HAYES LEMMERZ INTERNATIONAL, INC.
15300 Centennial Drive
Northville, Michigan 48168
www.hayes-lemmerz.com

 

 

 

May 28, 2008

 

To Our Stockholders:

 

I am pleased to invite you to attend the 2008 Annual Meeting of Stockholders of Hayes Lemmerz International, Inc. to be held on July 25, 2008 at 11:00 a.m. Eastern Time, at the Company’s headquarters at 15300 Centennial Drive, Northville, Michigan 48168, for the following purposes:

 

 

It is important that your shares be voted, regardless of whether you are able to attend the Annual Meeting. To be sure that your shares are represented, please sign and mail the enclosed proxy card promptly. This will not prevent you from voting your shares in person if you choose to do so. Details regarding the business to be conducted at the Annual Meeting are fully described in the accompanying Notice of Annual Meeting and Proxy Statement. We hope you will read the Proxy Statement and submit your proxy.

 

Our Board of Directors and management thank you for your ongoing support and continued interest in Hayes Lemmerz.

 

 

 

The Proxy Statement and the accompanying proxy card are expected to be first mailed to stockholders on or about June 6, 2008.

HAYES LEMMERZ INTERNATIONAL, INC.
15300 Centennial Drive
Northville, Michigan 48168

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON JULY 25, 2008

 

 

Northville, Michigan 48168

May 28, 2008

2008 ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT

 

HAYES LEMMERZ INTERNATIONAL, INC.
15300 Centennial Drive,
Northville, Michigan 48168

 

 

PROXY STATEMENT

This Proxy Statement contains information relating to the Annual Meeting of Stockholders of Hayes Lemmerz International, Inc., a Delaware corporation (the “Company”), to be held on July 25, 2008, beginning at 11:00 a.m. Eastern Time, at the Company’s headquarters at 15300 Centennial Drive, Northville, Michigan 48168 and at any adjournment of the Annual Meeting.

 

What is the purpose of the Annual Meeting?

 

At our Annual Meeting, stockholders will act upon the following proposals:

 

 

In addition, our management will respond to questions from stockholders.

 

What shares can I vote?

 

All shares of our common stock owned by you as of the close of business on the record date, May 27, 2008, may be voted by you. These shares include shares held directly in your name as the stockholder of record and shares held for you as the beneficial owner through a stockbroker, bank or other nominee. Each share of common stock owned by you entitles you to cast one vote on each matter to be voted upon.

 

What is the difference between holding shares as a stockholder of record and as a beneficial owner?

 

Many of our stockholders hold their shares through a stockbroker, bank or other nominee rather than directly in their own name. As summarized below, there are different procedures for voting shares held of record and those owned beneficially.

 

 

If your shares are registered directly in your name with our transfer agent, BNY Mellon Shareowner Services, you are considered, with respect to those shares, the stockholder of record, and these proxy materials are being sent directly to you by us. As the stockholder of record, you have the right to grant your voting proxy directly to us or to vote in person at the meeting. We have enclosed a proxy card for you to use.

 

 

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name, and these proxy materials are being forwarded to you by your broker, bank or nominee which is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker on how to vote and are also invited to attend the meeting. However, because you are not the stockholder of record, you may not vote these shares in person at the meeting unless you obtain a signed proxy from the record holder giving you the right to vote the shares. Your broker, bank or nominee has enclosed or provided a voting instruction card for you to use in directing the broker or nominee how to vote your shares. If you do not provide the stockholder of record with voting instructions, your shares may constitute broker

non-votes. The effect of broker non-votes is more specifically described in “What vote is required to approve each item?” below.

 

How can I vote my shares in person at the meeting?

 

Shares held directly in your name as the stockholder of record may be voted in person at the Annual Meeting. If you choose to do so, please bring the enclosed proxy card or proof of identification. Even if you currently plan to attend the Annual Meeting, we recommend that you also submit your proxy as described below so that your vote will be counted if you later decide not to attend the meeting. Shares held beneficially in street name may be voted in person by you only if you obtain a signed proxy from the record holder giving you the right to vote the shares.

 

How can I vote my shares without attending the meeting?

 

Whether you hold shares directly as the stockholder of record or beneficially in street name, you may direct your vote without attending the meeting. You may vote by granting a proxy or, for shares held in street name, by submitting voting instructions to your broker, bank or nominee. You may do this by signing your proxy card or, for shares held in street name, the voting instruction card included by your broker, bank or nominee and mailing it in the accompanying enclosed, pre-addressed envelope. If you provide specific voting instructions, your shares will be voted as you instruct. Please refer to the summary instructions below and those included on your proxy card or, for shares held in street name, the voting instruction card included by your broker, bank or nominee.

 

Can I change my vote after I submit my proxy?

 

Yes. Even after you have submitted your proxy, you may change your vote with respect to shares held of record by you at any time prior to the close of voting at the Annual Meeting by filing a notice of revocation with our Corporate Secretary at 15300 Centennial Drive, Northville, Michigan 48168, by submitting a duly executed proxy bearing a later date or by attending the meeting and voting in person. Your attendance at the Annual Meeting will not by itself revoke a proxy; you must vote your shares at the meeting.

 

If your shares are held in a stock brokerage account or by a bank or other nominee, you may revoke your proxy by following the instructions provided by your broker, bank or nominee.

 

What constitutes a quorum?

 

The presence at the Annual Meeting, in person or by proxy, of the holders of a majority of the shares of common stock issued and outstanding and entitled to vote on the record date will constitute a quorum. At the close of business on the record date, 101,094,064 shares of our common stock were issued and outstanding. Proxies received but marked as abstentions and broker non-votes (i.e., shares held of record by a broker which are not voted because the broker has not received voting instructions from the beneficial owner of the shares and either lacks or declines to exercise the authority to vote the shares in its discretion) will be included in the calculation of the number of shares considered to be present at the Annual Meeting for purposes of a quorum.

 

What are the Board of Directors’ recommendations?

 

The Board of Directors recommends a vote:

 

 

Unless you give other instructions via your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of our Board of Directors. With respect to any other matter that properly comes before the Annual Meeting, the proxy holders will vote in accordance with their judgment on such matter.

What vote is required to approve each item?

 

The election to the Board of Directors of Messrs. Cunningham and Sohi will require the affirmative vote of a plurality of the votes cast by the holders of shares of common stock present in person or represented by proxy at the Annual Meeting. In tabulating the vote, abstentions and broker non-votes, if any, will not affect the outcome of the vote on the election of directors. The approval of the ratification of the appointment of auditors will require the affirmative vote of a majority of shares of common stock present in person or represented by proxy at the Annual Meeting. In determining whether these proposals receive the requisite number of affirmative votes, abstentions will be counted and will have the same effect as a vote against the proposal; broker non-votes will be disregarded and will have no effect on the outcome of the vote.

 

What does it mean if I receive more than one proxy or voting instruction card?

 

It means your shares are registered differently or are in more than one account. Please provide voting instructions for all proxy and voting instruction cards you receive.

 

Where can I find the voting results of the meeting?

 

We will announce preliminary voting results at the meeting and publish final results in our quarterly report on Form 10-Q for the second quarter of fiscal year 2008.

 

Who will count the votes?

 

A representative of BNY Mellon Shareowner Services, our transfer agent, will tabulate the votes and act as the inspector of election.

 

Who is making this solicitation and who will bear the associated costs?

 

We are making this solicitation and will pay the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials. In addition to the mailing of these proxy materials, the solicitation of proxies or votes may be made in person, by telephone or by electronic communication by our directors, officers and employees, who will not receive any additional compensation for such solicitation activities. BNY Mellon Shareowner Services, our transfer agent, will assist us in the distribution of proxy materials. We will reimburse BNY Mellon Shareowner Services for reasonable expenses incurred in connection with these services. We will also reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to stockholders.

 

May I propose actions for consideration at next year’s annual meeting of stockholders?

 

For a stockholder’s proposal to be eligible to be included in our Proxy Statement for the 2009 annual meeting of Stockholders, the stockholder must follow the procedures of Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the proposal must be received by our Corporate Secretary at 15300 Centennial Drive, Northville, Michigan 48168, not later than January 28, 2009. In order for proposals of stockholders submitted outside the process of Rule 14a-8 under the Exchange Act to be considered timely, our By-laws require that such proposals must be submitted to our Corporate Secretary no earlier than March 27, 2008 and no later than April 26, 2009. However, if the 2009 annual meeting is called for a date earlier than June 25, 2009 or later than August 24, 2009, the stockholder proposal must be received not later than the close of business on the 10th day following the day on which notice of the date of the meeting is mailed or public disclosure of the date of the meeting is made, whichever occurs first.

 

Our Certificate of Incorporation currently authorizes no fewer than three and no more than twelve directors. Our Board of Directors is currently comprised of seven directors. Our Certificate of Incorporation divides the Board of Directors into three classes — Class I, Class II and Class III — with members of each class serving staggered three-year terms. One class of directors is elected by the stockholders at each annual meeting to serve a three-year term and until their successors are duly elected and qualified. The Class II Directors will stand for reelection or election at the Annual Meeting. The Class III Directors will stand for reelection or election at the 2009 annual meeting and the Class I Directors will stand for reelection or election at the 2010 annual meeting.

 

As proscribed by the charter of our Nominating and Corporate Governance Committee, the nominees for election as Class II Directors were recommended to our Board of Directors by our Nominating and Corporate Governance Committee, and were approved to serve as the nominees of our Board of Directors by a majority of our directors who qualify as independent directors under the listing standards of the Nasdaq Stock Market, Inc. (“Nasdaq”). If any nominee for any reason is unable or unwilling to serve as a director or the Board of Directors determines for good cause not to have such nominee serve as a director, the proxy holders will have the discretion to vote the proxies for any substitute nominee designated by the Board of Directors. We are not aware of any nominee who will be unable or unwilling to serve, or for good cause will not serve, as a director.

