responsibilities, including the authority to retain outside counsel or other experts or consultants
as it deems necessary. The following functions are among the key responsibilities and duties of the
Compensation Committee, as set forth in the charter:
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negotiate, and recommend for approval by the Board, definitive employment and
related agreements with the Chief Executive Officer of the Company; |
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in conjunction with the Chief Executive Officer, negotiate and recommend for
approval by the Board, definitive employment agreements with other executive officers; |
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based on input from all directors, establish both general and specific goals
and objectives for the Company which are relevant to the compensation of the Chief
Executive Officer; |
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in consultation with the Chief Executive Officer, establish both general and
specific goals and objectives for the Company which are relevant to the compensation of
any other executive officers, if applicable; |
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as required under the terms of any definitive employment agreement(s) with the
Chief Executive Officer and any other executive officers, establish target compensation
levels based on the established goals and objectives; |
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following the end of each fiscal year, evaluate the Chief Executive Officer
based upon performance in relation to established goals and objectives, and approve
annual and long-term compensation for such individual, taking various factors into
account, including, at the discretion of the Compensation Committee, terms and
conditions of employment, expectations of future contribution to the Company,
consideration of the Companys performance and shareholder return, the value of similar
incentive awards to the similar
position in similar companies, applicable tax laws, and other factors deemed relevant by
the Compensation Committee; |
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following the end of each fiscal year, in consultation with the Chief Executive
Officer, evaluate any other executive officers based on performance in relation to
established goals and objectives, and approve annual and long-term compensation for
such individuals, taking various factors into account at the discretion of the
Compensation Committee, including terms and conditions of employment, expectations of
future contribution to the Company, consideration of the Companys performance and
shareholder return, the value of similar incentive awards to similar positions in
similar companies, applicable tax laws, and other factors deemed relevant by the
Compensation Committee; |
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determine the types of awards or grants made to each participant of the
Companys incentive compensation plans and the terms, conditions and limitations,
including performance goals, applicable to each award and grant, as well as to
determine if such terms, conditions and limitations, including performance goals, have
been satisfied; |
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interpret the Companys incentive compensation plans and, as needed, grant
waivers of restrictions thereunder; |
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review and recommend for approval by the Board and pursuant to the Companys
incentive compensation plans, any amendments to such incentive compensation plans as
may be deemed appropriate by the Compensation Committee; |
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review and recommend for approval by the Board any new incentive compensation
plans as may be deemed appropriate from time to time by the Compensation Committee; |
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adopt such rules and regulations as the Compensation Committee may deem
necessary or appropriate in keeping with the objectives of the Companys incentive
compensation plans and in keeping with compliance of applicable regulatory codes; |
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review and discuss with Company management the Companys annual compensation
discussion and analysis, and if appropriate, recommend its inclusion in the Companys
annual proxy statement; |
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issue the report of the Compensation Committee for inclusion in the Companys
annual proxy statement; |
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review and recommend to the Board appropriate compensation for members of the
Board and its committees; |
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review and evaluate annually the adequacy of the Compensation Committee charter
and report to the Board thereon; |
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review and evaluate annually the performance of the Compensation Committee and
report to the Board thereon. |
The Compensation Committee Process
Committee Meetings
The Compensation Committee meets as often as necessary to perform its duties and
responsibilities and works with management to establish the agenda for each meeting. The
Compensation Committee held seven meetings and took action by unanimous written consent two times
during fiscal year 2009 and has held one meeting thus far during fiscal year 2010.
The Compensation Committee typically meets at least annually with our Chief Executive Officer
and, where appropriate and as needed, other management, legal counsel and other outside advisors.
The Compensation Committee also meets as needed in executive sessions without management, including
at least annually, to evaluate the performance of our Chief Executive Officer and any other
executive officers, to determine their non-equity incentive compensation and/or discretionary
bonuses for the prior fiscal year. The Compensation Committee will also meet as necessary in
connection with establishing or negotiating the parameters of any new employment or other
compensation agreements with our executive officers.
17
The Compensation Committee typically receives and reviews materials in advance of each
meeting. These materials include information that our management believes will be helpful to the
Compensation Committee, as well as materials that the Compensation Committee has specifically
requested. Depending on the agenda for the particular meeting, this information may include:
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financial reports on year-to-date performance versus prior year performance; |
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the Chief Executive Officers proposals for salary, non-equity incentive
compensation and/or discretionary bonuses and long-term incentive compensation for
himself and any other executive officers; |
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materials setting forth the total compensation of the Chief Executive Officer
and any other executive officers, including base salary, cash incentives, vested and
unvested equity awards, value of benefits and perquisites, and amounts payable to these
executives upon voluntary or involuntary termination or following a change-in-control
of the Company; and |
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reports from compensation consultants engaged by the Compensation Committee in
connection with the negotiation of any executive employment agreements, as applicable. |
Role of the Executive Committee
Pursuant to the charter of the Executive Committee of the Board of Directors, such committee,
among other duties and responsibilities, designates the Companys executive officers for purposes
of disclosures required by the SEC. In this respect, the members of the Executive Committee
consider the definition of executive officer in Rule 3b-7 of the Exchange Act, and based on their
knowledge and familiarity of the Company, its operations, and members of the Companys management
team, as well as input from the Companys Chief Executive Officer, determine in their best business
judgment which individuals have responsibilities and perform at the executive officer level in
accordance with the meaning and intent of Rule 3b-7 of the Exchange Act. For the fiscal year ended
March 31, 2009, the Executive Committee designated Joe R. Davis, Chairman of the Board and Chief
Executive Officer, and Jon C. Biro, Executive Vice President, Chief Financial and Accounting
Officer, Treasurer and Secretary, as the Companys executive officers.
Managements Role in the Compensation-Setting Process
The Chief Executive Officer of the Company plays a key role in the executive
compensation-setting process. The most significant aspects of his role are:
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recommending annual base salary, equity and non-equity incentive compensation
and discretionary bonus levels for himself and the other executive officers of the
Company; |
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recommending business performance targets and objectives for approval by the
Compensation Committee in connection with incentive compensation plans; and |
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evaluating other executive officer performance. |
Compensation Consultants
From time to time, the Compensation Committee may engage compensation consultants in
connection with the executive compensation process. Most recently, in connection with the
negotiation of the employment agreement entered into with Mr. Davis on May 22, 2008 (see Overall
Compensation Philosophy and Policies Employment Agreement with Joe R. Davis below), the
Compensation Committee retained the advisory services of Cogent Compensation Partners, Inc.
(Cogent), an executive compensation consulting firm. Specifically, Cogent was retained by the
Compensation Committee to, among other things, review the Chief Executive Officers proposed
employment agreement and provide independent assessment of the proposal related to market
practices. Cogent also reviewed the Companys then existing Incentive Plan, and provided
recommendations related to the creation of a new annual cash incentive plan that would comply with
the requirements of Code Section 162(m) (and therefore awards thereunder would be tax deductible by
the Company). This compensation consultant was independent of the Company, reported directly to
the Compensation Committee and had no other business relationships with us other than to assist the
Compensation Committee with the executive compensation process.
18
Overall Compensation Philosophy and Policies
Our compensation philosophy regarding members of the Board and the Companys executive
officers is to maintain compensation policies which align compensation with the Companys overall
business strategy, values and management initiatives. The policies are intended to (1) reward
individuals for long-term strategic management and enhancement of shareholder value; (2) support a
performance-oriented environment that rewards achievement of internal Company goals and recognizes
the Companys performance compared to the performance of similarly situated companies; (3) attract
and retain individuals whose abilities are considered essential to the long-term future and
competitiveness of the Company; and (4) align the financial interests of the Companys directors
and executive officers with those of the shareholders.
As a way to ensure that all parties have a clear meeting of the minds, as well as to assure
that the objectives of our compensation philosophy are best able to be achieved, it has been our
practice to enter into employment agreements with our executive officers.
Employment Agreement with Joe R. Davis
We entered into an employment agreement with Mr. Davis on May 22, 2008 as a result of a
negotiated process described in our 2008 proxy statement, which we filed with the SEC on July 3,
2008. The employment agreement was negotiated and approved by the Compensation Committee. With
the approval of the Compensation Committee, that employment agreement was subsequently amended and
restated on December 29, 2008, primarily to comply with Section 409A of the Code and to remove
certain contractual restrictions on the ability of Mr. Davis to sell the underlying shares issuable
upon the exercise of 600,000 stock options, as well to make certain other ministerial
clarifications. Other than the removal of such sales restrictions, the terms of his current
employment agreement are substantially similar to the terms and provisions of the employment
agreement entered into on May 22, 2008.
The employment agreement is effective until May 22, 2013, provided that it will thereafter be
automatically extended for five (5) consecutive one (1) year terms unless the Company provides
ninety (90) days notice to Mr. Davis that the employment agreement will not be extended.
Notwithstanding the foregoing, the employment period under the employment agreement is set to
expire on the tenth anniversary of its effective date, or May 22, 2018, unless otherwise terminated
earlier in accordance with its terms. Key compensation provisions of the employment agreement
pursuant to which Mr. Davis was compensated in fiscal 2009 include the following:
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Base annual salary of not less than $750,000, subject to an annual review by
our Board; |
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Eligibility to participate in the Annual Bonus Plan, with an annual target
bonus award level equal to 100% of his annual base salary for a stated performance
period, determined by reference to certain performance measures set by the Compensation
Committee. For fiscal 2009, the maximum bonus that could be earned pursuant to such
award, subject to achievement of certain stated performance measures, was 225% of
Mr. Davis annual base salary base. However, no bonus was earned under that award. |
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A one-time grant of options on May 22, 2008 to purchase 450,000 shares of the
Companys Common Stock at an exercise price equal to the stocks closing price on the
date of grant ($56.82 per share), vesting in annual increments of 20% over five years; |
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Annual grants of restricted stock unit awards on April 1, 2009 and April 1,
2010 of at least 12,500 shares each or such greater number as may be determined by
dividing a number determined by the Compensation Committee, which shall not be less
than $500,000, by the stock price, vesting over a period of no greater than five (5)
years and no less than three (3) years, and certain severance benefits as discussed
below. |
Under the terms of his employment agreement, Mr. Davis is subject to a confidentiality
covenant that will survive his termination of employment, and he may not compete or interfere with
the Companys business during his employment and for one year period thereafter unless Mr. Davis is
terminated during the three year period following a change in control as discussed below.
19
Employment Agreement with Jon C. Biro
The Company entered into an employment agreement (and related change in control agreement)
with Jon C. Biro, effective as of January 14, 2008, to serve as our Executive Vice President, Chief
Financial and Accounting
Officer, Treasurer and Secretary through August 31, 2013, unless terminated earlier pursuant
to its terms. The terms of those agreements were negotiated between Mr. Biro and Mr. Davis and
were approved by the Compensation Committee. With the approval of the Compensation Committee,
those agreements were subsequently amended and restated on December 9, 2008, primarily to comply
with Section 409A of the Code and to make certain ministerial clarifications. Mr. Biros
employment and change in control agreements are substantially similar to the agreements entered
into effective January 14, 2008. Key compensation provisions of the employment agreement pursuant
to which Mr. Biro was compensated in fiscal 2009 include the following:
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Base annual salary of not less than $250,000; |
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Annual discretionary bonus based principally on Mr. Davis judgment of
Mr. Biros performance and contribution to the Company, but nevertheless subject to the
review and approval of the Compensation Committee or the Board; |
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An initial grant of options on January 14, 2008 to purchase 50,000 shares of
the Companys Common Stock at an exercise price of $40.99 per share, vesting ratably
over a five year period through January 14, 2013, and certain severance benefits as
discussed below. |
Under the terms of his employment agreement, Mr. Biro is not permitted to compete or interfere
with the Companys business during his employment and for one year thereafter (generally regardless
of the circumstances resulting in Mr. Biros termination of employment).
Components of Executive Compensation
The primary components of our executive compensation programs are annual base salaries, annual
non-equity incentive compensation and discretionary cash bonuses and long-term equity incentive
compensation. Under our current compensation structure, the Compensation Committee has not
specifically allocated the mix of base salary, non-equity incentive compensation, discretionary
cash bonuses and long-term equity compensation as targeted percentages of total compensation. There
are no indirect or deferred compensation components to our executive compensation programs, other
than limited perquisites available generally to all employees of the Company. The Compensation
Committee does not use benchmarking to set any components of executive compensation. However, the
Compensation Committee may from time to time review publicly available information to evaluate
compensation for its executive officers.
Base Salary
The base salary paid to our named executive officers in fiscal 2009 is set forth in the
following table:
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2009 Base Salary |
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Joe R. Davis, Chief Executive Officer(1) |
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$ |
740,625 |
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Jon C. Biro, Executive Vice President, Chief Financial
and Accounting Officer, Treasurer and Secretary |
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$ |
250,000 |
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(1) |
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Mr. Davis listed annual base salary reflects his voluntary reduction in monthly salary
as described below. |
Each of these amounts was determined and paid in accordance with the respective employment
agreements of such executive officers in effect during such period, as previously discussed.
However, Mr. Davis voluntarily cut his monthly salary by 15%, effective March 1, 2009, due to the
current economic environment and the state of the commercial printing industry. Similarly, Mr.
Biro voluntarily cut his monthly salary by 10%, effective May 1, 2009. The voluntary salary
reductions of Messrs. Davis and Biro are for indeterminate periods of time, at each executive
officers discretion.
Annual Non-Equity Incentive Compensation Awards/Discretionary Bonuses
Pursuant to the terms of his employment agreement, Mr. Davis was granted an annual incentive
award agreement in May 2008 under the Annual Bonus Plan for the fiscal 2009 performance period.
The maximum bonus that could be earned under such award for that performance period, subject to
achievement of the various performance measures stated therein, was 225% of Mr. Davis annual base
salary base. Due to the year-over-year earnings decline for the performance period, Mr. Davis was
not eligible to receive a bonus under such award.
20
As contemplated under Mr. Davis employment agreement, the Compensation Committee granted Mr.
Davis a non-equity incentive compensation award for the fiscal 2010 performance period. The award
was granted under the Annual Bonus Plan approved last year by shareholders, and the payment of a
cash bonus is conditioned on the achievement of certain performance measures intended to comply
with Code Section 162(m), which would allow such payments to be deducted by the Company as
compensation expense. The Compensation Committee utilized the same performance measures set forth
in the award granted to Mr. Davis for the fiscal 2009 performance period, which are based on
reaching various target levels of earnings per share growth pursuant to which Mr. Davis could earn
between 50% and 150% of his annual base salary. Then, depending on achievement of various
established target levels of return on equity, his potential bonus would be subject to an upward or
downward adjustment based on a modifier ranging from 0.5x to 1.5x. Mr. Davis will not receive an
award under his annual incentive award agreement if the Company experiences an earnings per share
decline. The established performance goals are set forth below.
|
|
|
|
|
|
|
|
|
|
|
Annual |
|
% of |
|
|
Annual Return |
|
|
|
EPS Growth |
|
Base Salary |
|
|
on Equity |
|
Modifier |
|
|
0 9.99% |
|
|
50 |
% |
|
< 8.99% |
|
|
0.50 |
|
|
10 19.99% |
|
|
75 |
% |
|
9 10.99% |
|
|
0.75 |
|
|
20 29.99% |
|
|
100 |
% |
|
11 12.99% |
|
|
1.00 |
|
|
30 39.99% |
|
|
125 |
% |
|
13 14.99% |
|
|
1.25 |
|
|
≥ 40% |
|
|
150 |
% |
|
≥ 15% |
|
|
1.50 |
|
By linking these performance measures in calculating the Chief Executive Officers potential
annual bonus, the Compensation Committee believes that Mr. Davis interests will be aligned with
those of our shareholders because it will cause the executive to focus on long-term capital
management, and not solely on maximizing short-term results. Mr. Davis targeted annual bonus
award is equal to 100% of his annual base salary but, depending on the growth of the Companys
earnings per share and the Companys return on equity as set forth above, Mr. Davis would have the
ability to earn a bonus equal to 225% of his annual base salary, which the Compensation Committee
believes is reasonable and competitive.
Upon recommendation by the Chief Executive Officer for recognition of Mr. Biros contributions
during fiscal 2009, consideration of the Companys performance, and the value of similar incentive
awards to executives in similar positions at similar companies, the Compensation Committee approved
a discretionary cash bonus award to Jon C. Biro of $75,000 for fiscal 2009.
Equity Incentive Compensation Awards
The Compensation Committee believes that equity incentive compensation is one of the most
effective means of creating a link between the compensation provided to our employees, including
executive officers, and gains realized by our shareholders. Specifically, such compensation is
viewed as an effective incentive vehicle because:
|
|
|
equity incentive compensation helps to align the interests of our executive
officers with those of the Companys shareholders, foster executive officer stock
ownership, and contribute to the focus of the executive officers on increasing value
for the Companys shareholders; and |
|
|
|
the vesting period encourages retention of the executive officers. |
The Company does not have any program, plan or obligation to grant equity compensation to
executive officers, other than grants set forth in the executive officers employment agreements,
or to our directors on specified dates. However, our Compensation Committee follows a policy of
not granting equity incentives when material non-public information exists that may affect the
short-term price of our common stock. The Compensation Committee has the authority and discretion
to grant equity compensation to the Companys employees, including the executive officers, from
time to time.
21
The equity incentive compensation awards granted to our named executive officers under our
Incentive Plan during fiscal 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Restricted |
|
|
|
|
|
|
2009 Stock Option Awards |
|
|
Stock Unit Awards |
|
|
Grant Date |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Shares |
|
|
Fair Value (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joe R. Davis, Chief Executive Officer |
|
|
450,000 |
|
|
$ |
56.82 |
|
|
|
12,500 |
|
|
$ |
12,036,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jon C. Biro, Executive Vice
President, Chief Financial and
Accounting Officer, Treasurer and
Secretary |
|
|
25,000 |
|
|
$ |
17.16 |
|
|
|
|
|
|
$ |
196,250 |
|
|
|
|
(1) |
|
The grant date fair value is computed in accordance with SFAS No. 123(R), based on the
closing market price of our Common Stock ($56.73) on the date of grant in the case of
restricted stock unit awards granted to Mr. Davis and a closing market price of our Common
Stock ($56.82) on the date of grant in the case of stock option awards granted to Mr. Davis
and a closing market price of our Common Stock ($17.16) on the date of grant in the case of
stock option awards granted to Mr. Biro. |
The equity compensation grant received by Mr. Davis during fiscal 2009 was awarded in
connection with the terms of his then current employment agreement. The equity compensation
received by Mr. Biro was a discretionary grant, based on Mr. Davis recommendation, to recognize
the Companys expectations of Mr. Biros future contributions to the Company and considering the
terms and conditions of Mr. Biros employment, the value of similar incentive awards to executives
in similar positions at similar companies, applicable tax laws, and other factors deemed relevant
by the Compensation Committee.
Additional Benefits Pursuant to Employment Agreements
The employment agreements entered into with our executive officers, Messrs. Davis and Biro,
entitle such individuals to participate in the health and welfare benefit programs we make
generally available to our other employees during their employment with us and, in certain cases
discussed below, following their separation from the Company.
Severance, Death and Disability Benefits for Current Executive Officers
Our philosophy is to provide certain severance benefits to our executive officers through the
terms and conditions of their employment agreements, generally as protection for such individuals
against the unexpected loss of income and benefits in the event we terminate them without cause
or they resign for good reason, as such terms are defined in the respective employment
agreements. We also provide certain benefits to our executive officers under their employment
agreements in the event that their termination results from death or disability.
In respect of Mr. Davis, his employment agreement will terminate on the first to occur of May
22, 2018 or on his death, disability or resignation or termination by us. If the employment
agreement terminates because of Mr. Davis death, disability or his resignation for good reason or
termination by us without cause, and such termination does not occur during the three year period
following a change in control (please see Change in Control below), then we will be obligated to
deliver to Mr. Davis (or his estate) (i) a lump sum payment in an amount equal to four (4) times
his annual base salary in effect immediately prior to the termination and (ii) an amount equal to
his bonus earned under the Annual Bonus Plan for the fiscal year in which the termination occurs
based on the attainment of applicable performance goals for such bonus, prorated based on the
number of days he was employed during the fiscal year. In addition, we will be required to (i)
accelerate vesting of any unvested equity awards held by Mr. Davis and (ii) remove all restrictions
on equity awards held by him, whether or not exercised before or after such termination date. Mr.