 

The names of the nominees of our Board of Directors for election as Class II Directors at the Annual Meeting and certain information about them are set forth below:

 

 

The biographical information for the Class II Director nominees is as follows:

 

William H. Cunningham has been a Professor of Marketing at the University of Texas at Austin since 1979. Dr. Cunningham has occupied the James L. Bayless Chair for Free Enterprise at the University of Texas since 1985. Dr. Cunningham was the Dean of the University of Texas’ College of Business Administration/Graduate School of Business from 1982 to 1985, and President of the University of Texas at Austin from 1985 to 1992. Dr. Cunningham was also the Chancellor (chief executive officer) of the University of Texas System from 1992 to 2000. Dr. Cunningham is a director of the following publicly-traded companies: Lincoln National Corporation, an insurance company, Southwest Airlines, a national air carrier, Introgen Therapeutics, a gene therapy company, and Hicks Acquisition Company I, Inc., a “blank check” company formed to acquire one or more additional companies. He is also a member of the board of John Hancock Mutual Funds. Dr. Cunningham received a Ph.D., a Master of Business Administration and a Bachelor of Business Administration from Michigan State University.

 

Mohsen Sohi is the President and CEO of Freudenberg-NOK. Prior to joining Freudenberg, Mr. Sohi was employed by NCR Corporation from 2001 until 2003. Mr. Sohi’s last position with NCR was as the Senior Vice President, Retail Solutions Division. Before serving NCR in this position, Mr. Sohi spent more than 14 years at AlliedSignal, Inc. and its post-merger successor, Honeywell International Inc. From July 2000 to January 2001, he served as President, Honeywell Electronic Materials. From August 1999 to July 2000, Mr. Sohi was President, Commercial Vehicle Systems, at AlliedSignal. Prior to that, from 1997 to August 1999, he was Vice President and General Manager, Turbocharging Systems, and from 1995 to 1997, he was Director of Product Development and Technical Excellence at AlliedSignal. Mr. Sohi is a director of STERIS Corporation, a developer of products and services to prevent infection and contamination, and Harris Stratex Networks, Inc., a developer of microwave communications equipment. Mr. Sohi received his Bachelor of Science degree in Mechanical and Aerospace Engineering from the University of Missouri, a Doctor of Science degree in Mechanical Engineering from Washington University and a Master of Business Administration from the University of Pennsylvania’s Wharton School of Business.

Vote Required

 

The election to the Board of Directors of Messrs. Cunningham and Sohi and will require the affirmative vote of a plurality of the votes cast by the holders of shares of common stock present in person or represented by proxy at the Annual Meeting. In tabulating the vote, abstentions and broker non-votes, if any, will not affect the outcome of the vote on the election of directors.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF EACH NAMED NOMINEE
TO SERVE AS A CLASS I DIRECTOR.

 

The Audit Committee has selected and the Board of Directors has ratified the selection of KPMG LLP as our independent auditors for the fiscal year ending January 31, 2009 and has further directed that management submit the selection of independent auditors for ratification by the stockholders at the Annual Meeting. Representatives of KPMG LLP are expected to be present at the Annual Meeting, will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

 

Stockholder ratification of the selection of KPMG LLP as our independent auditors is not required by our By-laws or otherwise. However, the Board of Directors is submitting the selection of KPMG LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee and the Board of Directors will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee and the Board of Directors in their discretion may direct the appointment of different independent auditors at any time during the year if they determine that such a change would be in the best interests of the Company and our stockholders.

 

Vote Required

 

The ratification of the appointment of auditors will require the affirmative vote of a majority of shares of common stock present in person or represented by proxy at the Annual Meeting. In determining whether this proposal receives the requisite number of affirmative votes, abstentions will be counted and will have the same effect as a vote against the proposals; broker non-votes will be disregarded and will have no effect on the outcome of the vote.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE RATIFICATION OF
THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING JANUARY 31, 2009.

Audit Fees and Pre-Approval Policies

 

The following table presents fees for professional services rendered by KPMG LLP for the audit of our annual financial statements for fiscal 2006 and fiscal 2007 and fees billed for audit-related services, tax services and all other services rendered by KPMG LLP for fiscal 2006 and fiscal 2007.

 

 

 

The Audit Committee reviews, and in its sole discretion pre-approves, our independent auditors’ annual engagement letter including proposed fees and all audit and non-audit services provided by the independent auditors. Accordingly, all services described under “Audit Fees,” “Audit Related Fees,” “Tax Fees” and “All Other Fees” were pre-approved by our Audit Committee. The Audit Committee may not engage the independent auditors to perform the non-audit services proscribed by law or regulation. The Audit Committee may delegate pre-approval authority to a member of the Audit Committee, and authority delegated in such manner must be reported at the next scheduled meeting of the Audit Committee.

 

Who are the current members of the Board of Directors?

 

The following table sets forth for each member of our Board of Directors his or her name, age, positions held with us, class and the years in which he or she became a director and in which his or her current term will end:

 

 

 

Curtis J. Clawson serves as Hayes’ President, Chief Executive Officer and Chairman of the Board and has held such positions since August 2001 (President and Chief Executive Officer) and September 2001 (Chairman). From 1999 to July 2000, Mr. Clawson was President and Chief Operating Officer of American National Can. Mr. Clawson has 16 years of experience in the automotive industry. He began his career in automotive-related businesses at Arvin Industries where he spent 9 years, from 1986 to 1995, including a position as General Manager of the business unit that supplied Arvin exhaust products, tenures in sales and marketing and tenures in production and plant management. From 1995 until the time that he joined American National Can, Mr. Clawson worked for AlliedSignal, Inc. as President of AlliedSignal’s Filters (Fram) and Spark Plugs (Autolite) Group, a $500 million automotive components business, and then as President of AlliedSignal’s Laminate Systems Group. Mr. Clawson earned his Bachelor of Science and Bachelor of Arts degrees from Purdue University and a Master of Business Administration from Harvard Business School. He is fluent in Portuguese, Spanish and French.

 

Cynthia L. Feldmann has served as President and Founder of Jetty Lane Associates, a consulting firm, since December 2005. Previously, Ms. Feldmann served as the Life Sciences Business Development Officer for the Boston law firm Palmer & Dodge, LLP from November 2003 to September 2005 and was with the global accounting firm, KPMG, LLP, from July 1994 to September 2002, holding various leadership roles in the firm’s Medical Technology and Health Care & Life Sciences industry groups, including Partner, Northeast Regional Relationships. Ms. Feldmann also spent 19 years with the accounting firm Coopers & Lybrand (now PricewaterhouseCoopers), ultimately as National Partner-in-Charge of their Life Sciences practice. Ms. Feldmann is a director of STERIS Corporation, a developer of products and services to prevent infection and contamination, and Hanger Orthopedic Group, Inc., a provider of orthotic and prosthetic patient care services. Ms. Feldmann earned a Bachelor of Science degree in accounting from Boston College and is a Certified Public Accountant.

 

George T. Haymaker, Jr. serves as our Lead Director. Mr. Haymaker served as non-executive Chairman of the Board of Kaiser Aluminum Corporation from October 2001 through June 2006. Mr. Haymaker served as Chairman of the Board and Chief Executive Officer of Kaiser Aluminum Corporation from January 1994 until January 2000, and as non-executive Chairman of the Board of Kaiser Aluminum Corporation from January 2000 through May 2001. From May 1993 to December 1993, Mr. Haymaker served as President and Chief Operating Officer of Kaiser Aluminum Corporation. Mr. Haymaker is a director of Pool Corporation, a distributor of swimming pool products. Mr. Haymaker received his Bachelor of Science degree in metallurgy and Master of Science degree in Industrial Management from the Massachusetts Institute of Technology and a Master of Business Administration from the University of Southern California.

Henry D. G. Wallace was employed by Ford Motor Company from 1971 until his retirement in 2001. Mr. Wallace’s last position with Ford was as the Group Vice President, Mazda & Asia Pacific Operations. Before serving Ford in this capacity, Mr. Wallace occupied a number of different positions, including Group Vice President and Chief Financial Officer; Vice President, European Strategic Planning and Chief Financial Officer, Ford of Europe, Inc.; President and Chief Executive Officer, Mazda Motor Corporation; and President, Ford Venezuela. Mr. Wallace is a director of Diebold, Inc., a provider of ATM, security and electronic voting systems, Ambac Financial Group, Inc., a financial services company and Lear Corporation, an automotive components supplier. Mr. Wallace received a Bachelor of Arts degree in Economics from the University of Leicester.

 

Richard F. Wallman was employed by Honeywell International, Inc. from 1999 until his retirement in 2003. Mr. Wallman’s last position with Honeywell was as Senior Vice President and Chief Financial Officer. From 1995 to 1999, Mr. Wallman held the same position at AlliedSignal, Inc., until its merger with Honeywell. Before joining AlliedSignal, Mr. Wallman occupied a number of different positions with IBM Corporation, Chrysler Corporation and Ford Motor Company. Mr. Wallman is a director of Ariba, Inc., a software company, Convergys Corporation, a relationship management company, Lear Corporation, an automotive components supplier, and Roper Industries, a diversified supplier of industrial products. Mr. Wallman received his Bachelor of Science degree in Electrical Engineering from Vanderbilt and a Master of Business Administration from the University of Chicago.

 

Biographical information for Messrs. Cunningham and Sohi is provided on page 4 in the section identifying them as nominees for election as Class II Directors.

 

Which of the directors have been deemed to be independent by our Board of Directors?

 

Our Board of Directors has determined that each of Dr. Cunningham, Ms. Feldmann, Mr. Haymaker, Dr. Sohi, Mr. Wallace and Mr. Wallman meet the independence requirements of the Nasdaq listing standards. It is the practice of the independent members of our Board of Directors to meet on a regular basis.