Davis recent voluntary salary reduction will not affect the Companys severance obligations under
his employment agreement.
If Mr. Davis employment is terminated for cause or he resigns without good reason, he will be
entitled to payment of his annual base salary through the termination date, as well as payment of
any other amounts owed to him as of such date. Furthermore, any unvested awards shall be cancelled
or forfeited on the termination date, and all sales restrictions on equity awards held by Mr. Davis
will remain in place and will only be removed in accordance with the terms of such awards.
22
In respect of Mr. Biro, should he be terminated without cause or resign for good reason, then
he will be entitled to a lump sum payment equal to his annual base salary, and receive benefits
under the Companys welfare plans at its
expense (other than costs payable by him as a participant) for a one-year period, plus should
he resign for good reason, die or become disabled, then he (or his estate) will be entitled to
immediate vesting of any outstanding equity compensation awards and release of any restrictions
thereon, as well as delivery or payment of other awards granted to him prior to such event. As
with Mr. Davis, Mr. Biros recent voluntary salary reduction will not affect the Companys
severance obligations under his employment agreement.
If Mr. Biros employment is terminated due to his death or disability, he resigns without good
reason or is terminated for cause, he will be entitled to payment of his annual base salary through
the termination date, as well as payment of any other amounts owed to him as of such date.
Based on a hypothetical termination event, other than a termination in connection with a
change in control, obligating us to provide the maximum severance benefits possible and a
hypothetical termination date of March 31, 2009, the estimated severance benefits for our current
named executive officers are set forth in the table below. The actual amounts to be paid or
incurred can only be determined at the time of such executives actual separation from the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare and |
|
|
Fair Market Values of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Insurance |
|
|
Accelerated Equity |
|
|
|
|
|
|
Base Salary |
|
|
Bonus |
|
|
Benefits |
|
|
Compensation(3) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joe R. Davis,
Chief Executive Officer(1) |
|
$ |
3,000,000 |
(2) |
|
$ |
750,000 |
(2) |
|
|
|
|
|
$ |
373,650 |
|
|
$ |
4,123,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jon C. Biro, Executive Vice
President, Chief Financial and
Accounting Officer, Treasurer and
Secretary |
|
$ |
250,000 |
(2) |
|
|
|
|
|
$ |
3,707 |
|
|
|
|
|
|
$ |
253,707 |
|
|
|
|
(1) |
|
The severance benefits are calculated based on the terms of Mr. Davis employment agreement,
assuming he was entitled to the payment of a bonus under the Annual Bonus Plan equal to his
targeted bonus award of 100% of annual base salary. |
|
(2) |
|
Payable in lump sum payments. |
|
(3) |
|
Determined based on the closing price of the Companys Common Stock ($12.72) on March 31,
2009 and, for Mr. Davis, accelerated vesting of a stock option granted to Mr. Davis to
purchase 450,000 shares of the Companys Common Stock at an exercise price of $56.82 per share
and of 29,375 restricted stock units and, for Mr. Biro, accelerated vesting of stock options
to purchase (i) 50,000 shares of the Companys Common Stock at an exercise price of $40.99 per
share and (ii) 25,000 shares of the Companys Common Stock at an exercise price of $17.16 per
share. This table does not, however, include the accelerated vesting of a stock option award
granted to Mr. Davis (in lieu of RSUs) to purchase 35,000 shares at an exercise price of
$15.96 per share or an RSU award for 25,000 shares issued to Mr. Davis, in each case, granted
subsequent to March 31, 2009. |
Retirement Plans
We maintain a 401(k) plan pursuant to which our named executive officers may contribute. We
do not make any matching or discretionary contributions on behalf of our employees, including
executive officers.
Change in Control
Our executive officers have been materially responsible for building our Company into the
successful enterprise it is today, and will continue to be vital to its future success, and we
believe that it is important to protect them in the event of a change in control. Further, it is
our belief that the interests of our executive officers should be aligned with our shareholders,
and providing change in control benefits should eliminate, or at least reduce, their reluctance to
pursue potential change in control transactions that may be in the best interests of shareholders.
Each of our executive officers, Mr. Davis and Mr. Biro, has entered into written employment and
change in control agreements generally providing certain assurances of continued employment
following a change in control of the Company or, alternatively, change in control termination
benefits. Mr. Davis employment agreement integrates his change in control agreement, while
Mr. Biro has executed a change in control agreement that is separate from his employment agreement.
23
A change in control will generally be deemed to have occurred on any of the following:
(1) a merger or consolidation of our Company with any other entity that results in less than a
majority of the combined voting power of our then outstanding voting securities (or of such other
legal entity) immediately after such transaction being held in the aggregate by holders of our
voting securities immediately prior to such transaction or such voting power is not held by
substantially all of such holders in substantially the same proportions relative to each other;
(2) the sale of all or substantially all of our assets to another person or entity, of which less
than a majority of the combined voting power of the then outstanding voting securities of such
other person or entity is held in the aggregate by the holders of voting securities of the Company
immediately prior to such sale or such voting power is not held by substantially all of such
holders in substantially the same proportions relative to each other; (3) the dissolution or
liquidation of our Company; (4) any person or entity together with its affiliates becoming,
directly or indirectly, the beneficial owner of voting securities representing 50% or more, in the
case of Mr. Biro, or 20% or more, in the case of Mr. Davis, of the total voting power of the then
outstanding voting securities of our Company or (5) with certain exceptions, if in a one year
period individuals who at the beginning of such period constitute the directors of the Company
cease for any reason to constitute at least a majority of the directors of the Company.
The current employment and change in control agreements for Messrs. Davis and Biro provide
each of them with certain employment and minimum compensation rights for three years, in the case
of Mr. Davis, and two years, in the case of Mr. Biro, following the occurrence of a change in
control of the Company. Termination benefits will be paid following a change in control, in the
case of Mr. Davis, upon his death or disability, his resignation for good reason or his termination
by the Company without cause and, in the case of Mr. Biro, upon his death, his resignation under
certain circumstances or his termination by the Company without cause, as set forth in their
respective agreements. The cash components of any change in control termination benefits for our
executive officers would be paid in lump-sum amounts based on multiples of their respective highest
paid annual base salaries (as set forth in their respective employment and/or change in control
agreements) plus, in the case of Mr. Davis, a lump sum amount equal to his then targeted bonus
award, prorated for any partial year based on the number of days he was employed during such year.
Specifically, Mr. Davis (or his estate) would be entitled to the aggregate base salary he would
have received from the termination date through May 22, 2018, but in no event less than six (6)
times such annual base salary, and Mr. Biro would be entitled to two (2) times his base salary.
The Company believes that the bonus amounts payable to Mr. Davis and Mr. Biro will be deductible
under Revenue Ruling 2008-13, because they are contingent upon the occurrence of a change in
control. The Company also anticipates that such bonus payment formula will generally preserve the
federal income tax deductibility of bonus payments under Section 162(m) of the Code.
Additional change in control termination benefits under their current agreements include
continuation of health and other insurance benefits (or a lump-sum payment in lieu thereof) for up
to three years, in the case of Mr. Davis, and up to two years, in the case of Mr. Biro, and
immediate vesting of all previously granted but not as yet vested equity awards held by them,
removal of any restrictions on all previously granted equity awards and payment or delivery of
other awards granted to them prior to the termination.
Mr. Davis employment agreement also provides for immediate vesting of equity awards held by
him and the removal of restrictions on previously granted equity awards immediately prior to the
occurrence of a change in control in certain circumstances, as well as immediate vesting of all
stock options granted to him upon certain trigger dates, which generally means the third business
day immediately preceding (i) the expiration date of a tender or exchange offer by any person (with
certain exceptions) pursuant to which such person would be the beneficial owner of 10% or more of
the Companys common stock or (ii) the record date for determining shareholders entitled to notice
of and to vote at an annual or special meeting of shareholders at which at least two persons are
standing or have been nominated for election as directors of the Company that were not approved by
a vote of at least two-thirds of the members of the Board then in office, with certain exceptions.
Furthermore, with respect to Mr. Davis, if his employment is terminated for any reason during
the three year period following a change in control, the non-competition and non-solicitation
covenants in his employment agreement will terminate upon the termination date.
In addition, the executive officers would be paid a tax gross-up for any excise taxes imposed
by Section 4999 of the Code. It is the Companys intent not to extend tax gross-ups to future
compensation agreements, including any renewals or extensions of existing employment or change in
control agreements, with executive officers or other employees.
24
Based on a hypothetical change in control event obligating us to provide the maximum change in
control termination benefits possible and a hypothetical change in control date of March 31, 2009,
the change in control
termination benefits for our current named executive officers are set forth below. The actual
amounts to be paid or incurred can only be determined at the time of such executives actual
separation from the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare and Other |
|
|
Fair Market Values of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance |
|
|
Accelerated Equity |
|
|
Tax |
|
|
|
|
|
|
Base Salary |
|
|
Bonus |
|
|
Benefits |
|
|
Compensation(2) |
|
|
Gross-Up |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joe R. Davis,
Chief Executive Officer(1) |
|
$ |
6,860,959 |
|
|
$ |
750,000 |
|
|
$ |
12,303 |
|
|
$ |
373,650 |
|
|
$ |
3,029,639 |
|
|
$ |
11,026,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jon C. Biro,
Executive Vice
President, Chief Financial and
Accounting Officer, Treasurer and
Secretary |
|
$ |
500,000 |
|
|
|
|
|
|
$ |
7,415 |
|
|
|
|
|
|
|
|
|
|
$ |
507,415 |
|
|
|
|
(1) |
|
The change in control termination benefits are calculated based on the terms of Mr. Davis
employment agreement, assuming he was entitled to the payment of a bonus under the Annual
Bonus Plan equal to his targeted bonus award of 100% of annual base salary. |
|
(2) |
|
Determined based on the closing price of the Companys Common Stock ($12.72) on March 31,
2009 and, for Mr. Davis, accelerated vesting of a stock option granted to Mr. Davis to
purchase 450,000 shares of the Companys Common Stock at an exercise price of $56.82 per share
and 29,375 restricted stock units and, for Mr. Biro, accelerated vesting of stock options to
purchase (i) 50,000 shares of the Companys Common Stock at an exercise price of $40.99 per
share and (ii) 25,000 shares of the Companys Common Stock at an exercise price of $17.16 per
share. This table does not, however, include the accelerated vesting of a stock option award
granted to Mr. Davis (in lieu of RSUs) to purchase 35,000 shares at an exercise price of
$15.96 per share or an RSU award for 25,000 shares issued to Mr. Davis, in each case, granted
subsequent to March 31, 2009. |
Perquisites and Other Benefits
The Compensation Committee reviewed perquisites provided to our executive officers in 2009.
There were no perquisites in 2009 requiring disclosure pursuant to applicable SEC rules.
Effect of Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a deduction to public
companies to the extent of excess annual compensation over $1 million paid to certain executive
officers, except for qualified performance-based compensation. For
fiscal 2009, the Company has determined that its executive officer
compensation did not exceed the $1 million limitation under
Section 162(m).
Effect of SFAS 123(R)
Under SFAS 123(R), the Company is required to record stock compensation expense related to
unvested equity awards based on fair value at date of grant. As a result, it is possible that the
Company will incur compensation expense for equity awards that are never realized by a grantee due
to changes in value subsequent to the date of grant.
Our policies regarding trading in our securities by our executive officers
The Company has in effect a written Insider Trading Policy, which is applicable to all
employees and non-employee directors. The policy forbids trading in our securities at any time in
which any such individual is in possession of material non-public information. In addition,
irrespective of whether the individual is in possession of material non-public information, the
policy prohibits trading by our executive officers and directors, among others, at any time that
the Company has closed its trading window. One effect of the trading window is to significantly
limit the period of time in any given year in which trading in our securities may be undertaken by
the Companys executive officers and directors. The Company does not have a written policy
concerning share ownership by executive officers or directors.
25
Conclusion
Based upon its review of our overall executive compensation program, the Compensation
Committee believes our executive compensation program, as applied to our executive officers, is
appropriate and is necessary to reward such
individuals who are essential to our continued development and success, to compensate them for
their contributions and to enhance shareholder value. The Compensation Committee believes that the
total compensation opportunities provided to our executive officers creates a commonality of
interest and alignment of our long-term interests with those of our shareholders.
REPORT OF THE COMPENSATION COMMITTEE
We have reviewed and discussed the foregoing Compensation Discussion and Analysis with
management. Based on our review and discussion with management, we have recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in this proxy statement.
This report is furnished by the Compensation Committee of the Board of Directors.
|
|
|
|
|
The Compensation Committee members:
|
|
James H. Limmer, Chairman
|
|
Brady F. Carruth |
Notwithstanding anything to the contrary set forth in any of our previous filings under the
Securities Act of 1933, as amended (the Securities Act), or the Exchange Act, as amended, that
incorporate future filings, including this Proxy Statement, in whole or in part, the foregoing
Report of the Compensation Committee shall not be deemed to be filed with the SEC or incorporated
by reference into any filing under the Securities Act or the Exchange Act, except to the extent
that we specifically incorporate it by reference.
2009 Summary Compensation Table
The table below sets forth the total compensation awarded to, earned by, or paid to our named
executive officers for the fiscal year ended March 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discretionary |
|
|
Restricted Stock |
|
|
Stock Option |
|
|
Incentive Plan |
|
|
All Other |
|
|
|
|
Name and Principal Position |
|
Year |
|
|
Salary |
|
|
Bonus(1) |
|
|
Unit Awards(2) |
|
|
Awards(2) |
|
|
Compensation(1) |
|
|
Compensation(3) |
|
|
Total |
|
|
Joe R. Davis, Chairman of the Board and |
|
|
2009 |
|
|
$ |
740,625 |
|
|
|
|
|
|
$ |
709,125 |
|
|
$ |
4,435,787 |
|
|
|
|
|
|
$ |
4,101 |
|
|
$ |
5,889,638 |
|
Chief Executive Officer |
|
|
2008 |
|
|
$ |
750,000 |
|
|
$ |
145,890 |
|
|
$ |
919,750 |
|
|
|
|
|
|
$ |
604,110 |
|
|
$ |
3,882 |
|
|
$ |
2,423,632 |
|
|
|
|
2007 |
|
|
$ |
750,000 |
|
|
$ |
469,780 |
|
|
$ |
651,500 |
|
|
|
|
|
|
$ |
750,000 |
|
|
$ |
3,169 |
|
|
$ |
2,624,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jon C. Biro, Executive
Vice President, |
|
|
2009 |
|
|
$ |
250,000 |
|
|
$ |
75,000 |
|
|
|
|
|
|
$ |
404,344 |
|
|
|
|
|
|
$ |
3,707 |
|
|
$ |
733,051 |
|
Chief
Financial and Accounting
Officer, Treasurer and Secretary |
|
|
2008 |
|
|
$ |
54,348 |
|
|
$ |
26,712 |
|
|
|
|
|
|
$ |
87,937 |
|
|
|
|
|
|
$ |
613 |
|
|
$ |
169,610 |
|
|
|
|
(1) |
|
Paid June 2009 for fiscal 2009. |
|
(2) |
|
Amounts were calculated pursuant to SFAS No. 123(R). For financial statement reporting
purposes, we determined the fair value of restricted stock unit awards and stock option awards
using the closing market price of our Common Stock on the date of grant. We recognize the
fair value of the award as compensation expense over the requisite service period. The
amounts shown in the Stock Option Awards column represent the dollar amounts of the
accounting expense in fiscal 2009 recognized for awards granted in fiscal 2009 and prior
years. The values shown in these columns are not necessarily representative of the amounts
that may eventually be realized by such executive officers. Assumptions used in the
calculation of these amounts are included in Note 8 to the Companys consolidated financial
statements for the year ended March 31, 2009 in the Companys Annual Report on Form 10-K/A
filed with the Securities and Exchange Commission on May 29, 2009. |
|
(3) |
|
Represents employer-paid portion of health and other insurance benefits. |
26
Grants of Plan-Based Awards
The following table is intended to supplement our 2009 Summary Compensation Table by providing
additional information on the equity incentive compensation awards granted to our named executive
officers under our Annual Bonus Plan and Incentive Plan for the fiscal year ended March 31, 2009.
2009 Grants of Plan-Based Awards
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
Option |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards: |
|
|
Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Future Payouts Under |
|
|
Number |
|
|
Number of |
|
|
Exercise or |
|
|
Grant Date Fair |
|
|
|
|
|
|
Non-Equity Incentive Plan Awards |
|
|
of Shares of |
|
|
Securities |
|
|
Base Price |
|
|
Value of Stock |
|
|
|
|
|
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
|
Stock or |
|
|
Underlying |
|
|
of Option |
|
|
and Option |
|
|
|
Grant Date |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
Units(1) |
|
|
Options(2) |
|
|
Awards |
|
|
Awards(3) |
|
Joe R. Davis,
Chairman of the Board and Chief |
|
|
4/1/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500 |
|
|
|
|
|
|
|
|
|
|
$ |
709,125 |
|
Executive Officer |
|
|
5/22/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,000 |
|
|
$ |
56.82 |
|
|
$ |
11,327,130 |
|
|
|
|
5/22/2008 |
|
|
$ |
0 |
|
|
$ |
750,000 |
|
|
$ |
1,687,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jon C. Biro,
Executive Vice
President, Chief
Financial and
Accounting Officer,
Treasurer and
Secretary |
|
|
12/15/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
$ |
17.16 |
|
|
$ |
196,250 |
|
|
|
|
(1) |
|
Represents a restricted stock unit award covering 12,500 shares of the Companys Common Stock
granted pursuant to Mr. Davis employment agreement, which vests in equal installments over a
three-year period from the date of grant. |
|
(2) |
|
Represents a stock option award covering 450,000 shares of the Companys Common Stock granted
pursuant to Mr. Davis employment agreement, which vests in equal installments over a
five-year period from date of grant, and a discretionary stock option grant to Mr. Biro for
25,000 shares of the Companys Common Stock, which vests in equal installments over a
five-year period from the date of grant. |
|
(3) |
|
The grant date fair value is computed in accordance with SFAS No. 123(R), based on the
closing market price of our Common Stock ($56.73) on the date of grant in the case of
restricted stock unit awards granted to Mr. Davis and a closing market-price of our Common
Stock ($56.82) on the date of grant in the case of stock option awards granted to Mr. Davis
and a closing market price of our Common Stock ($17.16) on the date of grant in the case of
stock option awards granted to Mr. Biro. |
Discussion of Summary Compensation and Plan Based Awards Tables
Our executive compensation policies and practices, pursuant to which the compensation set
forth in the 2009 Summary Compensation Table and the 2009 Grants of Plan-Based Awards was paid or
awarded, are described above under Compensation Discussion and Analysis.
Amended and Restated Long-Term Incentive Plan
The Board and the shareholders of the Company have previously approved the adoption of our
Incentive Plan. Pursuant to the Incentive Plan, employees and non-employee directors are eligible
to receive awards consisting of stock options, SARs, restricted or non-restricted stock or stock
units, cash or any combination of the foregoing. To date, equity-based incentive compensation has
been awarded only in the form of stock options and restricted stock units. Stock options granted
pursuant to the Incentive Plan may either be incentive stock options within the meaning and subject
to the provisions of Section 422 of the Code, or nonqualified stock options. An aggregate of
2,223,420 shares of Common Stock were reserved for issuance pursuant to the Incentive Plan as of
March 31, 2009. Of these reserved shares, option awards covering 1,799,776 shares (with a weighted
average exercise price of $37.85) and restricted stock unit awards covering 29,375 shares were
outstanding, resulting in 394,269 shares being available for future awards at March 31, 2009.