 

How often did the Board of Directors meet during the fiscal year ending January 31, 2008?

 

During the fiscal year ending January 31, 2008, the Board of Directors held ten meetings and acted by written consent five times. Each of the current directors attended at least 75% of the aggregate meetings of the Board of Directors and the respective committees of the Board of Directors on which the director served that were held during the period for which the director was a director or a committee member.

 

It is our policy that directors are invited and encouraged to attend our annual meetings. All of our current directors attended our 2007 annual meeting.

 

Does the Board of Directors have a Lead Director?

 

Yes. George T. Haymaker, Jr. currently serves as our Lead Director, whose duties and authority include, among others, the following:

 

 

 

Does the Company have a Code of Conduct?

 

Yes. In January 2004 our Board of Directors adopted a code of business conduct and ethics which sets forth the standards of behavior expected of our employees, officers and directors. A copy of this code of business conduct is available at our corporate website at www.hayes-lemmerz.com on the “Investor Relations” page at the “Corporate Governance” link. This code of business conduct is designed to deter wrongdoing and to promote, among other things:

 

 

Does the Company have a Code of Ethics for Chief Executive and Senior Financial Officers?

 

Yes. In January 2004 our Board of Directors adopted a code of ethics for our chief executive and senior financial officers. A copy of this code of ethics is available on our corporate website at www.hayes-lemmerz.com on the “Investor Relations” page at the “Corporate Governance” link. Any material change to, or waiver from, this code of ethics will be disclosed on our website within five business days after such change or waiver. This code of ethics requires each of these officers to, among other things:

 

 

How do stockholders communicate with the Board of Directors?

 

The Board of Directors has established a process to receive communications from stockholders. Stockholders may contact any member (or all members) of the Board of Directors (or the non-management directors as a group) or any committee of the Board of Directors by mail or electronically. To communicate with the Board of Directors, any individual director or any group or committee of directors, correspondence should be addressed to the Board of Directors or any such individual director or group or committee of directors by either name or title. All such correspondence should be sent “c/o Corporate Secretary” at 15300 Centennial Drive, Northville, Michigan 48168.

To communicate with any of our directors electronically, stockholders should send an email message to directors@hayes-lemmerz.com or go to our corporate website at www.hayes-lemmerz.com.  On the “Investor Relations” page at the “Corporate Governance” link under the heading “Communication with our Board” you will find an on-line form that may be used for writing an electronic message to any member (or all members) of the Board of Directors or any committee of the Board of Directors. Please follow the instructions on our website to send your message.

 

All communications received as set forth in the preceding paragraph will be opened by the office of our General Counsel for the sole purpose of determining whether the contents represent a message to our directors. Any contents that are not in the nature of advertising, promotions of a product or service, or patently offensive material will be forwarded promptly to the addressee. In the case of communications to the Board of Directors or any group or committee of directors, the General Counsel’s office will make sufficient copies of the contents to send to each director who is a member of the group or committee to which the correspondence or e-mail is addressed.

 

What are the standing committees of the Board of Directors?

 

The Board of Directors has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.

 

 

The current members of our Audit Committee are Cynthia L. Feldmann (Chair), George T. Haymaker, Jr., and Mohsen Sohi. Richard F. Wallman also served on the Audit Committee for a portion of fiscal 2007. The Audit Committee held ten meetings during the fiscal year ending January 31, 2008. Our Board of Directors has determined that Ms. Feldmann is qualified as an “audit committee financial expert” as that term is defined in the applicable SEC rules and in satisfaction of the applicable Nasdaq audit committee requirements.

 

The Audit Committee is responsible for providing assistance to our Board of Directors in fulfilling its legal and fiduciary obligations with respect to matters involving the accounting, auditing, financial reporting, internal control and legal compliance functions of the Company and our subsidiaries. These responsibilities include overseeing the following:

 

 

The Audit Committee operates under a written charter, which is available on our corporate website at www.hayes-lemmerz.com on the “Investor Relations” page at the “Corporate Governance” link. The Audit Committee also is responsible for approving or disapproving transactions or courses of dealings with respect to which “related persons” as defined in the applicable SEC rules (including our executive officers, directors and members of their immediate families) have an interest.

 

The Audit Committee has reviewed and discussed our audited financial statements for the fiscal year ending January 31, 2008 with management and with our independent auditors, KPMG LLP. The Audit Committee has discussed with KPMG LLP the matters required to be discussed by Statement on Auditing Standards No. 61 (AICAPA, Professional Standards, Vol. 1. AU Section 380), as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit Committee has received the written disclosures and the letter from KPMG LLP required by Independence Standards Board Standard No. 1 (Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees), as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T, and has discussed with KPMG LLP their independence. Based on the Audit Committee’s review of the audited financial statements and the review and discussions described in this paragraph, the Audit Committee recommended to the Board of Directors that the audited financial statements for

the fiscal year ended January 31, 2008 be included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2008 for filing with the SEC.

 

 

 

 

The current members of our Compensation Committee are William H. Cunningham (Chair), Mohsen Sohi, Henry D. G. Wallace and Richard F. Wallman. Each such person is an independent director under the Nasdaq listing standards. The Compensation Committee held eight meetings during the fiscal year ending January 31, 2008 and acted by written consent twice.

 

The responsibilities of the Compensation Committee include the following:

 

 

The Compensation Committee operates under a written charter, which is available on our corporate website at www.hayes-lemmerz.com on the “Investor Relations” page at the “Corporate Governance” link. Pursuant to its charter, the Compensation Committee may delegate any of its authority to subcommittees, although to date it has not done so.

 

The Compensation Committee makes all final decisions with respect to executive officer compensation and makes recommendations to the Board of Directors with respect to director compensation. Our executive officers have a limited role in determining and recommending the amount and form of compensation of executive officers and no role in determining director compensation. Mr. Clawson generally recommends compensation amounts for his direct reports and participates in Compensation Committee discussions with respect to the compensation of his direct reports. The executive officers also make recommendations to the Compensation Committee regarding the annual structure and performance goals under the Company’s Short Term Incentive Plan. For more information on the role of management in determining executive compensation, see “Compensation Discussion and Analysis — Role of Management” in this proxy statement at page 21.

 

The Compensation Committee makes use of compensation consultants in determining the amount and form of executive and director compensation. Such consultants are engaged directly by and report solely to the Compensation Committee. In fiscal 2007, the Compensation Committee used Towers Perrin to assist it in reviewing executive compensation. The Compensation Committee retained Towers Perrin to conduct a comprehensive review of its officer and director compensation levels, policies and programs and to make recommendations for consideration by the Compensation Committee with respect to executive officer and director compensation programs and levels. For more information on the role of compensation consultants in determining executive compensation, see “Compensation Discussion and Analysis — Use of Compensation Consultants and Benchmarking” in this proxy statement at page 20.

 

During fiscal 2007, none of the members of the Compensation Committee: (i) was an officer or employee of the Company or any of our subsidiaries, (ii) was formerly an officer of the Company or any of our subsidiaries or (iii) had any relationship requiring disclosure by us under the SEC’s rules requiring disclosure of related party transactions. During fiscal 2007, no officer of the Company served as a director or member of the compensation committee (or other board committee performing similar functions) of any other entity.

 

 

The current members of our Nominating and Corporate Governance Committee are Henry D. G. Wallace (Chair), William H. Cunningham, Cynthia L. Feldmann and Richard F. Wallman. Each such person is an independent director under the Nasdaq listing standards. The Nominating and Corporate Governance Committee held two meetings during the fiscal year ending January 31, 2008.

 

The responsibilities of the Nominating and Corporate Governance Committee include the following:

 

 

The Nominating and Corporate Governance Committee operates under a written charter, which is available on our corporate website www.hayes-lemmerz.com on the “Investor Relations” page at the “Corporate Governance” link.

 

How are candidates for election as directors nominated?

 

The Nominating and Corporate Governance Committee identifies potential nominees by asking current directors and executive officers to notify the Committee if they become aware of persons who meet the Board of Directors’ criteria for service as a director and who have had a change in circumstances that might make them available to serve on the Board of Directors — for example, retirement as a senior executive of a public company. The Nominating and Corporate Governance Committee will also consider candidates recommended by stockholders and may, from time to time, engage firms that specialize in identifying director candidates.

 

All director candidates recommended by the Nominating and Corporate Governance Committee must meet the Board of Directors’ criteria for selecting directors. These criteria include the possession of such knowledge, experience, skills, expertise and diversity so as to enhance the Board of Directors’ ability to manage and direct the affairs and business of the Company. Business experience in the automotive or other manufacturing industries is particularly helpful, but is not required for the Nominating and Corporate Governance Committee to recommend a nominee. The Nominating and Corporate Governance Committee may also consider, when applicable, whether a candidate will enhance the ability of committees of the Board of Directors to fulfill their duties or to satisfy any requirements imposed by law, regulation or Nasdaq listing requirement, such as a candidate’s qualifications as an audit committee financial expert, for example. In addition, the Nominating and Corporate Governance Committee examines, among other things, a candidate’s ability to make independent analytical inquiries, understanding of our business environment, potential conflicts of interest, independence from management and the Company, integrity and willingness to devote adequate time and effort to responsibilities associated with serving on the Board of Directors. In considering candidates submitted by stockholders, the Nominating and Corporate Governance Committee may also take into consideration the number of shares held by the recommending stockholder and the length of time that such shares have been held.