The Compensation Committee administers the Incentive Plan and, subject to the provisions
thereof, is authorized by the Board to (i) determine the type or types of awards made to each
participant and the terms, restrictions, conditions and limitations applicable to each award, such
as exercise price, vesting period, forfeiture provisions, expiration date and other material
conditions, (ii) interpret the Incentive Plan, (iii) grant waivers of restrictions thereunder and
(iv) adopt such rules and regulations as it may deem necessary or appropriate in keeping with the
objectives of the Incentive Plan,
provided that the provisions of Section 422 of the Code governing the issuance of incentive
stock options shall not be overridden.
27
For the year ended March 31, 2009, there were no material modifications made to the
outstanding equity awards held by the executive officers, except that the Compensation Committee
authorized the removal of certain contractual restrictions on the ability of Mr. Davis to sell the
underlying shares issuable upon the exercise of 600,000 stock options held by him.
Annual Incentive Compensation Plan
The Board and the shareholders of the Company approved our Annual Bonus Plan last year. Under
the terms of the Annual Bonus Plan, the Compensation Committee may designate executive officers to
be participants in such Plan, which shall be evidenced by the execution of a written award
agreement setting forth the terms and conditions of such award. Awards shall only be made in cash,
and the maximum award that may be paid to any participant under the Annual Bonus Plan for any given
fiscal year is an amount equal to $5 million.
A participants award shall be paid only if specified objective performance goals set forth in
an award agreement have been achieved during the course of the relevant performance period by an
individual, the Company, an affiliate, or one or more business units of the Company or an
affiliate, as applicable. The amount of a participants award shall be determined by reference to a
formula contained in the relevant award agreement, set by the Compensation Committee, which shall
describe the performance goal or goals and the percentage of the potential award to be paid
depending upon the level of the performance goal(s) achieved. It is intended that the Annual Bonus
Plan and the performance goals conform to Section 162(m) of the Code (and therefore such awards
would be tax deductible by the Company), which generally limits the deductibility, for federal
income tax purposes, of certain types of compensation paid to certain executive officers of the
Company to $1 million with respect to any such officer during any taxable year of the Company.
To date, the sole participant under the Annual Bonus Plan is Mr. Davis, our Chief Executive
Officer. No bonus was paid to Mr. Davis under the annual bonus award granted to him for the
performance period ended March 31, 2009. For additional information with respect to the annual
bonus awards granted to Mr. Davis, please refer to Executive Compensation Components of
Executive Compensation, Annual Non-Equity Incentive Compensation Awards/ Discretionary
Bonuses.
28
Outstanding Equity Awards
The following table sets forth information concerning outstanding equity awards of our named
executive officers granted under our Incentive Plan at March 31, 2009.
2009 Outstanding Equity Awards at Fiscal Year End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Option Awards |
|
|
Restricted Stock Unit Awards |
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unexercised |
|
|
Unexercised |
|
|
|
|
|
|
|
|
|
|
Number of Shares or Units |
|
|
Market Value of Shares or Units |
|
|
Options |
|
|
Options(1) |
|
|
Option Exercise |
|
|
Option Expiration |
|
|
of Stock That Have Not |
|
|
of Stock That Have Not |
Name |
|
Exercisable |
|
|
Unexercisable |
|
|
Price |
|
|
Date |
|
|
Vested(2) |
|
|
Vested(3) |
|
Joe R. Davis, Chairman of the Board and Chief |
|
|
300,000 |
|
|
|
|
|
|
$ |
11.44 |
|
|
|
7/25/2010 |
|
|
|
29,375 |
|
|
$ |
373,650 |
Executive Officer |
|
|
50,000 |
|
|
|
|
|
|
$ |
19.10 |
|
|
|
7/26/2011 |
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
$ |
14.75 |
|
|
|
7/24/2012 |
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
$ |
23.00 |
|
|
|
8/4/2013 |
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
$ |
41.51 |
|
|
|
7/26/2014 |
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
$ |
50.84 |
|
|
|
2/8/2016 |
|
|
|
|
|
|
|
|
|
|
|
300,000 |
|
|
|
|
|
|
$ |
50.90 |
|
|
|
2/10/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,000 |
|
|
$ |
56.82 |
|
|
|
5/22/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jon C. Biro,
Executive Vice
President, Chief
Financial |
|
|
10,000 |
|
|
|
40,000 |
|
|
$ |
40.99 |
|
|
|
1/14/2018 |
|
|
|
|
|
|
|
|
and
Accounting Officer,
Treasurer and Secretary |
|
|
|
|
|
|
25,000 |
|
|
$ |
17.16 |
|
|
|
12/15/2018 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Mr. Davis unvested stock option award vest in annual increments over a five year period
commencing on May 22, 2009. Mr. Biros unvested stock option awards vest in annual increments
over a five year period commencing on (i) January 14, 2009 with respect to the 50,000 stock
option award and (ii) December 15, 2009 with respect to the 25,000 stock option award. |
|
(2) |
|
Mr. Davis restricted stock units consist of three awards of 12,500 units each. The first
award was granted on April 1, 2006, pursuant to which 7,500 units are outstanding on March 31,
2009 and is subject to a five year vesting schedule. The second award was granted on April 1,
2007, pursuant to which 9,375 units are outstanding on March 31, 2009, and is subject to a
four year vesting schedule. The third award was granted on April 1, 2008, pursuant to which
12,500 units are outstanding on March 31, 2009, and is subject to a three year vesting
schedule. |
|
(3) |
|
The market value of Mr. Davis restricted stock units that have not vested is based on the
closing market price of our Common Stock ($12.72) on the NYSE on March 31, 2009. |
Option Exercises and Stock Vested
The following table sets forth information concerning the stock options exercised by and
vested stock awards for our named executive officers during the fiscal year ended March 31, 2009.
2009 Option Exercises and Stock Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
|
Restricted Stock Units |
|
|
|
Number of Shares Acquired |
|
|
Value Realized |
|
|
|
|
|
|
|
|
|
on |
|
|
on |
|
|
Number of Shares |
|
|
Value Realized |
|
Name |
|
Exercise |
|
|
Exercise |
|
|
Vested |
|
|
Upon Vesting(1) |
|
|
Joe R. Davis,
Chairman of the Board and Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
5,625 |
|
|
$ |
315,281 |
|
|
Jon C. Biro,
Executive Vice President, Chief Financial and
Accounting Officer, Treasurer and Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects the closing market price of our Common Stock on the last trading day preceding the
vesting date. |
29
TRANSACTIONS WITH RELATED PERSONS
Policies and Procedures for Review, Approval or Ratification of Related Person Transactions
The Company has adopted a written Code of Ethics applicable to our directors and employees
which sets forth the Companys policies with respect to conflicts of interest situations, including
related person transactions. Under our Code of Ethics, any conflict of interest situation must be
immediately and fully disclosed to the Company, and related person transactions involving a member
of the Board, an executive officer or one of their immediate family members are strictly
prohibited, unless a prior waiver approving such transaction is obtained from the independent
directors of the Board or a Board committee consisting of independent directors. Company
management is responsible for implementing processes and controls to obtain information from
members of our Board and executive officers with respect to any related person transactions,
including information received pursuant to annual director and officer questionnaires we require to
be completed.
The Nominating and Governance Committee, in accordance with its charter, assists the Board in
overseeing procedures requiring Company management to promptly notify such Committee of any
potential violations and/or waivers for related person transactions involving a member of the
Board, an executive officer or one of their immediate family members. The Audit Committee, in
accordance with its charter, assists the Board in overseeing the Companys compliance with legal
and regulatory requirements, including an annual review of the reasonableness of any related person
transactions and adequacy of disclosure of same.
Related Person Transactions
The Company has previously entered into indemnification agreements with each director,
including Mr. Davis, and an executive officer, Mr. Biro, which provide, among other things, that
the Company will indemnify such persons, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he may be required to pay in
actions or proceedings which he is or may be made a party by reason of his position as an officer
or director of the Company, and otherwise to the fullest extent permitted under Texas law and the
Companys By-laws. There were no other related person transactions between the Company and any
director, executive officer or immediately family member of same during the 2009 fiscal year.
30
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
For the fiscal year ended March 31, 2009, KPMG LLP served as the Companys independent
registered public accounting firm. Representatives of KPMG LLP are expected to be present at the
Annual Meeting, with the opportunity to make a statement if they desire to do so, and are expected
to be available to respond to appropriate questions. The Audit Committee has not yet selected the
Companys independent registered public accounting firm for the fiscal year ending March 31, 2010.
Principal Accounting Fees and Services
The following table presents fees for all professional services rendered to the Company by
KPMG LLP for the years ended March 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
Audit fees (1) |
|
$ |
875,000 |
|
|
$ |
875,000 |
|
Audit related fees (2) |
|
|
|
|
|
|
|
|
Tax fees (3) |
|
|
|
|
|
|
|
|
All other fees (4) |
|
$ |
2,400 |
|
|
$ |
2,600 |
|
|
|
|
|
|
|
|
Total |
|
$ |
877,400 |
|
|
$ |
877,600 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Audit fees: Consists of fees billed for professional services rendered for the audit of the
Companys consolidated financial statements included in the Companys Annual Report on
Form 10-K/A, for the review of the interim condensed consolidated financial statements
included in the Companys Quarterly Reports on Form 10-Q, for the audit of the effectiveness
of the Companys internal control over financial reporting and other services that are
normally provided in connection with statutory and regulatory filings. |
|
(2) |
|
Audit related fees: Consists of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of the Companys consolidated
financial statements and are not reported under Audit Fees, specifically, additional attest
services that are not required by statute or regulation. |
|
(3) |
|
Tax fees: Consists of fees billed for professional services related to miscellaneous tax
compliance, consulting and planning. |
|
(4) |
|
All other fees: Consists of fees billed for online software used for accounting research by
the Company. |
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Registered Public Accounting Firm
The Audit Committee is responsible for, among other things, appointing, setting compensation,
and overseeing the performance of the Companys independent registered public accounting firm. As
of the date of this Proxy Statement, the Audit Committee has not established any pre-approval
policies with respect to any audit or non-audit services of the Companys independent registered
public accounting firm, KPMG LLP; accordingly, the practice of the Company is to obtain advance
approval from the Audit Committee for each discrete service proposed to be provided by KPMG LLP.