Once a person has been identified by the Nominating and Corporate Governance Committee as a potential candidate, the Committee may collect and review publicly available information regarding the person to assess whether the person should be considered further. If the Nominating and Corporate Governance Committee determines that the candidate warrants further consideration, the Chairman or another member of the Committee contacts the person. Generally, if the person expresses a willingness to be considered and to serve on the Board of Directors, the Nominating and Corporate Governance Committee requests information from the candidate, reviews the person’s accomplishments and qualifications, compares these accomplishments and qualifications against the accomplishments and qualifications of any other candidates that the Committee might be considering, and conducts one or more interviews with the candidate. In certain instances, Committee members may contact one or more references provided by the candidate or may contact other members of the business community or other persons who may have greater first-hand knowledge of the candidate’s accomplishments. The Committee’s evaluation process does not vary based on whether or not a candidate is recommended by a stockholder, although, as stated above, the Board of Directors may take into consideration the number of shares held by the recommending stockholder and the length of time that such shares have been held.

 

In addition, stockholders may nominate candidates directly by following the procedures described in our By-laws. To nominate a candidate for election to Board of Directors, a stockholder must submit a timely written notice of the nomination to our Corporate Secretary and must be a stockholder of record on the date of the notice and on the record date of the meeting at which directors will be elected. The notice must include the following information:

 

 

To be timely, the notice and information described above must be addressed to our Corporate Secretary at 15300 Centennial Drive, Northville, Michigan 48168, and must be received by our Corporate Secretary not less than 90 nor more than 120 days prior to the anniversary date of our most recent annual meeting of stockholders. If, however, we did not hold an annual meeting the previous year, or if the date of the annual meeting to which the recommendation applies has been changed by more than 30 days from the anniversary date of our most recent annual meeting of stockholders, or in the case of a special meeting to elect directors, then the recommendation and information must be received not later than the close of business on the 10th day following the day on which notice of the date of the meeting is mailed or public disclosure of the date of the meeting is made, whichever occurs first.

 

Who are the current executive officers?

 

The following table contains the names and ages of our current executive officers and their positions, followed by a description of their business experience during the past five years. All positions shown are with us or our subsidiaries unless otherwise indicated. All executive officers are appointed by the Board of Directors and serve at its pleasure. There are no family relationships among any of the executive officers, and there is no arrangement or understanding between any of the executive officers and any other person pursuant to which he was selected as an

officer. James A. Yost resigned as our Executive Vice President and Chief Financial Officer effective May 21, 2008. We are currently conducting a search for his replacement. Each individual below is a U.S. citizen and the business address of each individual is 15300 Centennial Drive, Northville, Michigan 48168.

 

 

Biographical information for Mr. Clawson is provided on page 8 in the section identifying him as a Class I Director.

 

Fred Bentley, Chief Operating Officer and President, Global Wheel Group, has held the position of Chief Operating Officer since July 2007 and has held the position of President, Global Wheel Group since January 2006, when the group was formed by combining the Company’s North American and International Wheel Groups. Mr. Bentley joined the Company in October of 2001 as President of the Commercial Highway and Aftermarket business and was appointed President of the International Wheel Group in June 2003. He is a Six Sigma Black Belt, has a solid background of operations strategy, lean manufacturing, leadership of global businesses and business repositioning. Prior to joining the Company, he was Managing Director for Honeywell’s Holts European and South Africa automotive after-market operations. In addition, while at Honeywell, Mr. Bentley also served as Heavy Duty Filter (Fram) General Manager and Plant Manager for operations in Greenville, Ohio and Clearfield, Utah. Before joining Honeywell in 1995, Mr. Bentley worked in various capacities at Frito Lay, Inc. (PepsiCo) for a total of eight years. Mr. Bentley earned his Bachelor of Science degree in Industrial Engineering from the University of Cincinnati, Ohio, and a Master of Business Administration from the University of Phoenix. He also attended the Harvard Business School Advanced Management Program.

 

Patrick C. Cauley, Vice President, General Counsel and Secretary, has held this position since January 2004. He previously served as Interim General Counsel and before that as Assistant General Counsel. Prior to joining the Company in 1999, Mr. Cauley was a partner at the Detroit based law firm of Bodman LLP, where he engaged in all aspects of corporate practice, including mergers and acquisitions, commercial lending and financing, tax and real estate transactions. Mr. Cauley earned his Bachelor of Science degree in Business Administration, with a major in Accounting and his Juris Doctor degree from the University of Michigan. Mr. Cauley is also a Certified Public Accountant.

 

John A. Salvette, Vice President, Business Development, has held this position since August 2001. After serving in various financial positions with Rockwell International’s Automotive Operations and serving as Vice President and Chief Financial Officer of Stahl Manufacturing, an automotive supplier in Redford, Michigan, Mr. Salvette joined Kelsey-Hayes in 1990 as Controller for the North American Aluminum Wheel Business Unit. From May 1993 to January 1995, Mr. Salvette served as Director of Investor Relations and Business Planning and, from February 1995 to June 1997, as Corporate Treasurer to the Company. From July 1997 to January 1999, Mr. Salvette was Group Vice President of Finance of Hayes Lemmerz Europe. Following the acquisition of CMI International in February 1999, Mr. Salvette was appointed Vice President of Finance, Cast Components Group. Mr. Salvette received a Bachelor of Arts degree in Economics from the University of Michigan and a Master of Business Administration from the University of Chicago.

 

Based on the most recent information made available to us, the following table sets forth certain information regarding the ownership of our common stock as of May 27, 2008 by: (a) each director and nominee for director named in “Proposal No. 1 — Election of Directors”; (b) each of the individuals named in the Summary Compensation Table (the “Named Executive Officers”); (c) all of our executive officers and directors as a group; and (d) each person, or group of affiliated persons, known to us to be beneficial owners of 5% or more of our common stock as of such date. A person generally “beneficially owns” shares if he has either the right to vote those shares or dispose of them. More than one person may be considered to beneficially own the same shares. In the table below, unless otherwise noted, and subject to community property laws where applicable, a person has sole voting and dispositive power for those shares shown as beneficially owned by such person.

 

 

 

 

 

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.

 

To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended January 31, 2008, our officers, directors and greater than ten percent beneficial owners complied with all applicable Section 16(a) filing requirements, except that Daniel M. Sandberg filed a Form 4 related to the vesting of restricted stock units one day late and Mark Brebberman, our corporate controller, did not make required Section 16(a) filings until October 10, 2007, at which time his filings were brought current.

 

Compensation Discussion and Analysis

 

Objectives and Principles of Executive Compensation

 

The objectives of our executive compensation programs are to attract, retain and reward executive officers who contribute to our success, to align the financial interests of executive officers with Company performance, to strengthen the relationship between executive pay and stockholder value, to motivate executive officers to achieve our business objectives and to reward individual performance.

 

In designing executive compensation programs intended to achieve these goals, we follow a number of key principles. These principles include the following:

 

 

Use of Compensation Consultants and Benchmarking

 

The Compensation Committee engaged Towers Perrin, a nationally-recognized compensation consulting firm, to provide guidance in connection with our fiscal 2007 executive compensation programs. Towers Perrin does not provide any significant services to the Company other than acting as compensation consultant to the Compensation Committee. During 2007, Towers Perrin conducted a comprehensive review of our compensation policies, programs and levels and advised the Compensation Committee on the overall structure of the executive compensation programs, the appropriate mix of the various elements of compensation and the target compensation levels for each of our executive officers, including the executive officers named in the Summary Compensation Table on page 32 (our “Named Executive Officers”). The compensation consultant also assisted us in developing a peer group of similar companies for purposes of benchmarking our executive compensation programs.

 

The peer group developed in 2007 consisted of 31 manufacturing companies including eight automotive suppliers. The peer group had median annual revenue of approximately $2 billion, which is similar to the revenue of the Company, with annual revenue ranging from approximately $800 million to approximately $4.6 billion. The peer group was comprised of companies with business operations, complexity and size similar to those of the Company and was selected to provide robust market data for analyzing competitive executive pay as well as to minimize year-to-year volatility in pay for specific positions. The peer group consisted of American Axle & Manufacturing Holdings, Inc., A. Schulman, Inc., Barnes Group, Inc., BorgWarner, Inc., Briggs & Stratton

Corporation, Cameron International Corporation, Cooper Standard Automotive, Inc., Cooper Tire & Rubber Company, Donaldson Company, Inc., EnPro Industries Inc., Fleetwood Enterprises, Inc., Harsco Corporation, Herman Miller, Inc., HNI Corporation, IDEX Corporation, JLG Industries, Inc., MSC Industrial Direct Co., Inc., Metaldyne Corporation, Modine Manufacturing Company, Monaco Coach Corporation, Nissan North America, Inc., Oshkosh Truck Corporation, Packaging Corporation of America, Polaris Industries, Inc., PolyOne Corporation, Rayonier, Inc., Sonoco Products Company, Steelcase, Inc., Superior Industries International, Inc., Teledyne Technologies, Inc., and The Toro Company.

 

Role of Management

 

Members of management participate in the process of setting executive compensation in a number of ways. Mr. Clawson, our Chief Executive Officer, generally makes recommendations to the Compensation Committee regarding each element of compensation for the other Named Executive Officers and participates in some of the Compensation Committee’s discussions related to the compensation of these Named Executive Officers. However, all decisions regarding the compensation of our Named Executive Officers are made by the Compensation Committee. In fiscal 2007, Mr. Clawson made recommendations to the Compensation Committee regarding the special arrangements made with Mr. Sandberg, as well as base salary, discretionary adjustments to short-term cash incentive awards and the amount of equity awards for the other Named Executive Officers. Mr. Clawson does not make recommendations regarding his own compensation and is not present for discussions of his compensation by the Compensation Committee.