AUDIT COMMITTEE REPORT
The Audit Committee has been appointed by the Board of Directors to, among other things,
assist the Board in fulfilling its responsibility to oversee the integrity of the Companys
financial statements, the Companys compliance with legal and regulatory requirements (including
the reasonableness and adequacy of disclosure of related person transactions), the qualifications,
independence, selection, compensation and performance of the Companys registered independent
public accounting firm, and the performance of the Companys internal audit function. The Audit
Committee operates under a written charter adopted by the Board and reviewed annually by the Audit
Committee. During the fiscal year ended March 31, 2009 and prior to the rotation of its Committee
members, the Audit Committee consisted of Messrs. Carruth, Forbes and Limmer, and such Audit
Committee furnished the following report for fiscal 2009 for inclusion in this Proxy Statement:
Management is responsible for the preparation, presentation and integrity of the Companys
financial statements, accounting and financial reporting principles and internal controls and
procedures designed to assure compliance with accounting standards and applicable laws and
regulations. The Companys independent registered public accounting firm, KPMG LLP, is responsible
for performing an independent audit of the Companys consolidated financial statements in
accordance with generally accepted auditing standards in the United States of America and
issuing a report thereon. The independent auditor is also responsible for performing independent
audits of the effectiveness of the Companys internal control over financial reporting.
31
Management has represented to the Committee that the Companys consolidated financial
statements were prepared in accordance with generally accepted accounting principles, and the
Committee has reviewed and discussed with management and KPMG LLP, the Companys independent
auditor, the Companys audited financial statements as of and for the year ended March 31, 2009.
The Committee has also discussed with KPMG LLP 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. The Committee has received
the written disclosures and the letter from KPMG LLP, its independent auditor, required by
applicable requirements of the Public Company Accounting Oversight Board regarding KPMG LLPs
communications with the Committee concerning independence, and the Committee has discussed with
KPMG LLP its independence. The Committee has also considered the compatibility of the provision of
non-audit services with the independent auditors independence.
Management has also represented to the Committee that it has completed an assessment of the
effectiveness of the Companys internal control over financial reporting, and the Committee has
reviewed and discussed with management and KPMG LLP the scope and results of their respective
assessments of the Companys internal control over financial reporting.
Based on the reports and discussions described in this report, the Committee recommended to
the Board of Directors of the Company that the audited financial statements referred to above be
included in the Companys Annual Report on Form 10-K/A for the year ended March 31, 2009 for filing
with the Securities and Exchange Commission.
|
|
|
|
|
|
|
The Audit Committee members:
|
|
Gary L. Forbes, Chairman
|
|
Brady F. Carruth
|
|
James H. Limmer |
SHAREHOLDER PROPOSALS
If you want to submit a proposal, including candidate(s) for election to the Board of
Directors, for consideration by the shareholders at the 2010 annual meeting of shareholders, we
must receive such proposal no later than March 2, 2010 in order for it to be included the
respective proxy statement pursuant to the Exchange Act rules; otherwise, proposals to be presented
in person at the annual meeting, but not included in the proxy statement, must be received by us no
earlier than April 8, 2010 and no later than May 8, 2010 to be considered timely pursuant to our
By-laws. All proposals must be submitted in writing to our Corporate Secretary, Consolidated
Graphics, Inc., 5858 Westheimer, Suite 200, Houston, Texas 77057 and must fully comply with the
specific procedural requirements set forth in our By-laws, the rules of the Exchange Act and other
applicable SEC rules and regulations. If you would like a copy of the procedural requirements with
respect to shareholder proposals, please contact our Corporate Secretary for a copy of our By-laws.
BUSINESS TO BE TRANSACTED
The Company did not receive any proposals from any shareholder for consideration at the Annual
Meeting, and management does not presently intend to bring any business before the meeting other
than the matters referred to in the accompanying notice. If, however, any other matters properly
come before the meeting, it is intended that the persons named in the accompanying proxy will vote
pursuant to the proxy in accordance with their best judgment on such matters.
HOUSEHOLDING MATTERS
Each year in connection with the annual meeting of shareholders, we are required to send to
each shareholder of record a proxy statement, annual report and notice of internet availability of
proxy materials, and to arrange for such documents to be sent to each beneficial shareholder whose
shares are held by or in the name of a broker, bank, trust or other nominee. Because some
shareholders hold shares of the Companys Common Stock in multiple accounts, this process results
in duplicate mailings of such documents to shareholders who share the same address. Shareholders
may avoid receiving duplicate mailings and save us the cost of producing and mailing duplicate
documents as follows:
Shareholders of Record. If your shares are registered in your own name and you are interested
in consenting to the delivery of a single proxy statement, annual report and notice of internet
availability of proxy materials, you may
contact the Corporate Secretary of the Company by mail at 5858 Westheimer, Suite 200, Houston,
Texas 77057 or by telephone at (713) 787-0977.
32
Beneficial Shareholders. If your shares are not registered in your own name, your broker,
bank, trust or other nominee that holds your shares may have asked you to consent to the delivery
of a single proxy statement, annual report and notice of internet availability of proxy materials
if there are other shareholders who share an address with you. If you currently receive more than
one copy of such documents at your household and would like to receive only one copy of each in the
future, you should contact your nominee.
Right to Request Separate Copies. If you consent to the delivery of a single proxy statement,
annual report and notice of internet availability of proxy materials but later decide that you
would prefer to receive a separate copy of each document, as applicable, for each shareholder
sharing your address, then please notify us or your nominee, as applicable, and we or they will
promptly deliver such additional documents. If you wish to receive a separate copy of such
documents for each shareholder sharing your address in the future, you may contact the Corporate
Secretary of the Company by mail at 5858 Westheimer, Suite 200, Houston, Texas 77057 or by
telephone at (713) 787-0977.
OTHER INFORMATION
The cost of solicitation of proxies will be borne by the Company. Proxy cards and materials
will also be distributed to beneficial owners of Common Stock through brokers, custodians, nominees
and other like parties, and the Company expects to reimburse such parties for reasonable charges
and expenses normal for such services. Proxies may be solicited on our behalf by our directors,
officers or employees in person or by telephone, electronic transmission, and facsimile
transmission without additional compensation.
The Annual Report to Shareholders, containing the audited consolidated financial statements of
the Company for the fiscal year ended March 31, 2009, accompanies this Proxy Statement, but is not
a part thereof.
A COPY OF THE COMPANYS MOST RECENT ANNUAL REPORT ON FORM 10-K/A, INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULES THERETO, WITHOUT THE ACCOMPANYING EXHIBITS, AS FILED WITH THE SEC WILL BE
MADE AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO: CONSOLIDATED GRAPHICS, INC., ATTENTION:
SECRETARY, 5858 WESTHEIMER, SUITE 200, HOUSTON, TEXAS 77057. A LIST OF EXHIBITS IS INCLUDED IN THE
FORM 10-K/A, AND EXHIBITS ARE AVAILABLE FROM THE COMPANY UPON THE PAYMENT TO THE COMPANY OF THE
REASONABLE COSTS OF FURNISHING THE SAME. THESE DOCUMENTS MAY ALSO BE ACCESSED THROUGH THE COMPANYS
WEB SITE AT WWW.CGX.COM.
/s/
Jon C. Biro
Jon C. Biro
Secretary
33
APPENDIX A
CONSOLIDATED GRAPHICS, INC.
AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN, AS AMENDED
BY THE FIRST AMENDMENT
1. Objectives. The Consolidated Graphics, Inc. Amended and Restated Long-Term Incentive Plan
(as amended from time to time, the Plan) is designed to retain selected employees and
non-employee directors of Consolidated Graphics, Inc. (the Company) and reward them for making
significant contributions to the success of the Company and its Subsidiaries (as hereinafter
defined). These objectives are to be accomplished by making awards under the Plan and thereby
providing Participants (as hereinafter defined) with a proprietary interest in the growth and
performance of the Company and its Subsidiaries. The Plan provides for payment of various forms of
compensation. It is not intended to be a plan that is subject to the Employee Retirement Income
Security Act of 1974, as amended (ERISA), and shall be interpreted, construed and administered
consistent with its status as a plan that is not subject to ERISA.
2. Definitions. As used herein, the terms set forth below shall have the following respective
meanings:
Award means the grant of any form of stock option, stock appreciation right, stock
award or cash award, whether granted singly, in combination or in tandem, to a Participant
pursuant to any applicable terms, conditions and limitations as the Committee may establish
in order to fulfill the objectives of the Plan.
Award Agreement means a written agreement between the Company and a Participant that
sets forth the terms, conditions and limitations applicable to an Award.
Board means the Board of Directors of the Company.
Code means the Internal Revenue Code of 1986, as amended from time to time.
Committee means such committee of the Board as is designated by the Board to
administer the Plan. The Committee shall be constituted to permit the Plan to comply with
Rule 16b-3.
Common Stock means the Common Stock, par value $.01 per share, of the Company.
Director means an individual serving as a member of the Board.
Exchange Act means the Securities Exchange Act of 1934, as amended from time to time.
Fair Market Value of one share of Common Stock on the date in question shall be (i)
the closing sales price on such day for a share as quoted on the New York Stock Exchange or
other national securities exchange on which shares are then principally listed or admitted
to trading, or (ii) if not quoted on a national securities exchange, the average of the
closing bid and asked prices for a share as quoted by the National Quotation Bureaus Pink
Sheets or the National Association of Securities Dealers OTC Bulletin Board System. If
there was no public trade of Common Stock on the date in question, Fair Market Value shall
be determined by reference to the last preceding date on which such a trade was so reported.
Participant means an employee or nonemployee director of the Company or any of its
Subsidiaries to whom an Award has been made under this Plan.
Rule 16b-3 means Rule 16b-3 promulgated under the Exchange Act, or any successor
rule.
Subsidiary means any corporation of which the Company directly or indirectly owns
shares representing more than 50% of the voting power of all classes or series of capital
stock of such corporation which have the right to vote generally on matters submitted to a
vote of the stockholders of such corporation.
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3. Eligibility. All employees and non-employee directors of the Company and its Subsidiaries
are eligible for Awards under this Plan. The Committee shall select the Participants in the Plan
from time to time by the grant of Awards under the Plan.
4. Common Stock Available for Awards. There shall be available for Awards granted wholly or
partly in Common Stock (including rights or options which may be exercised for or settled in Common
Stock) during the term of this Plan an aggregate of 4,585,000 shares of Common Stock, subject to
adjustment as provided in Paragraph 14, all of which may be granted hereunder as incentive stock
options. The Board of Directors and the appropriate officers of the Company shall from time to
time take whatever actions are necessary to file required documents with governmental authorities
and stock exchanges and transaction reporting systems to make shares of Common Stock available for
issuance pursuant to Awards. Common Stock related to Awards that are forfeited or terminated,
expire unexercised, are settled in cash in lieu of Common Stock or in a manner such that all or
some of the shares covered by an Award are not issued to a Participant, or are exchanged for Awards
that do not involve Common Stock, shall immediately become available for Awards hereunder. The
Committee may from time to time adopt and observe such procedures concerning the counting of shares
against the Plan maximum as it may deem appropriate under Rule 16b-3.
5. Administration. This Plan shall be administered by the Committee, which shall have full
and exclusive power to interpret this Plan and to adopt such rules, regulations and guidelines for
carrying out this Plan as it may deem necessary or proper, all of which powers shall be exercised
in the best interests of the Company and in keeping with the objectives of this Plan. The
Committee may, in its discretion, provide for the extension of the exercisability of an Award,
accelerate the vesting or exercisability of an Award, eliminate or make less restrictive any
restrictions contained in an Award, waive any restriction or other provision of this Plan or an
Award or otherwise amend or modify an Award in any manner that is either (a) not adverse to the
Participant holding such Award or (b) consented to by such Participant. The Committee may correct
any defect or supply any omission or reconcile any inconsistency in this Plan or in any Award in
the manner and to the extent the Committee deems necessary or desirable to carry it into effect.
Any decision of the Committee in the interpretation and administration of this Plan shall lie
within its sole and absolute discretion and shall be final, conclusive and binding on all parties
concerned. No member of the Committee or officer of the Company to whom it has delegated authority
in accordance with the provisions of Paragraph 6 of this Plan shall be liable for anything done or
omitted to be done by him or her, by any member of the Committee or by any officer of the Company
in connection with the performance of any duties under this Plan, except for his or her own willful
misconduct or as expressly provided by statute.
6. Delegation of Authority. The Committee may delegate to the Chief Executive Officer and to
other senior officers of the Company its duties under this Plan pursuant to such conditions or
limitations as the Committee may establish, except that the Committee may not delegate to any
person the authority to grant Awards to, or take other action with respect to, Participants who are
subject to Section 16 of the Exchange Act.
7. Awards. The Committee shall determine the type or types of Awards to be made to each
Participant under this Plan. Each Award made hereunder shall be embodied in an Award Agreement,
which shall contain such terms, conditions and limitations as shall be determined by the Committee
in its sole discretion and shall be signed by the Participant and by the Chief Executive Officer,
the Chief Operating Officer or any Vice President of the Company for and on behalf of the Company.
Awards may consist of those listed in this Paragraph 7 and may be granted singly, in combination or
in tandem. Awards may also be made in combination or in tandem with, in replacement of, or as
alternatives to grants or rights (a) under this Plan or any other employee plan of the Company or
any of its Subsidiaries, including the plan of any acquired entity, or (b) made to any Company or
Subsidiary employee by the Company or any Subsidiary. An Award may provide for the granting or
issuance of additional, replacement or alternative Awards upon the occurrence of specified events,
including the exercise of the original Award. Notwithstanding anything herein to the contrary, no
Participant may be granted during any calendar year Awards consisting of stock options or stock
appreciation rights exercisable for more than 20% of the shares of Common Stock originally
authorized for Awards under this Plan, subject to adjustment as provided in Paragraph 14. In the
event of an increase in the number of shares authorized under the Plan, the 20% limitation will
apply to the increased number of shares authorized. The number of Awards that may be granted in
the form of a stock appreciation right or stock award as described in subparagraph (c) below shall
not exceed an aggregate of 112,500 underlying shares of Common Stock issuable
pursuant to such Award.
(a) Stock Option. An Award may consist of a right to purchase a specified number of
shares of Common Stock at a price specified by the Committee in the Award Agreement or
otherwise. No stock option shall have an exercise price less than 100% of the Fair Market
Value of a share of the Common Stock on the date of grant of the stock option, nor shall any
stock option be exercisable later than the day before the expiration of
ten (10) years from the date of grant of the stock option. A stock option may be in
the form of an incentive stock option (ISO) which, in addition to being subject to
applicable terms, conditions and limitations established by the Committee, complies with
Section 422 of the Code. ISOs may be granted to any employee of the Company or a
Subsidiary, but not to a non-employee director. Notwithstanding the foregoing, no ISO can
be granted under the Plan more than ten years following the Effective Date of the Plan or,
if later, the date of approval by the Companys shareholders of an increase in the number of
shares of Common Stock authorized to be issued as Awards under the Plan, but only with
respect to such increase.
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(b) Stock Appreciation Right. An Award may consist of a right to receive a payment, in
cash or Common Stock, equal to the excess of the Fair Market Value or other specified
valuation of a specified number of shares of Common Stock on the date the stock appreciation
right (SAR) is exercised over a specified strike price as set forth in the applicable
Award Agreement. The strike price of a SAR shall not be less than 100% of the Fair Market
Value per share of Common Stock on the date the SAR is granted.
(c) Stock Award. An Award may consist of Common Stock or may be denominated in units
of Common Stock. All or part of any stock Award may be subject to conditions established by
the Committee and set forth in the Award Agreement, which conditions may include, but are
not limited to, continuous service with the Company and its Subsidiaries, achievement of
specific business objectives, increases in specified indices, attaining specified growth
rates and other comparable measurements of performance. Such Awards may be based on Fair
Market Value or other specified valuations. The certificates evidencing shares of Common
Stock issued in connection with a stock Award shall contain appropriate legends and
restrictions describing the terms and conditions of the restrictions applicable thereto.
Restricted stock units are not intended to be deferred compensation that is subject to
Section 409A of the Code. During the period beginning on the date such an Award is granted
and ending on the payment date specified in the Award Agreement, the Participants right to
payment under the Award Agreement shall remain subject to a substantial risk of forfeiture
within the meaning of such term under Section 409A of the Code. In addition, payment to the
Participant under a restricted stock unit shall be made within two and one-half months (21/2)
months following the end of the calendar year in which the substantial risk of forfeiture
lapses unless an earlier payment date is specified in the Award Agreement.
(d) Cash Award. An Award may be denominated in cash with the amount of the eventual
payment subject to future service and such other restrictions and conditions as may be
established by the Committee and set forth in the Award Agreement, including, but not
limited to, continuous service with the Company and its Subsidiaries, achievement of
specific business objectives, increases in specified indices, attaining specified growth
rates and other comparable measurements of performance.
(e) $100,000 Annual Limit on Incentive Stock Options. Notwithstanding any contrary
provision in the Plan, a stock option designated as an ISO shall be an ISO only to the
extent that the aggregate Fair Market Value (determined as of the time the ISO is granted)
of the shares of Common Stock with respect to which ISOs are exercisable for the first time
by the Participant during any single calendar year (under the Plan and any other stock
option plans of the Company and its subsidiaries or parent) does not exceed $100,000. This
limitation shall be applied by taking ISOs into account in the order in which they were
granted and shall be construed in accordance with Section 422(d) of the Code.
(f) Notification of Disqualifying Disposition of Shares from Incentive Stock Options.
A Participant who disposes of Shares of Common Stock acquired upon the exercise of an ISO by
a sale or exchange either (i) within two (2) years after the date of the grant of the ISO
under which the shares of Common Stock were acquired or (ii) within one (1) year after the
transfer of such shares to him pursuant to exercise, shall promptly notify the Company of
such disposition, the amount realized and the adjusted basis in such shares.
8.
Payment of Awards.
(a) General. Payment of Awards may be made in the form of cash or Common Stock or
combinations thereof and may include such restrictions as the Committee shall determine
including, in the case of Common Stock, restrictions on transfer and forfeiture provisions.
As used herein, Restricted Stock means Common Stock that is restricted or subject to
forfeiture provisions.
(b) Dividends and Interest. Dividends or dividend equivalent rights may be extended to
and made part of any Award denominated in Common Stock or units of Common Stock, subject to
such terms, conditions
and restrictions as the Committee may establish. All dividend equivalents will be paid
to the Participant not later than 60 days after the date that the corresponding dividend was
declared.
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9. Stock Option Exercise. The price at which shares of Common Stock may be purchased under a
stock option shall be paid in full at the time of exercise in cash or, if permitted by the
Committee, by means of tendering Common Stock or surrendering all or part of that or any other
Award, including Restricted Stock, valued at Fair Market Value on the date of exercise, or any
combination thereof. The Committee shall determine acceptable methods for tendering Common Stock
or Awards to exercise a stock option as it deems appropriate. If permitted by the Committee,
payment may be made by successive exercises by the Participant. The Committee may provide for
procedures to permit the exercise or purchase of Awards by (a) loans from the Company or (b) use of
the proceeds to be received from the sale of Common Stock issuable pursuant to an Award. Unless
otherwise provided in the applicable Award Agreement, in the event shares of Restricted Stock are
tendered as consideration for the exercise of a stock option, a number of the shares issued upon
the exercise of the stock option, equal to the number of shares of Restricted Stock used as
consideration therefor, shall be subject to the same restrictions as the Restricted Stock so
submitted as well as any additional restrictions that may be imposed by the Committee.
10. Tax Withholding. The Company shall have the right to deduct applicable taxes from any
Award payment and withhold, at the time of delivery or vesting of cash or shares of Common Stock
under this Plan, an appropriate amount of cash or number of shares of Common Stock or a combination
thereof for payment of taxes required by law or to take such other action as may be necessary in
the opinion of the Company to satisfy all obligations for withholding of such taxes. The Committee
may also permit withholding to be satisfied by the transfer to the Company of shares of Common
Stock theretofore owned by the holder of the Award with respect to which withholding is required.
If shares of Common Stock are used to satisfy tax withholding, such shares shall be valued based on
the Fair Market Value when the tax withholding is required to be made.