 

Management also plays a significant role in structuring our incentive compensation plans. In fiscal 2007, management recommended to the Compensation Committee the financial metrics and targets on which short-term cash incentive awards should be determined so as to align this component of executive compensation with corporate financial targets that are important to our stockholders. Management also recommended that the amount of short-term cash incentive awards for 2007 be reduced below the amount of the awards achieved under the terms of the plan and made recommendations regarding the structure of the equity incentive guidelines adopted during 2007. Management determines, in consultation with our Board of Directors, our annual budgets and operating plans, including the overall cost and cash flow impact of our executive compensation programs. From time to time, management may also recommend changes to executive compensation based on our then current financial situation. For example, in fiscal 2006, management recommended the suspension of retirement plan contributions and agreed to voluntary pay reductions to enable us to reduce our cost structure and improve cash flow. Management recommendations are only one of several factors considered by the Compensation Committee in establishing compensation programs and levels, and the Compensation Committee remains free to modify or disregard management’s recommendations in its sole discretion.

 

Allocation Among Components of Compensation

 

Our executive compensation package in 2007 consisted of the following components: base salary, short-term cash incentives, long-term equity incentives, a special one-time bonus, benefit programs and perquisites. The Compensation Committee reviews the executive compensation practices of the peer group in establishing levels of total compensation and the allocation of total compensation among the various compensation components. In general, we target total executive compensation to be competitive with the median total compensation of the peer group, taking into account individual factors such as responsibilities, experience and performance.

 

One important principle followed by the Compensation Committee in establishing the allocation of total compensation among the various components is that the portion of an executive’s total target compensation that is “at risk” and subject to the achievement of performance goals or tied to stockholder returns should increase as the responsibilities of the executive within the Company increase. Accordingly, the percentage of total target compensation that is “at risk” is highest for our Chief Executive Officer and is higher for our Chief Operating Officer than it is for the other Named Executive Officers. The following table sets forth for each Named Executive

Officer the targeted allocation on a percentage basis of fiscal 2007 compensation among base salary, target short-term cash incentives and target long-term equity incentives:

 

 

Due to special circumstances related to Mr. Sandberg’s situation with the Company, he did not receive any long-term equity incentives in fiscal 2007, but rather was subject to certain special compensation arrangements described below under “Special Arrangements with Mr. Sandberg.”

 

Base Salary

 

The base salary component of total compensation, which is not “at risk,” is intended to provide a fair and reasonable level of minimum pay for the performance of the regular duties and responsibilities of each position. In determining base salaries that are fair and reasonable, the Compensation Committee considers the importance to the Company of the duties and responsibilities of each position, the base salaries being paid by the members of the peer group for similar positions and how each executive’s base salary compares to the other members of the executive team. We target base salary to be at approximately the median of the peer group.

 

Base salary is the basis for determining the amounts of the other components of compensation, since the other components of compensation are typically calculated as a multiple of base salary. For instance, target and maximum short-term cash incentives are expressed as percentages of base salary, as are the expected annual values of long-term incentive compensation. In addition, certain benefit programs such as retirement benefits and life and long-term disability insurance provide benefits that are based on percentages or multiples of base salary.

 

In fiscal 2006, we instituted salary reductions at our facilities in North America in connection with other actions taken to reduce our overall cost structure. In connection with these actions, Mr. Clawson voluntarily reduced his base salary by 10% and each of the other Named Executive Officers agreed to voluntarily reduce his base salary by 7.5%. These reductions became effective for all payments of salary received on or after May 1, 2006. The voluntary reductions did not impact the calculation of incentive compensation determined as a percentage of base salary, which was calculated using base salary in effect prior to May 1, 2006. The salary reductions were discontinued and prior salaries reinstated for all of the Named Executive Officers as of August 1, 2007.

 

Base salary is reviewed annually by the Compensation Committee. In fiscal 2007, Messrs. Bentley and Cauley received base salary increases of approximately eight percent and six percent, respectively, which were effective as of August 1, 2007. The purpose of the increases was to bring their base salaries closer to the median of the peer group for their respective positions. Mr. Clawson did not receive a significant salary increase in fiscal 2007, although his base salary was rounded up from $799,245 to $800,000 at the time that his voluntary reduction was terminated. Messrs. Yost, Sandberg and Salvette did not receive base salary increases in 2007 over and above the reinstatement of their salaries in effect prior to the voluntary reductions.

 

All of our Named Executive Officers received a three percent salary increase effective as of February 1, 2008. The purpose of these salary increases was to keep salaries competitive with the peer group. The amount of the salary increases was determined in consultation with our compensation consultant.

 

One-time Bonus

 

Equity incentive grants to our Named Executive Officers were significantly below the market median in fiscal 2006 due to the limited number of shares available for equity incentive awards at that time. In fiscal 2007, the Compensation Committee approved a one-time cash bonus to our Named Executive Officers, which was intended to

partially compensate the Named Executive Officers for the below-market equity incentive awards received in fiscal 2006. The amount of this bonus was approximately 50% of the amount by which the 2006 equity incentive awards were below the market median. Mr. Sandberg did not receive a one-time bonus, but received an equivalent amount as a success bonus upon the divestiture of our automotive brake business pursuant to a separate arrangement described below under “Special Arrangements with Mr. Sandberg.”

 

Short-Term Cash Incentives

 

Short-term cash incentive compensation is intended to reward the achievement of corporate and personal performance goals for the current fiscal year. The criteria used to evaluate corporate performance for short-term incentive compensation are established at the beginning of each fiscal year and emphasize the achievement of business results that management and the Board of Directors determine to be most important during the year. Historically, these metrics have included measurements such as return on investment, adjusted earnings before interest, taxes, depreciation and amortization, earnings before interest and taxes, earnings from operations and cash flow. As with base salaries, the Compensation Committee consults with its executive compensation consultant and considers the practices of the peer group, other automotive suppliers and market trends in setting the metrics and target levels for short-term cash incentives. We target short-term cash incentives to be, on average, at the median of the peer group.

 

Consistent with the principle that a greater percentage of total compensation should be “at risk” for our Chief Executive Officer and Chief Operating Officer than for our other Named Executive Officers, in 2007 the target short-term cash incentive award was 100% of base salary for Messrs. Clawson and Bentley and was 60% for each of the other Named Executive Officers. Short-term cash incentive award payouts to our Named Executive Officers may be adjusted up or down by up 20% of the actual award achieved in the discretion of the Compensation Committee based on individual performance. In general, any upward adjustment must be offset by a downward adjustment to other participants in the 2007 short-term incentive plan (“STIP”), such that the maximum amount paid under the STIP to all participants does not exceed the aggregate amount of the actual awards achieved without adjustment. However, the Compensation Committee does retain the discretion to permit upward adjustments to STIP awards that are not entirely offset by downward adjustments to other awards. In fiscal 2007, the amount of upward adjustments exceeded the amount of downward adjustments by approximately $35,000.

 

Under the STIP, the metrics for our short-term cash incentives were earnings before interest and taxes, adjusted to eliminate the impact of asset impairments, sales of businesses and certain other one-time items during the fiscal year (“EBIT”) and free cash flow, which is cash from operations and asset sales minus capital expenditures, with certain additional adjustments (“Free Cash Flow”). Management recommended, and the Compensation Committee approved, EBIT and Free Cash Flow as the key performance metrics for short-term incentive compensation awards for several reasons, including:

 

 

For purposes of the STIP, EBIT was calculated from our audited financial statements by starting with loss from operations, then eliminating the impact of non-cash asset impairments and the non-cash cost of anti-dilution adjustments to equity incentive awards, adding the actual results from discontinued operations and the budgeted results of divested businesses from the divestiture date through year end, and subtracting the impact of cost savings resulting from the resolution of a lawsuit and the delay of certain restructuring activities. Free Cash Flow was calculated from our audited financial statements by starting with cash provided by operating activities minus cash used for investing activities, then eliminating the impact of our accounts receivable securitization facility and accelerated STIP payments to employees of divested operations, adding the actual cash flows from discontinued operations and the budgeted cash flows from divested businesses from the divestiture date through year end, and subtracting the cash impact of cost savings resulting from the resolution of a lawsuit and the delay of certain restructuring activities.

The fiscal 2007 EBIT target was $42.2 million and the Free Cash Flow target was $9.5 million, which are consistent with the targets for these metrics in the Company’s annual operating plan. Each metric is considered separately in determining the amount of the STIP award earned and each accounts for 50% of the STIP award if both are achieved at the target levels. STIP awards are paid only if the Company achieves positive Free Cash Flow. EBIT performance must be at least $23.2 million to receive a payout with respect this component, at which point this component of the award will be paid at 50% of target. Once the payment thresholds are exceeded, awards will increase as performance relative to the targets improves. The percentage awarded with respect to the Free Cash Flow component increases on a one-to-one straight-line basis from break-even Free Cash Flow up to the Free Cash Flow target. After achieving the target, the Company must exceed the target by approximately 16.5% for every 10% increase in the award. The percentage awarded with respect to the EBIT component increases on a straight-line basis as EBIT performance increases from the threshold up to the maximum award, with a payment of 100% at target EBIT. The maximum amount of a STIP award is 200% of the target STIP award, prior to any discretionary adjustments by the Compensation Committee. Additionally, the maximum payout with respect to either financial metric may not exceed 200% of the award payable with respect to such metric at the target level. To achieve the maximum payout, the Company must achieve EBIT of $80.3 million and Free Cash Flow of $25 million.

 

Actual EBIT achieved in 2007 was $57.1 million, compared to the target of $42.2 million, resulting in a calculated award with respect to the EBIT portion of the STIP award of 128.8% of the target award. Actual Free Cash Flow achieved in 2007 was $36.3 million, compared to the target of $9.5 million, resulting in a calculated award with respect to the Free Cash Flow portion of the STIP award of 200% of the target award, and a total STIP award payment of 164.4% of target, prior to any discretionary adjustment by the Compensation Committee. The Free Cash Flow portion of the award is very sensitive to relatively small changes in cash flows and the Free Cash Flow results were significantly improved by certain one-time items and the timing of certain payments and collections. Management believed some adjustment to the STIP award should be made to reflect the impact on Free Cash Flow of these items. As a result, management recommended to the Compensation Committee that STIP award payments be made at 120% of target, which management believes is appropriate to reflect the strong EBIT performance and fundamental improvement in Free Cash Flow. Taking these considerations into account, the Compensation Committee approved an aggregate STIP award of 120% of target.

 

The Compensation Committee did not make discretionary adjustments to the STIP awards of any of our Named Executive Officers other than Mr. Cauley. Mr. Clawson recommended, and the Compensation Committee approved, a discretionary adjustment to the STIP award for Mr. Cauley based on outstanding department and individual performance, including the successful resolution of several significant litigation matters and support of the Company’s debt restructuring and strategic initiatives. The discretionary adjustments to the STIP award received by Mr. Cauley increased his award to 125% of the target award. Mr. Sandberg did not receive a STIP award in fiscal 2007, although he was paid a pro rata portion his target STIP through his last day of employment pursuant to a separate arrangement described below under “Special Arrangements with Mr. Sandberg.”

 

The 2008 STIP will be structured similarly to the 2007 STIP. However, in addition to metrics based on EBIT and Free Cash Flow, the Compensation Committee added additional metrics based on measures of customer satisfaction and employee safety. As with the 2007 STIP, performance with respect to each metric will be determined separately in calculating the overall STIP award. If each metric is achieved at target levels, the EBIT metric will account for 50% of the total award, the Free Cash Flow metric will account for 30% of the total award and the customer satisfaction and employee safety metrics will each account for 10% of the total award.

 

Long-Term Cash Incentives

 

Long-term cash incentives were not a part of our executive compensation programs in fiscal 2007. The Compensation Committee decided not to include long-term cash incentives as a part of the 2007 compensation program because the Company was in the process of divesting certain non-wheel businesses during the fiscal year. Because these divestitures will significantly change the operations of the Company from year to year, appropriate performance targets were difficult to define over multiple years where the operations to be divested were included in some years and not in others. Instead, the Compensation Committee elected to increase the equity component of long-term compensation during 2007. If long-term cash incentives are adopted in the future, we expect that the annual expected value of total long-term compensation as a percentage of base salary would not be increased, but

rather that a portion of the total currently allocated to long-term equity incentives such as stock options and restricted stock units would instead be allocated to long-term cash incentives.

 

Our Named Executive Officers received payments in fiscal 2007, and will also receive payments in fiscal 2008, pursuant to the Officer Bonus Plan (“OBP”), a long-term cash incentive program adopted in 2005 to provide financial incentives for the Named Executive Officers to remain with the Company and to achieve our strategic performance objectives. Awards made under the OBP were earned in fiscal 2006 and are to be paid in three equal installments. These payments relate to performance in 2005 and 2006 and were not taken into account in determining total target compensation for fiscal 2007. The first two installments have been paid and the third installment will be paid in July 2008, subject to acceleration upon a change in control. Generally, a Named Executive Officer will only be entitled to payment of the third installment if he continues to be an eligible officer, as defined in the OBP, on the date of payment. Mr. Sandberg resigned from the Company in fiscal 2007 and will not receive an OBP payment in 2008.

 

Long-Term Equity Compensation

 

The key objectives of our long-term equity compensation program are to directly align the interests of our Named Executive Officers with the interests of our stockholders and to provide a retention incentive to our Named Executive Officers, as equity compensation awards vest over a period of years following the grant date. Past equity awards have included grants of stock options, restricted stock and restricted stock units, which are payable in either stock or the equivalent value in cash on the vesting date as determined by the Compensation Committee. The equity compensation awards granted to date vest over a period of time established on the grant date. As with the other elements of total compensation, the long-term equity compensation levels of peer group companies were considered when determining appropriate long-term equity compensation levels for our Named Executive Officers. However, the realized value of our long-term equity compensation, which depends on the market price of our common stock, has been less than the market median of the peer group in recent years.

 

In past years, we did not have an established policy with respect to making equity compensation awards and had not granted such awards on an annual or other periodic basis. Until fiscal 2006, we had not granted any equity incentive awards to our Named Executive Officers since immediately following our emergence from Chapter 11 in 2003. In September 2006, we granted restricted stock units to each of our Named Executives Officers. The grant date expected value of this award was approximately 25% of market median, but reflected the current value of our common stock and the limited number of shares available for awards under our Long Term Incentive Plan. In fiscal 2007, our Compensation Committee established guidelines for annual equity incentive compensation grants and made awards of stock options and restricted stock units pursuant to these guidelines. The guidelines were established in consultation with Towers Perrin based on the long-term incentive programs of other companies in the peer group and were targeted to be at approximately the median of the peer group. The Compensation Committee has not established specific policies regarding the timing of equity incentive grants.

 

Based on these guidelines, the annual expected value of total long-term incentive compensation to each Named Executive Officer is determined as a percentage of base salary, with the annual expected value of long-term compensation set at 200% of base salary for Mr. Clawson, 137% of base salary for Mr. Bentley and 100% of base salary for the remaining Named Executive Officers. Awards consistent with the guidelines were made to each of our Named Executive Officers, other than Mr. Sandberg, in fiscal 2007. To provide an additional incentive to Mr. Salvette to complete the divestiture of our automotive brake business, his awards were made in two installments, with the first installment of 60% of the target awards made at the same time as the awards to the other Named Executive Officers and the remaining 40% deferred until the completion of the divestiture of our automotive brake business. Mr. Sandberg did not receive a long-term compensation award in fiscal 2007.

 

The long-term incentive compensation awards during 2007 were divided between stock options and restricted stock units, with 70% of the annual expected value allocated to stock options and 30% of the annual expected value allocated to restricted stock units. In determining the allocation between options and restricted stock units, the Compensation Committee considered several factors, including the practices of the peer group and broader market data and trends provided by the compensation consultant. In addition, because the amount of long-term equity compensation was being increased in lieu of providing long-term cash incentives in 2007, the Compensation

Committee wanted the value of the long-term equity incentives to be closely tied to Company performance. The Compensation Committee determined that stock options, which have value to the executive only if the price our stock increases, are more strongly tied to corporate performance than restricted stock units, which have some value to the executive regardless of our stock price performance over the vesting period. For purposes of determining the number of options and restricted stock units awarded, the options were valued at approximately $2.71 per option and the restricted stock units were valued at approximately $3.53 per share. The values were determined using a valuation methodology consistent with that used in a survey provided by the compensation consultant and using the closing price of our common stock on the day before the awards were made. The number of options and restricted stock units awarded to each of our Named Executive Officers in fiscal 2007 is set forth in the Grants of Plan Based Awards Table at page 36.

 

The stock options become exercisable in three equal installments on February 1, 2008, February 1, 2009 and February 1, 2010. The restricted stock units vest as to 100% of the award on February 1, 2010. In setting the vesting schedules, the Compensation Committee considered the equity incentive vesting practices provided by the compensation consultant as well as the retention objective of the awards. The Compensation Committee believes that the three-year vesting period provides a strong retention incentive by requiring continued employment over a period of years for the awards to vest fully, while not having them vest so far in the future that the retention value is diluted.

 

In fiscal 2007, the Compensation Committee amended existing stock option grants for all participants in our Long Term Incentive Plan to extend the exercise period following termination of employment or service on the Board of Directors in certain cases. As a result of the amendment, the period for exercising an option following termination of employment or service on the Board of Directors was extended from 90 days to two years following the date of termination (or until the expiration of any such option, if earlier) for any employee with ten or more years of service or any director with five or more years of service, provided that such individual’s termination is under acceptable circumstances. Due to their length of service with the Company, the amendment was immediately effective with respect to stock options held by Messrs. Sandberg and Salvette. This change did not result in any additional compensation expense under FAS 123R and was not considered by the Compensation Committee in determining total compensation or any individual component of compensation for fiscal 2007. The Compensation Committee made this change to reward long-term directors and employees for their loyalty to the Company.

 

Anti-dilution Adjustment

 

In fiscal 2007, we completed an equity rights offering and private placement pursuant to which we issued and sold 59,423,077 shares of our common stock at a price of $3.25 per share. These transactions triggered the anti-dilution provisions of our Long Term Incentive Plan, which require the Compensation Committee to make an equitable adjustment with respect to any awards outstanding on the date of such a transaction. In connection with these transactions, the Compensation Committee recommended, and the Board approved, adjusting the number and exercise price of exiting stock options using the same formula that was mandated for the adjustment of our Series B Warrants and using an analogous adjustment method for unvested restricted stock units. The same adjustment formulas were used for all outstanding options and restricted stock units under the Long Term Incentive Plan, not only those held by executives. For purposes of determining compensation expense pursuant to FAS 123R, the adjustments are treated as additional awards made in fiscal 2007 with the same vesting schedules as the original awards to which they relate. Because the purpose of these adjustments was to protect the Named Executive Officers against dilution from these transactions and not as compensation, the adjustments were not considered by the Compensation Committee in determining the amount of the equity incentive awards or other elements of executive compensation in 2007. The amount of compensation expense we recognized with respect to these adjustments is included in the “Stock Awards” column of the Summary Compensation Table.