11. Amendment, Modification, Suspension or Termination. The Board may amend, modify, suspend
or terminate this Plan for the purpose of meeting or addressing any changes in legal requirements
or for any other purpose permitted by law except that (a) no amendment or alteration that would
impair the rights of any Participant under any Award previously granted to such Participant shall
be made without such Participants consent, and (b) no amendment or alteration shall be effective
prior to approval by the Companys stockholders to the extent such approval is then required
pursuant to Rule 16b-3 in order to preserve the applicability of any exemption provided by such
rule to any Award then outstanding (unless the holder of such Award consents) or to the extent
stockholder approval is otherwise required by applicable legal requirements.
12. Termination of Employment. Upon the termination of employment by a Participant, any
unexercised, deferred or unpaid Awards shall be treated as provided in the specific Award Agreement
evidencing the Award. In the event of such a termination, the Committee may, in its discretion,
provide for the extension of the exercisability of an Award, accelerate the vesting or
exercisability of an Award, eliminate or make less restrictive any restrictions contained in an
Award, waive any restriction or other provision of this Plan or an Award or otherwise amend or
modify the Award in any manner that is either (a) not adverse to such Participant or (b) consented
to by such Participant.
13. Assignability. Unless otherwise determined by the Committee and provided in the Award
Agreement, no Award or any other benefit under this Plan constituting a derivative security within
the meaning of Rule 16a-1(c) under the Exchange Act shall be assignable or otherwise transferable
except by will or the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement Income Security Act,
or the rules thereunder. The Committee may prescribe and include in applicable Award Agreements
other restrictions on transfer. Any attempted assignment of an Award or any other benefit under
this Plan in violation of this Paragraph 13 shall be null and void.
14. Adjustments.
(a) The existence of outstanding Awards shall not affect in any manner the right or
power of the Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the capital stock of the Company or
its business or any merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock (whether or not such issue is prior to, on a
parity with or junior to the Common Stock) or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any other corporate
act or proceeding of any kind, whether or not of a character similar to that of the acts or
proceedings enumerated above.
A-4
(b) In the event of any subdivision or consolidation of outstanding shares of Common
Stock or declaration of a dividend payable in shares of Common Stock or capital
reorganization or reclassification or other transaction involving an increase or reduction
in the number of outstanding shares of Common Stock, the Committee may adjust proportionally
(i) the number of shares of Common Stock reserved under this Plan and covered by outstanding
Awards denominated in Common Stock or units of Common Stock; (ii) the exercise or other
price in respect of such Awards; and (iii) the appropriate Fair Market Value and other price
determinations for such Awards. In the event of any consolidation or merger of the Company
with another corporation or entity or the adoption by the Company of a plan of exchange
affecting the Common Stock or any distribution to holders of Common Stock of securities or
property (other than normal cash dividends or dividends payable in Common Stock), the
Committee shall make such adjustments or other provisions as it may deem equitable,
including adjustments to avoid fractional shares, to give property effect to such event. In
the event of a corporate merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation, the Committee shall be authorized to issue or
assume stock options, regardless of whether in a transaction to which Section 424(a) of the
Code applies, by means of substitution of new options for previously issued options or an
assumption of previously issued options, or to make provision for the acceleration of the
exercisability of, or lapse of restrictions with respect to, Awards and the termination of
unexercised options in connection with such transaction.
15. Restrictions. No Common Stock or other form of payment shall be issued with respect to
any Award unless the Company shall be satisfied based on the advice of its counsel that such
issuance will be in compliance with applicable federal and state securities laws. It is the intent
of the Company that this Plan comply with Rule 16b-3 with respect to persons subject to Section 16
of the Exchange Act unless otherwise provided herein or in an Award Agreement, that any ambiguities
or inconsistencies in the construction of this Plan be interpreted to give effect to such intention
and that, if any provision of this Plan is found not to be in compliance with Rule 16b-3, such
provision shall be null and void to the extent required to permit this Plan to comply with Rule
16b-3. Certificates evidencing shares of Common Stock delivered under this Plan may be subject to
such stop transfer orders and other restrictions as the Committee may deem advisable under the
rules, regulations and other requirements of the Securities and Exchange Commission, any securities
exchange or transaction reporting system upon which the Common Stock is then listed and any
applicable federal and state securities law. The Committee may cause a legend or legends to be
placed upon any such certificates to make appropriate reference to such restrictions.
16. Unfunded Plan. Insofar as it provides for Awards of cash, Common Stock or rights thereto,
this Plan shall be unfunded. Although bookkeeping accounts may be established with respect to
Participants who are entitled to cash, Common Stock or rights thereto under this Plan, any such
accounts shall be used merely as a bookkeeping convenience. The Company shall not be required to
segregate any assets that may at any time be represented by cash, Common Stock or rights thereto,
nor shall this Plan be construed as providing for such segregation, nor shall the Company, the
Board or the Committee be deemed to be a trustee of any cash, Common Stock or rights thereto to be
granted under this Plan. Any liability or obligation of the Company to any Participant with
respect to a grant of cash, Common Stock or rights thereto under this Plan shall be based solely
upon any contractual obligations that may be created by this Plan and any Award Agreement, and no
such liability or obligation of the Company shall be deemed to be secured by any pledge or other
encumbrance on any property of the Company. None of the Company, the Board or the Committee shall
be required to give any security or bond for the performance of any obligation that may be created
by this Plan.
17. Governing Law. This Plan and all determinations made and actions taken pursuant hereto,
to the extent not otherwise governed by mandatory provisions of the Code or the securities laws of
the United States, shall be governed by and construed in accordance with the laws of the State of
Texas.
18. Effective Date of Plan. This Plan, as amended and restated hereby, shall be effective as
of June 30, 2008 (the Effective Date). Outstanding Awards granted pursuant to the Plan prior to
its amendment and restatement shall continue to be governed by the terms of this Plan as amended
and restated.
19. Compliance with Code Section 409A. It is intended that Awards granted under the Plan
shall be exempt from taxation under Section 409A of the Code, unless otherwise determined by the
Committee at the time of grant. In that respect, the Company, by action of its Board, reserves the
right to amend the Plan, and the Board and the Committee each reserve the right to amend any
outstanding Award Agreement, to the extent deemed necessary or appropriate either to exempt such
Award from taxation under Section 409A or to comply with the requirements of Section 409A.
Further, Participants who are Specified Employees (as defined under Section 409A), shall be
required to delay payment under an
Award for six (6) months after separation from service, but only to the extent such Award
would otherwise be subject to taxation under Section 409A if no such delay is imposed.
A-5
2009 ANNUAL MEETING OF SHAREHOLDERS OF
CONSOLIDATED GRAPHICS, INC.
August 6, 2009
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL:
The Notice of Meeting, Proxy Statement, Proxy Card
are available at www.cgx.com
Please sign, date and mail
your proxy card in the
envelope provided as soon
as possible.
ê Please detach along perforated line and mail in the envelope provided. ê
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PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE
OR BLACK INK AS SHOWN HERE
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To elect two Class I directors to serve on the Companys Board
of Directors for terms of three years and until their successors are duly elected and qualified or
until the earlier of their resignation or removal.
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To approve an amendment to the Consolidated Graphics, Inc. Amended and Restated Long-Term Incentive Plan.
To transact such other business as may properly come before the meeting or any postponement(s) or adjournment(s) thereof.
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FOR ALL NOMINEES |
m Larry J. Alexander |
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m Brady F. Carruth |
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WITHHOLD AUTHORITY FOR ALL NOMINEES |
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FOR ALL EXCEPT (See instructions below) |
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THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE. THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES ON
PROPOSAL 1 AND A VOTE FOR ON PROPOSAL 2. THIS PROXY WHEN
PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS MADE, IT WILL BE VOTED FOR ALL NOMINEES
ON PROPOSAL 1, FOR ON PROPOSAL 2 AND, ACCORDING TO THE DISCRETION OF THE PROXY HOLDERS ON ANY OTHER MATTERS
THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY AND ALL POSTPONEMENTS OR ADJOURNMENTS THEREOF, INCLUDING PROCEDURES
AND OTHER MATTERS RELATING TO THE CONDUCT OF THE MEETING.
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INSTRUCTIONS: To
withhold authority to vote for any individual nominee(s), mark FOR ALL
EXCEPT and fill in the circle next to each nominee you wish to withhold, as shown here:
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WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE MARK,
SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. |
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The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Shareholders, the Proxy Statement for such meeting, and the Annual Report of the Company for the fiscal year ended March 31, 2009.
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To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that
changes to the registered name(s) on the account may not be submitted via
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Signature of Shareholder
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Date:
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Signature of Shareholder
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Date:
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Note: Please sign exactly as your name or names appear on this Proxy. When shares are
held jointly, each holder should sign. When signing as executor, administrator,
attorney, trustee or guardian, please give full title as such. If the signer is a
corporation, please sign full corporate name by duly authorized officer, giving full
title as such. If signer is a partnership, please sign in partnership name by
authorized person.
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CONSOLIDATED GRAPHICS, INC. |
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Proxy Solicited on Behalf of Board of Directors |
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2009 Annual Meeting of Shareholders to be held Thursday, August 6, 2009 |
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The undersigned hereby appoints Joe R.
Davis and Jon C. Biro, jointly and severally,
proxies with full power of substitution and resubstitution and with discretionary authority to
represent and to vote, in accordance with the instructions set forth on the reverse, all
shares of Common Stock which the undersigned is entitled to vote at the 2009 Annual Meeting of
Shareholders of Consolidated Graphics, Inc. to be held at the Hilton Americas-Houston Hotel,
1600 Lamar, Houston, Texas 77010, on Thursday, August 6, 2009 at 5:00 p.m., Central Daylight
Time, and any postponement(s) or adjournment(s) thereof. Shares represented by this proxy will
be voted as directed by the shareholder. If no such directions are indicated, the proxies will
have authority to vote FOR ALL NOMINEES on Proposal 1 (the election of Class l directors)
and vote FOR on Proposal 2. In their discretion, the proxies are also authorized to vote
upon such other business as may properly come before the meeting or any postponement (s) or
adjournment (s) thereof, including procedural and other matters relating to the conduct of the
meeting. |
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(Continued and to be signed on the reverse side) |
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14475 |
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