 

Stock Ownership Guidelines

 

In connection with the establishment of the fiscal 2007 equity incentive awards, the Compensation Committee recommended, and the Board of Directors approved, stock ownership guidelines for our executives. The Compensation Committee and the Board of Directors believe that stock ownership guidelines are important to align the economic interests of our executives with those of our stockholders. The guidelines were developed with input from our compensation consultant and established target stock ownership using a multiple of the peer group median salary

for chief executive officers and other executives, which was converted into a fixed number of shares using our approximate share price at the time the guidelines were adopted. The multiple was set at five times median salary for our Chief Executive Officer and two times median salary for the other Named Executive Officers. Pursuant to the guidelines, our Chief Executive Officer is expected to own 696,000 shares of our common stock and the other Named Executive Officers are expected to own 117,000 shares of our common stock on or before the later of September 18, 2012 or five years following the date of his or her appointment to such a position. For purposes of determining executive stock ownership pursuant to this requirement, shares of our stock purchased in the market, stock beneficially owned by the executive, stock held by the executive in any Company benefit plan, stock acquired on the exercise of stock options and held by the executive, vested and unvested shares of restricted stock and vested and unvested restricted stock units are included. Unexercised stock options are not included. If an executive fails to comply with the stock ownership guidelines by the relevant date, then 50% of any cash incentive compensation earned by that executive will be paid in shares of restricted stock until compliance with the stock ownership guidelines is achieved. The Company does not have any policies regarding hedging the economic risk of executive stock ownership. All of our Named Executive Officers currently hold stock in excess of the amounts required by the guidelines.

 

The following table summarizes the ownership of our common stock as of May 27, 2008 by the Named Executive Officers then employed by the Company:

 

 

Special Arrangements with Mr. Sandberg

 

Mr. Sandberg was the President of our Automotive Components Group. During fiscal 2007, the Company continued to execute its strategy of focusing on its global automotive and commercial highway wheel business. As a result, the Company divested substantially all of the operations for which Mr. Sandberg was responsible over the course of the fiscal year. The Compensation Committee believed that retaining Mr. Sandberg would be essential to the successful completion of this process and determined that it would be appropriate to provide Mr. Sandberg additional incentives to remain with the Company and successfully complete the divestiture of these operations. In September 2007, the Compensation Committee approved certain incentives for Mr. Sandberg conditioned upon his remaining with the Company until the earlier of the closing of the divestiture of the Company’s automotive brake business or February 29, 2008, subject to Mr. Sandberg’s continued cooperation and assistance in completing this transaction. Pursuant to these arrangements, upon the earlier of completion of the divestiture transaction or February 29, 2008, Mr. Sandberg could voluntarily terminate his employment and receive the benefits to which he would be entitled if he terminated his employment for “good reason” pursuant to his employment agreement. Mr. Sandberg was required to sign a waiver and release agreement to receive these benefits. In addition, upon the closing of the divestiture of the automotive brake business, Mr. Sandberg would be entitled to receive a cash payment in the amount of $105,000, reflecting approximately 50% of the amount by which his 2006 equity incentive grant was below market, and 50% of his unvested restricted stock units would vest. Furthermore, if Mr. Sandberg was not employed or retained as a consultant by, or did not have any equity interest in, the purchaser of the automotive brake business, he would also be entitled to receive a cash payment of $116,667, representing the third installment of his OBP award, and his remaining unvested restricted stock units would vest.

 

On November 9, 2007, we completed the sale of the automotive brake business to Brembo North America, Inc. On January 7, 2008, Mr. Sandberg resigned from the Company to accept a position with Brembo North America, Inc. As a result, Mr. Sandberg received the benefits to which he would have been entitled under his employment agreement if he had terminated his employment for good reason on January 7, 2008. He also received an additional cash payment of $105,000 and 50% of his unvested restricted stock units were vested on November 9, 2007. The Company will not pay the third installment of his OBP award and no further restricted stock units will be vested.

Additional details on the amount of compensation received by Mr. Sandberg pursuant to these arrangements are included the Explanatory Notes and Narrative Discussion accompanying the Summary Compensation Table.

 

Benefits, Perquisites and Foreign Tax Equalization

 

Our executive benefit plans provide benefits customary in the automotive supply industry. Benefit programs are established taking into account benefits being offered by industry and peer group companies, market trends and the impact of the costs of the benefit programs on our financial performance. Most benefit plans provided to our executive officers are also provided to all non-union employees in the United States. Basic benefit plans include medical and dental insurance and prescription drug plans, life insurance and long-term disability insurance. In fiscal 2007, life and long-term disability insurance were provided to Named Executive Officers at the same multiples of base salary as other employees, with the Company paying the premiums and the taxes on such premiums for individual executive policies that supplement the group policies above the group policy limits.

 

Retirement Benefits.  The Named Executive Officers participate in the Company’s 401(k) Retirement Savings Plan (the “401(k) Plan”), which is the same tax qualified retirement plan available to all other non-union employees in the United States. Through April 30, 2006, we matched 100% of the first four percent of eligible compensation that was deferred into the 401(k) Plan by eligible employees, including the Named Executive Officers. In addition, the 401(k) Plan included a defined contribution benefit for all eligible employees equal to five percent of eligible compensation up to the Social Security wage base and eight percent of eligible compensation thereafter. In connection with the reductions in employee base salary in the United States, all employer contributions to the 401(k) Plan were suspended, effective May 1, 2006. Because of improvements to our financial performance during 2006, the Compensation Committee reinstated the four percent matching contribution effective January 1, 2007. As of May 28, 2008, the Compensation Committee has not reinstated the defined contribution benefit.

 

In addition to the 401(k) Plan, the Named Executive Officers participate in a non-qualified Supplemental Executive Retirement Plan (“SERP”). The intent of the SERP is to replace the benefits that would have been available under the 401(k) Plan, but for the limits on contributions to tax-qualified plans under the Internal Revenue Code. Prior to May 1, 2006, we made contributions to the SERP of twelve percent of eligible compensation, which is equal to the sum of the 401(k) Plan defined contribution rate for amounts in excess of the Social Security wage base plus the 401(k) matching contribution rate, minus the amount actually contributed to the 401(k) Plan. Contributions to the SERP were suspended together with the suspension of contributions to the 401(k) Plan. Contributions to the SERP were reinstated on January 1, 2007 at four percent of eligible compensation, the same rate as matching contributions to the 401(k) Plan, less the amount actually contributed to the 401(k) Plan.

 

We no longer offer a defined benefit pension plan to any of our employees in the United States. Participation in our prior defined benefit pension plan was closed to new participants on December 31, 1994 and service credits were frozen on that date. Mr. Salvette is the only Named Executive Officer with any vested benefits under the defined benefit pension plan.

 

Perquisites.  We provide limited perquisites to our executives. In 2007, we provided each Named Executive Officer with a leased vehicle that is available for personal use (or reimbursed the cost of a vehicle leased by them) and we paid all of the costs associated with those vehicles, which is a customary perquisite in the automotive supply industry. We also provided life and long-term disability insurance in excess of group policy limits and reimbursed certain taxes on benefits received by our Named Executive Officers. Rather than providing additional perquisites such as tax preparation, financial planning, country club dues and the like, we provided each Named Executive Officer a $15,000 perquisite allowance that could be used to pay for such services or taken in cash at the option of the Named Executive Officer. The amount was determined by considering the perquisites provided at similar companies and estimating the cost of providing a similar perquisite package. To help ensure that the Named Executive Officers are physically able to execute their duties, we also pay all the expenses associated with an annual comprehensive physical examination, taken at the option of the Named Executive Officer. We may also provide nominal additional perquisites or personal benefits from time to time in addition to those described above, such as occasional spousal travel to corporate events. We do not maintain a corporate aircraft, but we charter private jets from time to time for executive business travel. These are not available to our Named Executive Officers for personal use.

Beginning January 1, 2008, we will no longer provide supplemental life and long-term disability insurance policies or reimburse any taxes on the premium payments. Instead, the perquisite allowance was increased from $15,000 to $35,000 for our Named Executive Officers other than Mr. Clawson, and to $40,000 for Mr. Clawson, to cover the costs of the executives obtaining this insurance and paying these taxes directly. The perquisite allowance will be paid in cash over the course of the year and the Named Executive Officers have complete discretion over how it will be used. The Compensation Committee elected to establish the cash perquisite allowance rather than to increase base salaries to enable it to more easily compare this element of compensation among the peer group and because it does not believe that this element of compensation should be considered in determining the amounts of other compensation that are calculated as a percentage or multiple of base salary.

 

Tax Equalization Payments.  When an employee, including a Named Executive Officer, is posted to an overseas assignment in a jurisdiction with tax rates different from those in the employee’s home country, we typically adjust the employee’s compensation so that there is no difference between what the employee’s after-tax compensation would have been in his or her home country and the actual after-tax compensation in the foreign jurisdiction. Where foreign tax rates are higher, the equalization results in an increase in total compensation. The Compensation Committee believes this additional compensation is appropriate so that an employee who accepts an overseas assignment, which can cause significant hardship for the employee and his or her family, is made no worse off by the tax situation in the foreign jurisdiction. Because these payments represent income to the employee in the foreign jurisdictions in the years when taxes are actually paid rather than the years in which the services are provided in the foreign jurisdiction, foreign tax equalization payments may continue after an employee has returned to his or her home country. Mr. Bentley was the only Named Executive Officer who received tax equalization payments in 2007, which were related to services he provided while assigned to our European headquarters in Königswinter, Germany.

 

Severance and Change in Control Arrangements

 

The Compensation Committee believes severance and change in control arrangements are necessary to recruit talented executives from successful careers at other respected companies and to ensure that the interests of the Named Executive Officers remain aligned with the interests of our stockholders in transactions that could result in the termination of a Named Executive Officer’s employment. We also provide these benefits to ease the impact on the Named Executive Officers of a termination of employment and to take into account the fact that it can take a significant amount of time for senior executives to find comparable positions in other companies. These arrangements are set forth in the employment agreements we have executed with each of our Named Executive Officers or, with respect to awards under certain long-term compensation plans, in the plan documents. Additional information regarding our severance and change in control arrangements is set forth in “Potential Payments Upon Termination or Change in Control” on page 41. Severance and change in control arrangements are generally not considered by the Compensation Committee in setting the amounts of other compensation. However, the Compensation Committee may consider these arrangements in special circumstances where it is likely that an executive’s employment with the Company will end in the near future, as was the case with Mr. Sandberg in fiscal 2007, and adjust certain elements of the executive’s compensation accordingly.

 

The employment agreements and incentive compensation plans also provide for certain benefits upon a change in control. Certain of these benefits include a “single trigger” provision, meaning that the benefits become payable on a change of control, whether or not the employment of the Named Executive Officer is terminated in connection with the change of control. The Named Executive Officers other than Mr. Clawson are entitled to payment of a portion of their annual STIP prorated through the date of the change in control on a single trigger basis. All of the Named Executive Officers will receive the following benefits on a single trigger basis following a change of control:

 

 

We believe that a single trigger provision is appropriate for equity awards to more closely align the interests of key employees with those of our stockholders in connection with such a transaction. We also believe that key employees who are not terminated in the transaction should have the same ability as those who are terminated to realize the benefits of the transaction with respect to our equity at the time it is completed. We do not believe it is appropriate for the Named Executive Officers to continue to bear the risk of non-payment of amounts earned but not yet paid under the Officer Bonus Plan following a change of control and therefore believe that a single trigger payment provision is appropriate for vesting these amounts. We also believe that a single trigger is appropriate for vesting contributions to retirement plans because we believe that employees terminated in connection with a change in control should not have to forfeit these benefits and we do not want to treat employees remaining with surviving company less favorably than those who were terminated. All of our current Named Executive Officers are already fully vested with respect to all contributions to the 401(k) Plan and the SERP by virtue of their length of service with the Company.

 

In addition to benefits payable on a single trigger basis (but in lieu of any benefits that would be payable upon such a termination in the absence of a change in control), all of our Named Executive Officers are entitled to severance and other benefits if terminated by us or our successor without cause or by them with good reason or, in the case of Mr. Clawson only, without good reason, following a change of control. We believe that these benefits are appropriate to provide an incentive to our Named Executive Officers to complete transactions that benefit our stockholders, but may result in their termination or substantial changes to the conditions of their employment. We believe a double trigger payment provision is appropriate for these benefits to avoid a windfall payment to Named Executive Officers who continue with the Company following the transaction. We believe that providing payment to Mr. Clawson if he terminates his employment without good reason following a change in control is appropriate in light of the importance of the efforts of the Chief Executive Officer to the completion of such a transaction and the unique nature of the position of the Chief Executive Officer in needing to work closely with the Board of Directors following a change of control. We believe that providing such a provision more closely aligns the interests of Mr. Clawson with that of the other stockholders considering the importance of Mr. Clawson to the successful completion of the transaction and the uncertainty of the nature or conditions of his continued employment with the Company or its successor following the transaction.

 

The employment agreements and incentive compensation plans also contain provisions regarding the benefits to be received in the event of termination of employment upon disability, death, and other certain circumstances, which we believe are typical and customary.

 

Pursuant to the Named Executive Officers’ employment agreements, we will pay additional “gross up” amounts if any payments or benefits paid to our Named Executive Officers under their employment agreements or any other plan, arrangement or agreement with us are subject to the federal excise tax on excess parachute payments or any similar state or local tax, or if our Named Executive Officers incur any interest or penalties with respect thereto, such that following these payments the Named Executive Officers are put in the same position as if no excise taxes had been imposed.

 

Section 162(m) Policy

 

Section 162(m) of the Internal Revenue Code, as amended, generally provides that publicly held companies may not deduct compensation paid to certain executive officers to the extent such compensation exceeds $1 million per officer in any year. However, pursuant to regulations issued by the Treasury Department, certain limited exceptions to Section 162(m) apply with respect to “performance-based compensation.” Awards of stock options granted under our Long Term Incentive Plan constitute qualified performance-based compensation eligible for this exception. The Compensation Committee considers the applicability of Section 162(m) to our ongoing compensation arrangements, but believes it is appropriate to retain the flexibility to authorize payments of compensation that may not qualify for deductibility under Section 162(m) if, in the Compensation Committee’s judgment, it is in the Company’s best interest to do so. The 2007 STIP, grant of restricted stock units and one-time bonus paid in 2007 did not qualify for deductibility under Section 162(m).

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on that review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s proxy statement for its 2008 Annual Meeting of Stockholders.

 

 

Summary Compensation Table

 

The following table and accompanying notes and narrative discussion set forth and discuss all compensation awarded to, earned by or paid to each of our Chief Executive Officer, Chief Financial Officer and our other most highly compensated officers for fiscal years 2006 and 2007:

 

 

Explanatory Notes and Narrative Discussion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grants of Plan-Based Awards

 

The following table and accompanying notes and narrative discussion set forth and discuss awards during the fiscal year to our Named Executive Officers pursuant to the STIP and our Long Term Incentive Plan (“LTIP”):

 

 

Explanatory Notes and Narrative Discussion

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table and accompanying notes includes information on unexercised stock options and unvested restricted stock units held by our Named Executive Officers at the end of the fiscal year:

 

 

Explanatory Notes

 

 

 

Option Exercises and Stock Vested

 

None of our Named Executive Officers exercised stock options during the fiscal year. The following table and accompanying notes include information on restricted stock units held by our Named Executive Officers that vested during the fiscal year:

 

 

Explanatory Note

 

 

 

 

Pension Benefits

 

We no longer offer a defined benefit pension plan to any of our employees in the United States. Participation in the defined benefit pension plan was closed to new participants on December 31, 1994 and service credits were frozen on that date. Mr. Salvette is the only Named Executive Officer to participate in our defined benefit pension plan. Mr. Sandberg was a participant in the plan before his resignation in January 2008, but is no longer eligible for benefits under the plan. The plan provides a benefit at age 65 and after 30 years of credited service that would equal 30% of final average salary. However, retirement benefits were frozen at accrued levels in 1994. The valuation method and material assumptions applied in quantifying the present value of the current accrued benefits are described in our Annual Report on Form 10-K in Note 11 to our consolidated financial statements and assume retirement at age 65. The plan allows for an actuarially reduced benefit if retiring earlier than age 65, as well as retiring with less than 30 years of service. Mr. Salvette is not currently eligible to receive early retirement benefits

under the plan. The following table and accompanying notes set forth certain information with respect to the accumulated benefits of Mr. Salvette under our defined benefit pension plan:

 

 

 

Nonqualified Deferred Compensation

 

We provide our executive officers with a Supplemental Executive Retirement Plan (the “SERP”). The intent of the SERP is to replace the benefits that would have been available under our 401(k) Retirement Savings Plan (the “401(k) Plan”), but for the limits on contributions to tax-qualified plans under Section 402(g) of the Code. During fiscal 2007 the Company contributed an amount equal to four percent of cash compensation paid during the year (other than termination payments to Mr. Sandberg), including base salary, STIP awards, one-time bonus and OBP payments, less amounts contributed to the 401(k) Plan. In addition to Company contributions, the Company may permit participants to defer a portion of their eligible compensation in an amount determined by the Company on a year-by-year basis. No such amounts were deferred in 2007 and no Named Executive Officer made any contributions to the SERP.

 

The Named Executive Officers have the discretion to determine how the amounts in SERP are allocated among one or more investment options in a program determined by the Company. The Named Executive Officers may change their investment elections at any time. Amounts in the plan are fully vested after three years of service. The SERP is unfunded and participants’ claims would be those of general unsecured creditors in the event of the Company’s bankruptcy. Distributions from the SERP may be made in the event of the participants’ death, disability, termination of employment, attainment of age 60 or certain unforeseeable emergencies.

 

The following table and accompanying notes set forth certain information the SERP:

 

 

Explanatory Notes

 

 

Potential Payments Upon Termination or Change in Control

 

Background.  Potential benefits to be received by our Named Executive Officers upon termination or a change in control are set forth in each Named Executive Officer’s employment agreement and in the applicable plans and associated grant agreements under which they receive benefits. These plans include the 401(k) Plan, the SERP, the STIP, the OBP, the LTIP and, with respect to Mr. Salvette only, the Retirement Income Plan, our former defined benefit pension plan. Additional information regarding potential payments upon a termination or change in control is included in “Compensation Discussion and Analysis — Severance and Change in Control Arrangements” at page 29.

 

The following discussion quantifies and explains the benefits that would be payable to our Named Executive Officers in the following scenarios: (i) retirement; (ii) termination without cause or for good reason; (iii) termination as a result of death or disability; and (iv) upon a change in control. As SEC rules require these amounts to be determined as if the termination or change in control occurred on the last day of fiscal 2007, amounts payable are calculated using base salaries in effect on January 31, 2008, rather than the higher base salaries taking effect on February 1, 2008. Except as described below with respect to Mr. Clawson terminating his employment without good reason following a change in control, none of our Named Executive Officers is entitled to any benefits or payments other than accrued salary, unpaid vacation and benefits vested through the termination date if terminated by us for cause or by him without good reason. These benefits are payable in any termination scenario and are not separately described below. In certain of the termination scenarios described below, any unvested benefits under the 401(k) Plan and the SERP would become vested pursuant to the terms of the plans. However, all Named Executive Officers are already fully vested in their benefits under these plans by virtue of their length of service with the Company.

 

All cash payments upon termination or a change in control are payable in a lump sum, less applicable withholding taxes, other than salary continuation payments to Mr. Clawson following termination without cause, for good reason or upon a change in control, which are paid in accordance with the Company’s payroll policies. Each Named Executive Officer other than Mr. Clawson is required to sign a mutual release agreement in order to obtain the post-termination or change in control benefits described below. The employment agreements also contain post-termination covenants prohibiting the Named Executives Officers from competing with or soliciting the customers or employees of the Company for a period of time following termination. For additional information regarding payments to our Named Executive Officers upon termination or a change in control, see “Compensation Discussion and Analysis — Severance and Change in Control Arrangements” at page 29.